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Monday, June 22, 2009

Wobbly weather on the Street!


Money is the opposite of the weather. Nobody talks about it, but everybody does something about it.

Though it is still early days yet, alarm bells are already ringing with monsoon playing hide and seek. In addition, there are fears that El Nino may make matters worse. One only hopes that a bad start to the monsoon doesn’t translate into a major agri crisis. That would really test the UPA’s economic management skills. We are already staring at a ballooning fiscal deficit and stretched public finances. A bad monsoon is the last thing we need at this stage when the economic recovery itself is in fits and starts.

Coming to the outlook for today, we expect a flat to slightly higher opening as global cues are not decisive. Moderate gains could come in later but one should brace for more volatility ahead of Thursday’s F&O expiry. Given that the Budget and corporate earnings are round the corner, things could get choppy. Key indices are likely to trade in a range. Trend in FII flows and fresh global developments will also be closely watched.

Technically, 4100-4150 is seen as a crucial support, but upside is capped as well given the uncertainty over Budget and concerns over lofty valuations. One event on the charts to keep an eye on is the impending crossover of the 100 DMA over the 200 DMA.

Results Today: Adhunik Metaliks, Ansal Infra, BGR Energy and Gujarat Industries Power Co.

FIIs were net sellers in the cash segment on Friday at Rs290.8mn while the local institutions pumped in Rs4.13bn. In the F&O segment, the foreign funds were net buyers at Rs2.13bn. On Thursday, FIIs were net sellers at Rs5.16bn in the cash segment. Mutual Funds were net buyers of Rs1.29bn on the same day.

US stocks continued their struggle for a decisive move on Friday as well, as traders remained cautious ahead of the next batch of quarterly corporate earnings and locked in some gains after a three-month advance.

The Dow Jones Industrial Average lost 16 points, or 0.2%, to 8,539.73. The S&P 500 index added 3 points or 0.3%, to 921.23. The Nasdaq Composite index rose 20 points or 1.1%, to 1,827.47.

For the week, the Dow lost 259.53 points, or 3%, its first weekly loss in just over a month. The S&P 500 shed 24.98 points, or 2.6%, for the week. For the week, the Nasdaq fell 31.33 points, or 1.7%.

The US market was relatively quiet despite on Friday it being a "quadruple witching" day, as traders squared off positions ahead of big data due next week. The Federal Reserve will hold a two-day meeting, starting Tuesday. Besides, there will the bond auctions and economic reports on durable goods orders, home sales and personal spending and income.

Quadruple witching is a quarterly event in which stock index futures and options and individual stock futures and options all expire at the same time. It creates volatility in the underlying stocks, particularly toward the end of the session.

Since bottoming March 9 at a 12-year low, the S&P 500 had run up 40% through the week ended June 12. But US stocks closed lower this week on worries that the stock market rally may have outpaced any signs of recovery.

The blue chips closed in the red while the broader market eked out a small gain. The technology space bucked the trend with smart gains in bellwethers Apple, Microsoft and HP. Falling commodity prices weighed on the underlying stocks, keeping the blue chips in negative territory.

JPMorgan Chase led banks higher. The stock rose to the highest level in a week after the bank said that it will cost less to repay government rescue funds than some analysts estimated. Bank of America and American Express also gained, along with the broader financial sector. The KBW Bank sector index rose 2%.

Microsoft rallied after Goldman Sachs added the company to its "conviction buy list" and Apple climbed after releasing a new iPhone. Commodity producers fell with oil and metals prices.

Energy stocks were mostly down as a group after crude futures dropped 2.5%. Exxon Mobile and Chevron were the big losers.

In Friday's economic reports, the unemployment rate rose in nearly every state in the US in May, the government reported. One state - Nebraska - registered a decline and Vermont saw no change. For the full year, jobless rates were higher in all 50 states and the District of Columbia. However, stocks didn't react to the grim data as the labor market typically lags any broader economic recovery in the latter stages of a recession.

Apple's iPhone 3G S went on sale on Friday and was expected to sell as many as 500,000 copies over the weekend, according to Piper Jaffray. The 16-gigabyte version costs US$199 with a new contract with AT&T and the 32-gigabyte version costs US$299 with a new activation. Apple will also still sell an 8-gigabyte version for US$99. Apple shares gained 2.7%.

Late on Thursday, Research in Motion reported higher quarterly earnings that topped estimates and higher revenue that missed estimates. The BlackBerry maker also forecast current-quarter earnings that are above forecasts and sales at the low end of forecasts. Shares fell almost 5%.

JPMorgan added 2.4%. The bank will incur a one-time negative adjustment of US$1.1 billion reflecting accelerated amortization of the issuance discount on preferred shares sold to the government, the company said in a regulatory filing.

Novell surged 10%. The second-largest US seller of Linux software may be willing to sell itself, JPMorgan analysts said after meeting with Chief Financial Officer Dana Russell.

