Edelweiss - Daily Market Outlook 5th April, 07

Market Snapshot

Taking cues from its global counterparts, the Indian indices also opened yesterday's proceedings on a strong note. With bulls managing to clock further gains during the final hour of trade, Markets closed well inside the positive territory for the second day running. The BSE Sensex closed at 12,787 while the NSE Nifty closed at 3,733.

The NSE and BSE cash volumes were slightly higher compared to the previous day at INR 70 and INR 32 bn respectively. The F&O volumes were lower at INR 220 bn.

Sentiment Indicators

The Implied Volatility (IV) across Nifty strikes has increased to 27-28% levels. The WPCR of Nifty Options decreased to 0.72 compared to the previous day while the 5 day average is 0.83.

Outlook

We expect market to open slightly positive taking strength from yesterday’s gains. However, over the course of day, we expect that markets should see some selling pressure around the levels of 3725-35, and remain range-bound as volatility has dropped and the investors are cautious before the long weekend.

The metals stocks are expected to exhibit strength on the back of strong base metal prices. IT stocks, however, are expected to turn negative again because of strong appreciation in the rupee. Automobile stocks are expected to continue their weak run, following weak growth in the sales and the rising interest rates.

Nifty has a strong resistance at 3750 followed by 3763, and finds support at 3726 and 3695. We would recommend creating subtle short positions on Nifty futures, if it fails to cross the resistance levels of 3750.

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Citigroup - India Equity Strategy

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ENAM - CRAM Sector

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Intra-day Stock Ideas

NIFTY (3733) SUP 3720 RES 3764

BUY CROMPGREAV (196.40)
SL 192 T 204, 206

BUY ADANIENT (210.95)
SL 206 T 218, 221

BUY TATASTEEL (438)
SL 432 T 448, 451

SELL PRITHVI (253.45)
@ 256 SL 260 T 246, 243

SELL M&M (711.80)
@ 714 SL 719 T 704, 701

Market Watch

Insider Trades:

R Systems International Limited: Ramneet Singh Rekhi (along with other Promoters) has purchased from open market 6500 equity shares of R Systems International Limited on 30th March, 2007.

Jindal Stainless Limited: Reliance Long Term Equity Fund - Schemes of Reliance Mutual Fund has purchased from open market 98281 equity shares of Jindal Stainless Limited on 30th March, 2007.

Shree Renuka Sugars Limited: 1) Morgan Stanley & Co. International Limited a/c Morgan Stanley Dean Witter Mauritius Co. Ltd. 2) Morgan Stanley & Co. International Limited A/C Morgan Stanley Investment Mauritius Ltd. has purchased from open market 90000 equity shares of Shree Renuka Sugars Limited on 2nd April, 2007.

Market Volumes:

The turnover on NSE was up by 3.3% to Rs69.71bn. BSE Capital Good index was the major gainer and gained 2.23%. BSE Pharma index (up 2%), BSE Metal index (up 1.79%), BSE PSU index (up 1.61%) and BSE Oil & Gas index (up 1.34%) were among the other major gainers.

Volume Toppers:

IFCI, Gujarat Ambuja, NTPC, Ashok Leyland, R Com, Ran Sugar, Idea, SAIL, Balrampur Chini, Bajaj Hindusthan, Gujarat NRE, Renuka Sugar, Dhampur Chini, ACC, IVRCL Infrastructure, IDFC, Aptech, Praj Industries and TTML.f

Upper Circuit:

Crisil, Gujarat Fluro, Deccan Aviation, Atlanta, PSTL, Shree Ashtvinayak, Nirlon, Marg Construction, McNally Bharat, Steel Stripes and Taneja Aerospace.

Abnormal Delivery:

Moser Baer, HCL Technologies, Industrial Development Bank Of India, HDFC Bank, Mphasis BFL, UTI Bank, Hexaware Technologies and McDowell.

Delivery Delight:

ABB, Aptech, ACC, Aurobindo Pharma, BHEL, Bharti Airtel, Century Textiles, Crompton Greaves, Dhampur Sugar, Divis Laboratories, Dr Reddys, GAIL, Glenmark, HCL Technologies, Hindustan Zinc, I-Flex, Jyoti Structures, NTPC, Nagarjuna Construction, Orchid Chemicals, Praj Industries, Sterlite Industries, Strides Arcolab, Titan Industries and Wipro.

