Metal and auto stocks rally

The benchmark Sensex began the trading session with a negative gap of 53 points but staged a smart recovery on buying in select heavyweights and added 60 points to its previous close. The upmove was followed by a strong bout of selling that dragged the index to an intra-day low of 14158. The news that the Bank of Japan has raised the interest rates by 0.25% to 0.50% also affected the market sentiment and triggered a fall in the Sensex. The market recouped the lost ground in the afternoon and rallied sharply adding around 150 points from the day’s low. However, profit booking towards the close saw the Sensex shed 65 points and end the session at 14188. The Nifty declined by 11 points and closed at 4096.

The market breadth was weak. Of the 2,647 stocks traded on the BSE, 1,512 stocks declined, 1,080 stocks advanced and 55 stocks ended unchanged. Among the sectoral indices the BSE IT index shed 1.72% at 5439 while the BSE Teck index declined 0.91% at 3851. The BSE Metal index was the major gainer and was up 0.96% at 8950.

Select heavyweights declined sharply on substantial selling pressure. Ranbaxy tanked 3.29% at Rs383, Satyam Computers dropped 3.16% at Rs462, Infosys fell 2.25% at Rs2,313, HLL shed 2.08% at Rs196, BHEL lost 1.89% at Rs2,317, HDFC Bank declined 1.33% at Rs1,015 and Reliance Communications dipped 1.24% at Rs447. Grasim, TCS, ITC, L&T, Reliance Industries, ACC, Bajaj Auto and ONGC shed around 1% each. Among the select gainers Hero Honda advanced 3.27% at Rs740, Tata Steel added 2.49% at Rs455, Bharti Airtel gained 1.88% at Rs806, Hindalco was up 1.42% at Rs150 and HDFC gained 1.19% at Rs1,673.

Select metal, auto and auto ancillary stocks attracted considerable buying support. Shree Precoated Steels surged 3.54% at Rs462, Jindal Stainless gained 3.06% at Rs125 and Maharashtra Seamless added 1.24% at Rs511. Among the auto ancillary stocks Kirloskar Oil gained 2.22% at Rs262, Sunderam Fasteners added 3.27% at Rs74 and Exide Industries was up 2.82% at Rs47. Escorts, Mahindra & Mahindra and MICO were up around 1% each.

Over 33.09 lakh SAIL shares changed hands on the BSE followed by IDBI (23.43 lakh shares), HLL (22.98 lakh shares), IDFC (22.39 lakh shares) and Hindalco (21.76 lakh shares).

Value-wise Suzlon registered a turnover of Rs92 crore on the BSE followed by L&T (Rs77 crore), Reliance Communications (Rs64 crore), Reliance Industries (Rs60 crore) and Tata Steel (Rs50 crore).

Late sell-off pulls Sensex below 14,200

The BSE Sensex remained volatile throughout the day. Althought trading was devoid of wild swings, the benchmark Sensex frequently moved in and out of the red. After opening weak, the Sensex had recovered but finally succumbed to pressure at higher levels in the late afternoon. Volatility is expected to continue tomorrow (Thursday, 22 February) as well, when the February derivative contracts are scheduled to expire.

The 30-shares BSE Sensex lost 64.89 points, at 14,188.49. It recovered from the day's low (14,157.72), and went on to strike a high of 14,312.88 on back of short-covering.

The S&P CNX Nifty lost 10.75 points (0.26%), to settle at 4,096.2.

The total turnover on BSE amounted to Rs 4086.7 crore, compared to Rs 3886 crore on Tuesday.

The market-breadth, a measure of strength in the broader market, ended negative. Out of the 2,647 shares traded on BSE, 1,079 advanced, and 1,514 declined. Just 54 shares were unchanged. The market-breadth was strong in the opening session, but turned negative, as selling in small-cap and mid-cap stocks set in by early afternoon.

Among the 30-Sensex pack, 15 advanced while the rest declined.

Hero Honda was the top gainer, up 3.27% to Rs 739.5. It had struck a high of Rs 743, and a low of Rs 720.10. Auto stocks are rejoicing after the recent cut in fuel prices. Maruti Udyog (up 0.22% to Rs 896) and Tata Motors (up 0.37% to Rs 858.90) were the other gainers in the auto segment.

Housing finance firm HDFC gained 1.20% to Rs 1672.55, on reports that it may announce a hike in interest rates during this week.

Bharti Airtel (up 1.88% to Rs 806.30) and Gujarat Ambuja Cements (up 0.85% to Rs 131.15) were the other big gainers.

Metal producers Hindalco (up 1.38% to Rs 150.50) and Tata Steel (up 2.49% to Rs 455.20) gained on the back of firm metal prices globally.

FMCG major Hindustan Lever (HLL) was down 2.10% to Rs 195.50, on high volumes of 22.98 lakh shares. During trading hours on Tuesday, HLL reported 1.9% fall in net profit in the December 2006 quarter to Rs 511 crore from Rs 521 crore in the December 2005 quarter.

Index heavyweight Reliance Industries was down 0.59% to Rs 1406.15, extending Tuesday’s rise.

Ranbaxy Labs was the top loser, down 3.29%, to Rs 382.50. The Indian pharma behemoth had slipped to a low of Rs 381.90, while investors worried over possible equity dilution if Ranbaxy acquired Merck's generics drug business. The company, however, scotched reports that it was planning an issue of shares in the US, or any dilution of stake by founders to fund the acquisition.

Frontline IT stocks were under pressure. Infosys (down 2.25% to Rs 2312.90), TCS (down 0.87% to Rs 1285.95) and Satyam Computers (down 3.16% to Rs 462.20) suffered.

