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Tuesday, June 02, 2009

Bulls fine, bears whine!


If we see green shoots, can a return to days of wine and roses be all that far behind?

The bears must be whining. Sentiment seems to be overtaking earnings and valuations at a fast pace. Bulls are getting increasingly confident even as the debate continues on whether or not this is a bear market rally. The lows hit last October or even in early March could well be things of the past if the present is some indication of the future. The earlier skeptical ‘Green Shoots’ theory seems to be sprouting all over the place. Weeds in the form of bad news are being overlooked and minor good news is greeted with cheer as if the tree has already borne fruit.

Conviction seems to return that the process of economic turnaround has already begun though it remains a bit tentative. Safety is not a concern at the moment and risk is getting re-priced on the higher side. A sustained turnaround is still some while away though. There will be bumps on the road to recovery for sure. This makes a case for some restraint, lest one may have to repent later. We are looking for a slightly firm opening and some cooling afterwards.

FIIs were net buyers in the cash segment on Monday at Rs2.8bn while the local institutions pulled out Rs1.97n. In the F&O segment, the foreign funds were net buyers at Rs2.07bn. On Friday, FIIs were net buyers at Rs8.34bn in the cash segment.

HPCL will announce its Q4 and FY09 results today.

The yen traded near a two-month low against the euro, as stocks rallied across the globe on signs that an economic recovery is gathering pace, encouraging investors to seek higher-yielding currencies. Bond prices in the US declined, as yields move higher, an indication of increasing investor confidence. The dollar lost further ground on the first day of June, as investors thronged to commodities and equities. Commodities-oriented currencies lead charge against the greenback.

US stocks rallied on Monday, sending the Dow Jones Industrial Average near the breakeven point for the year, spurred by better-than-expected reports on manufacturing, personal income and construction activity.

The Standard & Poor’s 500 Index touched a seven-month high after most of the day's economic reports beat economists’ forecasts. Bond prices fell for the first time in three days and the dollar weakened to its lowest level of 2009.

The Dow Jones Industrial Average surged 221 points, or 2.6%, to close at 8,721.44 points. The blue chip average is within 55 points of breaking even for the year. The broader S&P 500 index gained 24 points, or 2.6%, to about 943 points - its highest level of the year. The Nasdaq Composite index jumped 54 points, or 3%.

Meanwhile, General Motors Corp. (GM) and Citigroup were removed from the Dow Jones Industrial Average and replaced by Cisco Systems Inc. and Travelers Cos.

US stocks opened higher as investors looked past an official declaration of bankruptcy by GM, which had been widely expected. The rally gained steam after an industry report showed US manufacturing activity shrank at a slower pace last month.

The day's economic reports were better than expected, both in the US and abroad. The recession has reached its bottom and the improved economic outlook has helped draw some cash off the sidelines.

Wall Street rallied on Friday, with the major indexes ending May in positive territory. That marked the third consecutive month that US stocks have risen, though May's gains were smaller than those posted in the previous two months.

The US manufacturing sector contracted in May, but the pace of deterioration was slower than expected. The Institute for Supply Management (ISM) said that its index of national factory activity rose to 42.8 from 40.1 in April. Economists had expected the index to increase to 42.

A reading below 50 in the index indicates the manufacturing sector is contracting. But May's gain puts the index over the tipping point that suggests expansion in the overall economy. A reading above 41.2%, over a period of time, is generally consistent with growth in GDP.

Meanwhile, two separate reports showed manufacturing activity in China expanded last month. A measure of India's manufacturing sector rose to its highest level in eight months. European manufacturing activity shrank at a slower pace in May, with a eurozone purchasing managers index marking its biggest monthly jump on record.

US construction spending unexpectedly rose 0.8% in April, its biggest increase in eight months, the Commerce Department reported. Analysts had forecast spending to fall 0.8%.

Separately, personal income rose 0.5% in April, the biggest increase in 11 months, the government reported. But consumer spending dropped 0.1%.

GM filed for bankruptcy protection in a move aimed at helping the once-mighty automaker emerge with only its more profitable plants, brands, dealerships and contracts. GM's stock rose 18% earlier in the session. Analysts said that the rally was related to short selling. Shares closed 8% higher.