Stock Futures with Largest Increases in OI:

Chennai Petroleum, Mahindra & Mahindra, Great Eastern Shipping, Praj Industries, BHEL, Corp Bank, Ultra Tech Cement, Grasim Industries, Kotak Mahindra Bank and Reliance Communications

Stock Futures with Largest Decreases in OI:

Crompton Greaves, Orchid Chemicals, IVRCL Infrastructures, Bajaj Hindusthan, Shree Renuka Sugar, Gateway Distripark and VSNL.

Brokers Recommendations:

ITC – Buy from Deutsche Bank with target of Rs174.

Educomp Solutions – Buy from Merrill Lynch with target price of Rs1270.Long Term investment:
BEL

STRATEGY INPUTS FOR THE DAY

Book profits at every gain

The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next.

The sentiment is swinging more than the weather which promises to make the bulls and bears sweat alike. Beaten down stocks could see buying and outperformers could see correction. Neither technical nor fundamental reasons come into play sometimes. Short to medium term traders continue booking at every gain as the near term trends remain choppy.

We expect a cautious to positive opening on the back of marginal gains in the US stocks and a mixed opening in Asian markets. Local sentiment may get a temporary boost from news that Iran has released the 15 British navy personnel. Oil prices cooled off a little following the development in the middle east. It may turn out to be a choppy and dull session before Friday's holiday.

FII inflows are quite volatile these days and Mutual Funds have been selling. Concerns over inflation, hardening interest rates and their combined impact on the Indian economy and corporate profits will remain at the back of investors' minds. The upcoming earnings season may throw up some nasty surprises. As a result, the bulls may have to endure some more pain going forward and stability may not return on the street for another couple of months.

Renuka Sugars may see some weakness in F&O while IDBI Bank could see some buying. Plethico Pharma could attract some attention as it is reportedly looking at buying a stake in a retail pharmacy company in the CIS region. Jet Airways might be in focus following the mass exit of some key personnel. HLL may also be in action after selling Sangam Direct to the Wadhawan Group. Morepen Labs could perk up amid reports that Standard Chartered's private equity arm is eyeing a stake in the troubled drug maker after Avenue Asia walked out of a deal. IT companies will continue to hog the limelight ahead of their earnings and guidance.

US technology shares sent the Dow Jones Industrial Average and Nasdaq Composite Index to their fifth consecutive gain on an improved profit forecast for Microsoft. Shares of the software giant rose the most in two weeks after an upgrade from Citigroup. Others like Oracle and Cisco climbed to a five-week high and lifted the Standard & Poor's 500 Index to its third straight advance. The Dow added 19.75 points, or 0.2%, to 12,530.05. The Nasdaq rose 8.36 points, or 0.3%, to 2458.69. The S&P 500 finished flat at 1439.37.

US light crude oil for May delivery fell 26 cents to settle at $64.38 a barrel on the New York Mercantile Exchange after Iran's president pardoned and pledged to release the 15 British sailors and marines being held. The front-month contract was quoting 17 cents down at $64.21 a barrel in extended trading in Asia.

Treasury prices gained, lowering the yield on the 10-year note to 4.65% from 4.66% late on Tuesday. In currency trading, the dollar fell versus the euro and the yen. Gold futures climbed to close at a five-week high, underpinned by weakness in the dollar and physical demand. Gold for June delivery rose $7.70 to close at $677.40 an ounce on the New York Mercantile Exchange. It climbed to $681 earlier, its strongest intraday level since March 1.

European shares posted modest gains. The pan-European Dow Jones Stoxx 600 index inched 0.1% higher to 381.23. The French CAC-40 closed up 0.5% at 5,739.01, while the German DAX Xetra 30 added 0.4% to 7,073.91 and the UK's FTSE 100 finished virtually flat at 6,364.70.

US and most European markets will be closed tomorrow for Good Friday.

Asian markets are mixed this morning, barring the one in Hong Kong. The Nikkei was down 78 points at 17,467 while the Hang Seng in Hong Kong surged by 207 points to 20,209. The Kospi in Seoul fell by 3 points to 1479 and the Straits Times in Singapore added 8 points to 3341.

HOW MARKET FARED

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Cooling at higher levels

The markets rose for second straight trading session as bulls extended their gains. Strong global cues boosted the markets at open. Further gains in the Capital Goods, Bank, Metal and Pharma stocks lifted the benchmark index Sensex to hit an intra-day high of 12835.36. However, selling pressure in the FMCG and the Auto stocks dragged the markets to pare some early gains. Yet, strong buying in scrip’s across the sectors held the key indices firm to close in positive terrain.

