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Thursday, September 06, 2007

US jitters may hurt on opening


Fidelity to commitment in the face of doubts and fears is a very spiritual thing.

If the bulls were not willing to commit themselves on the front foot yesterday they could have a slightly tough time tackling the bears early in the morning following the sharp fall in US shares overnight. However, after a lower opening, things could recover as key Asian markets in Japan and Hong Kong have staged a smart come back after slipping in opening trades. Still, one should be careful as globally, concerns remain about the gravity of the downturn in the US housing market, and its impact on the global economy. In fact, the OECD, the body representing the rich nations, has already cut its forecast for world economic growth.

The Federal Reserve thinks otherwise though. Its latest assessment of the US economy found the effects of the August credit-market rout on the broader economy to be limited beyond the housing industry. The big event to watch out for is the Fed meeting on September 18, where the American central bank is expected to cut its key interest rate. The market is betting on a few more cuts further down the line. Even if the Bernanke & Co. does indeed relent and lowers borrowing costs, there are worries if that will be enough to avoid a recession in the US.

Coming to the local market, we expect a negative opening, but thereafter the key indices could return into the green zone as the outlook for the Indian economy and corporate earnings growth is strong. A big, sharp fall may not take place, but the upside too may be capped for the moment. Some more consolidation is in the offing before the bulls resume their shopping spree.

Watch out for LMW, which will start trading in F&O series from Thursday. Reliance Capital and BNP Paribas has acquired 2.2 lakh and 1.2 lakh shares, respectively at Rs2925. Other F&O entrants, to watch out for are Tech Mahindra, Sasken, Tulip IT, Biocon and 3i Infotech.

Shares of Vedanta Resources, the London-listed holding company of Sterlite Industries and Hindustan Zinc, closed up 3.1%. They reached an all-time high of 1,898 pence earlier in the session after Merrill Lynch added the firm to its Europe 1 list of conviction investments. The Wall Street firm also raised its price target to 2,450 pence from 2,000 pence.

US stocks tumbled on Wednesday, after reports showed slumping pending home sales and sluggish private sector employment. Also, the release of the Federal Reserve's 'beige book' added to confusion about whether the central bank will cut short-term interest rates in the near future.

Signs of more problems for the credit and mortgage markets also weighed on the sentiment.

Lehman Brothers and Morgan Stanley pushed financial shares to their biggest drop in six days on concern that their profits will decline because of losses tied to subprime mortgages. Every homebuilder in S &P indexes retreated. Apple shares slipped after the iPod maker cut prices of iPhones.

The S&P 500 Index lost 17.13 points, or 1.2%, to 1,472.29. The Dow Jones Industrial Average decreased 143.39 points, or 1.1%, to 13,305.47. The Nasdaq Composite Index fell 24.29 points, or 0.9%, to 2,605.95.

The pending home sales index, a measure of contracts to buy existing homes, fell to its lowest level since the month that included the Sept. 11, 2001 terrorist attacks, a trade group reported.

The ADP employment report showed surprisingly weak growth in private sector jobs in August. The report could be a negative indication for the broader August employment report, expected on Friday.

Treasury prices rose in a classic 'flight-to-quality' move, lowering the yield on the 10-year note to 4.46% from 4.54% late on Tuesday. In currency trading, the dollar fell versus the euro and the yen. COMEX gold for December delivery fell 80 cents to settle at $690.70 an ounce.

US light crude oil for October delivery rose 65 cents to settle at $75.73 a barrel on the New York Mercantile Exchange. The front-month contract was trading 20 cents higher at $75.93 a barrel in extended trading in Asia.

European stocks declined for the first time in a week after the London interbank offered rate (LIBOR) climbed to its highest since January 2001. The Bank of England responded by offering extra cash to financial institutions and the European Central Bank said it's prepared to do the same.

Banks and auto shares ranked among the biggest decliners in Europe. The pan-European Dow Jones Stoxx 600 index lost 1.8% to 372.66. The French CAC-40 closed down 2.1% at 5,551.55, the German DAX 30 slipped 2.1% to 7,588.03 and the UK's FTSE 100 declined 1.7% to 6,270.70.

Latin American equity markets dropped. Brazil's Bovespa fell 1.5% to 54,407.83 from Tuesday's close at 55,250.47 and Mexico's IPC index ended down 0.4% at 30,809.55. Chile's IPSA fell 1.2% with declines across the board, though the country's central bank raised its view for gross GDP growth to a range of 5.75% to 6.25%. Argentina's Merval index pared losses to close down 0.4% at 2,061.01.

In other emerging markets, the RTS index in Russia ended flat at 1905 while the ISE National-30 index in Turkey was down 1.3% at 62,115.

Asian markets were trading marginally lower this morning. The Nikkei in Japan was down 72 points to 16,085 while the Hang Seng in Hong Kong fell 100 points to 23,965. The Straits Times in Singapore was flat at 3444 and the Kospi in Seoul added 4 points to 1870.

