Market may extend fall on weak global cues

The market may edge lower extending Tuesday (20 May 2008)’s slide on negative cues from global markets. Asian shares dropped today, 21 May 2008, as growing inflation worries and weak earnings from two top US retailers fuelled concerns about slowing consumer spending in the world's top economy, hitting US shares on Tuesday, 20 May 2008. Key benchmark indices in Hong Kong, China, Japan, South Korea, Singapore and Taiwan were down by between 0.33% to 1.8%. Oil prices hit a fresh record near $130 a barrel.

Sensex shed 204.76 points or 1.17% at 17,230.18 on Tuesday, 20 May 2008, on concerns the Reserve Bank of India (RBI) may further tighten policy to fight high inflation after RBI governor Y V Reddy said inflation rate was totally unacceptable and the official data underestimates the actual rise. The wholesale price index rose 7.83% in 12 months to 3 May 2008, higher than previous week's annual rise of 7.61%, government data released on 16 May 2008, showed. It was the highest since an annual reading of 7.93% n 6 November 2004.

Further, a steep increase in upward revision in inflation rate for the week ended 8 March 2008, to 7.78% from the provisional 5.92%, came as a rude shock to marketmen. According to retail brokerage Sharekhan, the steep upward revision in inflation rate is a cause for concern, as prices of many commodities have not been updated for varied periods. Moreover, a sharp fall in the rupee against the dollar in the past few days has heightened concerns about inflation. This is because the fall in rupee will raise cost of imports which in turn will result in further rise in inflation.

In a bid to rein in inflation, the Reserve Bank of India, on Tuesday, 29 April 2008, raised cash reserve ratio (CRR) by 25 basis points to 8.25%, to suck out excess liquidity in the banking system, in its annual monetary policy review.

With parliamentary elections scheduled next year (May 2009), the government may leave no stone unturned in its attempt to tame inflation. This is bad news for commodity scrips such as cement and steel. Cement maker ACC said had said earlier this months that its margins will be hurt by a decision to hold its prices for 2 to 3 months that was taken after the government asked cement firms to help contain price pressures.

The government recently imposed export tax on basmati rice and some steel products, and cut import duties on key inputs like ferro alloys and metallurgical coke. The government had earlier banned export of cement and non-basmati rice. On 7 May 2008, the government ordered suspension in futures trading in channa, refined soyoil, potato and rubber for four months.

Earnings downgrade amid rising input and interest costs and drying up of global liquidity due to credit crisis, remain major concern for the Indian stock market.

Nonetheless, the structural growth drivers of the Indian economy remain intact – India’s economy is expected to witness a decent-to-strong growth for a long period of time due to favourable demographics. Acceleration in infrastructure creation will be another driver of strong growth in India’s economy. A recent CLSA report says India’s infrastructure development is set to accelerate, backed by greater private sector participation and improved finances of government and public sector enterprises. Rating agency Crisil in its outlook for Indian economy for the year through March 2009 has stated that the overall growth scenario is expected to remain strong with investment as the main driver.

Given the continued inflow to unit linked insurance plans (Ulips) and equity linked savings schemes (ELSS) of mutual funds, stock-specific buying will continue depending on fundamentals of individual stocks. Insurance firms are now a major player in the Indian stock market given the huge mop up in Ulips in recent years. It was buying support from domestic funds which had aided the recent recovery on the bourses.

Meanwhile, as per recent reports, ELSS which offer tax benefit are catching the fancy of small savers. ELSS funds saw their collective assets jump more than nine times to about Rs 16000 crore in three years ending March 2008. In 2005 the investment limit eligible for income tax breaks was raised ten times to Rs 1,00,000 rupees for ELSS funds. Systematic investment plan (SIP) are said to be driving inflows into ELSS funds.

Global indices may impact

The market is likely to witness volatility during intra-day trades and may succumb to selling pressure amid overnight weakness in the US indices and the bearish sentiment among the Asian indices in the ongoing trades. Among the key domestic indices, the Nifty could get support at 5060 and a slip below this level may see it dip further to 5000. On the upside, the index has a key resistance at 5168. The Sensex has a likely support at 17085 and could test higher levels of 17370.

