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Friday, March 09, 2007

STRATEGY INPUTS FOR THE DAY


Strength needs support

"We deceive ourselves when we fancy that only weakness needs support. Strength needs it far more."

Just like the sudden and swift crash, most marketmen surely must have been taken aback by the sharp turn around yesterday. But, the bulls aren't complaining, especially after being slaughtered for the past few weeks. One must remain alert though as there could be a fresh fall any time. Volumes didn’t appear very convincing but that has been the trend when the direction changes. Morgan Stanley, in its latest report warns that the Sensex could touch 11,485 this year. It also sees ROE of Indian companies to be under pressure due to rising costs and capex.

Significant risks remain, especially in relation to inflation and interest rates in the domestic markets. The Government's efforts to cool down prices through a mix of monetary and fiscal measures is also likely to exert some pressure on the market. Globally, the US economy continues to be among the biggest worries, so is the proposed softening of growth in China. Currency fluctuations and its impact on fund flows to emerging markets is another cause for concern.

Much of yesterday's rebound was due to the strength in global markets, particularly in Asia. Things are a little bit different today. While stocks in US were up, Asian markets are mixed with only the Nikkei holding up thanks to a weaker yen.

We expect a cautious to higher opening and high intra-day gyrations. One must trade with caution as there is a likelihood of selling pressure at higher levels. The week may pass off with gains but you need to take a call whether you want to carry forward your position over the weekend.

Watch out for four new listings today. Idea Cellular may well ring in some gains. Mudra Lifestyle is likely to give exit opportunities at open while Euro Ceramics and Vijayeshwari Textiles could see some pressure after listing.

FIIs were net buyers of just Rs601.8mn (provisional) yesterday. However, in the F&O segment they poured in Rs11.97bn. On Wednesday, foreign funds were net buyers to the tune of Rs841mn in the cash segment. Mutual Funds offloaded stocks worth Rs3.8bn on the same day.

US stocks ended higher on Thursday but closed off their highs of the day owing to nagging worries about the health of the financial sector and some jitters ahead of Friday's monthly jobs report.

The Standard & Poor's 500 Index and the Nasdaq Composite Index rose to one-week highs after falling yesterday, while the Dow Jones Industrial Average climbed to its highest this month.

The S&P 500 added 9.92, or 0.7%, to 1401.89. All 10 of its main industry groups rose. The Nasdaq increased 13.09, or 0.6%, to 2387.73. The Dow average advanced 68.25, or 0.6%, to 12,260.70.

Friday's focus will be the February employment report, due before the start of trade. US companies are expected to have added 100,000 jobs to their payrolls, after having added 111,000 in January, according to economists. The unemployment rate is expected to hold steady at 4.6%.

In currency trading, the dollar rallied versus the yen and the euro. The European currency was weaker after the European Central Bank raised interest rates by 25 basis points to 3.75%. The Bank of England held rates steady at 5.25%.

Treasury prices slipped, raising the yield on the 10-year note to 4.51% from 4.48% late on Wednesday. COMEX gold for April delivery added $2.60 to settle at $655.50 an ounce.

US light crude oil for April delivery fell 18 cents to settle at $61.64 a barrel on the New York Mercantile Exchange. The front-month contract was trading 6 cents lower at $61.58 a barrel in extended trading in Asia.

Barring Patni all Indian ADRs did well. VSNL surged by nearly 4.9%, Infy rose 2.9%, Wipro advanced 3.8%, Satyam gained 2.8%, Tata Motors climbed 3.7%, Dr. Reddy's was up 2.5%, HDFC Bank shot up by 5%, ICICI Bank put on 3.8%, MTNL jumped 5.1%, WNS gained 0.2%, EXL Service was up close to 1%, Rediff advanced 1.4% and Sify soared by 3.6%.

European stocks advanced. The pan-European Dow Jones Stoxx 600 improved 1.1% to 366.04. The German DAX Xetra 30 closed up 1.4% at 6,713.23, the French CAC 40 rose 1.3% to 5,524.26 and the UK's FTSE 100 advanced 1.2% to 6,227.70.

Mexican and Brazilian stocks finished higher as well. In Mexico, the benchmark IPC index of 35 most-traded issues surged or 589, or 2.3%, to 26, 773.78. It was the IPC's highest close since the 5.8% plunge 10 days ago .

Brazilian shares rose after the central bank cut its base interest rate late on Wednesday. The Selic rate now stands at 12.75%, down from 13%. The broader market, as measured by the benchmark Bovespa stocks index, closed up 799 points, or 1.9%, at 43,465.83.

Asian stocks rose this morning, headed for a weekly gain. The Morgan Stanley Capital International Asia-Pacific Index added 0.5% to 143.14 at 12:06 p.m. in Tokyo. Japan's Nikkei 225 Stock Average rose 0.3%, while the broader Topix index climbed 0.4%.

Markets open for trading elsewhere in the region advanced, except in Hong Kong, China and South Korea. Gauges in Taiwan and Indonesia were little changed.