Dead Presidents! - India Equity Research

Monday, January 28, 2008

The Indian market made a smart recovery in the final trading hours of the session on the back of selective buying across the sectoral indices scrips. The market opened with heavy losses on the back of weak cues from the global markets and drifts down further there after but managed to pare most of its initial losses towards the end of the session. The banking shares gained on the back of RBI quarterly review, which is scheduled on tomorrow. There are rumors that there is a possibility of a 25 basis point repo rate cut by RBI after a sharp cut in US interest rates last week. The Mid Caps and Small Caps also remained out of favor as they faced heavy selling pressures across the counters. The BSE Sensex closed lower by 208.88 points at 18,152.78 and NSE Nifty fell by 109.25 points to close at 5,274.10. The BSE Mid Cap and Small Cap indices decreased by 34.44 points and 117.39 points to close at 7,986.68 and 10,303.51 respectively.

BSE Realty index declined by 508.65 points to close at 10,689.41. Scrips that fell are HDIL (7.30%), Unitech (6.51%), DLF (5.57%), Ansal Infra (4.18%) and Sobha Dev (4.45%).

BSE Metal index fell by 161.04 points to close at 15,442.75. Scrips that fell are SAIL (5.93%), Nalco (5.87%), Maharash Sea (4.73%), Bhuhan Steel (3.76%) and Tata Steel (2.20%).

BSE Oil & Gas index slipped by 119.73 points to close at 11,078.11. Losers are Cairn India (4.15%), BPCL (4.04%), HPCL (2.90%), RPL (2.72%), IOCL (1.53%).

BSE Auto index grew by 83.27 points to close at 4,926.14. Gainers are Bajaj Auto (8.62%), Maruti Suzuki (3.97%), M&M (1.9%), Hero Honda (0.44%), MRF (0.44%) and Tata Motors (0.33%).

BSE Capital Goods index closed lower by 346.82 points at 17,116.36. Scrips that fell are Bharat Elec (9.49%), Suzlon Ener (7.08%), BEML (5.50%), AIA Eng (4.96%), BHEL (3.36%).

BSE Bankex index closed higher by 796.89 points to close at 11,379.77. Scrips that gained are Canara bank (5.11%), Yes bank (5.05%), BOI (3.78%), Axis bank (3.66%) and Oriental bank (3.10%).

Market Close: Smart recovery; regains 18k level!

It was one more calamity start for the global indices. Hang Seng ended down by 4.25% points while Nikkei down by 3.97%. Shanghai hit lower circuit for the day and ended down by 7.19%. India too had weak start. Sensex opened with a gap down of 600 points. Till the mid session Indian indices traded ranged in negative region. Value buying post mid sessions in index heavy weights like Bajaj Auto, Maruti, HDFC and M&M pulled indices from days low and managed to recover around 600 points smartly. Short covering ahead of FNO expiry also helped. RBI will meet tomorrow to decide on credit policy. Lot of expectations are build up on rate cut tomorrow. This may be one of the reason for optimism. It was relatively better day for the Midcaps and Small caps than the frontline counters. Sensex regained 18k levels however closed down by 208 points. Asian markets ended in deep red; while European markets trading in red.

Markets are expecting rate in the RBI's monitory policy which is scheduled tomorrow. Banking and Auto are the two counters which are sensitive to interest rate. Major action was seen here. Realty, IT and Capital Goods hit badly. Overall day for the markets was weak and disappointing proceeds following the global weakness.

Sensex closed down by 209 points at 18152.779. Weighing on the Sensex are losses in Dr Reddys (565.05,-7 percent), Wipro (406.25,-5 percent), Bharti Tele (869.7,-5 percent), Infosys (1446.5,-5 percent) and Ranbaxy (350.4,-5 percent). Losses are restricted by gains in Bajaj Auto (2459.3501,+9 percent), Maruti (862.6,+4 percent), Rel Energy (2097.7,+3 percent), HDFC (2781.75,+3 percent) and ACC (798.65,+1 percent).

