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Thursday, September 03, 2009

Opportunities in obstacles


An obstacle is often an unrecognized opportunity.

The bulls will hope that the immersion, which symbolizes Ganesha’s return from the earth after removing obstacles, will hold true for the market. Sentiment suddenly appears to be sinking in the recent past with concerns especially on the monsoon front. But, the volatility in the market always provides some opportunities to capitalise on.

A flat to slightly positive start is in the offing. We expect stocks to remain lackluster and sideways in the near term without any specific bias. With most good news discounted, the market is now anxiously awaiting the next batch of positive triggers. At the same time, the poor monsoon has added to concerns that inflation will shoot up.

In fact, CPI has already started inching up, with most indices at around 10-12%. Even the WPI inflation is expected to turn positive in the run up to festivals. The Government and the RBI have their task clearly cut out. With stock valuations not cheap and uncertainty in global markets, the market will find it tough to make new highs.

Even the liquidity factor seems to be turning adverse, especially from the overseas side, due to the dearth of incremental good news. With the market turning volatile lately, some traders have resorted to the so-called pair strategies to avoid getting caught on the wrong foot. We see the churning of portfolios and the consolidation phase to continue for a while.

Coming to the big news, the missing Andhra Pradesh CM is yet to be traced. The search so far has proven to be elusive. Hope we hear some good news on this front soon.

FIIs were net sellers at Rs6.88bn in the cash segment on Wednesday on a provisional basis while the local funds pumped in Rs737.9mn, according to figures published on the NSE's web site. In the F&O segment, the foreign funds were net sellers at Rs13.6bn. On Tuesday, FIIs were net buyers of Rs3.02bn in the cash segment. Mutual Funds were net buyers of Rs935mn on the same day.

US stocks slipped on Wednesday after a volatile session as nervous investors continued to worry that the market rally may have outpaced any recovery.

The Dow Jones Industrial Average lost 30 points, or 0.3%, to 9,280.67. The S&P 500 index slid 3 points, or 0.3%, to 994.75. The Nasdaq Composite index managed a tiny gain of 2 points, or 0.2%, to 1,967.07.

Stocks seesawed throughout the session as investors considered a couple of private unemployment reports that signaled that the pace of job cuts continues to moderate, ahead of Friday's bigger August jobs report. Trading was largely listless.

The release of the minutes from the last Fed meeting failed to have any material impact on the sentiment. The FOMC minutes showed that the American central bankers thought that the US economy was stabilising, after weakening in 2008 and early 2009, and construction was starting to pick up.

The Fed policymakers also discussed the need to keep refining the central bank's so-called exit strategy after injecting billions into the financial system to help manage the meltdown.

Stocks slumped on Tuesday, with the three major gauges all losing around 2%. Since bottoming on March 9 at a 12-year low, the S&P 500 has basically been on the rise, adding 52% through Monday. Stocks saw a minor retreat in late June and early July, with the S&P 500 losing about 7% heading into the start of the second-quarter financial reporting period. But other than that small selloff, the direction has mostly been up.

Reports on Tuesday showed housing and manufacturing are recovering, but investors remain worried about the labor market and how rising joblessness will impact consumer spending. Consumer spending fuels two-thirds of the US economic growth.

Payroll services firm ADP said employers in the private sector cut 298,000 jobs from their payrolls last month after cutting a revised 360,000 in July. Economists were expecting 250,000 job cuts.

Separately, outplacement firm Challenger, Gray & Christmas reported 76,456 job cut announcements in August, 21% fewer than in July. Although both reports indicate the pace of job cuts has slowed, the US economy is still shedding jobs.

However, many economists were forecasting no abatement or improvement until later this year or early next. If the pace of the recovery in the jobs market continues and business spending picks up, the recovery could be stronger than forecast. But without those two factors, growth will remain sluggish.

A Labor Department report showed that non-farm productivity rose at a 6.6% annual rate during the second quarter versus the initially reported 6.4% pace. That was in line with forecasts.

