Search Now

Recommendations

Thursday, September 24, 2009

Swing to the beats of F&O and festivities


Being happy doesn't mean that everything is perfect. It means that you've decided to look beyond the imperfections.

Some seem to be getting the perfect festival bonanza with Top IT companies doling out generous pay hikes and promotions. Last week, the Government had announced a hike in DA. The real estate industry has also resumed hiring. India Inc.’s fund raising binge continues. Bank lending has seen a pick up in Q2. FIIs remain bullish on India and have pumped $10bn already. The demons over the aftereffects of drought have been pretty much exorcised.

Globally too, things have improved quite a bit with the Dow nearing 10,000. Central banks are in no hurry to start reversing their extraordinary stimulus steps. Overall business-cum-investment sentiment is upbeat and risk appetite is back.

Today we expect a slightly lower opening due to weak global cues. The usual wild swing associated with F&O expiry would be there. Overall, we maintain our cautiously optimistic stance.

Among the concerns are with regard to inflation, though most central banks are willing to ignore it for a while. The other challenge will be to unwind the expansionary monetary and fiscal stimulus. Valuations too are not cheap, especially when promoters of large firms are selling.

Wind could blow in favor of companies like Suzlon with the US Treasury releasing USD 550 million towards cash grants for renewable energy.

US stocks closed down on Wednesday, notwithstanding the positive undercurrent in the FOMC statement. The key indices came off their one-year peaks as investors locked in some profit after the Fed policymakers decided to hold interest rates steady and kept the economic outlook relatively unchanged.

The Dow Jones Industrial Average lost 81 points, or 0.8%, to 9,748.55. The Dow ended the previous session at the highest point since Oct. 6, 2008. The S&P 500 index fell 10 points, or 1%, at 1,060.87 after ending the previous session at the highest level since Oct. 3.

The Nasdaq Composite index fell 14 points, or 0.7%, to 2,131.42 after finishing the previous session at the highest mark since last Sept. 26.

The major US indexes have repeatedly closed at near one-year highs over the past two weeks. Better earnings reports from Corporate America should give the rally another push.

Since bottoming at a 12-year low March 9, the S&P 500 has gained 56.8% and the Dow has gained 48.9%, as of Wednesday's close. After hitting a six-year low, the Nasdaq has gained 68%. Stocks have risen during this period on signs that the economy is slowly starting to recover, and on extraordinary amounts of fiscal and monetary stimulus.

US stocks initially rallied after the FOMC announcement, but failed to hold on to those gains. A milder-than-expected response to a government auction of $40 billion in five-year notes also contributed to the late declines.

The Federal Reserve kept the fed funds rate, a key short-term bank lending rate, at a level near zero, as expected. The announcement was made at the end of its two-day policy meeting. In the statement, the bankers said that "economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased."

But the FOMC also noted that consumer spending has remained under pressure due to the rough jobs market and still-tight credit conditions. Last week, Federal Reserve chief Ben Bernanke said that the recession was very likely over, but the labor market still has a long way to go. The Fed policymakers reiterated that it was likely to keep the fed funds rate at the historic lows for the foreseeable future.

Investors were also looking for more on how the Fed plans to eventually wind down programs that have pumped as much as $1 trillion into the economy to cushion the blow of the recession. To that end, the Fed said it will stretch its purchases of $1.25 trillion of mortgage-backed securities from Freddie Mac and Fannie Mae through the end of the first quarter of 2010. Previously, the program was set to end through Dec. 31.

American Airlines and US Airways Group both slipped after announcing plans to raise cash, dragging down the whole airline sector.

American said it has priced its offering of 48.5 million shares of common stock, as well as $400 million in 5-year notes, with both offerings due to close Monday. The two sales should give American about $770.5 million after fees and expenses. American parent AMR fell 7.8%.

US Airways Group said it will sell 26.3 million shares of its common stock to Citigroup, the offering's underwriter, with the sale due to close Monday. US Airways fell 13.6%. The NYSE Arca Airline index lost 2%.

General Mills reported higher quarterly earnings that topped forecasts and boosted its full-year outlook, due to strong sales of Cheerios, Trix and its other cereal brands. Shares rose over 4%.

Treasury Secretary Timothy Geithner told a House committee that U.S. economic growth appears to be picking up, but that reforms must be enacted to fix a broken system. He was testifying at a House Financial Services committee hearing on regulatory reform.

At least one million people could be eligible for an additional 13 weeks of unemployment benefits, following a House of Representatives bill approved Tuesday night. The Senate is expected to take up the issue soon, although it faces some questions about how it should be funded.

The dollar held on to gains versus the yen and euro following the Fed announcement. The greenback had touched a fresh one-year low against a basket of currencies in the morning. The strength in the dollar dragged on dollar-traded oil and gold prices.

US light crude oil for October delivery fell $2.79 to settle at $68.97 a barrel on the New York Mercantile Exchange, dropping after a government report showed a big jump in weekly crude supplies.

COMEX gold for December delivery fell $1.10 to settle at $1,014.40 an ounce. Gold closed at a record high of $1,020.20 last week.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.41% from 3.44% late on Tuesday.

Thursday brings the weekly jobless claims report from the Labor Department and the existing home sales report from the National Association of Realtors (NAR).

Also, the G-20 summit in Pittsburgh begins on Thursday. The Group of 20 leading developed and emerging countries will discuss the ongoing efforts to stabilize economies after the financial market meltdown.

In Europe, the pan-European Dow Jones Stoxx 600 index, which basically see-sawed during the first two days of the week, edged up 0.2% to 244.54.

Minutes from the last Bank of England meeting that were released Wednesday suggest the UK central bank will stay on the sidelines until at least November.