GM stock will begin trading on the "Pink Sheets" on Tuesday morning, said Cromwell Coulson, CEO of Pink OTC Markets Inc. Pink sheets allow for trading in certain stocks that are not listed on an exchange or the Nasdaq.

GM's bankruptcy filing occurred just hours after a US Bankruptcy Court judge in New York approved Chrysler's sale of most of its assets to Italian carmaker Fiat.

Treasury prices fell, with the yield on the benchmark 10-year note rising to 3.71% from 3.46% on Friday.

In currency trading, the dollar fell against the euro and the British pound. It rose against the Japanese yen.

NYMEX oil for July delivery rose by $2.27 a barrel to settle at $68.58.

COMEX gold for August delivery fell 30 cents to close at $980 an ounce.

Commodity related stocks and banks led a sharp advance in Europe. The pan-European Dow Jones Stoxx 600 index climbed 2% to 212.43, the fifth time it has risen in six sessions, and building on a 4% gain for May.

Germany's DAX 30 index rose 3% to 5,090.56, while the French CAC-40 index was up 2.2% at 3,349.24 and the UK's FTSE 100 index advanced 1.3% to 4,474.05. Russia's RTS index jumped 7.2% to 1,166.06.

It was the fourth straight say of gains for Dalal Street as the key indices ended at 9-month high. The rally was led by Realty, Metal and IT stocks. In addition, firm cues from the US, Asian and the European markets also lifted the sentiment.

Finally, the Sensex surged 215 points or 1.4% to close at 14,840 after touching a high of 14,907 and a low of 14,655. The index had opened at 14,746 against the previous close of 14,625.

The NSE Nifty gained 84 points or 1.8% to shut shop at 4,532.

Among the BSE Sectoral indices BSE Realty index was the top gainer surging 5.5%, followed by the BSE Metal index up 5.2%, BSE IT index up 4%, BSE Consumer Durable index up 2.7% and BSE FMCG index up 2.7%.

The BSE Mid-Cap index was up 3% and BSE Small-Cap index added 3.5%.

Hotels stocks hogged the limelight on Monday on speculation that the government would classify them as infrastructure companies subject to lower lending and tax rates.

Stocks like Indian Hotels climbed 16% to end at Rs76.2. the stocks surged the most since April 1992. EIH Ltd surged 15% to Rs140.5. Hotel Leela rallied over 20% to shut shop at Rs39.5 and Taj GVK shot up over 19% to end at Rs111.9.

Shares of M&M gained by over 5% to Rs710 after the company’s total vehicle sales for May were are 15,323 units against 16,756 units for the samemonth last year. Similarly, YTD (Apr-May 2009-10) sales are 36,742 versus 33,659 for the same period previous year.

Total Auto sector sales for the month are 16,866 for the month against 20,653 for the same month last year. Similarly, YTD (April-May 2009-10) sales are 39,870 versus 40,683 for the same period previous year.

Shares of Tata Steel gained by over 7.5% to Rs437 after the company’s UK lenders agreed to reset the terms and conditions for a £3.7bn loan that was taken at the time of the acquisition of Corus. The scrip touched an intra-day high of Rs446 and a low of Rs412 and recorded volumes of over 3.8mn shares on BSE.

Shares of NTPC surged by over 6% to Rs229 after reports stated that the company would sign an agreement with Coal India for setting up a 4,000-MW pithead power plant at Brahmani block near Rajmahal in Jharkhand. The scrip touched an intra-day high of Rs231 and a low of Rs218 and recorded volumes of over 3.5mn shares on BSE.

Shares of Opto Circuit surged by over 6% to Rs177 after the company announced that its arm received USFDA approval for Pulse Oximeter Module. The scrip touched an intra-day high of Rs180 and a low of Rs169 and recorded volumes of over 0.6mn shares on BSE.

BSE Sensex may look to hit the 15k levels on Tuesday, provided global cues are supportive. Technically as well, 4,550 look to be a strong resistance levels from where the Nifty turned around on Monday. Worries remain over the ballooning fiscal deficit. Locking in some gains is not a bad idea