BHEL continued its up trend accompanied by NTPC and Zee Telefilms. Sugar stocks again gave sweet returns. The small cap index fared well however the Mid-Cap index underperformed. Finally, the 30-share benchmark Sensex gained 162 points to close at 12786. NSE Nifty also gained 42 points to close at 3733.

Garware Offshore ended flat at Rs188. The company received a letter of Intent of award of contract from ONGC. The scrip touched an intra-day high of Rs190 and a low of Rs184 and recorded volumes of over 1,00,000 shares on NSE.

Satyam Computer fell by 1.7% to Rs453. The company announced that it has launched a 4,500 square-foot development center in South America. The scrip touched an intra-day high of Rs490 and a low of Rs450 and recorded volumes of over 35,00,000 shares on NSE.

ICSA India pared its intra-day gains by 0.6% to Rs1015. The Company announced that they secured work order for a total contract value of Rs.231.7mn from Chief General Manager / Projects, Visakhapatnam. The scrip touched an intra-day high of Rs1043 and a low of Rs1015 and recorded volumes of over 9,000 shares on NSE.

Air Deccan surged to higher altitude after Managing Director of the company G R Gopinath announced that they may turn to profit by December Quarter. The scrip surged nearly by 5% to Rs92 touching an intra-day high of Rs92 and a low of Rs88 and recorded volumes of over 2,00,000 shares on NSE

SAIL gained by 1% to Rs112 after the Board of Directors of the company gave an ' in-principle' approval to a proposal for the modernisation and capacity expansion of Bhilai Steel Plant (BSP) to 7mn tons (MT) of crude steel per annum. The scrip touched an intra-day high of Rs113 and a low of Rs111 and recorded volumes of over 54,00,000 shares on NSE

Capital Good stocks were in the limelight. BHEL again surged by over 4% to Rs2353, ABB was up by 2.4% to Rs3527, L&T advanced by 1.3% to Rs1549 and Siemens added 1.3% to Rs1050.

Auto stocks witnessed selling pressure. Hero Honda dropped by 2.8% to Rs639, M&M was down 2.1% to Rs711, Maruti fell 1.4% to Rs745 and TVS Motors edged lower by 0.8% to Rs56.

FMCG stocks also were on the receiving end. HLL lost by 1.2% to Rs197, Dabur was down 0.5% to Rs92, ITC declined 0.9% to Rs148 and Britanna dropped 1.6% to Rs1210.

Telecom stocks continued to trade higher. Bharti Airtel advanced 1.8% to Rs747, VSNL gained 1.6% to Rs401 and MTNL added 1.4% to Rs145. However, Reliance Communication dropped 1% to Rs397.

Emkay - Morning Notes, Four Wheeler Update

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Market may edge lower

The market may edge lower today in the absence of major buying ahead of a long weekend. The market remains closed on Friday (6 April 2007) on account of Good Friday. Low volumes indicate that many market participants are on the sidelines. The key data today is the weekly inflation data.

The undercurrent remains cautious on concerns that economic growth will slowdown following RBI’s rate hike campaign. With inflation a percentage point above the central bank’s forecast, RBI late last week unexpectedly raised cash reserve ration along with hike in short term interest rate. The wholesale price inflation rate is expected at 6.29% for the 12 months to 24 March 2007, falling from an annual rise of 6.46% a week earlier. The data will be released today.

Infosys’ FY 2008, which it will unveil along with Q4 March 2007 results, on 13 April 2007, is the next major trigger for the market. In a recent pre-guidance report on Infosys, Merrill Lynch placed a short-term 'sell' on the Sensex heavyweight, expecting a conservative guidance from the company due to an uncertain US economic outlook, the appreciation of the rupee versus the dollar and other client-specific issues. Merill Lynch expects Infosys to give an EPS growth guidance in the early 20s.

Of late, there is lack of clear direction from FIIs, as they have been pushing in and pulling out fudns on alternate days. As per provisional data, FIIs were net sellers to the tune of Rs 45 crore on Wednesday (4 April). FIIs were net buyers to the tune of Rs 360.63 crore in index-based futures on Wednesday. They were net buyers to the tune of Rs 329 crore in individual stock futures on that day.