KEI Industries Ltd (KEI) reported good results for the quarter ended 31st December 2007. The top line grew by 48% to Rs 233 cr while the bottom line grew by 22% to Rs 14 cr on yoy basis. EBIDTA enhanced by 23% to Rs 30 cr on annualized basis. Ebidta margins stood at 13% down by 200 bps due to increase in cost of raw material. KEI commenced the new plant at Chopanki near Bhiwadi, Rajasthan for manufacturing of HT and LT Power Cables. This new unit is registered as 100% EOU. It has production capacity of 10,000 Kms and expected to generate revenue of approximately Rs 300 cr annually, at its full productivity. This is the best time as the capacities have come. Even the EOU unit gets tax benefit this certainly helps to enhance the margins. Valuation seems to be eye catching at the current price of Rs 86, the stock trades at 10 times of trailing earnings. For more details do read our analysis on this.

Bharat Heavy Electricals has secured orders worth over Rs 15,000 cr for supplying power plant equipments. BHEL has recently signed an MoU with Tamil Nadu Electricity Board for supplying super critical boilers for the 2X800 MW thermal power station near Chennai. The boilers would be manufactured with the technology from Alstom, US. The PSU was also augmenting well with its capacity expansion plans and has increased its manufacturing capacity to 10,000 MW in the phase I. The ongoing phase II expansion at an investment of Rs 732 cr was the single largest quantum of investment in the history of BHEL, Tiruchirapalli. BHEL reported a steady jump in net profit for the quarter ended December 2007. During the quarter, BHEL experienced a 15.61% rise in profit to Rs 772 cr from Rs 668 cr in the quarter ended December 2006. Net sales for the quarter rose 14.38% to Rs 4964 cr compared with Rs 4340 cr in the corresponding quarter, a year ago. Total income rose 15.55% to Rs 5229 cr for the quarter ended December 2007 from Rs 4525 cr for the same period, last year.

Technically Speaking: It was smart pull back after a gap down start. Sensex traded in negative region throughout the day. Sensex touched intraday high of 18,213 and low of 17,443. Overall breadth was in favor of Decliners with Advancers at 881 while Decliners at 1844. The turnover was pretty less at Rs 3901 cr. On the higher side Sensex Resistance lies at 18,300 and lower side support lies at 17,750. Sensex is on a pullback rally. We expect this rally to get exhausted near 19200--19300. Traders are advised to reduce their exposure to midcaps on rise.

Sensex trims losses on late buying

The Sensex bucked the major downtrend across the Asian markets and trimmed 770 points of losses on late buying in heavyweights, auto, and banking stocks. The market was once again hit by a substantial selling pressure and the indices tumbled by around 5% each amid a choppy trading session. Taking cue from weak global markets, the Sensex opened on a negative note at 18,012 and fell sharply to touch an intra-day low of 17,443. While the market witnessed a fluctuating trend for a while, the afternoon trades saw sudden buying interest in frontline stocks and the Sensex chopped off most of its losses to close at 18,152, down 209 points or 1.14%. The Nifty, too, bounced back sharply and closed at 5,274, down 109 points or 2.03%.

The market breadth was negative, with the losers outpacing the gainers in the ratio of 2.14:1. Of the 2,747 stocks traded on the Bombay Stock Exchange (BSE), 1,852 stocks declined, 863 stocks advanced and 32 stocks ended unchanged. The sectoral indices were largely weak. The BSE Realty index lost 4.54%, the BSE IT index declined by 3.69% and the BSE Tech shed 3.67%. However, the BSE Auto index rose 1.72% and the BSE Bankex index gained 1.24%.

