Managing is like holding a pigeon in your hand. Squeeze too hard and you kill it, not hard enough and it flies away.”
A squeeze is in store for the bulls at the start. After the squeeze could come the short-squeeze. So, handle your trades with care. Inflation crossing the double-digit mark was widely anticipated. But, the fact that it surpassed the worst possible increase set the cat among the pigeons.
Lots of shorts are believed to have been created in July futures and a low rollover in the near-month Nifty futures suggests more pain in the near term. Given that it's a derivative settlement week, expect a lot of volatility. The bias remains negative, in the wake of the worsening global as well as local factors. The heated political environment is also not making life any better for the bulls.
The outcome of this week's Federal Reserve meet and that of the UPA-Left panel on the nuke deal will have some bearing on the sentiment. The US central bank is not expected to cut rates, and may even hint at higher borrowing costs going ahead. One will have to wait and listen as to what Bernanke & Co. say about the future outlook on the US economy and interest rates.
Today, we expect another gap-down opening. The current situation warrants extreme caution. Any advance (dare we say) is likely to be driven by short-covering as fresh buying is negligible. FIIs continue to be heavy sellers even as local funds are continuing their shopping spree. The market will remain under pressure unless crude oil (and local inflation) cools off sharply and FIIs turn net buyers.
Stocks fell like nine pins on Friday, with the Nifty breaking all support levels and ending below its 500 day moving average (DMA). Indicators from the technical and derivative side of the market are also not encouraging for the bulls. As far as local politics is concerned, there are too many uncertainties at the moment, which is not good for the bulls.
FIIs were net sellers of Rs9.99bn (provisional) in the cash segment on Friday while the local institutions poured in Rs5.64bn. In the F&O segment, foreign funds were net sellers of Rs12.52bn.
On Thursday, FIIs were net sellers of Rs3.53bn in the cash segment. With this, they have pulled out over $5.6bn from the Indian market this year.
Results Today: Allsec Technologies, Assam Co., Central Bank, Electrosteel Castings, Gokul Refoils, Indian Hotels, Ramco Systems, Tata Power, United Breweries and United Breweries Holdings.
Asian stocks are mostly down this morning following the big fall in US stocks on Friday. A rebound in oil prices heightened concern that economic growth will slow and the continuing troubles in the credit markets dragged financial companies lower.
The MSCI Asia Pacific Index lost 1.1% to 138.53 as of 9:40 a.m. in Tokyo, the lowest since March 24. Japan's Nikkei 225 Stock Average fell 1.7% to 13,707.13. Indexes also declined in Australia, South Korea and New Zealand.
US stocks slumped on Friday, with the Dow Jones Industrial Average slipping below the 12,000 mark for the first time in three months. Rising oil prices and fresh bad news for the beleaguered financial sector were the major factors behind the sharp fall.
Bonds prices rallied, sending the corresponding yields lower, as investors sought the comparative safety of government securities. The dollar slipped versus other major currencies. Oil prices rose on reports that Israel may be undertaking rehearsals for an attack on Iran, which threatened to retaliate.
The Dow slid 220.40 points, or 1.8% to 11,842.69, its lowest finish since March 10. It was the blue-chip index's first close below 12,000 since March 17, when it ended at 11,972.25. The Dow lost about 465 points, or 3.8%, during the week.
Of the Dow's 30 components, 29 posted losses, with financials among the hardest hit after Merrill Lynch downgraded a number of regional banks. Merrill analysts predicted further dividend cuts from regional banks.
For the week, the S&P 500 fell 3.1%, and the Nasdaq fell just under 2%.
Market breadth was negative. Six stocks fell for each that rose on the New York Stock Exchange.
Citigroup led financial shares lower as UBS said the biggest US bank may post a second-quarter loss.
MBIA shares fell 13% after the bond insurer had its rating cut by Moody's, which also cut its ratings on another bond insurer Ambac Financial. The move followed similar actions by Standard & Poor's and Fitch Ratings.
GM shares plunged almost 6.8% after S&P said it may cut its debt rating on the company and on its finance affiliate unit. S&P also said it may cut debt ratings and finance unit ratings on Ford and Chrysler. Moody's cut Ford's outlook to "negative" from "stable."
