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Monday, September 08, 2008

Enjoy the new clear gain


Victory belongs to the most persevering.

Good morning and welcome to a gap-up opening. If you caught Friday's falling stars today would be a day to pocket some instant gains. The perseverance has resulted in India 's 'Victory in Vienna '. To add to the euphoric mood is the fact that the US market, which had slumped early on Friday on a grim unemployment report, recovered smartly to end slightly higher. The trigger there was the anticipated government bailout of the beleaguered state-run mortgage lenders - Fannie Mae and Freddie Mac. The formal announcement was made on Sunday. Already, US stock futures have rallied (well over 2%) on the news. Asian markets too have jumped (by 3.5-5.5%) this morning.

The indicators on the derivative side of the markets are also supportive. As a result, the bulls will have a field day today after being at the receiving end over the last two days amid anxiety over the NSG meet. Stocks that are likely to benefit from the Indo-US civil nuclear deal will shoot up. Watch out for the capital goods and engineering space. These stocks are surely going to rock today. Select IT shares may also do well as the sector may gain from the spin-off effect from the agreement. Tata Motors will be in action on resolution of the Singur issue.

As mentioned to you over the weekend, the victory at the NSG finally lifted the curbs on the country resuming nuclear trade with the world. This is a momentous occasion for India and comes after 34 long years. Incidentally, the NSG was formed in 1974 after the country's first ever atomic test in Pokharan. The move is also quite unprecedented as India is not a signatory to either the NPT or CTBT. This is precisely the reason why the NSG took so much time to accord an exemption to New Delhi . But, despite strong resistance from non-proliferation hawks like Austria , Ireland and New Zealand , and the obstacles put up by China , the 45-member nuclear club unanimously approved the deal. India can now immediately open nuclear trade with the likes of France and Russia . The same with the US will not be possible till we get a clearance from the US Congress, which will meet from today for a final session before the November presidential polls.

Time is still a bit of a constraint. There may also be some political opposition from some quarters in the US . Still, there is optimism that the deal will eventually see the light of day. One issue may still continue to haunt India is what will happen if the country undertakes fresh atomic tests. Former President Kalam says we can certainly do it, while some others are still skeptical about it. Whether India will have to make some compromises on this front to clinch the deal with the US remains to be seen. For now though, the UPA government is savoring the triumph at NSG, not withstanding the accusations of a 'sell-out' by the Leftist parties. The Prime Minister of course is the happiest of all. The NSG waiver apart, the Congress-led regime is still battling several odds, such as the economic slowdown and the spiraling prices. It will have to make considerable headway in taming these headwinds in the run up to next year's Lok Sabha elections.

FIIs were net sellers of a whopping Rs18.57bn (provisional) in the cash segment on Friday while local institutions pumped in Rs4.85bn. In the F&O segment, the foreign funds were net sellers of Rs9.5bn. On Thursday, FIIs were net sellers of Rs3.99bn in the cash segment. Mutual funds were net buyers of Rs1.34bn on the same day.

Asian markets surged the most in eight months and US futures jumped after the Bush government seized control of Fannie Mae and Freddie Mac, shoring up global financial markets reeling from more than $500bn in credit losses.

Mizuho Financial and Macquarie rose more than 10% after the bailout of the two-biggest US mortgage guarantors lowered credit risk. Toyota led exporters higher with a 3.8% advance after the yen weakened as investors sought higher-yielding assets.

The MSCI Asia Pacific Index climbed 4.3% to 121.84 as of 10:55 a.m. in Tokyo, with financial companies accounting for almost half of that gain. The index on Friday closed at its lowest level since June 13, 2006.

US stocks staged a smart recovery on Friday to end slightly higher, as a rebound in the battered financial stocks helped offset renewed concerns over recession in the wake of the grim unemployment report.

The S&P 500 index added 5.48 points, or 0.4%, to 1,242.31. After earlier falling by nearly 150 points, The Dow Jones Industrial Average rose 32.73 points, or 0.3%, to 11,220.96. The Nasdaq Composite Index slipped 3.16 points to 2,255.88.

Market breadth was mixed. About six stocks rose for every five that fell on the New York Stock Exchange.

Bond prices edged lower, raising the corresponding yields, while the dollar strengthened versus the euro and yen. Oil prices settled at a fresh five-month low, while gold and other commodity prices declined modestly.