Factory orders rose 1.3% in July, the Commerce Department reported. Orders rose a revised 0.9% in June. Economists thought orders would rise 2.2% in July.

Wells Fargo is set to repay the $25 billion in bailout funds it took from the U.S. government. The bank expects to pay it back from internal funds, rather than through issuing new shares. Financial stocks as a sector retreated for the second session in a row, although the declines were fairly modest.

The KBW Bank index lost nearly 8% in Tuesday and Wednesday's sessions after rallying 20% in the three months ended Aug. 31.

Pfizer will plead guilty to a criminal charge related to how it promoted now-defunct pain killer Bextra. The Dow component will pay $2.3 billion to settle charges it wrongly marketed 13 medicines. In January, Pfizer said it took the charge but didn't specify why.

Shares of Sepracor rallied 26.5% on published reports that Japan's Dainippon Sumitomo Pharma plans to make a $2.7 billion bid for the drugmaker.

Diversified manufacturer Danaher said it is cutting more jobs as part of its restructuring plan - and is buying two businesses that make scientific instruments for about $1.1 billion. The company is buying the life sciences instrument business of Canadian MDS for $650 million in cash.

That purchase includes a 50% stake in AB SCIEX, which makes instruments used by researchers. Danaher will also buy the rest of AB SCIEX for $450 million. Danaher shares gained 2%, while MCS shares gained 32%.

US light crude oil for October delivery settled at $68.05 a barrel on the New York Mercantile Exchange after a mixed weekly inventory report from the Energy Information Administration. The settle price was unchanged from the previous session. Oil prices have been slipping since hitting a 10-month high just below $75 a barrel late last month.

In other energy sector news, BP said that it has made a "giant" oil discovery in the Gulf of Mexico. Although the company doesn't yet know the volume of oil present, it is thought to be in excess of 3 billion barrels.

COMEX gold for December delivery rose $22 to settle at $978.50 an ounce.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.29% from 3.36% late on Tuesday.

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

US retail chain stores will be releasing August sales on Thursday. Investors will be looking to see if the stock rally and signs of recovery in the economy have had any impact on consumer spending. The Institute for Supply Management's services sector index for August is also due in the morning, along with the weekly jobless claims report.

European shares closed down for a third straight session, with financials among the worst performers as investors took some recent profits off the table. The pan-European Dow Jones Stoxx 600 index declined 0.5% to 230.49. The index ended with a 1.8% loss on Tuesday, the first day of September and the second consecutive day of losses.

Germany's DAX index lost 0.1% to 5,319.84, while the French CAC-40 index declined 0.3% to 3,573.13 and the UK's FTSE 100 index ended virtually unchanged at 4,817.55. In Spain, where unemployment rose in August, the Ibex 35 index fell 1.6% to 10,991.1.

Indian markets extended its losing streak to third straight trading session on Wednesday mainly on the back of a sell-off seen in the international equity markets. Domestically, disappointing reports on manufacturing PMI and exports coupled with weak monsoon continue to have adverse effect on market sentiment.

The IT, select telecom and the Pharma stocks were among the major gainers while the Realty and the Auto stocks took some beating. Even the Mid-Cap and the Small-Cap stocks were under pressure.

Over the past three days the NSE Nifty has lost 130 points or 2.6%, while the BSE Sensex has shed ~455 points or 2.8%. Technically, 4,550-4,560 is the 20 day moving average where the index could find some support.

On Wednesday, the BSE Sensex lost 84 points or 0.54% at 15,467 after touching a high of 15,628 and a low of 15,392. The index opened at 15,482 against the previous close of 15,551. The NSE Nifty slipped by 17 points to shut shop at 4,608.

In Asia, the Nikkei in Japan slipped 2.3% at 10,280 while Australia's S&P/ASX ended lower by 1.7% at 4,438. The Hang Seng index in Hong Kong was down 1.8% at 19,522. Meanwhile, Shanghai index in China recovered and ended higher by 1.2% at 2,714.

In Europe, stocks were trading in the red. The FTSE in the UK was down 0.5%. The DAX in Germany was down 0.9% and the CAC 40 index in France was down 1.2%.

