State Bank Of India

Investment Price – 2700

Target -  3500

Stoploss -  2450

With being the largest public sector bank and having the widest branch network, SBI stands to gain from growing wealth of Indian middle -class, Its CASA ratio (Current Account and Savings Account) stood at 47.8% which is one of the best in Industry and better then any private bank in the country. On the back of growth in CASA deposits, shedding of bulk deposits and higher yield on advances will result in improvement on NIM (net interest margin). Due to strong CASA with market share gains and high fee income, SBI’s core RoEs (return on equity) have improved over the past few years and is better then other public sector banks.

The worrying factors are mainly increase in Gross and net NPAs ( Non performing assets) with higher bad debt provisions along with provisions for pension liabilities would pressurize earnings in the near term and the hike in deposit rates without a corresponding increase in lending rate would further dampen earnings but these factors are only going to affect earnings growth in short term and looking at the current price, it seems that has been discounted by the market.

SBI’s Rs 20000 crore rights issue will hit the market next year. The government holds a 59.4% stake in SBI at present and to meet the expansion program and the business development and also the forthcoming Basel III requirements which IFRS will have, there is need of capital raising for SBI to continue its growth story. And with rights issue round the corner the price of SBI should go up as institutional demand will increase.

My Technical analysis in SBI suggest that it is a good Buy candidate right now as it looks correction is over and it has reached the price from where it should bounce back. although it is trading below the important moving averages and looking a bit weak in short term but long term charts are suggesting that till it hold above the 2480 mark, it will continue to perform with the market.

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Regards

The Federal Reserve on Wednesday launched a fresh effort to support a struggling U.S. economy, committing to buy $600 billion in government bonds despite concerns the program could do more harm than good.

“All in all, it means more dollars,The debt’s going to expand, It should lead to a weaker dollar.”

Global markets are about to enter one huge liquidity driven rally which will led the Indian markets to a new lifetime high.

Markets have been volatile in terms of relative movement. The movement we saw in September, makes us volatile. October was a month of volatility relatively easing whereas in November we could see the volatility picking up again, so it will not be smooth ride.

Technical levels to watch-out for, are 6180-6226, if this range is broken on the upside we may see a blast with short sellers running for cover and with positive sentiment due to money made in Coal India IPO, we may see a rush of liquidity coming from retail side also.

Before initiating fresh position have this thought in your mind, the key to successful trading is not, reading chart and using dozens of indicator, but the correct position sizing and following money management rules.

I absolutely admire what Ed Seykota has to say on Position Sizing. He says,

1. Bet high enough to make meaningful profits when you win.

2. Bet low enough so you are ok financially and psychologically when you lose.

3. If (1) and (2) don’t overlap, don’t trade.

Wishing everyone a happy and prosperous Diwali

Asian cues aren’t that great, almost all the major indices are trading in deep red. Japan’s Nikkie and Hang Seng  are trading with 2.5% cut, Shanghai composite is down 2%. US Markets ended in red on Friday on the back of worsening situation in Euro zone Debt  crisis .

Market uncertainty is ruling high and  breach of support level could see violent swings on the downside, Nifty will open close to 5000 today and 4990 will be the support tested if this gets broken then last hope for bulls is to save 4970 below which there will be bloodbath in the markets. Nifty is expected to trade in the red for most of the time and close below 4990 will further increase the weakness.

Our trade recommendation are on a roll as call given on 13 May is in deep profits now and i feel it might be prudent to convert that profit in cash.

Trading Strategy : Square off the nifty Futures Shirt position taken on 13 may at the level of 5010. I would like to see how will Nifty react at its 100EMA before taking any fresh position.

Once below 4970 we might be headed for 4830 that will be the level where cash based buying is recommended on Fundamentally strong counters like Reliance Industries, Axis Bank, IFCI, Bharti Airtel and UNITECH.

Yesterday Nifty closed above an important level of 5130, It looks like we gaining some strength on our way up, Nifty will now  attempt to go higher.

Asia is giving good signals this morning as Nikkei225 is trading with gains of 1.75%, Hang Seng and Shanghai Composite are up with green tick of 0.5% to 1%.

Singapore Nifty suggest we will open the trade in the green at around 5180, Nifty will have a good support coming in at 5140 and above the levels of 5210, bout of short covering rally may take place.

5310 on the Nifty will be the next hurdle, although technical are not suggesting a screaming buy on the Nifty Futures so we will wait for a clearer picture.

Trading Strategy: My yesterdays recommendation was not traded as 5180 never came during the trading session, yesterdays High was 5176.

My trading recommendation will be to

Short Nifty Futures at 5210 and buy same quantity of 5300 Call for hedging, targets for short position will be 5040 and 4960.