Among the 30 Sensex stocks, 18 ended in the red. Among the major losers DLF tanked by 5.57% at Rs893, Wipro tumbled by 5.35% at Rs406, Bharti Airtel declined by 4.91% at Rs870, Infosys plunged by 4.90% at Rs1,447, Ranbaxy dropped 4.77% at Rs350, NTPC crumbled by 4.23% at Rs212, SBI slumped 4.05% at Rs2,308 and BHEL fell by 3.36% at Rs2,092. However, Bajaj Auto advanced 8.62% at Rs2,459, Maruti Suzuki jumped 3.97% at Rs863, Reliance Energy surged 3.32% at Rs2,098 and HDFC gained 2.52% at Rs2,782, while M&M, ACC, ICICI Bank, Cipla, Tata Motors and Hindalco closed with marginal gains.

Over 1.73 crore RNRL shares changed hands on the BSE followed by Ispat Industries (1.47 crore shares), Reliance Petroleum (9.11 crore shares), IFCI (7.62 crore shares) and Essar Oil (7.48 crore shares).

RNRL was the most actively traded counter on the BSE and registered a turnover of Rs239 crore followed by Reliance Capital (Rs179 crore), Reliance Energy (Rs164 crore), Essar Oil (Rs164 crore) and Reliance Petroleum (Rs150 crore).

Auto, bank shares in focus ahead of monetary policy review

The market staged a sharp recovery in late trade on buying in banking and auto shares and in index heavyweights Reliance Industries and L&T. The market had declined sharply in afternoon trade due to fall in Asian markets. Volumes remained low for the second day in a row. Banking and auto shares were in focus ahead of the monetary policy review tomorrow, 29 January 2008.

European markets, which opened after Indian market were trading lower today. Asian markets, which opened before Indian market, settled lower today, 28 January 2008. US markets tumbled on Friday, 25 January 2008.

The BSE Sensex declined 208.88 points or 1.14% at 18,152.78. It opened with downward gap of 349.77 points at 18,011.89 and dipped further to touch a low of 17,443.29 in afternoon trade. At the day's low, the Sensex lost 918.37 points. Sensex hit a high of 18,213.21 in late trade. At the day's high, Sensex was down 148.45 points for the day.

The broader CNX S&P Nifty was down 109.25 points or 2.03% at 5,274.10. Nifty January 2008 futures were at 5,253.30, a discount of 20.80 points as compared to spot closing.

Turnover was low. BSE clocked a turnover of Rs 3901 crore as compared to Rs 5,221.62 crore on Friday, 25 January 2008.

Turnover in NSE’s futures & options segment rose to Rs 43395.88 crore as compared to Rs 39007.70 crore on Friday, 25 January 2008.

Though the market breadth was negative, it improved from earlier in the day. On BSE, 1844 shares declined as compared to 881 that advanced. 34 shares remained unchanged. In opening trade 1553 shares had declined as compared to 251 that advanced.

The BSE Mid-Cap index was down 0.43% to 7,986.68 while the BSE Small-Cap index was down 1.13% to 10,303.51. Both these indices outperformed the Sensex.

Most sectoral indices on BSE settled lower. BSE Bankex (up 1.24% at 11,521.22), BSE FMCG index (down 0.54% at 2,148.45), BSE Oil & Gas index (down 1.07% at 11,078.11), BSE Consumer Durables index (down 0.59% to 5,258.50), BSE Metal index (down 1.03% at 15,442.75), outperformed the Sensex

BSE Capital Goods index (down 1.99% at 17,116.36), BSE Health Care index (down 1.25% at 3,645.71), BSE Power index (down 1.50% at 3,912.66), BSE Realty index (down 4.54/% at 10,689.41), BSE PSU index (down 1.39% to 8,543.89), BSE Auto (up 1.72% at 4,926.14), BSE IT index (down 3.69% at 3,659.96) and BSE TecK index (down 3.67% to 3,299.84), underperformed the Sensex

Among the BSE 30-share Sensex pack, 21 declined. In morning trade, all the 30-members of Sensex pack were down.

