February 2011
For Private Circulation Only
the
EDITORIAL DESK - The Rising Inflation and The Falling Markets
It’s almost a trend now for the markets to start the new year
on an inauspicious note as is evident from the decline of Nifty
by an average of ‘9%’ in the month of January over the last 4
years (2008-2011). In this January 2011, negative market
return of ‘10%’ has been more alarming than in the earlier
cases considering the fact that the Indian markets have been
all alone this time in their way down and most of the other
global indices could see decent returns. This is a cause of
worry for the investors in Indian markets but the more worry-
ing part are the changes in the macro-economic factors that
have led to this below par performance of the Indian stock
markets. High Inflation happens to be one such very impor-
tant macro economic challenge that our economy is
confronting presently and has been a serious cause of worry
for the investors.
Needless to say that high inflation indicates the high rise in
the prices of goods and services as compared to a year earlier
and reduces the real value of money in the economy. The high
interest rate environment that the rise in inflation will lead to,
can hamper the pace of real GDP growth of an economy. The
point to be understood before worrying about rising inflation
is that, positive inflation is almost ‘inevitable’ for a fast grow-
ing economy. For a developing economy like India which has
been expanding at a relatively faster rate, inflation is bound to
rise and at a faster rate. So, the aim of RBI (RBI has control over
the necessary instruments that can contain inflation) is to
achieve a trade-off between inflation and GDP growth and
maintain inflation at a comfortable level.
RBI in its latest quarterly monetary policy review in January
2011, has increased the projection of inflation from its earlier
estimate of 5.5% to 7%. This upward revision is the real cause
of worry as it increases the probability of a rise in interest
rates going forward which would in turn deter aggregate
demand in the economy. If we further decode the current rise
in inflation, it can be understood that the sharp rise in the
prices of vegetables, mineral oils and minerals has led to the
recent surge in inflation and pushed it to 8.4% in December,
2010. The prices of vegetables has more to do with supply
Editorial Team
T.R. Vigneshwaraj
N. Aditya kiran A. Jaya Kumar
R. Karthikeyan M. Arul murugan
NAV I GAT O R an answer to market puzzle
From the Research Desk
constraints like poor harvesting season, supply chain ineffi-
ciencies etc and RBI has little control over this part of the
inflation. RBI’s actions in terms of monetary tightening can
have an impact only on prices of such ‘items’, where higher
interest rates can deter demand (eg., metals) and where such
fall in demand can cause a decline in prices.
Due to the limited impact of its actions, any moderation in
inflation thus caused by RBI will be temporary in nature. Only
structural changes in the supply process by improving supply
chain efficiencies, increasing productivity and increased efforts
towards securing resources can address the supply-side
pressures on inflation. This can be the only reliable way to
contain supply side pressures on inflation over the long-term
without hampering the real growth of the economy.
The government’s ability to tackle rising inflation and the
inflationary expectations going forward remains the key
factor to both sustained high economic growth and invest-
ments into the stock markets. So, over the coming quarters
the outlook on domestic inflation and domestic interest rate
environment would determine the direction of the markets.
ZENSAR TECH & HCL TECH
-Pages 2, 3 & 4
NIFTY & DOW JONES
-Page 5
ACC & CURRENCY
-Page 6
COMMODITY CENTRE
-Page 7
CLASSROOM
-Page 8
E-mail: research@naviamarkets.com
www.naviamarkets.com
 ZENSAR TECHNOLOGIES LTD
FROM THE FUNDAMENTAL DESK
Q3 FY2010-11 RESULT UPDATE
CMP: Rs. 169 Target: Rs. 237 Stock Information
Recommendation: Hold/Accumulate Duration: 8-10 months
Market Capitalization Rs.731.4 cr
Book value per share Rs.67.9
• Spread across 18 countries, Zensar Technologies Ltd provides end to Latest Equity Rs.43.28cr
end services from IT development to Business Process Outsourcing (BPO), 52 Week high/Low Rs.187.9/135.8
from consulting to implementation. Current Market Price Rs.169
• As anticipated in our initiation report, Zensar Tech has successfully com-
pleted one major acquisition by acquiring PSI Holdings Group Inc., and Stock Performance
three of its units, namely Akibia, Aqualla Technology Corp, and Akibia BV. 1M 6M 12M
This acquisition provides the company a strong advantage in the infra- Returns 3.6% -2.5% 14.6%
structure management space and can add up near to Rs.400cr to its top
line over FY2011-12. The integration process is underway and will get
completed by April 10th. Share Holding Pattern
• In the current quarter Q3 FY2010-11, the company has reported a 4.3% Foreign 31.04%
rise in net profit on a Y-o-Y basis and a 23% growth sequentially on the Institutions(domestic) 2.34%
Govt Holding 0%
back of strong operational performance and foreign exchange gains.
Non Promoter Corp 2.65%
• Revenues have increased 8.1% Y-o-Y to Rs.259 cr and have declined mar- Promoters 47.64%
ginally by 2% on a Q-o-Q basis due to forced holiday shutdowns for some Public & others 16.33 %
of its important clients and due to fewer working days in the quarter. Totals 100%