Seven day winning streak finally came to an end as bulls faced stiff resistance at higher levels. Traders preferred to book some profits as index heavyweights like Bharti Airtel, RIL and L&T were the major laggards among the Sensex stocks. Finally, the BSE 30-share Sensex closed at 15,446 losing 20 points. NSE Nifty slipped 4 points to close at 4475.

ONGC marginally slipped by 0.4% to Rs831. The state-run explorer's subsidiary ONGC Videsh Ltd. is seeking to establish Sokol crude oil from Russia's Sakhalin Island as an Asian benchmark. The scrip touched an intra-day high of Rs846 and a low of Rs825 and recorded volumes of over 7,00,000 shares on NSE.

Reliance Industries edged lower by 0.5% to Rs1964. The company bought fuel retailer Gulf Africa Petroleum Corp. to enter the African market. The scrip touched an intra-day high of Rs1994 and a low of Rs1951 and recorded volumes of over 24,00,000 shares on NSE.

Bombay Burmah was frozen at 5% upper circuit to Rs488.50 following reports that the company may use its cash reserves to buy Groupe Danone SA's stake in joint venture Associated Biscuits International Holdings. The scrip touched an intra-day high of Rs488.50 and a low of Rs467.50 and recorded volumes of over 11,000 shares on NSE.

Shreyas Shipping rallied by over 17% to Rs106 after the company acquires 51% stake in Haytrans. The scrip touched an intra-day high of Rs106 and a low of Rs90 and recorded volumes of over 2,00,000 shares on NSE.

Akruti Nirman advanced by 4.5% to Rs567 as the company is reportedly planning to bid for the Dharavi project with a Dubai firm. The scrip touched an intra-day high of Rs574 and a low of Rs545 and recorded volumes of over 2,00,000 shares on NSE.

Ambuja Cement gained by 2% to Rs139 after the company’s August sales rose 3.6% to 1.15mn tons and production at 1.13mn tons (up 4.6%). The scrip touched an intra-day high of Rs139 and a low of Rs136 and recorded volumes of over 37,00,000 shares on NSE.

IT stocks ended higher led by gains in the index heavyweights like Infosys, the scrip gained by 0.5% to Rs1895, Wipro was up by 1% to Rs471, TCS was up by 0.6% to Rs1072 and Mphasis added 3.5% to Rs310.

FMCG stocks were a mixed bag. ITC was down by 0.5% to Rs172, Tata Tea slipped 0.5% to Rs758, Britannia declined by 1.5% to Rs1584. However, McDowell was surged by over 4.5% to Rs1496 and Colgate added 1.5% to Rs399.

Telecom stocks ended lower led by fall in heavyweight Bharti Airtel, the scrip was down by 1.1% to Rs848, R Com was down by 0.6% to Rs539 and VSNL declined by 2.9% to Rs402.

Capital Good stocks also were on the receiving end led by fall in the index heavyweight BHEL was down 1% to Rs1898, L&T declined 1.3% to Rs2589, BEL slipped by 1.4% to Rs1746 and Crompton Greaves lost 2% to Rs306.

Realty stocks recorded smart gains in a volatile market. DLF advanced by 2.5% to Rs639, Akruti surged by 4.7% to Rs570, Ansal Infrastructure added 0.5% to Rs259.

Fund Activity:

FIIs were net buyers of Rs3.37bn (provisional) in the cash segment on Wednesday and the local institutions were net sellers at Rs414mn. In the F&O segment, foreign funds were net buyers of Rs4.07bn.

On Tuesday, FIIs were net buyers to the tune of Rs6.3bn in the cash segment. Mutual Funds were net buyers of Rs988mn on the same day.

Major Bulk Deals:

Bear Stearns has sold Aptech; Reliance Capital has purchased iGate Global while Macquarie Bank and HSBC Financial have sold the stock; BNP Paribas and Reliance Capital have picked up LMW but HSBC Financial has sold it; UBS Securities has bought Mascon Global.

Lower Circuit:

BF Utilities, Yashraj Securities

Upper Circuit:

Shree Precoated, Tripex Overseas, Morepen Labs, Saregama Industries, Raj Tele, Zuari Industries, Omnitech, Bombay Burmah, Bank of Rajasthan, Crew BOS, Diamond Cables, Assam Company, IID Forgings.

Delivery Delight (Rising Price & Rising Delivery):

Cummins India, GNFC, ICICI Bank, IDBI and IVRCL Infrastructure.

Abnormal Delivery:

Satyam, Century Textiles, Grasim, Federal Bank and Siemens.

Major News & Announcements:

Govt approves Rs22.8bn of Foreign Investment proposals

L&T consortium bags Rs1.2bn order from Bhushan Steels

Gayatri Projects secures Rs3.11bn order in Orissa

Ambuja Cement August sales 1.15mn tons (up 3.6%)

NIIT signs agreement with China’s Chongqing Information

Dr Reddys enters the dermatology topical anti-fungal market with launch of Ebernet