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Wednesday, April 08, 2009

Head over heels!


The shoe that fits one person pinches another; there is no recipe for living that fits all cases.

In the market too there is no recipe perfect for all cases. The same issues, usually bank-related, are turning from headwinds to tailwinds and vice-versa at regular intervals. After a long sprint bulls may feel comfortable unlacing their shoes. Hopefully they need not chuck it at someone to prove a point.

The key indices should soften a little today after the recent spurt. Global stocks have eased amid renewed skepticism about a quick recovery in the financial markets and therefore in the global economy.

Bad news, which was getting ignored all this while, seems to have caught global attention once again. Consider this: Alcoa has swung to a loss on 'historic' aluminum price fall. RBS is to cut 9,000 back office jobs. Eurozone Q4 GDP contracts more than expected. Concerns about the health of the western banking system are still in place. A top European central banker warns that G20 measures could stoke inflation.

In Asia, the Reserve Bank of Australia cut interest rates to a record low 3% and the Bank of Japan unveiled steps to free up credit by lending against a wider range of municipal bonds. Ireland will unveil an emergency budget with the government under intense pressure to tame the deficit after three attempts in nine months.

Back home, we have earnings and elections to grapple with in the near term. Both these events are likely to throw up a few nasty surprises which could be difficult for the market to stomach. In short, a swift recovery remains a pipe dream as of now which means one should take off stocks that pinch one’s portfolio.

US stocks slid for a second straight day on Tuesday after investors from George Soros to Marc Faber said that the rebound in world equities will falter as the market braces for a seventh successive quarter of declining earnings. The dollar rose against most currencies, oil fell and Treasuries gained.

The Dow Jones Industrial Average lost 186 points, or 2.3%, to 7,789.56. The S&P 500 index dipped 20 points, or 2.4%, to 815.55. The Nasdaq Composite index slid 45 points, or 2.8%, to 1,561.61.

After the close, Alcoa reported a first-quarter loss of 59 cents per share, wider than the 56 cents per share loss analysts were expecting. The aluminum maker earned 44 cents a year earlier.

Alcoa's revenue fell to $4.1 billion from $7.375 billion a year ago, versus forecasts for a steeper drop to $4.077 billion. Alcoa is typically the first Dow component and major company to report results. Alcoa shares fell 3% in extended-hours trading after rising just after the results.

Stocks have been retreating this week in the aftermath of a swift rally that propelled the major gauges more than 20% off multi-year lows. Stocks were vulnerable to a pull back anyway, following a big four-week rally that saw all three major gauges jump at least 20%.

Since bottoming at a 12-year low on March 9, the Dow has rallied 21%, its best four-week run since 1933, when it added 31%. The advance was driven in part by optimism that the economy and financial sector are close to stabilizing.

On Monday, a breakdown in merger talks between IBM and Sun Microsystems weighed on techs. Bank shares were bludgeoned after an influential analyst said the default rate on loans will approach the percentages seen during the Great Depression.

General Motors (GM) is reportedly preparing for the possibility of filing for bankruptcy, if it can't meet the government's reorganizing deadline of June 1. The news dragged on investor sentiment and sent GM shares down by 12%. Healthier rival Ford lost 7.5%.

GM is still trying to get concessions from its unions and creditors ahead of the Obama administration deadline, but it is also in "intense and earnest" preparations for a possible filing. GM and privately-held Chrysler have both received billions in government aid.

Separately, GM said that it has paired with Segway to create a two-wheeled, two-seat, electrically powered vehicle for city navigation. Project P.U.M.A. - Personal Urban Mobility and Accessibility - was unveiled on Tuesday in New York.

Chevron, Exxon Mobil and other oil services stocks slipped along with the price of oil, which closed below $50 a barrel. Meanwhile, a number of bank stocks weakened for a second straight session. The KBW Bank index lost 3.5%.