Strength in Asian stock markets also ebbed on Thursday (5 April). Stock indexes in Australia, Singapore and South Korea hit record highs on Wednesday (4 April) but stocks in Australia and Korea were weaker on Thursday morning. Stock markets in Hong Kong and Taiwan were closed. Japan’s Nikkei 225 average was down 0.43%.

US stocks managed slim gains Wednesday, following the previous session's big rally, as investors eyed lower oil prices and weaker than expected economic reports The Dow Jones industrial average (up 19.75 to 12,530.05) and the broader S&P 500 (up 1.60 to 1,439.37) index both added a few points. The Nasdaq composite added 0.3 percent.

US light crude oil for May delivery fell 26 cents to settle at $64.38 a barrel on the New York Mercantile Exchange on Wednesday after Iran's president pardoned and pledged to release the 15 British sailors and marines being held. Concerns about the standoff between the two nations had driven up the price of oil over the past week. Iran is the No. 4 oil exporter.

Anand Rathi - Daily Strategist

The NIFTY futures saw a rise in OI 2.42% with prices positive indicating that as market opened high and not ready to go below 360 levels weak shorts covered their positions and forced price to remain above 3650 levels. We feel that till the market doesn't go below 3650 levels we may not see aggressive short positions in the nifty futures and longs liquidating their positions. The FIIs bought index futures to the tune of 361crs indicating short covering by them whereas buyers in index options indicating hedged positions built up by them. The PCR has come down form 0.87 to 0.85 levels indicating some buying support emerging in the market. The volatility has come down from 28.65 to 27.50 levels indicating some buying support may emerge at lower levels in the market.

Among the Big guns, ONGC saw rise in OI to the tune of 7.09% with prices marginally positive to the tune of 0.45% indicating built up of long positions and short positions aggressively indicating sharp movement in the counter on either direction whereas RELIANCE saw rise of OI to the tune of 1.80 % with prices positive indicating that shorts covered their positions and fresh positions built up in the counter indicating strength in the counter.

In the TECH front, INFOSYSTCH, WIPRO saw rise of OI with rise in prices indicating lot of long positions being built up in these counters INFOSYSTCH saw built up on the expectation of results. The built up in these counters indicates strength .SATYAMCOMP saw rise in OI with prices coming down indicating built up of shorts indicating weakness in the counter .TCS saw rise in OI with prices almost flat indicating sharp movement in the counter.

In the BANKING counters, SBIN, HDFCBANK saw rise in OI with prices going up indicating that long positions built up in these counters indicating strength in these counters whereas ICICIBANK saw fall in OI with prices up indicating short covering in the counter.

In the metal pack TATASTEEL, Saw fall in OI with price positive indicating shorts covering in their positions in the counter SAIL saw fresh built up in OI with rise in price indicating fresh buying emerging in the counter indicating further strength in the counter. HINDALCO&NALCO saw fresh built up in long positions indicating strength in the counter whereas STER saw loss in e OI with prices up significantly indicating heavy short covering in this counter which may last for some time as lot of short positions are pending in this counter.

Considering the overall scenario and the markets behavior the market may show some volatility before taking any sharp and directional movement .If it remains below 3650 levels we may see fresh short positions being built up in the market. Traders are advised not to go aggressively short on the market unless important support level of 3650 is breached and any position taken today should be with strict stop losses to be adhered too.

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Anand Rathi - Daily Technical Note

ifty and Sensex have exhibited a bullish candlestick.

Technically, one may use the level of 3675 (Nifty) and 12675 (Sensex) as the stop loss level.

Nifty faces resistance at 3820 and Sensex at 13000.

BSE Smallcap and BSE Midcap exhibited bullish candlesticks.

CNX IT has gained ground.

In the Punter's zone we have a BUY in RELIANCE CAPITAL and MIND TREE & SELL in JET AIRWAYS.

In the Technical call section, we have a BUY in RELIANCE INDUSTRIES & SELL in SOBHA , SHREE RENUKA SUGARS.

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Business of Bad Beta

In my career as a teacher, I have often come across the thought that the biggest problem with the concept of education is the very definition of the word (education).

When we teach our children, the typical middle-class Indian often confuses information with education. To me, education is all about building attitudes. The most beautiful thing about this is that it does not need a classroom.