The S&P 500 and the Dow had lost more than 1% each early in the morning after a government report showed that the unemployment rate had jumped to a five-year high of 6.1% in August. Economists had expected the unemployment rate to hold steady at 5.7%.

American employers cut 84,000 jobs from their payrolls as against expectations of around 75,000. This was the eighth straight month of declines in jobs, heightening worries over the state of the world's biggest economy.

Employers cut 60,000 jobs from their payrolls in July. Through August, the U. economy has lost 605,000 jobs in 2008.

The report fanned speculation that the Federal Reserve will hold interest rates steady for the rest of the year. Chances that policy makers will leave the target rate for overnight loans between banks unchanged through January rose to 79% from 63%, futures trading shows.

All three major indices fell through the morning but managed to recover in the afternoon as the financial sector turned around. Financial stocks make up the second biggest sector in the S&P 500, after technology.

For the week, all the three US indices slipped. The Dow declined 2.8%, the Nasdaq slumped 4.7% and the S&P 500 shed 3.2%.

In other economic news, a record 1.25mn homes were in foreclosure during the second quarter, according to the Mortgage Bankers Association. Foreclosures rose above 1% in the second quarter for the first time since the Mortgage Bankers Association began its loan survey 29 years ago.

San Francisco Federal Reserve Bank president Janet Yellen said that the US economic growth will be weak in the second half of 2008. Yellen is an alternate member of the FOMC's rate-setting committee this year and will be on the committee next year.

Financial shares climbed 3.2%, the most among 10 S&P 500 industries.

Lehman Brothers' shares rallied 6.8% on a Reuters report that the beleaguered Wall Street firm may sell assets to Blackstone and Kohlberg Kravis Roberts. Blackstone and KKR may buy some of Lehman's assets, including real estate holdings and part of the asset-management unit, Reuters reported.

Bank of America, Citigroup and JPMorgan Chase climbed more than 4% apiece, as banks benefited from growing expectations that the Federal Reserve will not raise interest rates given the economic gloom.

Goldman Sachs downgraded Merrill Lynch to "sell," citing the likelihood of further writedowns tied to bad mortgage bets. Goldman also said it expects Merrill to post a bigger third-quarter and full-year loss than previously expected. Merrill shares ended higher, recovering from morning losses.

Finnish wireless handset maker Nokia warned that its third-quarter global market share will decline from second-quarter levels and that the global mobile device market will be hit by a sluggish global economy and slowdown in consumer spending. Its shares slumped 7.6%.

PC major Dell is reportedly looking to sell some or all of its PC-manufacturing plants as a means of cutting costs, according to the Wall Street Journal report. Dell shares were little changed.

UST rallied 25% after the New York Times reported that the Altria Group, parent of Philip Morris, plans to acquire the smokeless tobacco maker. However, Altria dismissed the report as untrue.

SanDisk had the biggest gain in more than eight years, soaring 31%. Samsung Electronics said it may buy the memory-card maker in what would be the South Korean company's biggest acquisition. Samsung said it was considering various options, including an acquisition.

US light crude oil for October delivery fell US$1.66 to settle at US$106.23 a barrel in New York, after ending the previous session at a five-month low. Oil prices are now down more than US$40 a barrel from a record high of US$147.20 in July on bets that a sluggish global economy is cutting into demand.

Investors have also been trying to determine the impact of Hurricane Gustav, which struck this week in the Gulf Coast region that accounts for about 25% of US oil production, as well as determine what threat there is from three other storms in the Atlantic.

Gasoline prices declined for a fifth straight day, according to a national survey of credit-card activity. The recent decline in driving has cut into the federal Highway Trust Fund, prompting the government to ask Congress for an US$8bn emergency infusion.

In the bond market, Treasury prices gave up early gains and turned lower. The decline lifted the yield on the benchmark 10-year note to 3.64% from 3.62% late on Thursday.

The dollar gained versus the euro, hitting its highest point against the European currency since October of last year. The dollar also hit its highest level against the British pound in two years. But the greenback was flat versus the yen.

COMEX gold for December delivery fell 40 cents to settle at US$802.80 an ounce.

The two government-sponsored firms own about half the mortgage debt in the US. Fannie Mae shares fell 18% in extended-hours trading, while Freddie Mac shares lost 10% on worries that the rescue might wipe out equity shareholders.