Coming back to India, among the BSE sectoral indices, the Realty index was the top loser, shedding 1.7%, followed by the Auto index that was down 1.4%. The BSE Capital Goods index down 1.2% and the BSE Power index was down 1%.

Bucking the negative trend were BSE IT index up 1% and BSE Teck index was up 0.6%. The BSE Mid-Cap index slipped 0.7% and the BSE Small-Cap index lost by 0.4%.

Among the 30-components of Sensex, 21 stocks ended in the red and 8 ended in the positive terrain. Among the major losers were Sterlite, BHEL, JP Associates, M&M, Maruti and Tata Motors.

On the other hand, RCom, HUL, Hero Honda, TCS and Infosys were among the major gainers.

Outside the frontline indices, the big losers in the broader market were Gujarat NRE, Tulip Tele, PTC India, IRB Infra, Exide Ind. On the other hand, gainers included Essar Oil, Oracle Finance, P&G, OBC and Renuka Sugars.

Shares of Austral Coke & Projects were locked at 5% lower circuit at Rs48 after SEBI yesterday barred it from raising more funds.

The market regulator barred Austral Coke from raising any fresh equity after the IT department discovered an suspected more than Rs10bn fraud in the company's transactions.

SEBI hereby prohibits Austral Coke and Projects from raising any further capital in any manner, directly or indirectly, whatsoever, till further orders," the regulator said in an order.

The ban has come ahead of the company's board meeting on which was scheduled to be held on September 3 for considering raising about Rs9.6bn through private placement of shares with institutions.

Meanwhile, shares of Gremach Infrastructure were also locked at 10% lower circuit at Rs38. The stock opened at Rs38 and made an intra-day high of Rs38 and a low of Rs38. Total traded volumes stood at 0.184mn shares.

Shares of Ranbaxy and Strides Arcolab were in demand after they secured bagged order to supply 9.2mn capsules of generic or low priced version of swine flu drug Tamiflu. In addition, reports stated that Ranbaxy will market Daiichi Sankyo’s osteroporosis drug Evista in Romania through its subsidiary Terapia Ranbaxy.

Shares of Ranbaxy gained by 1.2% to Rs322. The stock opened at Rs322 and made an intra-day high of Rs327 and a low of Rs318. Total traded volumes stood at 0.32mn shares.

On the other hand, Shares of Strides Arcolab advanced by 6.5% to Rs162. The stock opened at Rs151 and made an intra-day high of Rs165 and a low of Rs151. Total traded volumes stood at 0.77m shares.

Shares of RNRL gained by 2.4% to Rs86. A court filing proposed by the government said its production-sharing contract with Reliance Industries must prevail over any private arrangement the company has for the sale of natural gas from the KG-D6 field. The stock opened at Rs85 and made an intra-day high of Rs88.8 and a low of Rs84.20. Total traded volumes stood at 10mn shares.

Maruti Suzuki announced that it plans to spend as much as Rs15bn on a research and development center in Rohtak, Haryana, said the Chairman R.C. Bhargava. The company aims to design small cars in India, he added. The stock was down by 2.2% to Rs1510. It opened at Rs1534 and made an intra-day high of Rs1571 and a low of Rs1507. Total traded volumes stood at 0.23mn shares.

Shares of Texmaco shot up by over 3.5% to Rs119 after Reliance Capital Trustee and Reliance Infrastructure Fund picked up 3.9313% stake increasing its stake to 6.0858%. The reliance funds acquired the shares through Qualified Institutional Placement, according to a disclosure made in the Bombay Stock Exchange. The stock opened at Rs115 and made an intra-day high of Rs127 and a low of Rs112. Total traded volumes stood at 0.32mn shares.

Shares of Redington India surged by over 10% to Rs258 after ~2.8% of the company’s shares changed hands in a single transaction. The stock opened at Rs231 and made an intra-day high of Rs274 and a low of Rs231. Total traded volumes stood at 2.9mn shares.