We really don't have enemies. It's just that some of our best friends are trying to kill us.
That's the way the UPA must be feeling, notwithstanding their enhanced tally. Slowly but surely there is a feeling that reforms won’t be easy as the DMK and TMC have expressed their opposition to disinvestment and oil price rejig. The Congress is also likely to focus more on its pet social schemes. Separately, a parliamentary panel has suggested blanket ban on corporates (local or foreign) in retail trade of grocery, fruits and vegetables. It has also recommended regulation for shopping malls.
We have been saying that given the sky-high expectations post the election outcome, there is bound to be some disappointment. We would love to be proven wrong but looks like the UPA will face a rocky ride on the road to reforms.
Coming to the markets, the global cues are not healthy, though US stocks did manage a turnaround in late trade. European stocks also ended lower. Asian markets are mostly in red. We expect a cautious to lower opening and a choppy day of trading. Some pullback could happen. Most of the anticipated recovery has already been discounted; this reduces the scope for a huge further rally though the bias remains positive.
Despite the medium- to long-term having turned favourable for the bulls, fresh buying should be done carefully, especially in small- and mid-cap stocks. The key indices are likely to remain rangebound till the announcement of the Union Budget sometime early next month. We will also have first-quarter earnings to contend with and the quarterly monetary policy review. This further lends credence to the theory that the market could remain sideways after a three-month rally.
Meanwhile, in a development that could spell some trouble, yields on benchmark bonds are rising, both in India and US. This is partly due to the swelling fiscal deficit and partly owing to the growing risk appetite. This has led to concerns that higher interest rates would derail the recovery process. Another school of though sees this as among the many signs that the global economy is on the mend.
In other global news, S&P has downgraded Ireland’s sovereign ratings to AA. World Bank President Robert Zoellick has warned that protectionism could stifle economic recovery. Unemployment scene in the US is actually worse than the official data shows. According to a report, the unemployment number in the US is as high as 16%.
The IMF and World Bank said on Monday the path to global economic recovery is rife with risks and the onus is on policymakers to avoid runaway inflation and other pitfalls that could derail the process. On the other hand, Nobel Prize-winning economist Paul Krugman says that the US economy probably will emerge from the recession by September.
US stocks erased most of their losses to end mixed on Monday, as investors bought bank and consumer shares even as concerns mounted over spiraling treasury bond yields. The dollar extended Friday's rally, leading to some softening in oil and commodity prices.
The Dow Jones Industrial Average ended just above unchanged and the S&P 500 index ended just below unchanged. The Nasdaq Composite index lost 7 points or 0.4%. All three major indexes had slumped through the session, before turning higher near the close and ultimately ending mixed.
The late-session turnaround was positive, but deceptive, as the market breadth was negative. More shares fell than gained on both the Nasdaq and New York Stock Exchange. Going forward, it is going to be difficult for the major US indexes to push much higher. One of the factors that will weigh on the market is the perception that the Federal Reserve could forced to raise rates by the end of the year.
That is partly because bond yields have been rising, with the 2-year note yield now more than a full percentage point above the fed funds rate, which has been near zero since December. Meanwhile, the 10-year note is edging closer to 4%, a level not seen since October. The spike has raised worries about the recovery hitting roadblocks before it is barely begun.
US stocks were weaker through most of Monday's session as investors showed caution after a rally that has propelled the Dow off of 12-year lows hit in early March. The Dow has risen in 11 of the last 13 weeks, climbing 32.2% as of Friday's close. That's the blue-chip average's best 13-week run in 26 years.
The other major indexes have also rocketed since March 9. Since hitting a more than 12-year low, the S&P has gained 39% as of Friday's close. The Nasdaq has rallied 45.8% as of Friday's close, since bouncing off of a 6-year low.
Banks were in focus. Bank of America, Morgan Stanley and PNC Financial Services are among the companies that have already met or exceeded requirements. In addition, the government is expected to announce which banks can pay back the TARP funds. Most major bank stocks were higher, boosting the KBW Bank sector index by 1.3%.
Apple introduced a faster version of its iPhone, lowered the price on its existing phone and offered details on its revamped operating system. Apple shares ended modestly lower.
McDonald's shares dipped after the company reported May sales at stores open a year or more rose 5.1%, versus a rise of 6.9% in April.
In currency trading, the dollar gained versus the euro and fell against the yen.