In additional, Ford said it is delaying the launch of its redesigned pickup truck and warned that its 2008 loss will be bigger than its 2007 loss.
US light crude oil for July delivery rose US$2.69 to settle at US$134.62 a barrel on the New York Mercantile Exchange. The national average price for a gallon of regular unleaded gas rose to US$4.075 from US$4.073 the previous day, according to AAA.
COMEX gold for August delivery fell 50 cents to settle at $903.70 an ounce. In currency trading, the dollar slumped versus the euro and the yen. In the bond market, Treasury prices rallied, lowering the yield on the benchmark 10-year note to 4.17% from 4.21% late on Thursday.
Mining and banking shares hurt shares in London. The FTSE 100 index closed down 1.5% at 5,620.80. Other European shares also finished lower. The pan-European Dow Jones Stoxx 600 index fell 1.7% to 295.08, breaking below the 300 level for the second time in two days.
Germany's DAX 30 index fell 2.1% to 6,578.44 and the French CAC-40 index dropped 1.8% to 4,509.27.
In the emerging markets, the Bovespa in Brazil was down almost 3% at 64,613 while the IPC index in Mexico fell 1% to 29,533. The RTS index in Russia dipped by 0.7% to 2384 and the ISE National-30 index in Turkey dropped 0.2% to 46,004.
Stocks may rebound from year lows
Markets closed in deep red for third straight trading session ending the week with sharp losses after inflation shot up to a 13-year high of 11.05% triggering fears of some monetary tightening measures from the central bank. Further media reports stated the Prime Minister would step down if talks with the Left parties on the Indo-US nuclear deal issue did not yield result dampened the sentiments.
The slide was so sharp that both the major indices, Sensex and Nifty fell to their year lows falling below previous low of 14,645 and 4,369 on June 10 respectively. Among the 50-Nifty, 49 stocks ended in negative terrain and only 1 stock ended in green. Finally, the BSE benchmark Sensex lost 516 points to close at 14,571 and the Nifty index lost 156 points to close at 4,347.
Jindal Drilling surged by over 4% to Rs1577 after the company on Wednesday announced that the board of directors would consider stock split on June 30, 2008. The scrip touched an intra-day high of Rs1725 and a low of Rs1552.
Rain Commodities lost by over 11% to Rs190. The company’s unit-II, situated at Boincheruvupalli Village, Peapully Mandal, Kurnool has started commercial production of its expanded capacity of 1.5mn metric tonnes of cement per annum with effect from June 19, 2008.
With the commencement of commercial production of expanded capacity, the total production capacity of the company now stands at 3.16 million metric tonnes of cement per annum. The scrip touched an intra-day high of Rs218 and a low of Rs188 and has recorded volumes of over 1,00,000 shares on NSE.
L&T ended 2.2% lower to close at Rs2563. The company secured order worth Rs10bn. The company’s Heavy Engineering Division crossed Rs10bn of order booking for High-tech equipment and systems within 2 months of Q1 2008 - 09. Major local contracts include a large order for Power Plant Equipment from Coastal Gujarat Power Ltd (CGPL), a subsidiary of Tata Power Company Ltd, for the first Ultra Mega Power Plant (UMPP), and another large contract from HPCL Mittal Energy Ltd, Bathinda (HMEL) for critical reactors.
The scrip touched an intra-day high of Rs2655 and a low of Rs2545 and recorded volumes of over 5,00,000 shares on NSE.
Aditya Birla Nuvo slipped by 3.7% to Rs1281. The company announced that it shut down its fertilizer plant on June 4. The scrip touched an intra-day high of Rs1356 and a low of Rs1270 and recorded volumes of over 3,000 shares on NSE.
Bata India lost ground towards the end, the stock was down 1% to Rs150. Reports stated that the company would open 240 outlets in next three years for a total capex of Rs4.8bn. The scrip touched an intra-day high of Rs161 and a low of Rs148 and recorded volumes of over 4,00,000 shares on NSE.
BHEL was down by a percent to Rs1405. The company announced that it secured Rs18.4bn contract to set up 8500MW power project in Jharkhand from Damodar Valley. The scrip touched an intra-day high of Rs1453 and a low of Rs1398 and recorded volumes of over 5,00,000 shares on NSE.