L&T lost 0.63% to Rs 1657.30. It plans to invest Rs 10 billion ($226 million) to build a shipyard for very large crude carriers, a newspaper reported on Wednesday.

Bosch Chassis Systems India (erstwhile Kalyani Brakes) jumped 6.20% to Rs 933.75, after its board recommended a 1:1 bonus issue. Bosch Chassis posted a net profit of 5.97 crore in Q4 December 2006 compared with Rs 11.53 crore in Q4 December 2005. Net sales in Q4 December 2006 rose to Rs 124.65 crore from Rs 112.36 crore in the year ago quarter.

Yokogawa India advanced 3.90% to Rs 466.20, after Yokogawa Electric Corporation, Japan (Acquirer), accepted the offer at the discovered price of Rs 478 per fully paid share and will pay for all the valid shares submitted to delist the company.

Gail India slumped 4.20% to Rs 282.75, on 10.88 lakh shares after it scheduled a meeting of the board of directors on 6 March 2007, to consider the proposal of a special interim dividend for the financial year 2006-07.

IFCI topped the volume chart for the eighth consecutive day since NSE allowed fresh positions in the derivative segment of the scrip last week. IFCI surged 5.02% to close at Rs 30.35 on garnering a huge volume of 3.14 crore shares, while Zee News surged 4.45% to close at Rs 41.05, on a big volume of 74.37 lakh shares for the same reason as IFCI.

Lupin surged 8% to Rs 634.65, after the company on Tuesday inked a pact with Laboratoires Servier, France, for the sale of certain patent applications and intellectual property rights for a blood-pressure drug. The agreement for the drug, perindopril, holds good for multiple countries.

Apollo Hospitals Enterprise gained 3.8% to Rs 498.30, following a report that the company is readying itself for a major acquisition in the United Kingdom.

SKF India gained 3.5% to Rs 311.30. After the company posted a net profit of Rs 31.73 crore for the quarter ended December 2006 compared to Rs 10.25 crore for the quarter ended December 2005. Total income increased from Rs 256.47 crore for the quarter ended December 2005 to Rs 381.66 crore for the quarter ended December 2006.

SKF India also posted a net profit of Rs 101.96 crore for the year ended December 2006 compared to Rs 64.07 crore for the year ended December 2005. Total income for the fiscal increased from Rs 816.01 crore (Rs 1350.83 crore).

Sintex Industries jumped 5.2% to Rs 224.20, after it won an order worth Rs 750 crore from the Gujarat Government.

Manugraph India surged 3.27% to Rs 202, after the company said on Tuesday that Reliance Mutual Fund had acquired a further 3.7% in the company, taking its stake to 5.96%. On 15 February 2007, Reliance Mutual Fund purchased shares of 11.25 lakh shares of Manugraph (3.7% stake) at Rs 185 through the open market purchases on BSE– of which 9.08 lakh shares were obtained from foreign fund Citigroup Global Markets.

Arcelor Mittal, the world's largest steelmaker, reported a 2006 core profit of $15.3 billion on Wednesday, slightly below market expectations. Analysts had estimated EBITDA (earnings before interest, tax, depreciation and amortisation) on average at $15.4 billion.

The steel giant had previously told investors it expected core earnings between $15.2 - 15.4 billion. It was the first time the newly formed group presented annual results after Mittal Steel's successful takeover of Luxembourg-based Arcelor in 2006.

The Hang Seng index was up 0.41%, while the Japanese Nikkei 225 index was down 0.14%.

The Bank of Japan (BoJ) raised its key short-term interest rate from 0.25% to 0.5% - the first hike since July 2006. The hike is in line with analysts' expectations. The move came after the country's economy was confirmed to have recorded stronger-than-expected growth during October-December 2006.

The nine-member BoJ Policy Board voted 8-1 in favour of a rate hike at the end of a two-day meeting. The bank had refrained from tightening credit for seven months after ending its zero-interest-rate policy.

Japan's gross domestic product grew an annualised 4.8% in the October-December period from the preceding three months in real terms, extending its rising streak to eight quarters. The pace of expansion was faster than the average market projection of an annualised 3.8%, and 0.8% marked in the July-September period.

US stocks rose on Tuesday, as investors scooped up recently battered tech shares amid a flurry of merger deals, including one between Sirius Satellite Radio and XM Satellite Radio, and as oil prices eased. The Dow Jones industrial average gained 19.07 points, or 0.15%, to a record 12,786.64. The Standard & Poor's 500 Index added 4.14 points, or 0.28%, to 1,459.68. The Nasdaq Composite Index climbed 16.73 points, or 0.67%, to 2,513.04. The Dow earlier touched 12,795.93, a new lifetime high for the average.

US crude prices fell for a third day, down 22 cents, to $58.63 a barrel, after a cold spell in the world's top consumer ended, with some forecasters expecting moderate March weather.

Meanwhile, companies are expected to breathe a bit easy as statutory taxation rates are likely to be reduced by 3% in the Union Budget, either through abolition of 10% surcharge, or reduction of corporate tax from the current level of 30%. Either corporate tax rate is likely to be reduced to 27%, or surcharge will be abolished to give 3% relief to companies, reports said.

The statutory rate of taxes on companies stands at about 33.66% with corporate tax of 30% and surcharge of 10% along with education cess of 2%. Corporates are demanding around 5% cut in taxes, which is not likely to be accepted entirely, sources said adding the cut may be limited to 3% only.

