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Monday, February 26, 2007

STRATEGY INPUTS FOR THE DAY


Not again…a Manic Monday

If we increase freight rates, the goods will move through the roads and the condition of the roads will become worse – Railway Minister Lalu Prasad Yadav.

The condition of most roads are bad enough and so are the condition of the bulls. They have been at the receiving end and are likely to remain under pressure at least in the near term owing to rising inflation and hardening interest rates. All is not lost yet though. The FIIs can resurrect the market. But, it appears they are perhaps waiting for the budget to be out of the way before taking a fresh call on India. Having seen a fall before the budget, expectations are the market need not crack post the budget. Remember, despite the fall, valuations are not cheap as yet. Unless inflation comes down sharply and there is some stability in interest rates, the undertone may continue to be weak.

As for today, we expect a cautious opening on the back of Friday's plunge. Any further weakness at start could result in margin calls and have a cascading effect. Some stability will bring about bottom fishing as the main indices were down 5% each last week. Friday's provisional FII figure of Rs3.43bn in the cash segment could prove to be the savior for the bulls. Our advice is don’t get trapped in any relief rally.

Another positive could be Reliance Industries. The company is making a Rs15bn preferential issue to Mukesh Ambani to raise funds for future expansion. This will lead to a further hike in the promoters' stake in the company when the warrants are converted into equity shares. Also, coming at a time when the stock is close to its all-time high augers well for investors and for the market.

Banking shares may also rebound after the RBI said it will pay interest on CRR for the second half of 2006 and for the period starting Feb. 17. Dena Bank and Canara Bank will be among the stocks to keep an eye on following reports of a possible merger between the two state-owned banks. The banks and the Finance Ministry have denied any such move though.

Cement stocks could continue to underperform amid fears of some unfavourable announcements from the Government for the sector. Some incentives in the railway budget may perhaps bring temporary relief to the cement counters.

Ahluwalia Contracts is likely to fall amid reports that SEBI will probe into the sharp rise in the stock on listing last week.

FIIs have been net sellers in the last couple of sessions in the cash segment. With this, their tally for the month works out to around $877mn, which is actually not bad considering the crash in the market. Mutual Funds were net buyers of just Rs7.56mn on the same day.

Foreign funds offloaded stocks worth Rs13.47bn in the F&O segment on Friday.

3M India, NEPC Textiles and Visaka Industries will announce their results today.

Shares of C&C Construction will get listed today on the bourses.