Corporate News
Hindalco Industries plans 1:3 rights issue to raise Rs50bn.(TOI)
GMR group to buy stake in ONGC’s Rs310bn Kakinada refinery in Andhra Pradesh.(BS)
Taro Pharmaceuticals sues its proposed buyer Sun Pharmaceutical Industries for allegedly thwarting formers’ attempt to sell off its unit in Ireland.(BS)
L&T says its heavy engineering division crosses Rs10bn of order booking for hi-tech equipment & systems in two months of current quarter.(BL)
Essar Shipping Ports and Logistics to invest Rs 100bn for the development of shipping, ports and oil field services over the next three years.(BS)
DLF to get around 5,000 acres near greater Noida at less than market rate under the Taj Expressway Industrial Development Authority’s scheme.(ET)
Great Off-shore secures an order for its heavy lift vessel in a Mediterranean company for US$15mn per annum.(FE)
Ranbaxy to continue to pursue acquisitions despite the change in its ownership.(BL)
Glenmark has received an approval from USFDA for marketing and distribution of Trandolapril tablets.(TOI)
NTPC would add 3,000MW of power for commercial use in the current fiscal.(BL)
HDFC Bank raises its benchmark prime lending rate by 0.25% to 15.25%.(FE)
Petronet LNG considering taking participating interests in gas assets in Australia.(BL)
Reliance Industries USA to invest US$215mn and create 200 new jobs at a newly acquired polyester plant in the US.(FE)
A consortium of developers led by Maytas Infra starts work at the greenfield airport in Shimoga, Karnataka.(BL)
Jindal Steel & Power plans to invest Rs320bn in coal-to-liquid projects.(TOI)
MTNL floats a Rs2.5bn tender for building network based on Internet Protocol infrastructure.(ET)
Spencer’s Retail, part of the RPG group, plans to invest Rs25bn over the next two years to expand its retail network.(DNA)
HDFC AMC invests Rs2.4bn in Ansal Properties & Infrastructures’ Noida project.(BS)
Parsvnath Developers plans to open retail stores by end of this fiscal.(DNA)
Tata Steel and Essar Steel along with ArcelorMittal ruled out of the race to acquire a stake in Indonesia's state-owned Krakatau Steel.(ET)
Coal India and Tata Power to form a 40:60 JV to produce power from washery rejects.(BL)
Government approves mining plan for the coal block that Reliance Power plans to use for setting up 4,000MW UMPP at Sasan in Madhya Pradesh.(BS)
Royal Orchid Hotels to develop six new hotels with an investment of Rs5.2bn.(DNA)
Indo Asian Fusegear shelves its plan to buy a majority stake in a European firm.(ET)
SAIL keen on reviving a long pending proposal to fund Rs1.7bn project for redevelopment of Bharat Coking Coal operated Moonidih mine in Jharkhand.(BL)
Punjab National Bank to raise deposit rates by 50bps.(TOI)
Three UK based companies show interest in picking up a controlling stake in GHCL.(BL)
US based Holiday Group to enter into infrastructure, housing and hospitality sectors in Kerala with an investment of Rs10n.(ET)
SVP Group has signed a deal with Bharti Retail to lease out 32,000sq ft of space in Ghaziabad.(ET)
S Kumars subsidiary Reid and Taylor may sell stake to a European fund for Rs150 per share.(ET)
Amtek Transportation Division, part of Amtek Auto, enters into a JV with American Railcar Industries to foray into railcars.(ET)
Economic News
Leading Indian carriers say more air fare increases are possible.(BS)
Finance Ministry says it expects RBI to take monetary measures to help check inflation.(FE)
3G spectrum is not available in certain circles for allocation to CDMA players, according to an internal TRAI study.(BS)
TRAI to submit its recommendations on internet telephony in two months.(ET)
Coal ministry gives its approval for setting up a regulatory body for coal.(DNA)
Provident Fund trustees to press for increasing the interest rate on PF to at least 12%.(ET)
CMIE forecasts 5.5% inflation for FY09.(FE)
As per SEBI, currency futures may start by end of August 2008.(ET)
India exports to the European Union may face higher barriers, if the latter goes ahead with a proposal to place carbon tax on goods imported from advanced developing countries.(ET)