The government collected close to 50% more corporate tax, at Rs 97,315 crore during the first 10 months of this fiscal against Rs 65,094 crore during April-January period of the previous fiscal.

In the previous Union Budget, Finance Minister P Chidambaram had cut corporate tax rate to 30% from earlier 35%, but increased surcharge to 10% from 2.5%.

Meanwhile, gold was locked in sideways trade amid extreme volatility in the currency markets, COMEX gold slipped after hitting a high of $665 and was currently trading at $662, up $1 as markets concentrated on the upcoming US CPI data, which can spell a further sell off for the US dollar, assisting Gold. MCX gold also traded in a sideways manner following these moves. MCX April was confined to a range of Rs 9459 -9509 and shed 1.81% in open interest.

Local bullion markets weakened sharply today, as a result of the sharp all in last night's trading in New York. 0.999 gold lost Rs 130 to trade at Rs 9471 pr 10 grams in Mumbai, while silver also shed Rs 145, changing hands at Rs 20055 per kg in Delhi.

The currency markets showed an extraordinary fluctuation today following the Bank of Japan's (BOJ) decision to raise its benchmark interest rates, stirring the markets in Asian trading.

Data released last week showed that Japan's gross domestic product in the October to December quarter rose 1.2% from the previous quarter in price adjusted terms, or 4.8% on an annualized basis, the fastest rate of expansion in nearly three years.

Following this move, the US dollar weakened initially against the yen, but recovered substantially afterwards as traders still continued to bet on the carry trade advantage. However, the Euro remained on a firm footing against the US currency, trading above 1.3100 and keeping Gold supported at lower levels.

Tax exemption likely for savings up to Rs 1.50 lakh

With the government exploring various options to attract long-term funds for infrastructure, savings in certain categories up to Rs 1,30,000-1,50,000 a year may qualify for income tax exemption in the coming Budget against Rs 1,00,000 currently.

Over and above Rs 1,00,000, income tax exemption might be given for another Rs 30,000-50,000, especially for infrastructure, sources told PTI. Or alternatively, there might be consolidated savings limit of Rs 1,30,000-1,50,000 they said.

The finance ministry might also go for raising zero income tax slab to Rs 1,50,000 against the current level of Rs 1,00,000, they said.

The Ministry is looking at these three options and one of them may figure in the Budget, the sources said. However, the possibility of raising the income tax slab to Rs 1,50,000 is remote, they said.

In the Budget 2005-06, Finance Minister P Chidambaram raised the savings limit to Rs 1,00,000, which would qualify for income tax exemption under Section 80 C.

The Section provides for tax exemption for investments like insurance premia, contributions to provident fund or schemes for deferred annuities, purchase of infrastructure bonds, payment of tuition fees, repayment of principal amount of housing loans.

This fiscal's budget extended these benefits to fixed deposits of five years of maturity in banks. Banks are demanding that this benefit now be extended to three years of deposits as well.

Infrastructure development requires a whopping $320 billion in the next five years. The finance ministry is evaluating various options to attract funds for infrastructure.

Recently, US-based Citi Group and Blackstone have joined hands with infrastructure finance companies--IDFC and IFCL to raise long term funds for infrastructure.

So far as the slabs are concerned, currently, income up to Rs 1,00,000 does not attract any tax with Rs 1,00,000-1,50,000 drawing tax at the rate of 10 per cent.

Income from Rs 1,50,000 -2,50,000 attract 20 per cent income tax and 30 per cent above Rs 2,50,000. Besides, there is surcharge of 10 per cent on Rs 10 lakh taxable income.

For women, income up to Rs 1,35,000 does not attract income tax and Rs 1,35,000-1,50,000 draws 10 per cent tax rate. Above this level, the tax rates are same as that for men.

Senior citizens get tax exemption up to Rs 1,85,000 and do not have 10 per cent tax slab. There is also likelihood that the Budget 2007-08 would lower the age for senior citizens from 65 years to 60 years, the sources added

Sharekhan Commodities Buzz dated February 21, 2007

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Sharekhan Highnoon dated February 21, 2007

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Investsmart - Oil Prices Cut Impact

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Investsmart - Hero Honda Motors Q3FY07 Result Update (Hold)

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Edelweiss Market Scan (EMS) - 15th February 2007

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Edelweiss - Daily PCG Call

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PowerYourTrade Trading Calls

Ashwani Gujral

Sell JP Associates with stop loss of Rs 660 for a target of Rs 570
Sell Parsvnath Developers with stop loss of Rs 340 for a target of Rs 220

Deepak Mohoni

Buy Sesa Goa below Rs 1932 with stop loss of Rs 1915. This is a day-trading recommendation
Sell Parsvnath above Rs 311.15 with stop loss of Rs 319. This is a day-trading recommendation.

Rajat K Bose

Buy Indian Oil around the last close with a stop loss below Rs 444.75 for target of Rs 461
Sell GE Shipping around the last close with a stop loss above Rs 212.20 for target of Rs 202.

Daily Fundamental Snippets

Hindustan Lever Ltd (HLL) has reported a 31.8% growth in calendar 2006.

Ranbaxy Laboratories plans to raise $2 billion via American Depository Shares (ADS) to fund the proposed acquisition of Merck's generics business valued at $5.2 billion.

ICI India has divested a portion of its auto refinish paints business to PPG Industries of the US.

Nitesh Estates has reported that New York-based Och-Ziff Capital Management Group has picked up 25 per cent stake in the company for $51 million.

Lupin Ltd has entered into an agreement with Laboratoires Servier of France for the sale of certain patent applications and related intellectual property (IP) of blood-pressure drug Perindopril for multiple countries.