• Due to increased operating efficiency, the operating margins improved

to 19% from 18.2% in the same quarter, last year. Going forward, the oper-
Price Performance
ating as well as net profit margins are expected to decline slightly owing
to the relative lower profitability of the acquired firm. Net profit margins
are expected to be in the range of 10%-11% for FY2011-12.
• But the huge addition of inorganic revenues of Rs.400 cr due to the acquired
entity and an additional 10-15% organic growth would mean more than 45%
growth in its top line for FY2011-12. This significant rise in top line would more
than compensate for the fall in margins and would also result in a signifi-
cantly higher bottom line for FY2011-12 and for the coming years.

• With the end of tax holiday for STPI (Software Technology Parks of India)
by March 31, 2011, there can be a rise in tax rates for the company. But
again, going forward we expect the company’s strong growth in profits to
more than compensate for this extra tax burden.

Outlook & Valuation

Yearly Financials : (Projected)
At the current market price, the stock is trading at 5.5
(PE Ratio) times its FY2010-11E EPS and 4.2(PE Ratio) in Rs.crores FY2009-10 FY2010-11E FY2011-12E
times its FY2011-12E EPS. The incremental revenues Net Sales 952.8 1118.5 1658.4
from the acquired entity would boost up its top line as % Change in Net
Sales 5% 17% 48%
well as bottom line significantly going forward. The
Operating Profit 170.0 198.0 262.0
improving business environment in the US and other
% Change in
developed economies is another positive for the com- Operating Profit 35% 16% 32%
pany. Zensar Technologies Ltd with such robust Operating Margin % 17.8% 17.7% 15.8%
growth prospects and cheap valuations, looks attrac- Reported Profit After
tive enough and so, we remain bullish on the stock and Tax 127.3 132.1 173.7
advise investors to hold the stock or accumulate it at % Change in PAT 48% 4% 32%
the present levels for a target of Rs.237, in a 8-10 month EPS 27.1 30.5 40.1
duration. PE Ratio 5.54 4.21