Auto stocks staged a sharp comeback from early losses on value buying. India’s second largest bike manufacturer in terms of sales Bajaj Auto advanced 6.22% to Rs 2405. It was the top gainer from Sensex pack. It swung in a wide range of Rs 2101 and Rs 2490 in the day.

Maruti Udyog (up 4.38% to Rs 866) and Mahindra & Mahindra (up 2.79% to Rs 693), also posted gains.

Banking shares though trading with losses, recovered from early lows, ahead of Reserve Bank of India (RBI)’s quarterly monetary policy review scheduled on Tuesday, 29 January 2008. India’s largest commercial bank in terms of net profit State Bank of India slumped 4.25% to Rs 2302.90. The stock hit a low of Rs 2200 in early trade.

HDFC Bank was down 1.96% to Rs 1570, off day’s low of Rs 1440 while ICICI Bank gained 1.17% to Rs 1274, off day’s low of Rs 1201. As per media reports, a sharp cut in US interest rates last week has increased the possibility of a 25 basis points repo rate cut by Reserve Bank of India.

Development Credit Bank surged 7.69% to Rs 124), Syndicate Bank rose 6.97% to Rs 109, Yes Bank gained 5% to Rs 245 and Union Bank of India rose 2.46% to Rs 208.50.

India’s largest private sector firm by market capitalization and oil refiner Reliance Industries (RIL) was down 2.07% to Rs 2555.50. It moved in a range of Rs 2440 and Rs 2591. 4.91 lakh shares were traded on the counter on BSE. As per reports RIL plans to foray in engineering, procurement and construction business to clock a turnover of Rs 5,000 crore in first year itself and double it in second year.

India’s largest private sector engineering company in terms of order book position Larsen & Toubro was down 1.55% to Rs 3830, off sharply from day's low of Rs 3675. It today reported 40.10% surge in net profit to Rs 481.79 crore on 53.48% rise in total income to Rs 6483.55 crore in Q3 December 2007 over Q3 December 2006. European markets opened lower.

Housing Development Finance Corporation (up 3.30% to Rs 2803), Reliance Energy (up 2.11% to Rs 2073), and ACC (up 2.55% to Rs 807.80), edged higher from the Sensex pack

India’s largest real estate developer DLF slipped 5.20% to Rs 896 on 2.78 lakh shares. It was the top loser from Sensex pack.

Ranbaxy Laboratories (down 5.10% to Rs 349.20), Bharti Airtel (down 4.87% to Rs 870.05), and Infosys Technologies (down 4.60% to Rs 1451), were the other losers from Sensex pack

Reliance group stocks dominated turnover charts with four out of five turnover toppers being from Reliance pack. Reliance Natural Resources was the most active counter on BSE with turnover of Rs 239.08 crore followed by Reliance Capital (Rs 178.76 crore), Reliance Energy (Rs 164.34 crore), Essar Oil (Rs 164.13 crore) and Reliance Petroleum (Rs 150.18 crore), in that order.

Reliance Natural Resources topped in terms of volumes on BSE clocking volumes of Rs 1.73 crore shares followed by Ispat Industries (1.48 crore shares), Reliance Petroleum (91.10 lakh shares), IFCI (76.25 lakh shares) and Essar Oil (74.80 lakh shares), in that order.

Ashok Leyland declined 2.67% to Rs 36.50 on reporting 14.2% rise in net profit to Rs 120.21 crore on 1.3% rise in net sales rose to Rs 1800.08 crore in Q3 December 2007 over Q3 December 2006.

VSNL declined 5.21% to Rs 526 on posting 93.3% decline in net profit to Rs 9.52 crore on 0.11% rise in total income 0.11% to Rs 1113.52 crore in Q3 December 2007 over Q3 December 2006.

JSW Steel declined 1.32% to Rs 954.70. It reported 9.38% fall in net profit to Rs 328.18 crore on 10.80% rise in total income to Rs 2,598.19 crore in Q3 December 2007 over Q3 December 2006.

