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Thursday, July 12, 2007

Infy storm passes, relief likely for bulls


The only safe ship in a storm is leadership.

With IT leader Infosys cutting guidance, the critical question now is what is the way forward for the markets in general and IT stocks in particular. Infosys results show that the rupee appreciation is having a major impact on the software industry. Even the top rung companies like Infosys are not able to fend it off. Though things my improve a little in the ensuing quarters, one has to take a call on the sector from a 12-month horizon. In the short-term, the IT sector may continue to be a laggard.

Today, things are looking bright, on the back of the overnight rally on Wall Street and healthy trend across Asian markets. But, our market will be driven by the quarterly numbers as the result season has only just begun. We do not see a non-stop advance from here as the indices are near lifetime highs. There will be many pit stops before the bulls can reach another milestone (16k, 17k or even 18k on the Sensex).

Uncertainty continues for the broader market given the sharp spike from the February-March crash. Valuations are not cheap by any means, and that too for a market which has not delivered great returns year-to-date vis-a-vis other emerging markets. As a result, we expect the current choppiness to continue for a while as the upside from here looks capped.

The large caps appear to be richly valued and in some cases even overvalued. Only a select few will have legs to rise sharply from these levels. The action, therefore may be outside the main indexes. However, one has to be extremely careful while picking the small- and mid-caps.

US stocks logged modest gains on Wednesday, on the back of renewed M&A news despite the lack of any significant earnings or economic news. Positive assessment of the economy by Fed officials also helped boost the sentiment.

Nucor Corp. and Alcoa led the S&P 500 Index to its sixth gain in seven days after Chaparral Steel agreed to be bought for $4.22bn and the Times of London reported that Alcan may be the target of a bidding war.

The S&P 500 advanced 8.64 points, or 0.6%, to 1518.76. The Dow Jones Industrial Average added 76.17 points, or 0.6%, to 13,577.87. The Nasdaq Composite Index rose 12.63 points, or 0.5%, to 2651.79.

Biotech firm Genentech reported a quarterly surge in earnings and revenues, handily beating Wall Street estimates. But shares of the California-based company declined in after-hours trading after finishing up 1.4% in regular trading.

Shares of the fast food operator Yum Brands, the parent company of Pizza Hut and KFC, climbed over 2% after the company said its quarterly results topped expectations, while it raised its annual profit forecast.

Motorola shares slipped in extended trading after the mobile phone maker warned of a loss and lower revenue in the second quarter and that it did not expect its mobile device business to be profitable for 2007.

Oil prices finished lower after a weekly report on US fuel inventories showed a surprise decline in oil inventories. US light crude for August lost 25 cents to $72.56 a barrel. The front-month contract was quoting 7 cents up at $72.63 a barrel in extended trading.

In the bond market, Treasury prices fell, lifting the yield on the 10-year benchmark note to 5.09%, up from 5.02% late on Wednesday. The dollar fell to a record low against the euro for the second-straight session amid continued subprime worries. The greenback edged higher against the yen. COMEX gold for August fell $2.30 to $662.10 an ounce.

European markets fell as exporters were hurt by weakness in the dollar and financial-services stocks were dumped because of worries about a downbeat US housing market. The pan-European Dow Jones Stoxx 600 index lost 0.3% to 392.71. The German DAX 30 closed down 0.8% at 7,898.54, the French CAC-40 ahead 0.3% to 6,001.09 and the UK's FTSE 100 declined 0.2% to 6,615.10.

In the emerging markets, the Bovespa in Brazil rose 0.85% to 56,356 while the IPC index in Mexico advanced 0.55% to 31,916 and the RTS index in Russia added 0.9% to 1995.

Asian markets are up sharply this morning.

BHP Billiton led the rally among regional metal shares on higher commodity prices and speculation of further takeovers in the industry. Rio Tinto, the world's third-largest mining company, rose to a record after the Times of London said it was set to bid for Alcan.

South Korea's Posco paced a rally in steelmakers after US-based Chaparral Steel agreed to be bought for $4.22bn.

The Morgan Stanley Capital International Asia-Pacific Index climbed 0.3% to 157.59 at 10:44 a.m. in Tokyo, after falling yesterday by the most in two weeks. An index of materials shares including BHP posted the biggest advance among its 10 industry groups.

Japan's Nikkei 225 Stock Average added 0.4% to 18,127.90. The yen weakened against the dollar and euro. The Hang Seng in Hong Kong was up 274 points at 22,881. Australia's S&P/ASX 200 Index rose 0.3 percent. All markets open for trading advanced.

An index of six metals traded on the London Metal Exchange (LME) added 1.1% overnight. Copper advanced 0.4%, zinc gained 2.1% and nickel climbed 2%.

Volatile day ended in negative territory as key indices witnessed a sea-saw trading session. Benchmark Sensex gyrated over 150 points and NSE Nifty nearly by 70 points. The markets opened on a weak note as weak global cues and lower guidance from IT frontrunner Infosys dragged the key indices lower. Selling pressure in the IT, Auto, Select Banking and Capital Good stocks also further dragged the markets down. Realty stocks were the pick of the day as DLF, IB Real-estate and Unitech gained momentum. Finally, the 30-share Sensex lost 99 points to close at 14910. NSE-50 Nifty slipped 18 points to close at 4387.