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Edelweiss - Daily Market Outlook Feb 21

Market Snapshot

The Sensex opened on a positive note. However, selling pressure at higher levels with concerns arising from a hike in domestic interest rates and worries that the government may raise short-term capital gains tax in the budget saw the index slip into negative zone. Selling re-emerged in late noon deals and the index slipped to a low of 14,230. The Sensex finally settled with a loss of 150 points at 14,253 while Nifty lost 58 points settling at 4,106.

The NSE cash volumes were slightly better compared to the previous day at INR 78 bn while the BSE cash volumes were lower at INR 38 bn. The F&O volumes were significantly higher compared to the previous day at INR 394 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has increased to 26-29% levels. The WPCR of Nifty Options decreased to 1.00 compared to the previous day while the 5 day average is 1.10. The February futures are now trading at 9 points premium. The Nifty Futures OI has increased by 2%.

Outlook

We expect the market to remain volatile ahead of the expiry and the fiscal budget. Yesterday’s fall was triggered by ONGC and the markets can take cues from the Bank of Japan’s decision on the interest rates. However, we see limited downside from these levels with intraday volatility being observed till the budget.

The market wide rollovers at 41% marginally lower than the previous expiries. However Nifty rollover continues to see the shift in March at 48% on the second day of expiry week. The roll cost has been slightly lower at around 68 bps.

On Nifty rolls, we expect the pressure to continue from the short rollers and would thus advise short rollers to aggressively roll their positions at the current levels. Long rollers can see some contraction as the current levels might go up to 4 plus points.

Nifty has an immediate support at 4067 and believe the uptrend to continue until the Nifty sustains above this trend line support. Nifty will face an immediate resistance at 4160 followed by 4176.


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Anand Rathi - Daily Strategist

Nifty futures gained OI to the tune of 1.81% with prices coming down indicating short positions building in the market at higher levels with nifty futures not ready to move above 4180 levels. If nifty sustains below 4140 levels we may see fresh short positions being formed in nifty futures .The nifty may show real strength once it crosses 4180 marks as lot of short covering may be seen in nifty futures around those levels and fresh buying may come around those levels. The FIIs sold nifty futures to the tune 474 crs with buying in index options of 261 crs indicating hedged positions by major Market participants. The PCR has come down from 1.37 to 1.33 levels which indicates weakness in the market.

Among the Big guns ONGC saw significant built up in OI to the tune of 6.70 %with prices coming down around 3.32% indicating that bears were having upper hand in the counter and lot of aggressive short positions are formed in the counter indicating weakness n the counter .RELIANCE saw heavy built up in OI to the tune of 9.14 % with prices flat to negative indicating that both bulls and bears got aggressive in the counter as the e counter crossed its crucial level of 1400 but as market reacted from high their was selling pressure in the counter .If market sustains at higher levels we may see heavy short covering and fresh buying in the counter as there are lot of positions outstanding in the counter.

On the TECH front, INFOSYSTCH ,TCS, WIPRO saw built up in OI with prices coming down indicating short positions are formed in the IT pack .SATYAMCOMP saw OI coming down with prices coming down indicating longs liquidating their positions as market could not support the buying spree.

On the Metal front, we saw marginal shed in OI with prices almost flat in both TATASTEEL & HINDALCO indicating that no major activities are their in these counters. SAIL saw built up in OI with prices coming down indicating short positions are formed in these counter.

In the BANKING arena SBIN significant built up in OI with prices coming down sharply indicating short positions are formed in the counter indicating further weakness whereas ICICIBANK saw liquidation of long positions.

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Market may remain volatile

Market may resume on a weak note as nervousness may prevail after yesterday's 150 points fall followed by mixed Asian markets in early trades. The interest rates move by The Bank of Japan may also weigh on local indices in the morning trades. FII's turning net buyers for last couple of sessions, fall in crude prices and overnight gains in the US markets may boost investors sentiment . However, intra-day volatility remains the major concern. Among the domestic indices, the Nifty may slip to 4100, while on the upside it could edge higher in the range 4150-4200. The Sensex has a likely support at 14200 and may face resistance at 14400.

US indices ended in the green on Wednesday. While the Dow Jones moved up by 19 points to close at 12787, the Nasdaq ended 17 points higher at 2513.

Most of the Indian ADRs ended in the red on the US bourses. MTNL slipped sharply and lost 2.4% followed by Tata Moters tumbled by 2.23% while, Satyam, VSNL, Rediff, Patni Computers closed with the marginal losses while Infosys, ICICI Bank and Dr Reddy's move up around 1% each.

U.S. crude oil prices fell on Tuesday amid expectations that milder Northeast weather may curb increasing oil demand. The Nymex light crude oil for March delivery slipped $1.32 to close at $58.07. In the commodity space, the Comex gold for April series moved down $11.80 to settle at $661 a troy ounce.

Intra-day Stock Ideas

NIFTY (4106.95) RES 4137
SUP 4069

BUY SOUTHBANK (100.70)
SL 96 T 107,109

BUY UNITECH (416.95)
SL 411 T 426,429

SELL GTL (146.25)
@ 148 SL 152 T 139,137

SELL BANKINDIA (175.80)
@ 177 SL 181 T 168,166

SELL MOSERBAER (348.15)
@ 351 SL 355 T 338,335

STRATEGY INPUTS FOR THE DAY

Stay lighter, burn brighter

Whenever you see darkness, there is extraordinary opportunity for the light to burn brighter.