For example, one of my first actions at the start of a course is to launch an attack on the concepts of Classical Finance. I find that Classical Finance is full of good-looking, logical (this word is often mistakenly confused with rational) and mathematical models that assume away reality. This obsession with logicality, in order to be 'rational' is probably the real reason why Classical Finance is often irrelevant in the pursuit of investing success. In capital asset pricing model (CAPM), for example, Harry Markowitz sets out to build the perfect portfolio. Very simply, he equated the volatility of a stock with the risk embedded in it.

CAPM allows investors to calculate the weights to give to each stock (given expected return, expected risk, and the correlation) in order to achieve the portfolio with the greatest return for a given level of risk. Investors can have mean-variance efficient portfolios, i.e., they will minimise the variance of portfolio return, given expected return, and maximise expected return given the variance.

CAPM rests on the concept of beta, the single factor that distinguishes between any two stocks in a portfolio universe. Everything else was assumed away. Beta, therefore, emerged as a surrogate measurement for risk. Meanwhile, I have a different understanding of risk. With my firm belief in the underlying irrationality of man, I define risk as the level of 'foolishness' in the stock. Foolishness, or 'feta' as I call it, is a measure of the amount of human misperception embedded in the behaviour of a stock. According to me, feta would be a better predictor of portfolio returns than the better-known beta. I pointed to some feta in a previous article about Tata-Corus.

No doubt, feta is much more difficult to measure with a nice, round number, which can be multiplied with the 'risk-free rate' to give you the cost of capital, the benchmark return against which all money managers must measure themselves. But that is precisely the point of this article. If you set the bar at a convenient but wrong height, you will never even start to figure out how well you did.

But enough of my own (irrationalist) version of CAPM. In the 'real' world of Classical Finance, many studies have found that beta is not a good indicator of risk. Portfolios constructed with the Markowitz model tend to underestimate the potential returns to low-beta stocks, at the same time massively overestimating returns from high-beta stocks.

Over the long run, there has been little relationship between the beta of a stock and its long-term returns. I have my own explanation for this. Beta, in some way, measures the relative enthusiasm in a stock (relative to an Index, or market, for example). Beta, therefore, is sometimes a measure for the linear underlying sentiment in a market, exuberant enthusiasm in a raging bull market or demented depression in a dying, bear market. Under such conditions, high-beta stocks will actually turn the most bearish in a downturn (like the real estate stocks in the recent February sell-off), while low-beta stocks will therefore outperform their erstwhile leaders, like Hero Honda, a laggard in the last two quarters, did not drop with the market during the recent crash.

Under certain conditions, beta is the manic-depressive face of Warren Buffet's 'Mr Market' - the fool who sells you his shares on the cheap, only to buy it from you at crazily inflated prices shortly thereafter. During such periods, it might make sense to weight your portfolio towards low -beta stocks. In 2001, I was short on IT stocks and bought sugar stocks. The former tanked 65 per cent on an average, while the latter went up 30 times in four years. I am looking for low-beta stocks again just now, as I expect another bear market. High beta? Take a look at Real Estate! In the US, studies over the 60s show that over a large universe of 600 stocks, stocks with the lowest beta have given the highest return, while those with the highest beta have given the lowest return. This is the complete inverse of the CAPM predictions. What is true of stocks has also been found to be true of portfolios, i.e., low-beta portfolios generate higher returns with lower risk than the mainline market indices.

For those who are interested in understanding this in detail, a recent portfolio constructed out of Reliance Energy, Tata Steel and Hero Honda has obtained a beta to the Nifty of 0.3. The return on investment is running at above 400 per cent, ignoring taxes. If one assumes that the downside risk on the Nifty is 30-40 per cent, and this track record is maintained, we have a risk to return ratio of 1:10. That is a fairly safe strategy in the worst of circumstances.

Ben Graham once argued that "Beta is a more or less useful measure of past price fluctuations of common stocks. What bothers me is that authorities now equate the beta idea with the concept of risk. Price variability, yes; risk no. Real investment risk is measured not by the per cent that a stock may decline in price in relation to the general market in a given period, but by the danger of a loss of quality and earning power through economic changes or deterioration in management".

CAPM assumes:

• No transaction costs (no commission, no bid-ask spread)
• Investors can take any position (long or short) in any stock in any size without affecting the market price
• No taxes (so investors are indifferent between dividends and capital gains)
• Investors are risk averse
• Investors share a common time horizon
• Investors view stocks only in mean-variance space (so they all use Markowitz's optimization model)
• Investors control risk through diversification
• All assets, including human capital, can be bought and sold freely in the market
• Investors can lend and borrow at the risk free rate

Let us take a few of the above assumptions to see how artificial they are. Any portfolio allocation that is based on relative volatility would have to be dynamic, with a large number of portfolio shifts. How can there be no transaction costs, or how can transaction costs be minimal?

