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Monday, June 15, 2009

Avoid the chase!


If you want to catch something, running after it isn't always the best way.

Signs of weariness are quite apparent among the bulls even though the Sensex eked out 1% gain last week. The broader markets actually cooled off after a frenzied run. The bulls have been doing a lot of running since early March. In fact, they may have come too far too fast. This increases the chance of fatigue. Same holds true for most global markets.

With company insiders resorting to more selling than buying, one wonders if their respective counters have hit the glass ceiling!

Market players would prefer to lighten their positions ahead of the F&O expiry when 50 stocks will go out of the NSE derivative segment. The coming month will see smaller lot size for many scrips.

We expect a cautious start due to indecisive trend in Asian markets. Trading pattern for the rest of the day will mostly hinge on global markets and trends in liquidity flows. No major fall is expected, though some reversal may not be ruled out after a three-month rally.

Budget and monsoon are the two big events that would have a bearing on sentiment. We will also have to contend with the latest quarterly earnings and RBI's update on the monetary policy next month. Overall the bulls are likely to maintain their hold over market proceedings, but don't be surprised if they run out of gas once in a while.

A sideways movement with a positive bias is what could be in store for us in the run up to the budget early next month. Select stocks will continue to hog the limelight based on the newsflow. Taking some cash off the table and sitting on the sidelines may not be a bad idea at this juncture when the near-term outlook is a little hazy.

Power Finance Corp. (PFC) and Shipping corp. of India (SCI) results will be announced today.

Keep an eye on RIL and RNRL, as the Bombay High Court is set to announce a final verdict on the long-standing dispute between the two Ambani siblings over the sale of gas and its price.

FIIs were net buyers in the cash segment on Friday at Rs4.69bn while the local institutions pulled out Rs2.5bn. In the F&O segment, the foreign funds were net buyers at Rs757.7mn. On Thursday, FIIs were net buyers at Rs9.93bn in the cash segment. Mutual funds were net buyers at Rs2.98bn on the same day.

US blue chip stocks finished higher mixed on Friday, enabling the Dow Jones Industrial Average to erase its losses for the year. However, the broader market and technology shares closed nearly unchanged.

The Dow Jones Industrial Average gained 28 points, or 0.3%, at 8,799.26 ending above its 2008 close of 8,776.39. The Dow has now risen in 12 of the last 14 weeks, rising 33% in that time, for its best 14-week stretch since March 1975, according to Dow Jones.

The S&P 500 index closed nearly flat, at 946.21, ending at a seven-month high. The Nasdaq Composite index fell almost 4 points, or 0.2%, to 1,858.80 after ending the previous session at an eight-month high.

For the week, the Dow and S&P 500 ended with modest gains, while the Nasdaq ended lower.

US stocks have rallied for three successive months, since bottoming March 9. Since then, the Dow has gained just over 34%, the S&P 500 40% and the Nasdaq 47%, as of Friday's close. Bets that the pace of the recession is easing have helped fuel the advance. But stocks have struggled recently as rising Treasury yields and higher commodity prices have fueled worries that inflation could hurt a fragile economic recovery.

Treasury prices rose, lowering the corresponding yields. The yield on the benchmark 10-year note fell to 3.79% from 3.85% on Thursday. The yield hit 4% during Wednesday's session for the first time since October.

In the day's economic news, consumer sentiment was little changed in early June, falling just shy of forecasts. The University of Michigan's consumer sentiment index rose to 69 from 68.7, versus forecasts for a rise to 69.5.

A separate report showed that import prices jumped 1.3% in May, in line with forecasts. It was the largest monthly increase since last July, according to a Labor Department report. The increase was due largely to a jump in petroleum prices. Prices rose 1.1% in April.

Year-over-year import prices fell 17.6%, suggesting that inflation fears are not yet being realized. Export prices rose 0.6% in May versus forecasts for a gain of 0.4%. Prices rose 0.4% in April.

BlackRock said it was buying BGI, the investment unit of British bank Barclays in a US$13.5bn cash-and-stock-deal that will create the world's largest money manager. BlackRock shares fell 3.3% and Barclays fell 3.2%. The new firm will be roughly twice the size of its nearest asset-management competitor.

In currency trading, the dollar gained versus the euro and the yen. The US Dollar Index, a six-currency gauge of the greenback’s value, rose as much as 1.4%.

