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Thursday, March 19, 2009

Inflation for namesake!


What you don't see with your eyes, don't invent with your mouth.

It may just be a happy coincidence to see markets positive as inflation flirts with the sub-1% mark. That prices of even street snacks are rising is a reality we have to live with in a depressing economy. The inflation figure which will come in around noon is already discounted, and may not have a major bearing on sentiment for long.

The Indian indices may continue their northward movement due to overnight gains in the US market. The market is likely to open flat to slightly positive. Things may turn choppy and rangebound later in the day. Avoid mid-caps and small-caps as the current rally may soon fizzle out.

As expected, the Fed has announced plans to buy up to $300bn in government securities. It will also expand its balance sheet by purchasing up to an additional $750bn of mortgage-backed securities. The key rates have been left unchanged at near zero. However, not all is hunky-dory. The UK’s unemployment has shot up to 2mn mark while the World Bank has cut China’s GDP forecast to 6.5%.

FIIs were net buyers in the cash segment on Wednesday at Rs2.22bn while the local institutions pumped in Rs5.26bn. In the F&O segment, the foreign funds were net buyers at Rs3.8bn. On Tuesday, FIIs were net buyers of Rs4.44bn.

US stocks extended their recent good run, with the key indices rising for sixth of the last seven sessions on Wednesday, after the Federal Reserve said it will try and ease strain in credit markets by buying long-term Treasury bonds and more mortgage-backed securities.

The Dow Jones Industrial Average gained 91 points, or 1.2%, to close at 7486, while the S&P 500 index advanced 16 points or more than 2% to 794.35. The Nasdaq Composite index climbed 29 points or just under 2% to 1,491.22.

After closing at its lowest level in 12 years on March 9, the Dow has climbed more than 14%, and the S&P 500 has gained 17% over the same period.

US stocks were lower throughout the morning but turned sharply higher after the Fed announced its plan to increase liquidity in the credit markets over the next six months.

The Fed said it will buy up to $300 billion in longer-term Treasurys and raise the size of lending programs already aimed at reducing mortgage rates by another $750 billion. The commitment to buy Treasury securities and additional mortgage-related debt should mean lower rates for a variety of business and consumer loans.

Banks will now be able to borrow money more cheaply, leaving more room for a profit. Also, the value of toxic mortgage securities will likely benefit from the Fed's purchases in that market.

While the US economy is likely to remain weak in the near term, the Fed said it expects the government's efforts to stabilize the financial system to contribute to a gradual resumption of sustainable economic growth. As was widely expected, the central bank held interest rates steady near 0%.

The rally continued from Tuesday's gains after the government issued a much stronger-than-expected report on February housing starts and building permits. This, along with an upbeat report on retail sales last week, have raised hopes that certain critical areas of the economy are showing some sings of improvement.

At the same time, shares of Citigroup and other major financial institutions have been rallying after top executives said last week that the banks were profitable in the first two months of the year.

Bank shares have also risen on continued speculation that government regulators will modify mark-to-market accounting rules, which could make it easier for financial institutions to sell illiquid assets weighing down their balance sheets.

The House Financial Services sub-committee met on Wednesday to discuss the government's $170 billion bailout of insurance giant AIG, especially $165 million in bonuses the company was giving out after receiving taxpayer-funded assistance.

Edward Liddy, AIG's CEO told lawmakers that he found the bonuses distasteful, but necessary because of legal obligations and competition. Still, he said he would ask employees who got $100,000 or more to give half back.

AIG has been the target of a public and political outrage over the bonuses. US President Barack Obama pulled up the company on Tuesday, and lawmakers are pursuing ways to block or tax the bonuses.

Dow component IBM is in talks to buy Sun Microsystems for at least $6.5 billion, according to The Wall Street Journal. The deal could create a new powerhouse in the computer server business to challenge the dominant player, Hewlett-Packard.

Sun, which makes the technology platform Java, surged 80% to $9.03 a share. Shares of IBM ended down 1%.

Before the market opened, the government announced an increase in consumer prices for February that was slightly higher than expected. The Bureau of Labor Statistics said the Consumer Price Index (CPI) rose a seasonally adjusted 0.4% in February. The core CPI, excluding volatile food and energy prices, rose 0.2%.

