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Tuesday, February 23, 2010

Seeking direction!


If you can find a path with no obstacles, it probably doesn't lead anywhere.

Though India has successfully weathered the financial storm, the market remains in a limbo. With budget a couple of days away, the lackluster trend may remain. We expect a slightly lower start given that most world markets are in the red. The main indices have been stuck in a tight range amid concerns over fresh local as well as external headwinds. Even the broader market has been largely lackluster. FII flows have been erratic with a negative bias. Buying from local funds has been anything but tepid.

The NSE Nifty could meet resistance at around 4930. It has to sustain above 4950 convincingly to signal start of a fresh advance. Conversely, a break below 4800 might take it as low as 4650. We expect Nifty to remain in a range of 4800 to 4900 in the near-term. Of course, the budget could potentially alter the current market direction.

Global markets made a tentative start to the week as concerns about the speed of monetary tightening and worries over Greece’s fiscal position policy linger.

FIIs were net sellers in the cash segment on Monday at Rs1.02bn on a provisional basis while the local funds were net buyers of Rs1.17bn, according to figures published on the NSE's web site. In the F&O segment, the foreign funds were net buyers of Rs9.11bn. On Friday, FIIs were net buyers of Rs2.93bn in the cash segment, while Mutual Funds were net sellers at Rs1.48bn, according to SEBI web site.

Globally, the focus will be on Greek bond yields this week. If they rise too far the country's debt problems will get worse and the euro will suffer. Meanwhile, Europe is grappling with a sudden surge in labour unrest. The US senate voted to move forward on a $15bn jobs bill that was proposed by Harry Reid, leader of the Democratic majority in the Senate.

Asian stocks fell, led by mining companies and automakers, as metal prices declined and the stronger yen damped the earnings outlook for Japanese exporters.

The yen fell against higher-yielding currencies on prospects Japanese investment trusts will send funds overseas this week.

The dollar edged lower but remained close to an eight-month high on Monday as expectations of an early interest rate rise from the Federal Reserve dimmed.

Gold pushed higher but base metals were weaker as commodity markets made a mixed start to the trading week.

Crude oil fell in New York, paring gains from a five-day rally, on speculation that demand from US, the world’s biggest energy consumer, may be slowing. Oil slipped below $80 a barrel.

US stocks ended a choppy session lower on Monday as investors weighed earnings news, President Obama's health care proposal and Schlumberger's $11 billion buyout deal for oil services rival Smith International.

The Dow Jones Industrial Average lost 19 points or 0.2%, to end at 10,383.38. Last week, the Dow surged 300 points for its biggest one-week gain since November. The S&P 500 index finished virtually flat at 1,108.01. The Nasdaq Composite index too closed nearly static at 2,242.03.

The dollar fell versus the euro and gained against the yen.

US light crude oil for March delivery rose 35 cents to settle at $80.16 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $8.70 to settle at $1,112.60 per ounce.

Treasury prices fell, raising the yield on the 10-year note to 3.79% from 3.77% late on Friday.

Schlumberger said that it was buying fellow oil driller Smith International in an all-stock deal worth $11 billion. The two companies' boards of directors have already approved the deal and shareholders are expected to follow suit. Schlumberger shares fell 3.7% and Smith shares gained 8.8%.

In other company news, Lowe's reported higher-than-expected quarterly earnings and revenue and said sales would keep rising in the current year. However, shares of the home improvement retailer were little changed.

Shares of Dow component Bank of America rose just over 2% after a judge approved the proposed $150 million settlement between the financial firm and the Securities and Exchange Commission.

New credit card rules aimed at protecting consumers went into effect on Monday. However, the regulations could result in consumers facing new charges and additional fees as the industry looks to offset the lost revenue.

President Obama presented his outline for health care reform, ahead of the bipartisan health care summit later this week. The 10-year, nearly $1 trillion plan would purportedly cover more than 31 million Americans currently not insured without adding to the budget deficit. The plan also allows the government to shoot down or roll back insurance premium hikes.

A survey from the National Association for Business Economics showed that most leading economists think the recovery will remain on track.

US stocks had ended higher last week as investors digested the Federal Reserve's decision to lift the emergency bank lending rate. Stocks also posted gains for the second week in a row after four weeks of declines.

But stocks are likely to be volatile this week amid ongoing concerns about the outlook for the US economy. Reports are due on housing, jobs and GDP growth.

Fed chairman Ben Bernanke testifies before Congress on Wednesday and Thursday. Lawmakers meet in Washington later this week to discuss the Toyota recall, bank health and fiscal stimulus.