Tata Tea rose 0.21% to Rs 795.10. It reported 37.5% fall in net profit to Rs 58.88 crore on 6.28% rise in total income to Rs 1189.65 crore in Q3 December 2007 over Q3 December 2006.

Welspun Gujarat Stahl Rohren rose 1.69% to Rs 505. As per reports it is in talks to acquire Remi Metals Gujarat, an integrated steel and seamless pipe maker, from the Saraf family.

ING Vysya Bank slipped 1.87% to Rs 312 despite reporting 198.3% surge in net profit to Rs 42.75 crore in on 42.10% rise in total income to Rs 546.44 crore in Q3 December 2007 over Q3 December 2006.

Nicholas Piramal India dropped 3.44% to Rs 302.90 after the company said on Friday, 25 January 2008, it has signed a memorandum of understanding with Pierre Fabre Laboratories to collaborate on oncology research.

Glenmark Pharmaceuticals India gained 2.43% to Rs 511. The company today said it has received US Food and Drug Administration approval for its state-of-the-art semi-solids manufacturing plant at Baddi, Himachal Pradesh.

Key benchmark indices in United Kingdom (down 1.82% to 5762.40), Germany (down 1.69% to 6,701.35) and France (down 2.17% to 4,772.35) slipped

Asian markets settled lower today, 28 January 2008. Hong Kong's Hang Seng (down 4.25% at 24,053.61), Japan's Nikkei (down 3.97% at 13,087.91), Taiwan's Taiwan Weighted (down 3.28% at 7,485.79), Singapore's Straits Times (down 4.81% at 3,007.54), China’s Shanghai Composite (down 7.19% to 4,419.29) and South Korea’s Seoul Composite (down 3.85% at 1,627.19), edged lower.

US markets declined on Friday, 25 January 2008 led by financial companies, on concern that banks will be saddled with more credit market losses and the Federal Reserve won't cut interest rates enough to stimulate growth. Dow Jones industrial average slipped 171.44 points or 1.38% to 12,207.17. The Nasdaq Composite lost 34.72 points or 1.47% to 2,326.20.

Asian stocks had surged on Friday, 25 January 2008 led by several factors including strong corporate sentiment in Germany and a return of some confidence in the US economy after solid employment data and a congressional fiscal package. The Bush administration's fiscal package includes $150 billion of tax rebates and business incentives meant to prevent a slowdown in the country's economy.

India's wholesale price index rose 3.83% in the 12 months to 12 January 2008 marginally higher than the previous week's rise of 3.79%, government data showed on Friday, 25 January 2008. The annual inflation rate was 6.15% during the corresponding week of the previous year.

Crude oil prices dropped on Monday, 28 January 2008 with the light, sweet crude for March delivery sliding 63 cents to $90.08 a barrel in electronic trading on the New York Mercantile Exchange in Singapore. Brent crude fell 50 cents to $90.40 a barrel on the ICE Futures exchange in London.

Market may open low on weak global cues

The Indian stock market may open lower today tracking the pale Asian and US markets. Action today is likely to be stock-specific. The Asian indices like Nikkei 225, Hang Seng index, Kospi index and Straits Times index are down nearly 2-4% each in the ongoing trades. With the concerns of recession in Japanese and US economy the investors in the domestic market would be closely watching the possible interest rate cut from Federal Reserve for further cues. Among the local indices, the Nifty could test 5600 on the upside and may slip to 4800 on the downside. The Sensex has a likely support at 16000 and may face resistance at 18700.

Concerns of recession spooked the US markets on Friday, with the Dow Jones registering its loss of 171 points at 12207, while the Nasdaq declining by 35 points to close at 2326.

Indian ADR's had a mixed outing on the US bourses. Dr Reddy's was the major loser and tanked 5.99% while VSNL, Wipro, Infosys and Satyam slumped over 1-2% each. However, Rediff jumped by 12.28% and ICICI Bank surged over 5% while HDFC Bank, Tata Motors and MTNL ended with the gains of over 2% each.