Next week brings a slew of relevant economic reports, but most are not due until the end of the week. The one early report will be the July pending home sales index on Tuesday. Other key reports include the August retail sales index and the producer price index, due out on Friday.

In Europe, key markets in UK, Germany and France closed down more than 2% each.

In the emerging markets, Brazil's Bovespa was up 1% at 51,939 while Mexico's IPC index also gave back almost 1% to 25,904. The RTS index in Russia tumbled 3.8% to 1469 and the ISE National-30 index in Turkey was down 1% at 48,574.

Global factors may dominate

Indian bourses were on the receiving end for second straight day posting its biggest fall in nearly two weeks on the back of weak global cues and selling pressure in 2the realty, banking and metal stocks. The BSE benchmark Sensex closed at 14,483 losing 415 points and the NSE Nifty index lost 95 points to close at 4,352.

Oil marketing companies were in momentum on the back of further slide in the crude oil prices. Crude oil prices hit a low of 105.76 as dollar rallied. BPCL rose over 8% to Rs357, HPCL gained by over 4.5% to Rs236 and IOC added 2.3% to Rs446.

Shares of Sasken Communications gained by half a percent to Rs142 after media reports stated that SEBI may not be able to curtail the company’s 12 month buyback window. Reports also stated that SEBI’s directive to buyback shares on weekly basis cannot be sustained. The scrip touched an intra-day high of Rs146 and a low of Rs139 and recorded volumes of over 5,00,000 shares on NSE.

Gujarat NRE Coke declined by over 5.5% to Rs94. The company announced its plans to boost production to 7mn metric tons in the next five years. The company plans to spend US$450mn tons to increase coking coal output. Gujarat NRE currently produces 1mn tons of the fuel. The scrip touched an intra-day high of Rs98.9 and a low of Rs94 and recorded volumes of over 20,00,000 shares on NSE.

Shares of Alembic Ltd rallied by over 7% to Rs44.9 after 2.02mn shares were traded in a single block deal. The scrip touched an intra-day high of Rs47.2 and a low of Rs41 and recorded volumes of over 3,00,000 shares on NSE.

Shares of Orbit Corp which is engaged in real estate construction and development gained by over 1% to Rs309 after reports stated that Supreme Court cleared way for builders to use 3-7 times FSI for re-development in Mumbai.

A Supreme Court order has smoothened the way for redevelopment of the entire city, the impact of which would be primarily seen in South Mumbai. The scrip touched an intra-day high of Rs328 and a low of Rs298 and recorded volumes of over 7,00,000 shares on NSE.

Sona Koyo rallied by over 19% to Rs21.2 on back of huge volumes. The scrip touched an intra-day high of Rs21.3 and a low of Rs17.5 and recorded volumes of over 17,00,000 shares on NSE.

Union Bank of India slipped 2.8% to Rs151. The bank announced that it has raised additional capital to the extent of Rs2bn by issue of Hybrid Tier I Capital t, Perpetual Bonds. The Bonds are rated as "AA+ / Stable" by CRISIL & "LAA" with Stable outlook by ICRA. The scrip touched an intra-day high of Rs155 and a low of Rs148 and recorded volumes of over 3,00,000 shares on NSE.