US light crude oil for July delivery settled down 64 cents to US$72.04 a barrel on the New York Mercantile Exchange. Oil futures are up 62% this year.

COMEX gold for August delivery fell US$21.30 to settle at US$940.70 an ounce.

US stocks have now advanced four consecutive weeks. But, many banks are still relatively shaky and another financial shock could derail a tentative recovery. Another threat to the recovery is rising interest rates. Stock investors were relieved to see Treasury yields slide in the latter half of the week.

Bond prices rose after Japanese Finance Minister Kaoru Yosano said that his nation's confidence in US securities is unshakable, assuaging concerns that a record supply of government debt will hurt foreign purchases.

Yields on 30-year bonds touched the lowest level in three days after the auction of US$11bn of the securities attracted the most demand on Thursday. Government securities tumbled earlier in the week after Russia said it may switch some reserves from US debt.

European shares could not extend a three-day rally on Friday, as losses from commodity-linked shares and banking group Barclays offset gains for drugmakers. Investors also turned cautious amid some concern that the three-month surge has outpaced prospects for earnings.

The pan-European Dow Jones Stoxx 600 index declined 0.2% to close at 214.35. The Stoxx 600 index had advanced in the previous three sessions and is 38% above its March low as investors began to hope that the economy will improve.

European equities drifted lower following news that euro-zone industrial output fell by a larger-than-expected 1.9% month-on-month and 21.6% year-on-year April. National benchmark indexes fell in 12 of the 18 western European markets.

Germany's DAX 30 index slipped 0.7% to settle at 5,069.24, while the UK's FTSE 100 index lost 0.4% to end at 4,441.95 while the French CAC-40 index shed 0.3% to end close at 3,326.14.

Indian markets faltered for the second straight trading session on Friday led by selling in the interest rate sensitive stocks. Even the Mid-Cap and the Small-Cap stocks witnessed offloading as both the indices ended lower by 2% each.

It was a day full of surprises as market participants ignored IIP numbers which turned positive after three straight months of decline. Industrial Production unexpectedly rose 1.4% from year ago as against market expectation of -0.1%. Government also announced that IIP for the month of March has been revised to -0.75% from -2.3%.

The Sensex slipped 173 points or 1.3% to end at 15,238 after touching a high of 15,600 and a low of 15,174. The index had opened at 15,447 against the previous close of 15,411.

The NSE Nifty slipped 61 points or 1.3% to shut shop at 4,576.

Asia markets were mixed the Nikkei index ended flat at 9,981. The Hang Seng index was also at 18,791 and Australia's S&P/ASX ended higher by 0.5% to 4,047.

Elsewhere in the Europe, stocks were trading marginally higher. The FTSE index was up 0.5% at 4,459. The DAX index was up 1% at 5,085. CAC 40 index gained 0.2% at 3,322.

Coming back to India, among the BSE Sectoral indices BSE Realty index was the top loser slipping 3%, followed by the BSE Auto index down 2.5%, BSE Consumer Durable index down 2.5%, BSE Capital Goods index down 2.5% and BSE Teck index down 2.5%.

Even the BSE Mid-Cap index was down 2.4% and BSE Small-Cap index was down 2.5%. However, bucking the negative trend were, BSE Metal and BSE Oil & Gas index. Both advanced 1.3% and 1% respectively.

In the Sensex, among the major losers were Ranbaxy, DLF, RCom, Tata Motors, M&M, SBI, L&T and BHEL. Among the major gainers were, Reliance Industries, Sterlite, ONGC and Tata Steel.

Outside the frontline indices, the top losers included Fortis Healthcare, Max India, REI Agro, HCC, Aditya Birla Nuvo, LITL and MRPL.

Among the big gainers in the broader market were Hindustan Zinc, Sintex Industries, Cadila, Welspun Gujarat, Union Bank and Castrol India.

Shares of Sesa Goa surged by over 5% to Rs203 after the company signed definitive share purchase agreement with Dempo Group under which Sesa has acquired all the outstanding common shares of V S Dempo & Co. Private Limited.

The company in turn, also holds 100% equity shares of Dempo Mining Corporation Private Limited and 50% equity shares of Goa Maritime Private Limited for a total consideration of Rs17.50bn, on a debt-free and cash-free basis, and includes net working capital of Rs1.45bn.

The transaction has been funded by Sesa from its existing cash resources. As on 31 March 2009 Sesa had cash resources of Rs41.43bn.