International crude oil prices moved up marginally, with the Nymex light crude oil for March delivery gaining by $1.30 to close at $90.71 per barrel. In the commodity space, the Comex gold for February series surged $4.90 to settle at $910.70 a troy ounce.

Daily Call - Jan 28 2008

Morning Call - Jan 28 2008

Market Grape Wine :

In House :

Nifty at a supp of 5310 and 5223 intraday with resis at 5410 and 5545

5030 wld act as a major support level for Nifty , a break below which cld take it to 4650

Intra Day: Sell RPL below 163.70 with a TGT of 152 and a SL of 167.50

Sell ACC below 754 with a TGT of 720 and a SL of 765

F&O: Buy JPHYDRO above 86.70 with a TGT of 94 and a SL of 83

Buy Indian Bank above 210.50 with a TGT of 220 and a SL of 204

Out House :

Markets at a support of 17786 & 18018 levels with resistance at 18445 & 18786 levels .

Buy : RIL & RelCap at dips

Buy : IBulls

Buy : SBIN

Buy : JPASSO

Buy : Adlabs

Buy : IOLBroad

Dark Horse : Adhunik , IOlBroad , Aban , Kotak , RIL , Sbin , Relcap & REL

Market likely to open lower

The market may edge lower tracking weak global cues. Meanwhile all eyes will be on the Reserve Bank of India (RBI)’s meet scheduled on Tuesday, 29 January 2008 to review key rates. Analysts expect RBI to leave borrowing costs unchanged at 7.75% as it assesses whether last week's emergency U.S. interest rate cut will spark a flood of capital inflows, spurring inflation. India’s central bank had raised its benchmark interest rate nine times since October 2004 to keep inflation below the 5% mark.

Third quarter December 2007 results so far have been decent. A total of 844 companies reported 37.60% rise in net profit on 21.10% rise in net sales for Q3 December 2007 over Q3 December 2006.

Asian markets were trading weak today, 28 January 2008. Hong Kong's Hang Seng (down 3.15% at 24,330.48), Japan's Nikkei (down 2.60% at 13,274.93), Taiwan's Taiwan Weighted (down 1.83% at 7,598.27), Singapore's Straits Times (down 2.76% at 3,072.33), China’s Shanghai Composite (down 5.39% to 4,505.84) and South Korea’s Seoul Composite (down 1.98% at 1,658.97), edged lower.

US markets declined on Friday, 25 January 2008 led by financial companies, on concern that banks will be saddled with more credit market losses and the Federal Reserve won't cut interest rates enough to stimulate growth. Dow Jones industrial average slipped 171.44 points or 1.38% to 12,207.17 and the Nasdaq Composite lost 34.72 points or 1.47% to 2,326.20.

Stocks across the globe rallied on Friday, 25 January 2008 led by several factors including strong corporate sentiment in Germany and a return of some confidence in the US economy after solid employment data and a congressional fiscal package. The Bush administration's fiscal package includes $150 billion of tax rebates and business incentives meant to prevent a slowdown in the country's economy.

The 30-share BSE Sensex soared 1,139.92 points or 6.62% to 18,361.66, its biggest ever singe day rise in absolute terms on a closing basis on Friday, 25 January 2008. The broader CNX S&P Nifty jumped 349.90 points or 6.95% to 5383.35 on Friday, 25 January 2008

The BSE Sensex lost 652.04 points or 3.42% to 18,361.66 in the week ended Friday, 25 January 2008. The S&P CNX Nifty fell 321.95 points or 5.64% to 5,383.35 in the week.

Meanwhile, India's wholesale price index rose 3.83% in the 12 months to 12 January 2008 marginally higher than the previous week's rise of 3.79%, government data showed on Friday, 25 January 2008. The annual inflation rate was 6.15% during the corresponding week of the previous year.

