Market Close: volatility prevailed ahead of F&O..

Market continued yesterdays euphoria. It opened with a gap up but could not sustain due to volatile trade ahead of FNO expiry which is due tomorrow. Taking positive global cues Indian indices started with a bang. However after some time indices gave up all earlier gains as investors preferred to take profits. As per market data rollover position of derivative for October 2007 series to the November 2007 series was 42% for Sensex, while the Nifty rollover was 47%. This was lower than previous month September 2007 market wide rollover of 84% for Sensex and for Nifty 71%. Higher the rollover indicates a bullish market. It?s difficult to comment on this but volatility expected to remain high till expiry.

Except IT, Cement and Auto most of the sectors ended in mix. Consumer Durable, Metals and Realty stocks cheered in volatile session. Small and mid caps outperformed the front line indices. SBI zoomed on news that cabinet may take up rights issue in two weeks. It may get bonds in lieu of Govt shares in the rights issue. Asian markets closed mixed, European markets too trading in mixed.

The government has given an in-principle approval for SBI to raise Rs 20,000 cr through a rights issue. The Cabinet may take up State Bank of India (SBI) rights issue in two weeks. SBI may get bonds in lieu of Government share in the rights issue. Government's stake in SBI will rise if investors forsake their rights. The government has been very particular about its fiscal deficit targets. This year the government has kept the fiscal deficit target at 3.3% of GDP. So it does not want to tinker with it in any sense. So one of the options the government is looking at is that it will issue securities to SBI in lieu of its stake in the rights offer which is not a capital expenditure and will be off balance sheet and this will keep fiscal deficit numbers under check. One view in the government is that since SBI share price is in the vicinity of Rs 2,000 odd, there maybe a chance that a lot of retail investors may not use to subscribe to the rights offer and in that case the government's shares in SBI is likely to rise. According to sources they see it rising to 61-62%. This in turn will help SBI later if they follow-on public offer. Stock rallied in volatile session ended up by 5%.

ACC results have come in and they were a disappointment. There was volume growth but the realisation growth was not enough. Ambuja cement numbers were ok but the common element between the two was the rising cost pressures. For ACC it showed up in the power and fuel costs where as Ambuja had a higher employee cost (Holcim effect). Ambuja will feel the pressure of higher coal prices going ahead too. The other common element was lower than expected increase in realisation. Between the two ACC is well placed with some capacities coming on stream quickly to take advantage of the good margins near term. Ambuja is prone to higher presence in the North where the capacities are coming in place. The common element is in terms of valuations is that both are not compelling. The fear is from capacity addition expected in 2009- 2010 and 2011which could incrementally bring the lull period. That?s the worry for most cement players and more that that the risk for investment here. Near term though the next 4 quarters are likely to be the best ever and in such a scenario the stocks are unlikely to see selloffs. The period post that is where "the arrangement" may come into play and surprise the players. All said and done there are fewer players. Holcim, Birla?s who control almost 50% and at least one of them has the experience to manage such "Arrangement" though it has been in other parts of the world.

Technically Speaking: It was a volatile session for the whole day before closing. Sensex touched intraday high of 18832 and low of 18317. Overall breadth was in favor of Advances, where the Advances stood at 1532, while Declines at 1175. The turnover was pretty good at Rs 7968 cr. Sensex has a support at 18300 and 17725.