The German DAX slipped 0.1% to 5,702.05, the UK's FTSE 100 weakened 0.1% to 5,139.37 and the French CAC 40 closed flat at 3,821.79.

Indian markets took a pause for the first time in last 12 trading sessions with the NSE Nifty closing below the 5,000 mark. It was an absolute lackluster day of trades as key indices continued to struggle for any specific direction.

Markets players were in a limbo on account of mixed global cues, uncertain external environment and F&O expiry. Traders also seemed to be waiting for the Fed policymakers’ verdict, the meet would end later today (US time).

The late slide was led by the Realty, Telecom and the IT stocks. Even the Mid-Cap and the Small-Cap stocks weren’t spared.

The BSE Sensex fell 166 points or 1% at 16,719 after touching a high of 16,905 and a low of 16,838. The index opened at 16,905 against the previous close of 16,886. The NSE Nifty slipped 50 points to shut shop at 4,969.

In Asia, the Nikkei in Japan was shut while Australia's S&P/ASX ended higher by 1.5% at 4,734. Shanghai SE Composite in China fell by 2.8% at 2,842. However, the Hang Seng index in Hong Kong ended lower 0.5% at 21,595.

In Europe, stocks were in the green. The FTSE in the UK was up 0.4%, The DAX in Germany was up 0.2% and the CAC 40 index in France gained 0.2%.

Coming back to India, among the BSE sectoral indices, the Realty index was the top loser, shedding 2.3%, followed by the Teck index that was down 2%. The BSE IT index down 1.7% and the BSE Capital Goods index was down 1.5%.

The BSE Mid-Cap index fell 1.2% and the BSE Small-Cap index was down 1.3%.

Among the 30-components of Sensex, 25 stocks ended in the red and 5 ended in the positive terrain. Among the major laggards were JP Associates, Bharti Airtel, RCom, M&M and Hindustan Unilever.

On the other hand, HDFC Bank, Sterlite, Sun Pharma and ONGC were among the major gainers.

Outside the frontline indices, the big losers in the broader market were P&G, Tulip, Gujarat NRE, LITL, APIL and Indian Bank. On the other hand, gainers included IOB, Central Bank, Piramal Health, Federal Bank, UCO Bank and Ashok Leyland.

Shares of Suzlon Energy slipped by 6% to Rs94.6 after promoters of the company sold ~70mn equity shares at an average price of Rs98.4 per share.

The company has managed to raise ~Rs6.89bn selling ~50mn on the BSE and ~20mn on the NSE. Citi Bank was the sole banker for the deal. After selling 4.5% stake, promoter’s stake is reduced to 53.08%

Shares of JP Associates dropped by over 6% to Rs234 after the company sold ~40mn treasury stocks in the open market at an average price of Rs238.5 per share.

The company managed to raise ~Rs9.54bn through the deal. Bank of America Merrill Lynch was the banker for the transaction. The stock opened at Rs247 and made an intra-day high of Rs247.7 and a low of Rs232. Total traded volumes stood at 40.13mn equity shares on NSE.

Jindal Cotex which had a decent debut on Dalal-Street has further extended gains for the second straight trading session on Wednesday. The stock further clocked in gains of 1% to Rs87. Jindal Cotex has now surged over 18% in the past two days.

The company’s IPO was launched on August 27, 2009 with a public issue of 1, 24, 53,894 equity shares of face value of Rs10/- each with price band of Rs70 to Rs75 per share, was subscribed 2.19 times.

The company plans to use the proceeds of the issue mainly for entering into technical textile space through investment in wholly owned subsidiaries viz., Jindal Medicot Limited (JML) and Jindal Specialty Textiles Limited (JSTL).

Opto Circuits wholly-owned US-based subsidiary, Criticare Systems Inc. (CSI), has signed a strategic long term agreement with a European manufacturer and distributor of medical equipment.

The agreement involves the supply of private label patient monitoring systems by CSI to the partner as well as cooperation in sales and distribution of anaesthetic gas delivery products in several key markets, both in the United States and Europe.

Shares of Opto Circuit were down by 1% to end at Rs198. The stock opened at Rs202 and made an intra-day high of Rs202 and a low of Rs196. Total traded volumes stood at 0.29mn shares.

Cipla raised US$140mn by selling shares to institutional investors, reports stated. The company sold the shares at an average price of Rs263.75 apiece, added reports.

The company plans to use the proceeds for "capacity expansion," Cipla CEO Amar Lulla said. The share sale is being managed by CLSA Asia-Pacific Markets, JPMorgan Chase & Co. and Kotak Mahindra Capital Co.

Shares of Cipla ended lower by 1.5% to Rs260. The stock opened at Rs266 and made an intra-day high of Rs267 and a low of Rs258. Total traded volumes stood at 0.27mn shares.

Venus Remedies surged by over 4.5% to Rs264 after the company announced that SULBACTOMAX, a research product of Venus Remedies has been successfully out licensed to one of the top 10 Pharma companies in South Korea.

Korean party has been given Exclusive Marketing Rights for the whole life of patent. As per the agreement terms the product will be supplied from Venus Baddi unit, which is accredited with multiple international GMPs. The Company has already initiated product registration process through their collaborators. Commercial supplies are expected to begin early 2011.

Ackruti City plans to raise upto Rs10bn in FY10 by putting its properties on sale. The company has put its BKC office space on the sale and also plans to sell 14 sites on sale in the next 2 months.

Shares of Ackruti rose 1% to end at Rs538. The stock opened at Rs538 and made an intra-day high of Rs554 and a low of Rs535. Total traded volumes stood at 0.16mn shares.