As per provisional data, foreign institutional investors (FIIs) bought shares worth Rs 208.48 crore on Friday, 25 January 2008 while Domestic institutional investors (DIIs) were net buyers of shares worth Rs 248.35 crore

FIIs were net buyers to the tune of Rs 2,878.77 crore in the futures & options segment on Friday, 25 January 2008. They were net buyers of index futures to the tune of Rs 2,045.63 crore and bought index options worth Rs 170.68 crore. They were net buyers of stock futures to the tune of Rs 673.34 crore and sold stock options worth Rs 10.87 crore.

Crude oil prices dropped on Monday, 28 January 2008 with the light, sweet crude for March delivery sliding 63 cents to $90.08 a barrel in electronic trading on the New York Mercantile Exchange in Singapore. Brent crude fell 50 cents to $90.40 a barrel on the ICE Futures exchange in London.

Jindal SAW

Gemini Communications, Dhanus Technologies, Take Solutions

Grey Market - IRB Infrastructure, Shriram EPC, Onmobile Global, KNR Constructions

Future Capital Holding 765 410 to 415

Reliance Power 450 190 to 200

Emaar MGF 610 to 690 220 to 230

J. Kumar Infraprojects 110 to 120 5 to 7

Cords Cable Ind. 125 to 135 22 to 25

KNR Construction 170 to 180 15 to 18

OnMobile Global 425 to 450 100 to 120

Bang Overseas 200 to 207 32 to 35

Shriram EPC 290 to 330 35 to 37

IRB Infrastructure Developers 185 to 220 50 to 60

Markets likely to remain volatile

Global news flow will play a key role in determining the direction of the equity market this week. Events, like the Reserve Bank of India (RBI) meet on Tuesday and the F&O expiry on Thursday, will also play a crucial role and as such most market players expect a volatile session going forward.

Broking houses are advising their clients to stick to frontline stocks, even as large players appear reluctant to take fresh positions. While last week did witness some wild swing in the indices, analysts are not yet convinced that the worst is over. A further fall in the range of 500-1,000 points is what most experts are betting on.

“To me, the worst is over. Considering Friday’s run up, I guess there could be a further correction of about 500 points,” said India Infoline vice-president (research) Amar Ambani. “Market would be a bit unstable in the near term. Investors should start investing in large-cap stocks now,” he added.

In a similar context, Religare Securities president-equity Amitabh Chakraborty feels that frontline stocks will lead the rally, while mid-caps will follow. However, a shock from the US has the potential to upset the optimism, he adds.

Already, there have been enough indications that US-based financial majors, who have been reeling under the ongoing subprime crisis, are advising their Indian arms to reduce exposure towards Indian equities. There is a lurking possibility of subprime crisis spreading to vehicle finance and credit card loans in the US, feels Mr Chakraborty.

Global news flow will play a key role in determining the direction of the equity market this week. Events, like the Reserve Bank of India (RBI) meet on Tuesday and the F&O expiry on Thursday, will also play a crucial role and as such most market players expect a volatile session going forward.

Broking houses are advising their clients to stick to frontline stocks, even as large players appear reluctant to take fresh positions. While last week did witness some wild swing in the indices, analysts are not yet convinced that the worst is over. A further fall in the range of 500-1,000 points is what most experts are betting on.

“To me, the worst is over. Considering Friday’s run up, I guess there could be a further correction of about 500 points,” said India Infoline vice-president (research) Amar Ambani. “Market would be a bit unstable in the near term. Investors should start investing in large-cap stocks now,” he added.

In a similar context, Religare Securities president-equity Amitabh Chakraborty feels that frontline stocks will lead the rally, while mid-caps will follow. However, a shock from the US has the potential to upset the optimism, he adds.

Already, there have been enough indications that US-based financial majors, who have been reeling under the ongoing subprime crisis, are advising their Indian arms to reduce exposure towards Indian equities. There is a lurking possibility of subprime crisis spreading to vehicle finance and credit card loans in the US, feels Mr Chakraborty.