European shares closed lower, snapping a five-session winning streak, as drug makers weighed on the top index. The pan-European Dow Jones Stoxx 600 index slipped 0.3% to 249.67. Last week it gained ground every day, ending the week up 3.9%.

The Greek ASE Composite Index was up 1.5% at 1,957.39 as Alpha Bank shares rose 4.3% and National Bank of Greece gained 4.4%.

The UK FTSE 100 index lost 0.1% to 5,352.07, the German DAX index traded down 0.6% to 5,688.44 and the French CAC-40 index slipped 0.3% to 3,756.70.

Markets ended near day’s low, erasing almost all the day’s gains on the back of heavy offloading witnessed in the index heavyweights like Reliance Industries, DLF, Grasim and ITC. BSE Sensex erased nearly 190 points and the NSE Nifty erased almost 60 points from their respective day’s high.

Overnight gains the US and Asian markets lifted the benchmark indices at open. As the day progressed, markets turned lackluster and struggled for further direction until, media reports flashed that Securities and Exchange Board of India (SEBI) busted a price rigging racket, sending the main stock indices down in the late afternoon trade.

The capital market regulator restrained 16 individuals from trading in connection with the price manipulation case. Among the stocks allegedly rigged up by the accused are: KSL & Industries, Jaybharat Textiles, Allcargo, Lotus Eye Care, etc.

Post the announcement, a number of Railway stocks suddenly fell sharply with stocks like Titagarh Wagons and Stone India fell over 9% each.

The BSE Sensex marginally added 45 points to end at 16,237 it hit an intra-day high of 16,423 and intra-day low of 16,201. While the NSE Nifty added 11 points to end at 4,856.

Among the 30-components of Sensex, 18 ended in the positive terrain and 12 ended in the red. DLF, Grasim, Reliance Infra, Reliance Industries and Reliance Comm were among the top losers. On the other, major gainers were Hindalco, Tata Steel, Infosys, Hero Honda and Hindustan Unilever.

Outside the frontline indices, the big losers in the broader market were Chambal Fert, RCF, GMDC, Hindustan Copper and KSK Energy. On the other hand, gainers included Renuka Sugars, OBC, REI Agro and Yes Bank.

Shares of Fame India were locked at 5% upper circuit to end at Rs86.45 after media reports stated that Reliance MediaWorks has made an open offer to purchase a controlling stake in the company after Inox Leisure bought a stake in it.

Reliance MediaWorks offered to buy 21.6mn shares, making up a 62.1% stake in Fame India, at an average price of Rs83.40 per share in the company, reports added.

Reliance MediaWorks objected the buy-out of Inox, stating that its much higher offer of Rs80 per share for the company had been rejected.

Fame promoter Shravan Shroff had sold its stake to Inox at Rs44-45 per share. However, later, Shroff came out and clarified saying that he had not received a written offer of a higher bid from Reliance.

Shares of Inox shot up by over 17% to end at Rs78.4. The scrip opened at Rs69.4 it touched an intra-day high of Rs79.7 and a low of Rs69.2 and recorded volumes of over 4.7mn shares on BSE.

Shree Renuka Sugars announced that it entered into agreement with Grupo Equipav for an investment of Rs15.3bn for majority stake in Equipav S A, Brazil. The balance stake in the venture would be held by the founding Equipav Group.

The company consists of two very large and modern sugar/Ethanol mills with co-genaration facilities in Sau Paulo state in Southeast Brazil having a combined crane crushing capacity of 10.5mn tons of cane per annum.

Shree Renuka Sugars will use Rs5bn through a QIP, besides promoters' contribution of Rs1.85bn. The remaining Rs8.45bn will be met from internal accruals, K K Kumbhat, was quoted as saying.

Shares of Renuka Sugars rebounded from day’s low and surged 3.5% to end at Rs186. The scrip opened at Rs185 it touched an intra-day high of Rs190 and a low of Rs176 and recorded volumes of over 3.6mn shares on BSE.

Shares of Nestle India slipped by 2.5% to end at Rs2580 after the company’s Q4 net profit slipped by 7.4% to Rs1.12bn for the quarter ended December 31, 2009 as compared to Rs1.21bn for the quarter ended December 31, 2008.

Total Income increased from Rs11.03bn for the quarter ended December 31, 2008 to Rs13.62bn for the quarter ended December 31, 2009.

The company however has posted a net profit of Rs6.55bn for the Year ended December 31, 2009 as compared to Rs5.34bn for the Year ended December 31, 2008.

Total Income has increased from Rs43.58bn for the Year ended December 31, 2008 to Rs51.67bn for the Year ended December 31, 2009.