THE NAVIGATOR PAGE 2

 HCL TECHNOLOGIES LTD – FUNDATECH CALL

Fundamental View Stock Information

• HCL Technologies Ltd is a leading global IT Services Company offering
integrated portfolio of services like software-led IT solutions, remote infrastruc- Market Capitalization Rs.33594.3 cr
ture management, engineering and R&D Services and BPO. It has an extensive Book value per share Rs.92.62
global offshore infrastructure and network of offices in 26 countries to provide Paid-up Equity Capital Rs.136.5cr
holistic, multi service delivery in key industry verticals including financial 5 2 Week high/Low Rs.517.5/318.3
Current Market Price Rs.490.8
services, manufacturing, consumer services, public services and health care.
• HCL over the past 5 years has outperformed the growth of the industry as its
revenues grew at a CAGR of 29% due to its up-gradation of service lines like Stock Performance
infrastructure services and engineering etc and through service innovation 1M 6M 12M
among others. Its acquisition of ‘Axxon’, which is one of the biggest acquisitions Returns 8% 25% 41%
in the Indian IT space has helped it boost up its revenues from the ‘Enterprise
Application Services’(SAP etc) segment and made it a leading player in that Share Holding Pattern
business line.
• The company is more diversified in its business model with no single service Foreign 23.27%
line (such as engineering, Enterprise Application Services etc) contributing Institutions(domestic) 5.77%
Govt Holding 0%
more than 30% of its consolidated top line.
Non Promoter Corp 3.02%
• Over the past few quarters post the recession, the company has been recording Promoters 64.81%
significant as well consistent rise in its top line owing to strong business growth Public & others 3.13%
across geographies as well as business lines. The company has recorded a cumula- Totals 100%
tive quarterly annual growth rate of 6.3% in its revenue over the past 4 quarters. Its
recent quarterly results for the quarter ending December 2010 have been better
than expected in terms of both top line and bottom line expansion. It has outper- Price Performance
formed its peers this quarter (Q2 FY2010-11) as revenue increased by 4.9% and net
income rose by 20.7% in rupee terms.
• But in this process of rise in revenues, there is a compromise on operating margins
which have seen a declining trend from 16.6% in quarter ending Dec, 2009 to 13.1%
in this Q2, FY2010-11. Considering such a fall in margins, the management now
turns the focus towards improving operating margins than growth and the
management’s strong guidance in this direction indicates that the company can
improve its bottom line significantly going forward with improved margins.

• The important lever that the management would use for this purpose is the
employee utilization levels (offshore excluding trainees) which presently stands at
75% and is lower compared to other tech majors. This relatively lower utilization
level provides enough headroom for the company to improve margins by working
towards higher utilization levels. The management also is targeting at a reduction
in selling, general and administrative expenses which would further boost its
margins.

Quarterly Performance
Outlook & Valuation
Quarter Quarter Quarter
With strong volume growth and expected Ending Ending YoY Ending QoQ
margin expansion in the coming quarters, in Rs.crores Dec 2010 Dec 2009 Growth Sep 2010 Growth
the company is expected to see robust Revenues 3888.4 3041.4 28% 3708.1 5%
earnings growth over the near future. The Total
stock is presently trading at 23.6(PE) times Expenses 3253.7 2401 3104.7
its trailing twelve month EPS. With strong EBITDA 634.7 640.4 -1% 603.4 5%
Operating
future outlook, the stock looks attractive at
Margin 16% 21% 16%
the present valuations to invest with a
Net Income 399.7 297.7 34% 331.1 21%
longer term perspective.
EPS 5.9 4.4 4.9

THE NAVIGATOR PAGE 3

 HCL TECHNOLOGIES LTD – FUNDATECH CALL

Technical View
• The stock underperformed the market since 2006. A sharp rupee appreciation against dollar became a roadblock till 2007
what with it consolidated between Rs.230 and Rs.360 while the overall market enjoyed a sharp northward rally. In the beginning
of 2008, the stock experienced a precipitous fall towards the trough of Rs.86 on March 2009 on back of global recession. But the
month of March 2009 became a turnaround for the stock as it found a sharp recovery to head back towards the high of Rs.360
in another one year time frame. Subsequently, it headed into consolidation phase by oscillating between Rs.330 and Rs.420.

• In the month of December 2010, the stock sketched a bull candle following hammer pattern. This took the stock to head
above the aforesaid consolidation phase. As well, it continued the bull rally in the subsequent month with volume. This corrobo-
rates the upward breakout which could keep the momentum favor for bulls in the upcoming sessions.