Any institutional investor will tell you that it is impossible to enter or exit the market without disturbing the price discovery mechanism. Only individual investors can do that, and they don't use CAPM. In any case, individual investors cannot lend or borrow at the risk-free rate.

In a previous article on Tata-Corus, I showed you how different investors have different time horizons. The market has many blind spots, some of them constant and unchanging.

Ask any mutual fund manager whether he thinks of upside variability as risk. More likely, he will lump it with return. The entire mutual fund industry sells 'outperformance', i.e., the measure by which a fund has 'outperformed' the Sensex. They think of Sensex performance as their 'cost of capital'. The beta of stocks or of portfolios is perhaps too complex for the simple Indian investor.

Should these funds now be promising an expected loss of 20 per cent, outperforming a Sensex that might lose 30 per cent? If individual investors, like me, can construct 'absolute return' portfolios that produce a validated return over the long term, why can a sophisticated institution not develop a similar strategy? I think this makes out a case for allowing Indian hedge funds in some form or the other, but that should be discussed some other time.

Author - Sanjeev Pandiya

Microsoft and Altria help Dow to register modest gains

While jobs survey and factory orders come out weaker than expected, Microsoft and Altria give the required boost to the market

US Market eked out modest gains on Wednesday after the indices were a bit hit after a slew of weaker than expected economic reports. ISM Services unexpectedly fell to lowest level since April 2003 and smaller than expected rise in factory orders further set weak pace for 2007 manufacturing activity. But the news that made headlines today was Iran-UK relations where Iran President announced that all 15 Britons were to be set free. The news improved overall sentiment and pushed oil prices lower. Dow and Nasdaq poised to close higher for a fifth straight day.

16 out of 30 stocks closed higher today. For the day (4 April, Wednesday) the Dow Jones Industrial Average closed higher by 19.75 points at 12530.05, Nasdaq higher by 8.36 points at 2458.69 and S&P 500 higher by 1.6 points at 1439.37. Altria, Home Depot, Microsoft and Honeywell were the main Dow winners. GM and AT&T were the biggest Dow laggards. With today’s gain, Dow is 0.5% higher for the year. On a sectoral basis, Telecom and Utilities were the day's biggest laggards

Microsoft was responsible for 5 points of the Dow's gain. The software giant was up 2.3% to $28.50 due to boost in third-quarter profit estimates from analysts at Citigroup. Higher demand for Vistas was the major reason behind this upgrade. An analyst upgrade on Semiconductor Equipment, the day's seventh best performing S&P industry group, provided additional sector support. Cigarette giant Altria generated 6 points of the blue-chip index's gain with a 1.1% gain to $70.44.

On the earnings front, Best Buy today reported fiscal fourth-quarter earnings of $1.55 per share, 3 cents ahead of expectations. But the stock was down 2.5% to $47.89 as Wall Street worried about the guidance issued by the company. Rival Circuit City reported a fiscal-fourth-quarter loss of 7 cents per share, down from a profit of 81 cents per share a year ago, blaming discounts the company had made during the holiday shopping season. Circuit City shares were down 0.4% to $18.21.

Good housing erases subprime worries for the moment, chain store sales data boosts Retailers

The market received an early boost from stumbling oil prices after Iran said it will release 15 British naval personnel it had captured in Gulf waters. Iran is the world's fourth largest producer of crude oil. Though market opened in a split mode with Dow in the red, the indices improved within half an hour to inch the Dow and S&P 500 into positive territory. Of the four sectors trading higher, Technology was pacing the way.

At 10.30ET, some economic data came out and ISM Services unexpectedly fell to 52.4 in March, the lowest reading since April 2003, while employment slumped to just above growth at 50.8. The prices paid component climbed to 63.3 from 53.8 a month earlier. Split industry leadership continues to dictate this morning's market action, with strength in Tech, Health Care and Staples providing the bulk of support.

GM, the worst performer on the Dow, lost 1.4% after DaimlerChrysler said it's in talks with "interested parties regarding future options" for its unit Chrysler division. AT&T fell 1.3% amid reports that it's acquiring a stake in the parent company of Italian carrier Telecom Italia SpA for roughly $1.74 billion.