Coal India plans to import coal for the first time; could source up to 4mn tonnes of thermal coal this year.(BS)
Private equity firm Kohlberg Kravis Roberts & Co is eyeing BT’s stake in Tech Mahindra.(ET)
Supreme Court gives environmental clearance to Reliance Power’s 3,960MW UMPP at Sasan in Madhya Pradesh.(BL)
MTNL to install 1.5mn 3G lines in the first phase in Delhi and Mumbai.(TOI)
Jindal Power, a subsidiary of Jindal Steel & Power, has commissioned a fourth unit of 250MW at Raigarh in Chattisgarh.(FE)
BEML receives a Rs310mn development contract from the Indian Rail Board.(BL)
Maharashtra Seamless, part of DP Jindal group, receives export orders worth US$43mn from the US.(ET)
Promoters of retail chain Subhiksha may be looking for buyers for the business.(BS)
Anant Raj Industries to invest Rs43bn in three years to develop various properties across North India.(Mint)
Future Ventures India, the venture capital arm of Future Group, receives regulatory approval for its IPO.(ET)
BHEL to invest Rs14bn in a castings, forgings facility.(FE)
Reliance Industries to begin drilling in Colombian asset in 2010; plans to invest US$50mn in two blocks over a six year period.(DNA)
Indraprashta Gas plans to invest Rs5bn over next two years to expand its retail network.(BL)
Reliance Big Entertainment, part of ADAG group, acquires a majority stake in the US-based cricket web casting portal, Willow TV.(Mint)
Tata Motors may raise US$500-600mn by offering equity or equity-linked securities through international financial markets with securities having differential voting rights.(ET)
Adani group in an advanced stage of negotiations to acquire more captive thermal coal blocks in Indonesia.(BL)
ONGC aims to generate 1000 MW energy from its wind energy project.(BS)
Wipro Technologies puts about 4-5% of its workforce under the scanner for non-performance.(ET)
ONGC renews drilling in Cauvery deepwater block.(BL)
BHEL and GMR in talks with global companies for nuclear business.(BL)
Tata Motors plans to sell over 12,000 Indica ‘Vista’ units a month in the next four to five months.(FE)
GSPC hopes to get nod for commerciality of KG-8 discovery soon.(BL)
GAIL along with Reliance Industries with whom it has a JV agreement, may set up a mega petrochemical plant in Colombia.(BS)
Reliance Infrastructure invites bids by power generation companies to supply 50MW of power.(BS)
Big Pictures, the movie production arm of Reliance Big Entertainment, to invest Rs10bn for 70 films in the next two and a half years.(ET)
Petroleum Minister says he hopes acquisition of Imperial Energy by ONGC Videsh will be concluded in 4-5 weeks.(TOI)
Reliance Power may be allowed to use surplus coal from mines allotted to Sasan UMPP for its other power projects.(FE)
Alembic plans to foray in to the regulated US and European markets and also in to contract manufacturing. (BS)
Hindustan Aeronautics Ltd. decides to set up a base for its advance light helicopter ‘Dhruv’ in Ecuador.(BS)
S Kumars Nationwide set to buy an Italian shirt company for Rs4.8bn.(Mint)
SBI to revise a scheme which will enable farmers to avail term loans at 12% so as to clear 100% of the loans to money lenders. (ET)
Pantaloon group plans to open 15 more ‘Big Bazaar’ stores by end November at an investment of Rs16bn.(DNA)
Reliance Money close to signing a deal to acquire 15-26% stake in Hong Kong Mercantile Exchange.(ET)
Tata Steel signs a memorandum of settlement with it’s workers’ union for the 2007-08 annual bonus which will translate to a payout of Rs1.1bn.(BS)
A Ludhiana district court has authorized Axis Bank to enforce its derivatives contract with Nahar Industrial Enterprises.(Mint)
An oil rig deployed by ONGC Bombay High South Field catches fire. (BS)
Kotak Group is eyeing a majority stake in the Ahmedabad Commodity Exchange.(BS)
Surya Food Agro, maker of the Priyagold biscuits, to launch chocolates and wafers in November to expand its product portfolio.(ET)

Economy Front page

Forex reserves declined by US$2bn to US$295bn for week ended August 29.(BL)
Commission for Agricultural Costs and Prices recommends a statutory minimum price of Rs125/quintal for sugar cane in the 2009-10 season.(ET)
DoT to hold a pre-bid conference today for the auction of spectrum for 3G mobile services.(BS)
D Subbarao takes charge as the governor of RBI; sets for himself the immediate task of containing inflation.(FE)
Maharashtra government may raise FSI from one to four for areas connected with the Mumbai Trans Harbour Link.(BS)
Government considering allowing spectrum sharing between two mobile operators.(TOI)
Seven more firms get SEBI approval to sell mutual funds.(Mint)
NSG grants India a waiver that will enable it to carry out nuclear commerce, ending 34 years of nuclear isolation.(FE)
SEBI suggests 15% stake for strategic investors in stock exchanges.(TOI)
Petroleum Minister says international oil prices would have to fall further to trigger a fuel price reduction.(FE)
Government extends the suspension of futures trading in four key commodities till November 30.(FE)
Tea output is up by 12.7% for the period January-July 2008 as compared to the corresponding period last year.(BS)
Commerce and Industry ministry in talks to prepare guidelines for local governance bodies inside larger SEZs.(BS)