Levels to watch Outlook In the monthly chart, it is clearly witnessed

> 360 Bullish . Expect to test 650 and 750 that the stock surpassed the last four years
hurdle at Rs.360 decisively. Hope, this could
260 – 360 Sideways with positive bias
fuel the stock to march towards the sky-high
< 260 Turns to bearish. Adopt cautious stance
of Rs.650 and Rs.750 levels.

Trading Strategy
Based upon the above said factors, we believe that the stock would be a good bet for eight to ten months time frame. Investors
can approach this stock level by level on any dip for a target of Rs.650 and Rs.750 levels.

THE NAVIGATOR PAGE 4

FROM THE TECHNICAL DESK

S&P CNX NIFTY – Rise and dip

An incessant fall during the last month made the broader In addition to the above said factors, the index found a close
index to head below 5500 level. In line with market expecta- below the crucial trading band for the first time since October
tion, RBI hiked repo and reverse repo rates by 25 basis point 2008 in the weekly chart. As well, the index headed below the
each to 6.5% and 5.5% respectively as a measure to contain medium term upward trend line. This made the bulls to fret.
inflation. As well, it raised the baseline projection for the On the other hand, index melted down with lower volume
Wholesale Price Index (WPI) for March by 150bps to 7%. This during the last month became the positive news for bulls.
has dampened the sentiment in the last fortnight. Finally, the Hence, any stay above the nearby crucial support band of
index tested a monthly trough at 5416 before closing with a 5320-5400 level could lay a foundation for bounce back to
loss of nearly 10% at 5505. 5850 level again.
In the monthly chart, the index sketched a bearish engulfing Based upon the above said factors, the opportunity to hit new
pattern. This could place a hurdle on any rise by inviting bears high would get delay. We expect the index could trade in the
to step into the market in the nearby future. If the index rage of 5350-5850 level in the upcoming sessions. Going
continues to experience a bear candle in this month, it could forward, any stay below the floor level of 5350 could trigger
increase the significance of the above said pattern which the next leg of fall towards 4800 level.
formed in the upward rally.
Scenarios Action
Struggles around 5800 Initiate short for a target of 5500 with SL above 5900
Trading Consolidation around Initiate long for a target of 5750 with SL below 5300 Levels to Watch
5400 5800 5940
Strategy Heads below 5300 Initiate fresh short position for a target of 4800 level ⇑
5350 5140
with SL above 5450 level ⇓

Global Cue Dow Jones-Dip and rise

The US major index Dow Jones Industrial Average extended a placid up move during the last month. A prevailing unrest in
Egypt failed to deter the key US indices. Subsequently, it extended the gain for the second straight month of trading sessions
and settled the month with a gain of 2.7% at 11891.
The trend looks northward as it continued to stay above the short term upward trend line. As well, it sustains to head above
11750 level where 20-DMA hovers. This could keep the short term momentum intact.
On the other hand, a key indicators head into overbought zone
became a major concern at this juncture. This could place stiff
hurdle around the nearby resistance levels. Support and resistance
for the month ahead remains at 11750/11500/11300 and
12000/12200/12520 respectively.
Levels to Watch
⇑ 12000 12520

⇓ 11750 11300

THE NAVIGATOR PAGE 5

FROM THE TECHNICAL DESK

ACC-SELL
The stock traded in a wide range between Rs.960 and Rs.1100 since September 2010. In the daily chart, the stock sketched a
head and shoulder pattern. In the recent past the stock tested Rs.1052 on January 13, 2011 just to reverse back to Rs.960
where the neck line of the above said pattern hovers.
As well, in the monthly chart, the medium term
upward trend line hovers at Rs.960. If there is any
subsequent break and stay below Rs.960, the
stock could continue the fall which triggered form
the high of Rs.1315 on October 2007.

Levels to Watch
1050 1100
870 800

Strategy
Hence, we suggest investors who are all holding
the stock can sell the stock below Rs.960 and buy
back the same around Rs.800 level with stop loss
above Rs.1050.