Things have been pretty volatile off late and the direction remains uncertain in the immediate future. That may be the case most of the time but the bulls seem to have adopted a wait-and-watch approach ahead of the budget. One need not read too much into this event. The F&O expiry is also keeping the bulls on tenterhooks besides adding to the choppiness. Reports suggest the rollover on the derivative side has been lower vis-a-vis the last few months. There are worries on hardening interest rates and spiraling inflation. Valuations are not cheap either by historical or relative standards.

What is heartening is that FII inflows have been good without being too spectacular. They have pumped in well over $700mn in the cash segment in February so far despite the volatility and the recent crash. Global cues remain benign. Again, there is a lack of clarity on interest rate movement in Japan. The BOJ is to announce its decision today and its anybody's guess as to what the central bank has in store for the world markets. Most probably the BOJ will maintain status quo, which would be good for global liquidity but only for the time being. We expect a cautious opening once again and another volatile session.

SKF India is a stock to watch out for. The company will declare its results today. Moreover, on Friday, the company is expected to announce a product launch at their manufacturing unit in Chinchwad, Pune. SKF India will also declare its results today and so will Blue Dart Express.

Autoline Industries will consider an interim dividend; issue of share warrants to promoters, directors and other eligible entities at a price not less than Rs400 per share; acquisition of the remaining 49% stake in Autoline Dimensions Software and proposal for acquisition of domestic / foreign company.

Deccan Chronicle's Board will meet today to consider and approve the setting up of a Special Purpose Vehicle (SPV), a 100% subsidiary, to launch the Bangalore Edition of Deccan Chronicle.

Phoenix Mills will consider and discuss Merger(s) of Company(ies) having similar line of business. Its Board will also consider and discuss raising of funds through preferential issue, Qualified Institutional Placement (QIP) or any other mode.

US shares closed slightly higher on Tuesday with the Dow Jones Industrial Average carving out yet another record added 19 points or 0.15% to shut shop at 12,786.64, closing at a record high for the second session in a row. The blue-chip barometer also hit a record trading high during the session.

The broader S&P 500 was up 4.14 points or 0.3% at 1,459.68, and closed at a six and a half year high, taking out the previous high from last week. The tech-fueled Nasdaq added 16.73 points or 0.7% to finish at 2,513.04, closing at its highest point in six years, taking out its previous record from January. The Russell 2000 advanced 7.96 point to 826.11. The small-cap index gained 1% and closed at an all-time high.

After the close, Dow component Hewlett-Packard reported quarterly sales and earnings that increased from a year ago and topped estimates. The company also forecast fiscal-year 2007 sales and earnings in a range that beats analysts' forecasts. However, investors took a "sell the news" response and sent shares about 1% lower in extended-hours trading.

Wal-Mart reported higher quarterly earnings that topped forecasts on sales that missed estimates. The retailer also issued upbeat current-quarter forecasts. Wal-Mart shares gained 3%.

US light crude oil for March delivery tumbled $1.49 to $57.90 a barrel on the New York Mercantile Exchange. COMEX gold for April delivery fell $11.80 to $661 an ounce. While the decline in commodity prices boosted sentiment, it also weighed on oil and gold stocks, which in turn limited the advance for the broader market. Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 4.68% from 4.70% on Friday. In currency trading, the dollar gained versus the euro and the yen.

European markets lost ground. The pan-European Dow Jones Stoxx 600 index lost 0.5% to 380.42. The UK's FTSE 100 closed down 0.5% at 6,412.30, the German DAX Xetra 30 slipped 0.1% to 6,982.91 and the French CAC-40 eased 0.5% to 5,713.45.

Asian stocks were mostly higher early Wednesday, but gains were capped by cautious trading ahead of a key decision on interest rates from the Bank of Japan. The Nikkei 225 Index was up as much as 0.08% at 17,952.91.

The Morgan Stanley Capital International Asia-Pacific Index gained less than 0.1% to 146.85 as of 10:47 a.m. in Tokyo. Benchmarks rose in markets open for trading, except in Australia and New Zealand. Markets are closed in China and Taiwan for the Lunar New Year holiday.

In the emerging markets, Mexican stocks finished nearly flat. Mexico's IPC index finished at 28,589.66, a slip from its closing high of 28,590.17 on Monday. Brazilian markets were closed for the second straight day for the Carnival holiday.

Investors steered clear of China for a second straight week in mid-February, shifting their focus to smaller, more defensive regional markets as Chinese authorities talked down their country’s equity markets and stressed their willingness to curb excessive valuations, says Emerging Portfolio Fund Research (EPFR).

But Asia remains their preferred corner of the emerging markets universe: Asia ex-Japan Equity Funds took in $664.1mn for the week ending February 14, accounting for 94% of the net inflows into all emerging markets equity funds, adds the Boston-based firm that tracks worldwide fund flows.

Market Watch

Insider Trades:
Sakthi Sugars Ltd: M. Manickam, Vice Chairman and Managing Director from market has purchased 30000 equity shares on 12th, 13th and 14th Feb of Sakthi Sugars Ltd.
Marksans Pharma Limited: Funds under the management of FMR Corp and its direct and indirect subsidiaries and Fidelity International Limited and its direct and indirect subsidiaries have sold 183082 equity shares of Marksans Pharma on 6th Feb 2007.

Market Volumes:
The turnover on NSE was up by 0.5% to Rs78bn. BSE Consumer Durable index was the major loser and lost 1.58%. BSE Auto index (down 1.50%), BSE Capital Good index (down 1.48%) and BSE Bank index (down 1.41%) were among the other major losers.