US light crude oil for July delivery fell 35 cents to settle at $68.09 a barrel on the New York Mercantile Exchange.
COMEX gold for August delivery fell $10.10 to settle at $952.50 an ounce.
European shares fell on Monday. The pan-European Dow Jones Stoxx 600 index declined 0.7% to 209.25, giving back a chunk of last week's 1.2% gain. The UK's FTSE 100 index shed 0.8% to 4,405.22, while Germany's DAX 30 index fell 1.4% to 5,004.72 and the French CAC-40 index declined 1.5% to 3,289.66.
Indian markets had a weak start to the week on the back of profit booking witnessed in the interest rate sensitives, metals and consumer durable stocks. Sentiments were also dampened after cues from the Asian and the European markets were also not that encouraging.
Finally, the Sensex declined 437 points or 2.9% to end at 14,665 after touching a high of 15,201 and a low of 14,604. The index had opened at 15,153 against the previous close of 15,103.
The NSE Nifty slipped 157 points or 3% to shut shop at 4,429.
Shares of Cairn India declined by 5% to Rs245 after reports stated that tax issues may delay the company’s crude oil output from Barmer in Rajasthan. The scrip touched an intra-day high of Rs265 and a low of Rs243 and recorded volumes of over 1.9mn shares on BSE.
Shares of BPCL erased early gains and slipped by 1.7% to Rs463. Reports stated that the company is open to Oman Oil hiking its stake in Bina refinery. The scrip touched an intra-day high of Rs492 and a low of Rs451 and recorded volumes of over 0.4mn shares on BSE.
Shares of Apollo Hospitals declined 0.5% to Rs498. Reports stated that the company ha sealed a deal with International Finance Corporation for a funding of US$50mn. The scrip touched an intra-day high of Rs517 and a low of Rs494 and recorded volumes of over 16,000 shares on BSE.
Shares of Reliance Power erased early gains and declined by 3% to Rs178. According to reports twelve financial institutions sanctioned ~Rs16bn to Reliance Power to part-finance the first phase of a 600MW Group Captive Power Project (GCPP) at Butibori in Maharashtra. The scrip touched an intra-day high of Rs191 and a low of Rs175 and recorded volumes of over 5.8mn shares on BSE.
Shares of Wipro gained by 3.3% to Rs406 after reports stated that the company is looking to expand its Eco-eye programme which works for the cause of ecological sustainability.
The company plans to roll out a series of awareness programmes on rain water harvesting, how to reduce individual carbon footprint, how to make recycle paper and paper bags.
Wipro is also one of the entities short listed by Wal-Mart Stores for an outsourcing contract worth US$500mn over the coming years, stated reports.
Shares of Apollo Tyres declined by 1.5% to Rs29. Reports stated that Michelin offloaded 3.3% strake of the company for around Rs450-Rs500mn through open market. In total, Michelin continues to hold around 8% in Apollo Tyres which at last traded price is valued at Rs1.18bn.
The company had picked 14.9% of Apollo Tyres through a preferential allotment at a cost of Rs1.29bn in 2004.
The scrip touched an intra-day high of Rs31 and a low of Rs28.5 and recorded volumes of over 2.1mn shares on BSE.
Shares of Wipro gained by 3.3% to Rs406 after reports stated that the company is looking to expand its Eco-eye programme which works for the cause of ecological sustainability.
The company plans to roll out a series of awareness programmes on rain water harvesting, how to reduce individual carbon footprint, how to make recycle paper and paper bags.
Wipro is also one of the entities short listed by Wal-Mart Stores for an outsourcing contract worth US$500mn over the coming years, stated reports.
Shares of Apollo Tyres declined by 1.5% to Rs29. Reports stated that Michelin offloaded 3.3% strake of the company for around Rs450-Rs500mn through open market. In total, Michelin continues to hold around 8% in Apollo Tyres which at last traded price is valued at Rs1.18bn.
The company had picked 14.9% of Apollo Tyres through a preferential allotment at a cost of Rs1.29bn in 2004. The scrip touched an intra-day high of Rs31 and a low of Rs28.5 and recorded volumes of over 2.1mn shares on BSE.
Given the heavy selling witnessed all over on Monday, markets might further lose ground as the Nifty has key resistance at 4620-4650 levels. The rally could slow over the next few days and the market may turn sideways. Event-based action will continue in the near term.