Borrowing costs slipped, following a one-month advance, the Federal Reserve said on Tuesday. Consumer credit fell 3.5% in February after rising 1.8% in January. Economists thought it would fall 1.5%.

Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.75% from 2.87% on Monday.

Lending rates were little changed. The 3-month Libor rate fell to 1.15% from 1.16% on Monday. The overnight Libor rate inched higher to 0.28% from 0.27% Monday. Libor is a bank-to-bank lending rate.

In currency trading, the dollar gained versus the euro and the yen.

US light crude oil for May delivery fell $1.90 to settle at $49.15 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $10.50 to settle at $883.30 an ounce.

Stocks in Europe lost ground on Tuesday as investors turned nervous ahead of the first-quarter earnings season. Paced by the financial sector, which is most leveraged to either an economic upswing or a continued recession, the pan-European Dow Jones 600 index dropped 0.8% to 183.46. It's the third session in a row the index has declined.

The UK-based FTSE 100 index closed down 1.6% at 3,930.52, while Germany's DAX 30 index dropped 0.6% to 4,322.50 and the French CAC-40 index fell 0.9% to 2,902.31.

It was the fourth trading session of gains for the Indian markets with the Nifty index managing to close above the 3,250 levels. Rally was not only in India, but was also seen across US, Asia and Europe. The ongoing upswing stems mainly from optimism about the latest efforts to unfreeze the US credit markets.

Finally, the BSE Sensex advanced 186 points to close at 10,534 and the NSE Nifty was up 45 points at 3,256.

Among the 30-components of Sensex, 22 stocks ended in positive terrain and 8 stocks ended in the red. M&M, RCom, L&T, HDFC, Reliance Infra, Hindalco and Tata Steel were among the major gainers. Among the top losers were ACC, ITC, Ranbaxy, Grasim, HUL and SBI.

Shares of Pantaloon ended marginally higher by a 0.5% to Rs169 after report stated that the company is in talks for stake sale in subsidiaries like Big Bazaar and Food Bazaar. The scrip touched an intra-day high of Rs173 and a low of Rs161 and recorded volumes of over 0.1mn shares on BSE.

Shares of Ambuja Cements slipped by 2% to Rs73 after reports stated that the company which is setting up two grinding units at Bhatapara in Chattisgarh and Rauri in Himachal Pradesh, said project cost would go up by 10% from earlier estimates. The scrip touched an intra-day high of Rs76 and a low of Rs71 and recorded volumes of over 0.7mn shares on BSE.

Shares of 3iInfotech gained by 2.5% to Rs35 after reports stated that the company would triple its network of IT Kiosks in rural areas to over 12,000 by the year end. The scrip touched an intra-day high of Rs35.8 and a low of Rs34.2 and recorded volumes of over 0.2mn shares on BSE.

Shares of IVRCL Infra gained by 5% to Rs154 after the company announced that it won order worth Rs3.59bn. The scrip touched an intra-day high of Rs161 and a low of Rs149 and recorded volumes of over 0.7mn shares on BSE.

Shares of Satyam Computer rallied by over 13% to Rs45. Reports stated that L&T, Tech Mahindra, Wilbur Ross and Cognizant reached the final stages to acquire Satyam.

The company also announced that it modified the bidding process to ensure if no bid comes within at least 90% of the highest bid the highest bidder would be declared the final buyer. The scrip touched an intra-day high of Rs46.8 and a low of Rs41.2 and recorded volumes of over 20.8mn shares on BSE.

Shares of Ashok Leyland declined by 2% to Rs18.5 after the company reported a fall of 52.2% in commercial vehicle sales at 5,112 units in March this year compared to same month in 2008. The scrip touched an intra-day high of Rs19.2 and a low of Rs17.9 and recorded volumes of over 0.7mn shares on BSE.

With the Nifty index ending above the crucial 3,250 mark, bulls would look to carry on the momentum. The 200 DMA stands at 3450. But, a truncated trading week coupled with the anxiety over earnings and elections might just halt the bulls