A consensus of economists had forecast an overall increase of 0.3%, with core CPI up 0.1%. In January, CPI was up 0.3% and the core prices were 0.1% higher.

Separately, the Mortgage Bankers Association said mortgage applications surged last week, led by a 30% increase in refinancing activity. The spike comes as rates on home loans fall near historic lows, the MBA said.

Treasurys surged, after the Fed's announcement, lowering the yield on the benchmark 10-year note to 2.51% from 3.01% on Monday.

Lending rates improved. The 3-month Libor rate fell to 1.29% from 1.3% Monday, while the overnight Libor rate was unchanged at 0.31%. Libor is a bank-to-bank lending rate.

In currency trading, the dollar fell sharply against the euro and the pound.

US light crude oil for April delivery fell $1.02 to settle at $48.14 a barrel. Earlier, the government reported that the nation's supplies of gasoline soared last week.

COMEX gold for April delivery fell $27.70 to settle at $889.10 an ounce.

European stocks lost ground, failing to hold early gains in the face of a worrisome rise in UK unemployment and profit booking following last week's rally. The pan-European Dow Jones Stoxx 600 index finished down 0.8% to 170.76.

The UK's FTSE 100 index fell, hit by news that unemployment in the UK topped two million for the first time in a decade. The London benchmark eventually closed down 1.4% to 3,804.99.

The French CAC 40 index lost 0.3% to 2,760.34, but Germany's DAX 30 index bucked the trend, rising 0.2% to 3,996.32.

Markets resumed its uptrend after a short breather on Tuesday. Majority of the gains were on the back of global cues and short covering. Other than the realty, metal, capital goods and banking stocks the mid-cap and the small-cap indices also were in demand. However, bulls were unable to sustain above the crucial levels, as trader and investors preferred to book some profits in the second half. Finally, the BSE Sensex surged 112 points to close at 8,976 and the NSE Nifty was up 37 at 2,794.

Shares of NTPC gained by a percent to Rs175 following reports that the company has given technical approval for the establishment of coal-based thermal power plant at Kudagi in Bijapur district. The scrip touched an intra-day high of Rs176 and a low of Rs173 and recorded volumes of over 0.9mn shares on BSE.

Shares of M&M declined by 4% to Rs362 after reports stated that Mahindra Defence Systems has called off talks with Italian aerospace and defence major. The scrip touched an intra-day high of Rs380 and a low of Rs359 and recorded volumes of over 0.3mn shares on BSE.

Shares of Harrisons Malayalam surged by over 3.5% to Rs33. 8 after reports stated that the company plans to invest Rs900mn to vitalize its ageing rubber and tea plantations. The scrip touched an intra-day high of Rs35 and a low of Rs32 and recorded volumes of over 29,000 shares on BSE.

Jagatjit Industries was in high spirits for the second trading session on Wednesday after reports stated that the long rivalry between two brothers is nearing closing stages.

CLB chairman S Balasubramanian, in an order dated March 12 took the view that there was no merit in challenging the allotment of shares with differential voting rights (DVRs), as it is legally permissible. It dismissed the petitions filed by the two estranged brothers — Anand Jaiswal and Jagatjit Jaiswal.

Besides settling the family dispute the order is also significant as it may offer clarity on minority promoters using DVRs to fend off hostile takeover threats. The stock further rallied by over 15% to Rs63 recording volumes of over 0.1mn shares on the BSE.

Shares of Akruti zoomed by over 27% to hit its new 52-week high of Rs2145 on the back of huge volumes in the counter

The stock has rallied over 103% in the last five trading sessions and has surged 216% from its 52-wek low of Rs550 hit on January 1, 2009. The stock has been constantly outperforming the real estate sector as well as major equity indices despite sliding real estate prices.

ICSA India has secured work orders for a total contract value of Rs4.64bn from Bihar State Electricity Board, Mahavitaran (Maharashtra State Electricity Distribution Co. Ltd) and M P Poorv Kshetra Vidyut Vitaran Co. Ltd.

Shares of ICSA surged by over 9% to Rs70 after hitting an intra-day high of Rs72.40 and a low of Rs65 and recorded volumes of over 3.7mn shares on BSE.

Bulls may look to carry the momentum at least in the early trades provided the support of global. However, the current rebound in global equities is due to technical factors. So, selling pressure cannot be ruled out.