Via ET

US Markets tries to recover from recession fears

All sorts of recession warding plans come into play in the US Market

US Market showed some erratic movements during the week that ended on Friday, 25 January, 2008. Ultimately, the Dow Industrials and the S&P 500 managed to dodge losses after weeks and closed marginally higher. Nasdaq, however failed to buck the trend. Federal Reserve’s sudden decision to slash benchmark interest rates by 75 basis points to 3.5% dominated the headlines during the week. Other than that, market focused on earning reports.

Earlier during the week, technology heavyweights Motorola and Apple both issued disappointing guidance and this led market sentiments lower. Even on the last day of the week, Friday, 25 January, 2008, the market opened higher led by a strong earnings report and reassuring outlook from software giant Microsoft but retraced its gains to finish noticeably lower.

The Dow Jones Industrial Average gained 107 points for the week. Tech - heavy Nasdaq lost 14 points. S&P 500 gained 14 points.

U.S. markets were closed on Monday, 21 January, 2008 in recognition of the leader Martin Luther King Jr., markets worldwide plunged on spreading fears that a U.S. recession and tighter credit will hurt the global economy.

On Tuesday, 22 January, before the opening bell, at 08:20 ET it was announced that the Federal Open Market Committee (FOMC) approved a 75 basis point intermeeting cut in the fed funds rate to 3.50%. The Board of Governors also approved a 75 basis point cut in the discount rate to 4.00%. US Market responded by plunging deep but recovering partly going at the end. Dow plummeted by almost 465 points in the morning session. But then, with the help of bluechips, stocks managed to make a modest comeback. Federal Reserve’s sudden decision surprised all and was made to ward of recession in US in the coming months.

In affirmation of this decision, the FOMC said it took this action "in view of a weakening of the economic outlook and increasing downside risks to growth." The statement added that, "Appreciable downside risks to growth remain." The latter statement added further hopes that the market is expecting there will be another substantive rate cut at the 29-30 January FOMC meeting.

Following five straight down days, U.S. stocks staged a striking comeback on Wednesday, 23 January and on Thursday, 24 January. News that troubled bond insurers, might benefit from a rescue plan of some sort fuelled a decent rally on Wall Street on Wednesday.

On Thursday, stocks managed to extend their gains after new jobless claims data showed that businesses are not entering into recessionary mode. Also, a stimulus package from the Bush administration to ward off recession in US cheered investors and stocks rallied in the post lunch hours.

On Friday, 25 January, indices ended in the red as traders took some money off the table. Dow ended lower by more than 170 points.

Among other important earning reports during the week, Honeywell International and fellow Dow component Caterpillar both reported strong earnings results for the fourth quarter and offered encouraging outlook. eBay reported fourth quarter results that beat analysts' expectations, but warned about its profit outlook. Bank of America reported that fourth quarter net income dropped 95%.

On the economic front during the week, December existing home sales came in at a worse than expected. December existing home sales was reported at 4.89 million. This was short of the consensus estimate of 4.95 million. Existing sales are down 2.2% compared to last month's reading of 5 million. The median sale price of an existing home is down 6% against last year.

Also, weekly jobless claims came in at 301,000, lower than the expected reading of 320,000. The good part was that the figure is less than the typical recessionary levels of over 450,000

Executive Summary

For the week, indices ended mixed. DJIx and S&P 500 closed up by 0.9% and 0.4% respectively. Nasdaq shed 0.6%.

US stocks tried to regain some ground during the week as Fed slashed interest rates by 75 bps. Market showed some erratic movement while reacting to this week, but at the end showed some gratitude. Some tech heavy names, Apple and Motorola dampened investor sentiments during the week. But recession worries continued to haunt the market. Even good guidance and earnings report from Microsoft failed to chher sentiment.

All sorts of recession warding plans are rightly in play in the US Market currently. For the year, Dow, Nasdaq and S&P 500 are down by 8%, 12.3% and 9.4% respectively.