USD/INR rallied by 2.66%. The pair is above 20,50 and

Currency
EURO/USD rallied 2.46% in Jan. The pair
is above 50 and 200 day moving aver
ages. Major resistances are at 1.3750/1.3980 levels. Key support is
at 1.3450. Weekly and Daily MACD are in Buy Zone. The pair will be
in bull trend as long as it trades above 1.3450 levels.
200 day moving averages. Daily and weekly MACD are
in buy zone. The recent Nov high of 46.10 will be an
important peak. Upside break of 46.15 could trigger
further upside for USD/INR and herald trend change in
monthly chart. Major supports are at 45.65 and later at
45 levels.

GBP/USD has formed a big range bar in Monthly Chart. The pair is Currency Map
trading above 50 day moving average. The pair held to 200 day %
Currency MONTHLY change
moving average support at 1.5350. Daily and weekly MACD are in
Pairs CLOSE
buy zones. Major supports are at 1.5750/1.5350 and major resis-
EURO/USD 1.3713 2.46
tance is at 1.63.
GBP/USD 1.6025 2.65
USD/JPY recovered from Dec fall by 1.19%. The pair had a choppy USD/JPY 82.10 1.19
movement between 81.10 and 83.65 levels. The pair is close to USD/INR 45.90 2.66
last important support level of 80.33. Daily MACD is in sell zone.
Supports are at 80.33/79.50 and later at 77.

USD/INR Monthly Chart

Suggested Portfolio
1) Buy USD/INR on dips to 45.62, stop and reverse at 45.44,
target 46.10 and if short is triggered, profit may be taken at 45.
Also, suggest long USD/INR at 45, stop 44.55, target 46.
2) BUY EUR/INR on dips to 61.50, stop 60.40, target 63.
3) BUY GBP/INR on dips to 71.70, stop 71, target 73.

THE NAVIGATOR PAGE 6

FROM THE TECHNICAL DESK

COMMODITY CENTRE
Based upon the above said factors, we believe that Silver could
trade in a wide range between Rs.41300 and Rs.44950 levels.
GOLD

Trading Strategy
Traders can adopt a strategy of short at high and long at low as
long as the price hovers in between the aforesaid range.
Gold, the bullion leader, lost its shine during the last month
on back of appreciation in dollar against major currencies. It
paused the three straight months of trading sessions’ gain
by settling the month with a loss of 4.1% at Rs.19863. CRUDE OIL
The short term trend turned to bearish as the 12-DMA
headed below the 20-DMA. As well, a key trend indicator
corroborates the above said negative outlook. A support
and resistance for the month ahead remains at
Rs.19800/Rs.19300 and Rs.20100/Rs.20350 respectively. If
there is any subsequent stay below Rs.19800, it could
dampen the sentiment further towards the trough of
Rs.19300 level.

On the other hand, it found a reversal from the crucial

support level of Rs.19800 towards closing of last month.
This could facilitate the gold price to bounce back towards
Rs.20100 level.
Trading Strategy
Traders can sell around Rs.20200 level for a target of
Rs.19800 again with stop loss above Rs.20350.
SILVER
Silver experienced a precipitous fall on back of negative senti-
ment prevailed in the major commodities. Though it registered
a monthly high of Rs.46774 in the beginning of the year 2011, it
failed to extend the gain later. Subsequently, it paused the five
straight months of trading sessions’ gain by settling the month
with a loss of 5.8% at Rs.43522..
The final session rally in the Silver from the trough of Rs.41386
which registered on January 25, 2011 could facilitate it to cap
the downside space. But the crucial momentum indicator
signals neutral. A support and resistance for the month ahead
remains at Rs.42700/Rs.41300/Rs.39900 and
Rs.44200/Rs.44950/Rs.45300 respectively.
In line with our expectation, Crude oil, the energy major,
extended the gain for the fifth straight month of trading
sessions. During most part of the trading sessions, it traded in
between the range of Rs.3970 and Rs.4170 levels. But a rise in
the recent past facilitated the crude price to head above the
ceiling of the aforesaid range. Finally, it settled the month with a
gain of 3.4% at Rs.4230.
During the last month, it sustained to head above the consolida-
tion phase. This could keep the momentum intact for the month
ahead. In the dollar terms, we would like to reiterate that the
price could test 100$ per barrel in the mid of the year 2011.
Traders with medium term perspective can utilize any dip above
Rs.3900 to initiate long position for a target of Rs.4480 and
Rs.4700.
Risk Factor
Any head below Rs.3900 could mitigate the positive outlook.
The Crude oil price could turn into consolidate mood by oscillat-
ing between Rs.3200 and Rs.3900 once it happens.

