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Wednesday, October 31, 2007

Reddy steady, now wait for Fed


Rhythm is the basis of life, not steady forward progress.

The RBI rhythm if any was more or less as per expectations. After the phenomenal rally, profit booking coincided with the date of the CRR cut. The CRR hike is largely a pre-emptive move to check unbridled foreign capital inflows and check the rapid rise in the rupee. However, the latest tightening measures may not have much of an impact on fund flows and the rupee if the Fed cuts rates further, which is the most likely scenario as of now. Asian currencies will gain with the Fed rate cuts, and global investors will step up their investments in emerging markets like India. Also, the Indian economy will be less affected if there is any further weakness in the US housing sector and consequently in the global financial markets.

The Indian economy is on a firm footing and corporates earnings have been pretty good, barring an odd negative surprise. Downside risks are limited, though valuations may be expensive. Given the re-rating underway in the Indian market, its debatable whether conventional methods of stock valuation are still relevant or not. There may be a few bouts of selling, sometimes substantial, but on the whole there is no reason to be skeptical about the ongoing bull run.

Today, we will see some more cooling following the fall in the US and Asian markets. Bulls are most likely to regain composure soon. Volumes could dry down in the coming days. That could result in sharper upward or downward movement in select stocks.

L&T is set to bag Rs50bn (US$1.3bn) contract from the GVK-led Mumbai International Airport (MIAL), for construction of the airport buildings, new cargo complex, air-side redevelopment, and runway. The companies will jointly address a press conference in Mumbai tomorrow regarding the same.

Watch out for Gremach Infrastructure, as the company has tied up with BOMCO, a subsidiary of China National Petroleum Corp., for acquiring 40 onshore rigs and 4 offshore rigs in 3-4 years at about US$1bn. Idea Cellular and Cairn India are expected to do well as they will replace MTNL and HPCL in the Nifty from Dec. 10.

Pyramid Saimira could gain after the company said it will acquire 17 Screens in 4 locations in USA from FunAsia. Glenmark Pharma is likely to extend its good run after it announced a US$350mn licensing deal with Eli Lilly. Real estate stocks may do well on the back of strong results announced by DLF, Unitech and Parsvnath.

Sobha Developers is likely to be in the limelight as it has launched its first project in Pune. IT and oil companies may attract some attention after the RBI announced additional hedging options for these companies.

Prominent Results Today:

Aditya Birla Nuvo, AIA Engineering, Alok Industries, Amtek Auto, Amtek India, Ansal Infra, Ansal Housing, Aptech, Aurobindo Pharma, BOB, BPCL, Bharti Airtel, Birla Corp, Bombay Dyeing, Canara Bank, Central Bank, CESC, Cinemax, Deccan Aviation, DCB, Ess Dee Aluminium, Essar Oil, Essar Steel, Essar Steel, Eveready Ind, FT, Glenmark, Hindustan Unilever, Hindalco, HTMT Global, Indoco Remedies, IVR Prime, IVRCL, MTNL, Neyveli Lignite, Plethico, Power Grid, Punj Lloyd, P&G, Radico Khaitan, RCOM, Tata Motors, TV18, United Spirits, UB, Usha Martin, Videocon Industries, VSNL and Welspun India.

US stocks fell for the first time in three days on concern that the world's largest economy is weakening after Procter & Gamble's profit forecast trailed analysts' estimates, consumer confidence dropped to the lowest since 2005 and home prices declined.

Exxon Mobil, Chevron and ConocoPhillips dragged energy shares to their first loss in six days after oil retreated from a record. P&G tumbled the most since February. Citigroup led financial shares lower as the Federal Reserve began a two-day meeting to set interest rates.

The Standard & Poor's 500 Index lost 10 points, or 0.7%, to 1,531.02. The Dow Jones Industrial Average fell 78 points, or 0.6%, to 13,792.47. The Nasdaq Composite Index finished flat at 2,816.71. About five stocks declined for every three that rose on the New York Stock Exchange.

Fed policy makers meeting Tuesday and Wednesday are expected to cut the fed funds rate, a key short-term interest rate, by 25 basis points to 4.5%.

The Fed cut rates last month by 50bps in an attempt to ease up the credit market and stop the housing market collapse from sending the broader economy into a recession. It was the first rate cut in four years and at the time the bankers indicated that inflation fears had receded.

However, with oil prices near new record high and gold prices near 26-year peak, concerns remain about pricing pressure and the strength of the consumer spending. Investors will be looking for the statement accompanying Wednesday's Fed decision to address these issues, as well as other economic data, like third-quarter GDP growth report, the construction spending report and the Chicago PMI, a regional read on manufacturing.

US light crude oil for December delivery fell $3.15 to settle at $90.38 a barrel on the New York Mercantile Exchange after settling at a record $93.53 a barrel on Monday. Crude reached a record $93.80 during the session Monday.

COMEX gold for December delivery fell $4.80 to settle at $787.80 an ounce. Treasury prices were little changed, with the yield on the benchmark 10-year note at 4.38 percent, little changed from late Monday.

In currency trading, the dollar slipped a bit versus the euro after falling to another all-time low against the European currency on Monday. The dollar rose against the yen.

European stocks snapped a three-session winning streak. The pan-European Dow Jones Stoxx 600 index fell 0.4% to 384.94. Britain's FTSE 100 closed down 0.7% at 6,659.00, the German DAX 30 was down 0.4% at 7,977.94. In Paris, the CAC-40 lost 0.6% at 5,803.93.