Carnival Corp. rallied 7.4%. Wachovia analysts recommended investors buy shares of the biggest cruise-line operator because of less pressure to cut prices. Yesterday, Carnival reported second-quarter profit that beat analysts’ estimates and said discounting is starting to let up.

Wyndham Worldwide Corp. climbed 9.8% after the franchiser of Ramada and Super 8 hotels reiterated its second-quarter forecast. Wyndham said it expects adjusted earnings of 36 cents to 41 cents per share, compared with the average analyst estimate of 37 cents.

E*Trade Financial Corp. tumbled 12% for the biggest decline in the S&P 500. The online brokerage that has lost money for seven consecutive quarters sold shares at a 23% discount to yesterday’s closing price, diluting the value of existing shares.

Ciena Corp. gained 8.3% after the maker of fiber-optic network gear for communications companies including AT&T was rated "buy" at Stifel Nicolaus & Co.

CarMax gained 17%. Its first-quarter profit dropped by much less than expected as a slump in sales and increased losses at the car dealer's auto-finance unit were nearly offset by higher profit per vehicle sold.

Hospira rose 5.8%. The specialty drug maker said a court granted it a summary judgment of non-infringement regarding Sanofi-Aventis' chemotherapy medication Eloxatin, and has tentative approval from the USFDA for the generic version of the product. Sanofi-Aventis' ADR added 1.4%.

Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 3.82% from 3.83% on Thursday.

US light crude oil for July delivery fell US$1.82 to settle at US$69.55 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery rose US$1.60 to settle at US$936.20 an ounce.

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

European shares ended higher for a second straight session on Friday, with mineral extractors and banks putting in strong performances. The pan-European Dow Jones Stoxx 600 index rose 1.3% to close at 208.28.

The UK's FTSE 100 index rose 1.5% to finish at 4,345.93, while the French CAC-40 index gained 0.9% to end at 3,221.27 and Germany's DAX index posted a small rise of less than 0.1% to close at 4,839.46.

Indian markets ended the week on a high as the BSE Sensex gained nearly 2% amid high volatility. Firm cues from the US and the Asian markets lifted the markets at open. Markets from there on turned highly volatile and slipped sharply. However, bulls staged come back staging a V-Shaped recovery towards the fag end of the session.

The Sensex surged 256 points or 1.8% to end at 14,522 after touching a high of 14,559 and a low of 14,178. The index had opened at 14,322 against the previous close of 14,265.

The NSE Nifty gained 62 points or 1.4% to shut shop at 4,314.

Asia markets ended in the green with the, the Hang Seng index rising 0.8% at 17,920 and Australia's S&P/ASX ended higher by 0.2% to 3,899. Nikkei index gained by 0.8% at 9,786.

Elsewhere in the Europe, stocks were trading higher as well. The FTSE index was up 1.8% at 4,357. The DAX index was up 0.4% at 4,853. CAC 40 index advanced 1.2% at 3,234.

Coming back to India, among the BSE Sectoral indices BSE Capital Goods index was the top gainer rising 5%, followed by the BSE Realty index up 3.6%, BSE Metal index up 3%, BSE IT index up 2.3% and BSE Bankex index up 2.2%.

In the Sensex, the major gainers were, Tata Steel, L&T, Reliance Infra, JP Associates, Ranbaxy, Tata Motors, Sterlite, BHEL and ITC. NTPC, M&M, ACC, Tata Power, Sun Pharma and TCS were the major losers.

Outside the frontline indices, the top gainers included Ispat Industries, Opto Circuit, Central Bank, Financial Tech, Glenmark, HCC and Educomp.

Among the big loser in the broader market were Akruti City, Tech Mahindra, TTML, Glaxo, Max India, and NMDC.

Shares of India Foils rallied by over 34% after resuming trading on Friday. The stock shot up to an intra-day high of Rs23.95 to finally end at Rs17.41. The total traded quantity was over 10.7mn shares on the BSE.

India Foils resumed trading on the BSE at Rs16.15 per share post the reduction in share capital. The stock had got suspended on September 19, 2008. It had hit a 52-week high of Rs30 on January 10, 2008 and a 52-week low of Rs10.31 on October 22, 2007.

Ess Dee Aluminium had acquired 90% stake in India Foils from the Vedanta group for which it paid Rs1.2bn.

India Foils is one of the largest producers of Aluminium Foil in Asia. The company has integrated manufacturing facilities and exports to over 35 countries globally.

Government announced on Friday that it has extended limits on the quantity of sugar by six months to January 8, 2010. The decision aims to control prices and curb hoarding, said the Home Minister P Chidambaram today.

The limit is on the amount of sugar traders can hold in a 30-day period.

The Prime Minister has also directed Cabinet Secretary K M Chandrasekhar to talk to chief secretaries of states and insist on implementing stock limits.

The uncertainly would continue to hinge over the Indian bourses. One should adopt a stock-centric approach. The market will remain in a consolidation phase in the near term. Budget could provide the next big impetus. At the same time, there could be some disappoints too.