THE NAVIGATOR PAGE 7

FROM THE INFORMATION DESK CLASS ROOM

Basics of Candlestick charts

CLASSROOM In our last edition, we had discussed the basics of
Candlestick candlestick chart and its evolution. In the forthcom- Hammer Hanging Man
Basics ing issues, we will be studying some of the key
-Part 2 patterns in candlestick chart, which may guide you
to identify the trend reversal in advance.

Hammer and Hanging man

The pair hammer and hanging man are identical
with small bodies (black or white) and long lower
shadows. Only preceding price action and further
confirmation determine the bullish or bearish nature
of these candlesticks.
Formation
Interpretation
Hammer The hammer is formed after a decline and it
is a bullish reversal pattern. It consists of a small real body Hammer
Hammer, in addition to a potential trend reversal, can
either black or white, long lower shadows and short or mark bottoms or support levels. After a decline, hammer signals a bullish
non-existent upper shadow. As with most single and reversal. The low of long lower shadow implies that sellers drove prices
double candlestick formations, the hammer requires confir- lower during the session. However, the strong finish indicates that buyers
mation before action. regain their footing to end the session on a strong note. While this may
seem enough to act on, hammers require further bullish confirmation.
The low of the hammer shows that plenty of sellers remain. Further
Hanging man The hanging man is formed after a buying pressure, preferably on expanding volumes is needed before
bullish trend, as this is a bearish reversal pattern. It consists acting. Such confirmation could come from a gap up or long white
of a small body, long lower shadow and a short or non- candlestick.
existent upper shadow, almost same as in hammer. This
also needs further confirmation. Hanging man The hanging man is a bearish reversal pattern that
can also mark a top or resistance level. Forming after an advance, the
Hanging hanging man signals that selling pressure is starting to increase. The low
Man of long lower shadow confirms that sellers pushed the prices lower
during the session. Even though the bulls regained their footing and
drove prices higher by the finish, the appearance of selling pressure raises
the yellow flag. As with the hammer, the hanging man requires the
bearish confirmation before action. Such confirmation can come as a gap
down or long black candlestick on heavy volume.
We believe that the above said patterns may help you in taking a decision
either to buy or sell by tracking the above said patterns. Let us see more
Hammer interesting candlestick patterns in upcoming issues.

‘Ganga Griha’, 4th & 5th Floor, #9, (old no. 6), Nungambakkam High Road, Nungambakkam, Chennai -600034
SEBI Regn No: Cm Segment INB230770833 MEMBER NSE: Derivatives INF 230770833 Member code: NSE 07708
For more information PH: 044-39189428
Fax: 044-42144184; E-mail: clientservice@naviamarkets.com; www. naviamarkets.com
Disclaimer: This document has been prepared by Navia Markets and is meant for use by the recipient and not for circulation. This document is not be reported or copied or made
available to others. It should not be considered as an offer to sell, or a solicitation to buy and security. The information contained herein is from sources believed reliable. We do not
represent that it is accurate or complete and it should not be relied upon as such. We may from time to time have position in or option on, and buy and sell securities referred to
herein.