Brazilian and Mexican stocks also fell. Brazil's Bovespa declined 1% to 64,383.13, following two consecutive sessions of closing at record highs. Mexico's IPC lost 1% to end at 31,783.62 and Chile's IPSA fell 0.3% to 3,478.02.

Asian stocks fell for a second day, led by BHP Billiton and Posco, after prices of crude oil and metals dropped. The Morgan Stanley Capital International Asia-Pacific Index lost 0.1% to 170.95 as of 9:51 a.m. in Tokyo, paring its gain this month to 4.7%.

The Nikkei 225 Stock Average was flat at 16,653. The Hang Seng in Hong Kong was down 186 points at 31,449. South Korea's Kospi index swung between gains and losses.

RBI is done, all eyes on Fed now

After hitting a new peak of 20,238 in the opening trades benchmark Sensex fell from on back of profit booking in the index heavyweights like RIL, SBI and HDFC. Markets then gradually lost ground led by the Banking and the Auto stocks after RBI hiked CRR by 50bps points. Finally the benchmark Sensex fell 194 points to close at 19,783 and Nifty close at 5,868 down 37 points.

Gayatri Projects slipped 1.2% to Rs291. The company engaged in the execution of major civil and construction works, has recorded a growth of 42.52% in net profit at Rs67.9mn during the quarter ended September 30, 2007 as against a net profit of Rs47.7mn in the same quarter previous year.

The net sales were up by 76.87% at Rs1.44bn during the quarter as compared to Rs817.3mn in the same quarter last year. The scrip has touched an intra-day high of Rs303 and a low of Rs294 and has recorded volumes of over 5,000 shares on NSE.

Gujarat Fluorochemicals slipped by 1% to Rs577. Reports stated that the company is diversifying into the power sector by investing over Rs60bn to produce 1,000 MW of wind energy within the next five years. The scrip touched an intra-day high of Rs595 and a low of Rs577 and recorded volumes of over 7,000 shares on NSE.

Maruti dropped 8.5% to Rs1087. According to reports the company has planned to invest US$1.8bn to achieve its target of producing 1mn cars by 2010-11. The scrip touched an intra-day high of Rs1203 and a low of Rs1080 and recorded volumes of over 20,00,000 shares on NSE.

Reliance Industries lost 2.2% to Rs2765. Reports stated that they have signed a production-sharing contract for two exploration blocks in Kurdistan region of northern Iraq. The scrip touched an intra-day high of Rs2854 and a low of Rs2740 and recorded volumes of over 39,00,000 shares on NSE.

Bajaj Auto was down 1% to Rs2483. The company announced that they are raising production of its 125cc motorbike to 75,000 units per month from November 2007. The scrip touched an intra-day high of Rs2565 and a low of Rs2462 and recorded volumes of over 93,000 shares on NSE.

L&T advanced by 1.2% to Rs43169 as reports stated that the company is likely to bag Rs50bn master contract for redevelopment of the Mumbai Airport. The scrip touched an intra-day high of Rs4450 and a low of Rs4226 and recorded volumes of over 17,00,000 shares on NSE.

Wipro marginally gained 0.2% to Rs510 after the company announced that it was broadening the segment focus of its technology vertical division to minimize exposure to telecom sector. The scrip touched an intra-day high of Rs516 and a low of Rs498 and recorded volumes of over 8,00,000 shares on NSE.

Banking stocks pared their early gains after RBI’s rate decision. SBI slipped 3% to Rs2055, HDFC Bank was down 1.6% to Rs1620 and PNB dropped 5% to Rs510.

Stocks in News:

HDFC sells 26% equity, 32.5mn shares, in its general insurance business to German insurer Ergo.

Singapore based SembCorp Marine and Standard Chartered Asia Private Equity have picked up 2.5% each in Pipavav Shipyard.

Jet Airways is all set to connect Bangalore and Hyderabad to US.

Jet Airways targets US$3bn revenues in three years.

Renault eyes truck alliance with Eicher Motors.

Infosys is expected to close 15 big deals worth US$100mn or more in the next 10 months.

Reliance Retail plans to hive off its various retail verticals into 40
separate entities.

Praj Industries commissions bio-ethanol plant in UK.

Ashok Leyland aims for 40% of Indian commercial vehicle market in 3-5 years; more than doubling capacity to 184,000 units pa by 2010.

GTL Infrastructure issues US$300mn FCCBs and plans to roll out 25,000 towers across India.

Bajaj Electricals to tie-up with Italian company to launch hobs, gas appliances and chimneys in India.

Wheels India will scale up capacity to 10mn by April with an investment of Rs1bn.

Cisco and Satyam announce JV with focus on healthcare.

Air Deccan has applied for global routes.

ABG Shipyard to make diesel engines for ships.

Lanco group plans US$100mn for power business expansion.

Fund Activity:

FIIs were net sellers of Rs3.89bn (provisional) in the cash segment on Tuesday and the local institutions too offloaded shares worth Rs1.77bn.

In the F&O segment, foreign funds were net sellers at Rs32.76bn.

On Monday, FIIs pumped in Rs10.47bn in the cash segment. Mutual Funds too were net buyers of Rs4.19bn.

Major Bulk Deals:
HDFC MF has sold Heritage Foods; Citigroup has bought Jaihind Projects; Prudential ICICI MF has sold Jain Irrigation.

Upper Circuit:
Deep Industries, MFR, Gremac Infrastructure, Prakash Industries, Marathin Nextgen, Empire Industries, Bajaj Electricals, Ferro Alloys, Prime Focus, ABG Heavy, Sulzer India and BF Utilities.

Lower Circuit:
HFCL, Jai Corp and IT People.