Volume Toppers:
IFCI, SAIL, Indiabulls, Cinemax India, IDBI, Teledata Informatics, TTML, RNRL, Hindalco, GBN, IDFC, Gujarat Ambuja, KPIT Cummins, Biocon, Reliance Industries, ITC, Bajaj Hindusthan, NIIT Technologies, Unitech and Praj Industries.

Delivery Delight:
Apollo Hospitals, Dalmia Cement, Geodesic Information, Godrej Consumer, GSPL, HCL Technologies, HT Media, IOC, ITC, Kalpataru Power, KEC International, Kirloskar Brothers, Pidilite Industries, Sesa Goa and SKF India.

Lower Circuit Filters:
GMR Industries, SSI Ltd, 3M India, Radha Madhav, KEW Industries, Tanla, Shree Ashtavinayak, Vyapar Industries, Nirlon, Ganesh Housing and IOL Broadband.

Brokers Recommendations:
M&M – Buy from Man Financial with target of Rs1060.

JBF Industries - Buy from Kotak with target of Rs189.

Long Term Investment:
HCL Tech

Major News Headlines:

HLL Q4 net at Rs5.11bn (down 1.7%), sales at Rs31.56bn (up 6.11%)

HLL to pay Rs3 a share final dividend

Aurobindo Pharma gets 7th approval from MCC South Africa

Mittal to buy 49% in HPCL's new refinery

NTPC signs accord with Kyushu Electric Power Company, Japan

ICSA gets orders worth Rs195mn

Biocon's partner gets nod for Diabetes drug phase 2 Trial

Pyramid Saimira Board approves plan to raise $100mn

Lupin signs agreement with Laboratoires Servier of France

From the Research Desk - Opto Circuit

Opto Circuits (India) Limited (OCIL): Maintain BUY - Investment Update

Opto Circuits India Limited (OCIL) recorded another strong quarterly performance with standalone sales witnessing a growth of 71.4% to Rs552mn. Economies of scale, cost cutting measures and better product mix has led to 250bps jump in OPM to 35.3% for the quarter. Healthy topline growth and strong margin expansion has led to a 98% growth in profitability to Rs198mn for the quarter. Consolidated sales recorded a growth of 88% to Rs628mn driven by increasing volumes in the base business and growing acceptance and wider penetration of EuroCor’s stents. OPM declined by 210bps to 32.5% for consolidated results due to lower margins for AMDL (60% subsidiary, sales Rs106mn, OPM 6%), a domestic distribution company for OCIL’s products. PAT increased by 90% to Rs200mn, translating into an annualized EPS of Rs13.

We like OCIL’s business model and believe the model would be difficult to replicate. OCIL is witnessing very strong volumes on its base business (SpO2 sensors & pulse oxymeters) which are estimated to witness revenue CAGR of 31% over FY06-08. EuroCor’s stents are witnessing wider geographical penetration and increasing acceptance amongst cardiologists which should enable it to contribute at least 30% to the total revenue and profitability by FY08. By moving low end stents manufacturing to India, OCIL would keep its margins intact by leveraging on India’s low cost advantage as well as tax benefits under 100% EOU. Strong operational performance every quarter vindicates our belief that OCIL would achieve our EPS estimates of Rs11.3 for FY07 and Rs17.8 for FY08.

OCIL is undergoing a financial and legal due diligence on a European Medical Equipment Company that designs and manufactures a wide range of balloon catheter assemblies and related products for coronary, renal and other applications. The acquisition estimated at Rs720mn is likely to close out over the next few weeks. We believe this acquisition will be a huge strategic fit for the company as it would enable OCIL to achieve backward integration thereby improving operational performance and profitability. We maintain BUY on the stock.

HOW MARKET FARED

Weak Wednesday in store

Sluggish trading session ended on a weak note led by fall in ONGC, HLL, ABB, L&T and SBI. After trading in a range for major part of the day the key indices lost ground as selling pressure intensified in the later half of the trading session dragging the benchmark BSE index to hit a low of 14230.47. BSE Auto, Banking and PSU index were among the major loser with BSE Auto index losing over 1.50%. Finally, the 30-share benchmark Sensex lost 149 points to close at 14253. NSE Nifty dropped 57 points to close at 4106.

Zee Telefilms, ONGC and SAIL were among the major losers. While; HPCL, Ranbaxy and ITC were among the major gainers.

SBI lost by 2.1% to Rs1107.The banking giant hiked lending and deposit rates. The scrip touched an intra-day high of Rs1144 and a low of Rs1105 and recorded volumes of over 6,00,000 shares on NSE.

Reliance Industries marginally slipped by 0.4% to Rs1414. Reports stated that Chevron is likely to pick up a stake in the company's energy exploration and production business. The scrip touched an intra-day high of Rs1444 and a low of Rs1410 and recorded volumes of over 32,00,000 shares on NSE.

ICSA slipped 1% to Rs1181. The company received orders worth Rs195mn from Chief General Manager, on 100% Turnkey basis. The scrip touched an intra-day high of Rs1200 and a low of Rs1173 and recorded volumes of over 5,000 shares on NSE.

Select Aviation stocks fell on back of profit booking. According to reports FIIs will be allowed to buy shares from the secondary market outside the 49% sectoral cap on FDI. Jet Airways slipped 2.1% to Rs721 and Spice jet came down by 4% to Rs52. However, Air Deccan flew higher by 2.5% to Rs135

Technology stocks were on the receiving end as profit booking dragged them down. Moser Baer slipped 3.8% to Rs348, Mphasis BFL was down 3.3% to Rs292 and Polaris declined 3.2% to Rs215. Among the heavy weights Wipro and Satyam Computer were among the major losers.