Infosys dropped by over 4.5% to Rs1929. The IT heavyweight reported a consolidated net profit of Rs10.79bn for Q1 FY08 versus Rs11.44bn in the previous quarter. However, revenues were flat at Rs37.73bn compared to Rs37.72bn in the January-March quarter. The company cut its earning forecast as rupee has been continuously appreciating against the US Dollar hitting the company's earning's. The scrip touched intra-day high of Rs2000 and a low of Rs1925 and recorded volumes of over 47,00,000 shares on NSE.

HDFC edged lower by 0.6% to Rs1904. The company declared that they have sold 15.25mn shares to CMP Asia for 1730 per share. The scrip touched intra-day high of Rs1933 and a low of Rs1900 and recorded volumes of over 2,00,000 shares on NSE.

Sadbhav Engineering edged lower 0.4% to Rs590. The company announced that they have sold 1.6mn shares at Rs575 per share to large investors. The scrip touched intra-day high of Rs597 and a low of Rs589 and recorded volumes of over 13,000 shares on NSE.

Natco Pharma gained by 1% to Rs134 after the company purchased US Based Savemart Pharmacy. The scrip touched intra-day high of Rs143 and a low of Rs132 and recorded volumes of over 1,00,000 shares on NSE.

Realty stocks shined in a dull market led by gains in heavy weight DLF as the scrip was up over 3% to Rs590, IB Real-estate surged by over 7% to Rs501, Parsvnath was up by 2% to Rs383, Akruti Nirman advanced by 1% to Rs501 and Unitech added 3% to Rs542.

Cement stocks were also among the major gainers. Heavy weight ACC surged by over 3.5% to Rs1071, Mangalam Cement advanced 2.5% to Rs169, India Cement gained 1.1% to Rs219. However, Gujarat Ambuja was down by 1.55 to Rs127.

IT stocks were the top losers as the index was down nearly by 3%. The Indian rupee further strengthened against its currently trading at Rs40.38 per dollar. Satyam Computer lost 3.4% to Rs480, TCS declined 3% to Rs1148, Wipro declined 1.6% to Rs511 and Mphasis BFL slipped 2.6% to Rs306.

Banking stocks also were under pressure on back of profit booking. ICICI Bank slipped 1.1% to Rs953, PNB was down by 1.6% to Rs529, SBI declined by 0.6% to Rs1541 and Corp Bank lost 1.2% to Rs347.

Results Today:

Bajaj Auto, Geojit Financial, Jaybharat Textiles, Kilburn Engineering, KSL & Industries, Pyramid Saimira, Reliance Industrial Infrastructure, Technocraft and UTI Bank.

Fund Activity:

FIIs were net buyers of just Rs993.4mn (provisional) in the cash segment on Wednesday. On the other hand, local institutions were net sellers at Rs3.15bn. In the F&O segment, FIIs offloaded stocks worth Rs10.16bn on the same day.

On Tuesday, FIIs poured in Rs7.02bn in the cash segment. Mutual Funds were net sellers of Rs1.68bn.

Major bulk Deals:

Citigroup has bought Ahmednagar Forgings while Deutsche Securities has sold the stock; Bear Stearns has sold Global Vectra Helicorp; DSP Merrill Lynch has sold India Infoline; Citigroup has purchased JM Financial; Morgan Stanley has picked up Karuturi Networks; Citicorp Banking has sold Lupin; HSBC has bought Pritish Nandy Communications and Lotus Global has sold Shiva Cement.

Insider Trades:

Prithvi Information Solutions Limited: Mr. V Satish Kumar, Managing Director has purchased from open market 5000 equity shares of the company on 3rd July, 2007.

Financial Technologies (India) Limited: Funds under the management of FMR Corp and its direct and indirect subsidiaries and Fidelity International Limited and its direct and indirect subsidiaries has sold in open market 112763
equity shares of the company on 29th June, 2007.

Pyramid Saimira Theatre Limited: UBS Securities Asia Limited - A/C Swiss Finance Corporation (Mauritius) Ltd has sold in open market 280000 equity shares of the company on 6th July, 2007.

Divi's Laboratories Limited: OPPENHEIMER FUNDS INC. AC OPPENHEIMER Developing markets has purchased from open market 120,000 equity shares of the company on 9th July, 2007.

Lower Circuit:

Anant Raj Industries, Hindustan Dorr, Borosil.

Upper Circuit:

Tripex Overseas, Evinix, Goldstone Technology, Sunil Hitech, GVK Power, Tanla, GMR Industries, Shree Ashtavinyak, Radha Madhav, Ganesh Forgings, Bank of Rajasthan, Ramco Systems.

Delivery Delight :( Rising Price & Rising Delivery)

Ashok Leyland, Ballarpur Industries, Cummins India, Elder Pharma, Essar Oil, Grasim, HLL, Indian Hotels, JP Associates Jindal Stainless, Prism Cement and Sintex Industries.

Abnormal Delivery:

Tulip IT Services, Sakthi Sugars, Punj Lloyd, HT Media, Tata Elxsi, Avaya Global Connect, Corporation Bank and 3M India.

Major News & Announcements:

Reliance Communication places $400mn order with Alcatel-Lucent

NTPC Board approves Rs10bn investment in Aravali Venture

KEC International secures two projects worth Rs1.76bn

Accentia Technology plans $3 acquisition of BPO firm

Dabur India to absorb Dabur Foods

Infotech Enterprise sells 8.5% stake to GA Global investments

Sadbhav Engineering sells 1.6mn shares at Rs575 a share to large investors

HCL Tech wins 3-year contract from Konica Minolta

Natco Pharma buys US Based SaveMart Pharmacy

HDFC sells 15.25mn shares to CMP Asia for 1730 per share