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Monday, June 01, 2009

Bears still on summer vacation!


Winter is slumber, spring is birth, and summer is life…

The bulls got a new lease of life this summer with the Sensex up a staggering 80% since the first week of March (28% in May alone). Bears who thought stocks were headed south this summer and took off for a vacation may remain in hibernation for a while.

FIIs are back and so are local funds. And the surge in broader market suggests even the retail players may have taken the plunge. Most global markets are also on a roll on growing risk appetite. At the same time, commodity markets too are witnessing a strong rally, which may not be all that healthy after all. Worries remain over the ballooning fiscal deficit and a possible revival in inflation with so much liquidity sloshing around.

With Asian markets in the green, the start of a new week and a new month may see an extension of Friday’s bounce. Auto and Cement shares will be in focus as their monthly sales numbers are announced. Sentiment may be positive but given the sharp surge in the past three months, locking in some gains is not a bad idea.

General Motors (GM) will file for Chapter 11 bankruptcy protection in New York on Monday.

FIIs were net buyers in the cash segment on Friday at Rs2.73bn while the local institutions too poured in Rs8.7bn. In the F&O segment, the foreign funds were net buyers at Rs7.4bn. On Thursday, FIIs were net buyers at Rs21.29bn in the cash segment.

The current rally may not hold for long given the fact that we are yet to cover some distance before there is a sustained rebound both in India and globally. The Sensex was trading at around 12 P/E in early March. It is now quoting at 20 P/E, which is pretty steep, especially considering the current uncertain times. Though the Q4 GDP was better than expected and Q3 numbers too were revised up, it will take some time for India to return to the desirable growth rate of around 9%. Even the revised Q1 US GDP data is nothing to rejoice about, as the world's largest economy is still in considerable pain. The housing and financial markets there and in other advanced economies may also not recover as fast as many expect them to.

The majority of the world's leading investors do not believe the recent strong performance of stocks and other risky assets is sustainable, according to a report released on Monday. The FTSE All World equities index has surged more than 60% since hitting a low for the year in March. But Barclays Capital has revealed that just 17.5% of the 605 investors interviewed for its quarterly FX investor sentiment survey – including central banks, asset managers, hedge funds and international corporate customers – think risky assets have further to rise.

US stocks ended higher on Friday after a late-session rally pushed the major indexes to their biggest three-month run since 2007.

The Dow Jones Industrial Average rose 97 points, or 1.1%. The broader S&P 500 index gained 12 points, or 1.3%. The Nasdaq Composite index advanced by 12 points, or 1.3%.

Friday's advance capped an upbeat week for Wall Street. The Nasdaq rose 4.6% over the week while the S&P 500 was up 3.4% and the Dow gained 2.5%.

For the month, the Dow jumped 3.8%, while the S&P 500 rose 5.2% and the Nasdaq advanced 3.6%. May's gains mark the first time US stocks have risen for three consecutive months since October 2007.

US stocks seesawed for most of Friday's session but began to move higher in the last hour of trade, with blue-chip stocks like IBM and Coca Cola leading advancers on the Dow.

Rising oil prices have helped lift the US market in recent days. Oil prices have jumped around 30% in May, marking the largest monthly rise since March 1999. Crude closed above $66 a barrel as the dollar fell to a five-month low. The yield on the 10-year Treasury note slid to 3.46% as its price ticked up.

US stocks rose on Thursday after a government debt auction elicited solid demand, tempering fears that borrowing costs would rise. The major gauges all added about 1%.

The government also said that first-quarter GDP fell at a revised annual rate of 5.7%, narrower than the originally reported 6.1%. Economists expected the revision to result in a 5.5% rate of decline.

A measure of business activity in the Midwest surprisingly fell in May. The ISM-Chicago Purchasing Managers Index dropped to 34.9 in May from 40.1 in April, signaling contraction. Economists had expected it to rise to 42.

After the stock market closed on Thursday, Dell reported a drop in sales and earnings. The company said a slowdown in PC sales pressured its bottom line.

Before the opening bell on Friday, luxury retailer Tiffany & Co. reported first-quarter earnings of 20 cents per share, slightly lower than the 21-cent-per-share profit analysts had expected. But the jewelry maker maintained its full-year earnings forecast.

Activist investor William Ackman's quest to overhaul the board of Target fell flat at the retailer's annual shareholder meeting. None of Ackman's candidates for the board won a seat.

Shares of General Motors (GM) fell below $1 for the first time since the Great Depression as the troubled automaker appeared set to enter bankruptcy despite winning key concessions from the United Auto Workers.

Treasury prices rose, with the yield on the benchmark 10-year note slipping to 3.46% from 3.67% on Thursday. The yield on the 10-year note jumped to a six-month high of 3.71% earlier this week, raising fears that higher borrowing costs, particularly mortgage rates, could hinder an economic recovery.

In currency trading, the dollar plummeted against major international currencies. The dollar index, which measures the greenback's performance against a basket of other currencies, sank to a session low of 79.287, its lowest since mid-December.

NYMEX oil for July delivery rose $1.23 to settle at $66.31 a barrel. It was the highest closing price since Nov. 4, when crude settled at $70.53. COMEX gold for August delivery gained $17.30 an ounce to settle at $978.80.

European shares rose on Friday. The pan-European Dow Jones Stoxx 600 index climbed 0.8% to 209.52. Including Friday's move, the index is up 4.9% in May.

The UK's FTSE 100 index climbed 1.4% to 4,449.60, Germany's DAX 30 index rose 0.6% to 4,963.73 and the French CAC-40 index advanced 0.9% to 3,289.03.

It was the second straight day of gains for the Indian markets on Thursday. The upswing was seen despite weak cues from the US and the Asian markets. The Metal, Banking and the PSU stocks were among the top gainers followed by the Capital Goods and the Realty stocks. However, some offloading was seen in the Pharma, IT and FMCG counters.

The Sensex surged 186 points or 1.3% to close at 14,296 after touching a high of 14,377 and a low of 14,078. The index had opened at 14,115 against the previous close of 14,109.

The NSE Nifty gained 61 points or 1.4% to shut shop at 4,336.

Among the BSE Sectoral indices BSE Metal index was the top gainer adding 2.7%, followed by the BSE PSU index up 2.3%, BSE Bankex index up 1.8%, BSE Capital Goods index up 1.7% and BSE Realty index up 1.7%.

Shares of L&T gained by 2.3% to Rs1342 after the company announced its Q4 results with net profit at Rs9.99bn posting 3.3% growth as against Rs9.67bn in the same period last year. The company’s net sales grew 23.6% yoy at Rs104.7bn as against to Rs84.7bn and has one-time loss of Rs1.44bn. The company announced that it would pay dividend of Rs10.50 per share.

Shares of M&M advanced by 2.1% to Rs639 after the company announced its Q4 results with net profit at Rs4.18bn posting a growth of 89% yoy as against Rs2.21bn. Net sales were up 15% at Rs36.2 versus Rs31.4. The company Q4 EPS was at Rs10.81 versus Rs9.02 and also announced that they would pay dividend of Rs10 per share.

SAIL surged by over 6.5% to Rs164. The company’s Q4 net profit dropped 37% yoy at Rs14.9bn as against Rs23.8bn in the same period last year. The company posted revenues of Rs120.6bn as against Rs134.8bn.

After gaining over 700 points in two trading sessions, some cooling off is not ruled out as trader and investors would prefer to book some profits ahead of the weekend. No other immediate catalysts for now besides the GDP numbers tomorrow.