FMCG stocks also ended lower on back of profit booking. HLL fell over 2.5% to Rs199, Marico slipped 2.5% to Rs579, Dabur was down 2.3% to Rs102, Colgate lost 1.6% to Rs324 and Tata Tea slipped 1.3% to Rs664.

Auto stocks were in reverse gear. Maruti dropped 2.3% to Rs892, Tata Motors declined 1.6% to Rs856, M&M slipped 1.5% to Rs880 and TVS Motors slipped 1.5% to Rs71.

Investsmart - Morning Call

Market Grape Wine :

In House :

Nifty at a support of 4077 & 4042 levels with resistance at 4134 & 4164
levels .

Buy : SesaGoa above 1955 target 2030 s/l 1925

Sell : BobayDye : below 604 target 590 s/l of 612.1

RPL & Sterlite positive as they are coming in NIFTY from april in place of
Jet & OBC

Market to remain under pressure at higher levels with BOJ raising interest
by .25% to impact in liquidity of FII .



Out House :

Sensex at a support of 14204 & 14154 levels with resistance at 14354 &
14465 levels .

Buy : RelCap & RIL

Buy : Satyam & Infy

Buy : Polaris , Mphasis & PrajInd

Buy : Gitanjali , EKC , Voltam & Gujfluro

Buy : GHCL , Aftek , EssarOil , AFL & Skumarsyn

Buy : NDTV , Zee & Titan

Buy : Adlabs & TvToday

Buy : IFCI & RNRL

Dark Horse : IFCI , Gitanjali , AFL , RIL , SesaGoa , EKC , Titan & Siemens

Bullet for the day : Siemens & IFCI

Thanks Yash

Anand Rathi - Daily Technical Note

Nifty and Sensex have exhibited a bearish candlestick.

Technically, one may use the level of 4045 (Nifty) and 14100 (Sensex) as the stop loss level.

Nifty faces resistance at 4187 and Sensex at 14530.

BSE Smallcap and BSE Midcap exhibited bearish candle sticks.

CNX IT has exhibited a bearish candlestick.

In the Punter's zone we have a Buy in Bharti Shipyard , Aptech & IVRCL.

In the Technical call section, we have a Buy in CESC , ITC & HCL Tech.

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Thanks Yash

Weakness may continue

Caution may continue today ahead of the outcome of the policy meeting of Bank of Japan (BoJ). Analysts are divided over whether it will lift rates to a decade-high of 0.5% from 0.25% currently.

Japanese stocks were flat on Wednesday (21 February) ahead of the outcome of BoJ meeting. Japan’s Nikkei average was flat at 17,937.74. Hong Kong’s Hang Seng was up 0.2% and Singapore’s Straits Times index was up nearly 1%.

Volatility may remain high ahead of the expiry of February 2007 derivatives contracts on Thursday 22 February 2007. On Tuesday 20 February, Nifty February 2007 futures settled at 4118.60 compared to spot Nifty closing of 4106.95. Nifty March 2007 futures settled at 4115.95 compared to spot Nifty closing of 4106.95.

As per provisional data, FIIs were net buyers to the tune of Rs 345 crore on Tuesday, the day when Sensex had lost 150 points. FIIs were net sellers to the tune of Rs 474 crore in index-based futures on Tuesday. They were net sellers to the tune of Rs 34 crore in individual stock futures on that day.

A key trigger for the market in the near-term is Union Budget 2007-08. Concerns that the government may raise short-term capital gains tax on sale of shares from the current 10% have gained currency. The securities transaction tax (STT) may also go up further. The previous budget had increased STT. The removal of a 10% corporate surcharge may be offset by removal of certain open-ended exemptions. Market men also expect the finance ministry to give a big impetus to agriculture and infrastructure in the budget.

US stocks rose on Tuesday as investors scooped up recently battered tech shares amid a flurry of merger deals, including one between Sirius Satellite Radio and XM Satellite Radio and oil prices eased.

The Dow Jones industrial average gained 19.07 points, or 0.15 percent, to a record 12,786.64. The Standard & Poor's 500 Index added 4.14 points, or 0.28 percent, to 1,459.68. The Nasdaq Composite Index climbed 16.73 points, or 0.67 percent, to 2,513.04. The Dow earlier touched 12,795.93, a new intraday lifetime high for the average.

US crude prices fell for a third day, down 22 cents to $58.63 a barrel after a cold spell in the world's top consumer ended, with some forecasters expecting moderate March weather.

Anagram - Daily Call

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Information asymmetry - Chetan Parikh

In a great book "Wallstreet on sale", the author, Timothy P. Vick, writes about information asymmetry.

“Information forms the lifeblood of investors. No matter how polished your analytical skills may be, you must possess timely, objective, and useful information to score successes in the market. The efficient market hypothesis assumes that every market participant has equal access to information and has the ability to screen it accurately and interpret it correctly. But if asymmetry exists, that is, if some investors possess more, or better, information that others, or if that information proves incorrect, then the concept of efficiency breaks down.

In outlining the case against efficient markets, we conclude by noting that most information comes to us in a highly tainted form and has a great bearing on the direction of stock prices. Since most information on which we trade contains some form of “spin,” the possibility always exists that our reaction to that information proves erroneous. To advance my case, I offer three suppositions:

Information is not universally available. The cost to obtain adequate sources of information handicaps most investors. Even today, when millions of investors have access via the Internet to what was once guarded information, they lack access to the types of information that can impact a stock in the near term. Investors cannot visit companies regularly, speak with trade associations, suppliers, distributors, or sit in on conference calls with management.