Meanwhile, in a testimony before mortgage bankers in Autin, Texas, Dallas Fed President Fisher said that he did not discuss the outlook for interest rates or inflation in his prepared remarks. Fisher did say, however, that the economy is "strong enough to weather the storm" and that subprime problems may be "blessing in disguise.

Crude-oil futures for light sweet crude for May delivery closed at $64.38/barrel (lower by $0.26/barrel or 0.4%) on the New York Mercantile Exchange. Crude prices fell today for the second consecutive day after tensions between Iran and UK eased to a large extent. But crude prices pared losses today after an Energy Department report showed that U.S. gasoline supplies plunged for an eighth week. Prices are down 2.8% from a year ago.

Trading volumes showed 1.4 billion shares exchanging hands on the New York Stock Exchange and 1.7 billion on the Nasdaq stock market. Advancing issues outpaced decliners by 17 to 14 on the NYSE, while decliners outpaced gainers by 15 to 14 on the Nasdaq.

Tomorrow, weekly initial jobless claims data and March Nonfarm Payrolls data will be released before market opens. Trading will be closed Friday in observance of the Good Friday holiday.

Q4FY2007 IT earnings preview: Sharekhan Special dated April 04, 2007

Q4FY2007 IT earnings preview

The street expectations have toned down considerably in terms of both Q4 performance and the annual guidance for FY2008, and the recent underperformance of the tech stocks indicates that the same has already been factored in the valuations. This essentially means that the negatives have been priced in, leaving limited scope for downside. But positive surprises, especially in terms of higher than expected annual guidance by Infosys, are not ruled out. However, the continued strengthening of the rupee and seasonal weakness in Q1 (due to wage hikes and additional visa related cost) would continue to influence sentiments on tech counters in the short run. We believe that any further weakness would be an opportunity to accumulate the front-line tech stocks and prefer Infosys and TCS.

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Sharekhan Investor's Eye dated April 04, 2007

Q4FY2007 IT earnings preview

The street expectations have toned down considerably in terms of both Q4 performance and the annual guidance for FY2008, and the recent underperformance of the tech stocks indicates that the same has already been factored in the valuations. This essentially means that the negatives have been priced in, leaving limited scope for downside. But positive surprises, especially in terms of higher than expected annual guidance by Infosys, are not ruled out. However, the continued strengthening of the rupee and seasonal weakness in Q1 (due to wage hikes and additional visa related cost) would continue to influence sentiments on tech counters in the short run. We believe that any further weakness would be an opportunity to accumulate the front-line tech stocks and prefer Infosys and TCS.

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STOCK UPDATE

Mahindra & Mahindra
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs711

Logan unveiled

Key points

• Mahindra Renault has made the much-awaited launch of its passenger car Logan. Three variants of the car have been launched—two in the petrol segment and one in the diesel segment.
• The vehicle has been priced aggressively as its petrol version is priced between 4.28 lakh and 5.69 lakh, and its diesel version is priced between Rs5.47 lakh and Rs6.44 lakh.
• Currently, the vehicle is being manufactured at the company's Nasik plant. With the setting up of a new greenfield plant near Chennai by mid-2009, the capacity would be scaled up by 300,000 units. Also, the localisation content would improve from 50% currently to about 80-90%.
• We expect the car to do well in the Indian markets, mainly on account of its pricing. We expect the launch of Logan to have a negative impact on models like Maruti's Esteem, Tata Motors' Indigo, and Hyundai's Getz. The launch of the passenger cars also further diversifies M&M's business model.
• At the current market price of Rs711, the stock discounts its FY2008E consolidated earnings by 10.4x. We maintain our Buy recommendation on the stock with a price target of Rs1,050.

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SECTOR UPDATE

Cement

Government cuts CVD on cement imports

Key point

• The government on Tuesday scrapped the 16% countervailing duty (CVD) as well as the 4% additional duty on cement imports into the country, which is a sequel to the import duty cut in January (refer to our note dated January 23, 2007).
• With this move, the import parity price, which acts as a pricing benchmark for the domestic prices, will come down from Rs245-255 per bag to Rs210-215 per bag.
• The government has also expressed a possibility of a roll-back of the excise duty hike affected in the budget. If that happens, then the retail prices will come down to Rs210-215 per bag in line with the import prices.

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Sharekhan Daring Derivatives for April 05, 2007

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