No two people interpret information identically. We form our interpretations depending on our perspectives. As shown in the Exxon example earlier, investors trade based on their own financial needs, goals, limitations, access to news, and interpretation of events. Like the weather, we tend to view information in relative terms and from a current context. A 60-degree day in spring feels downright balmy after weeks of 30-degree days. The same 60-degree day in summer, on the heels of 80-degree days, would cause a chill in you. Likewise, a stock that rallies to $60 often seems a better buy than one that falls to $60 often seems a better buy than one that falls to $60, though an investor should be indifferent to both circumstances.

Information is usually spoon-fed to investors by people who want to influence the interpretation. We cannot underestimate the role that Wall Street, the media, and newsmakers play in shaping our opinions and our decisions to invest. Any information that is filtered, and that includes about all that the financial industry generates, creates the potential for price inefficiency. Wall Street twists information innumerable ways: by issuing price targets on stocks, for example, estimating earnings in advance, leaking rumors of takeovers, or upgrading or downgrading companies for the flimsiest of reasons.

The media’s desire to win subscribers leads reporters to generate news where none might exist, trumpet hot stocks after their best rallies have passed, or deluge you with articles like “The Top 10 Funds to Buy Now.” The vast majority of investors attain their market information secondhand, usually through the media. Thus, they are exposed to the spins and biases already built into news stories. A reporter can severely distort information even with the tone she takes in composing an article. A misleading headline or a reporter’s desire to sensationalize a trivial news occurrence can disrupt supply and demand for a stock. Consider the media frenzy created in 1995 when Intel discovered a minor flaw in its Pentium chips. The story first broke over the Internet when spreadsheet users complained to one another that some of their computer calculations were incorrect. Once a reporter discovered the controversy, the Pentium story quickly became the media’s crisis of the week. Intel’s stock fell sharply as the company devoted considerable time to fending off public criticism. No sooner had the story appeared than it disappeared from the front pages, but not before thousands of investors sold their shares and the market value of Intel’s stock dropped by more than $6 billion. Here, investors’ optimism over Intel’s prospects suddenly turned to pessimism on the basis of trumped-up stories of little significance to Intel’s long-term fundamental outlook. Intel quickly recalled the chips, took a quarterly charge against earnings, and put the issue behind it. The stock tripled in price over the next two years.

Investors who are wont to trade based on information are particularly vulnerable to interpretation bias. A favorite example of mine occurred on January 22, 1997, when major media outlets tried to interpret Federal Reserve Chairman Alan Greenspan’s remarks before the Senate Budget Committee. Depending on which news story you read the following day, inflation either was rising or holding steady; the economy either was growing nicely or in danger of overheating; and reporters either was growing nicely or in danger of overheating; and reporters either were trying to sway your viewpoint or didn’t know what to say.

Consider just five of the headlines boiling down Greenspan’s testimony that day:

• “Fed Chairman Sees a Pickup in Wages,” reported The Wall Street Journal. The article said Greenspan hinted he would hike interest rates.

• “Greenspan Upbeat on Economy, Issues Wage Warning,” read a headline by Reuters. According to the wire story, Greenspan was satisfied with the pace of economic growth and “gave little indication” the Fed was preparing to raise interest rates.

• “Greenspan Upbeat on Economy,” ran The New York Times. “But he warns of pay gains,” amended the story. “Testimony rallies market.”

• “Greenspan Warns of Inflation,” read the slug line to a story the Associated Press wired to member newspapers.

• “Fed Pleased but Puzzled,” announced CNN’s financial news network.

If you were unable to hear Greenspan’s unfiltered testimony on cable television, your interpretation of his comments were formed based on what news service you happened on that day. If you picked up the newspaper one morning and the headline read, “Fed Chairman Hints of a Rate Hike,” you might try to protect your rate-sensitive stocks by selling shares. But if the newspaper, recounting the same testimony, used the headline, “Fed Comfortable with Current Rates,” you might feel relieved and compelled to do nothing.

Bear in mind that before the news of January 22, 1997, trickled down to you, it had been filtered no fewer than four times. First, the reporter would have interpreted Greenspan’s remarks and condensed them to a few key points that made readable copy. Then, the reporter would have rendered her objective bias based on the interchange between Greenspan and senators that followed the testimony. If no senator questioned Greenspan on interest rates, the reporter might have concluded that the topic was of little news value and downplayed the story. Next, the reporter would have elicited reaction from experts. Because of deadline pressures, maybe she lacked the time to contact experts who believed rates would fall. Finally, the story would have been filtered at the copy desk, where a news editor and a night copy editor rearranged the article based on what they believed was important. One of them would have topped the story with a headline to summarize—probably in six words or less—what Greenspan said.

USE INEFFICIENCY TO YOUR ADVANTAGE

The information assembly line can severely alter our perceptions and cause us to take actions that lead to price inefficiency. But it’s to your advantage that so many investors, including many “pros,” believe in an efficient market, that a stock trading at 50 times earnings is fairly valued, and that the market can’t be beaten. As long as value investors remain an insignificant minority, there will be ample opportunity to profit from such faulty logic. Your best profits will come from bucking conventional wisdom, carefully screening your information, and waiting for investors to misprice a company. To quote Benjamin Graham, “The market often goes far wrong, and sometimes an alert and courageous investor can take advantage of its patent errors.”

Sharekhan Daring Derivatives for February 21, 2007

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Sharekhan Eagle Eye (equities) & Derivatives Info Kit for February 21, 2007

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