US indices ended weak on Monday amid a fresh rise in crude oil prices. The Dow Jones dropped by 199 points to close at 12829 whereas the Nasdaq ended 24 points lower at 2492.

All Indian floats too witnessed selling pressure and ended at lower levels. HDFC Bank tumbled over 4.64% at $104.19, Patni Computer declined 3.88% at $12.89, ICICI Bank was down by 3.24% at $43.05, Infosys slipped 2.61% at $44.32 and Dr Reddy's lost 2.24% at $14.86 while Satyam, Wipro, Tata Motor, MTNL, VSNL and Rediff lost more than 1% each.

Crude oil prices moved up, with the Nymex light crude oil for June delivery rising by $2.02 to close at $129.07 a barrel. In the commodity space, the Comex gold for June 2008 series added $14.40 to settle at $920.20.

Daily trend of FII investment in equities
On May 17, 2008, FIIs were net buyers of stocks to the tune of Rs57 crore (purchases worth Rs2,882.70 crore and sales of Rs2,825.60 crore).

Morning Call - May 21 2008

Market Grape Wine :

In House :

Nifty at a support of 5056 and 4990 with a resis of 5140 and 5170 .

CASH :

Buy: Hind zinc on dips 715 with a Tgt of 745 with a S/L of 706

Sell : Abb on aboves 1051 with a Tgt 1002 with a S/L of 1051

F&O :

Buy ; Jpassosiate above 252 with a Tgt of 265 with a S/L of 248

Buy : Rpower above 431 with a Tgt of 450 with a S/L of 423



Out House :

Markets at a support of 17017 & 16876 and resistance at 17313 & 17373 levels .

Buy : Satyam & INFY at dips

Buy : RPL at dips

Buy : RPower

Buy : BombayDye

Buy : Coreproject at dips

Buy : HDIL & GujNre

Buy : Cairn

Dark Horse : HDIL , Cairn , CORE, INFY ,Emami , GujNRE & Unitech

Inflation worries and rising oil take toll on US Market

Crude prices nearing $130 and a bunch of disappointing news at financial sector push market down

US market ended the day with substantial losses today, Tuesday, 20 May, 2008. A higher-than-expected core inflation reading together with all time high crude prices soured market sentiments today. Financials turned out to be the biggest laggards and weighed on the market for the entire day. Seven out of ten sectors ended the session in negative territory, led by the telecom and financials sector. Energy, materials and utilities were the only sectors to end in the green.

Crude-oil futures closed above $129 a barrel for the first time ever today. Crude oil rose for a third straight session after billionaire hedge-fund manager Boone Pickens said prices will reach $150 a barrel this year as demand outpaces supply. A strengthening of the euro against the dollar added to the gains. The dollar fell after the International Monetary Fund said the U.S. housing slump still poses serious risks to financial markets.

The Dow Jones industrial Average ended the day with a loss of 200 points at 12,828. The Nasdaq Composite Index, finished lower by 23.83 points at 2,492.26. S&P 500 finished lower by 13.23 points at 1,413.4.

Twenty-eight out of thirty Dow components ended the day in red. The financial stocks – AIG, JP Morgan, Citigroup and American Express were the topmost losers. The energy stocks – Exon Mobil and Chevron turned out to be the only two Dow winners.

The Dow also came under pressure today after one of its main components Home Depot acted as the largest drag with a decline of 5.5%, which was the largest one-day loss in more than five years. Market are disappointed with the home improvement retailer's 66% drop in net income, though the results were good enough to top analysts' low expectations.

Inflation concerns were fueled today once again after a report showed wholesale prices outside of food and energy rose the most in about 17 years. Core producer prices, which exclude food and energy, rose a higher-than-expected 0.4% in April, or 3% year-on-year - the fastest rise since late 1991. The April Producer Price Index (PPI) rose 0.2%. Market expected the opposite, forecasting a 0.4% rise in PPI and a 0.2% rise in core-PPI.

Financials too were under pressure following a number of reasons. First and foremost, Goldman Sachs and Morgan Stanley had their second quarter earnings estimates cut at Lehman Brothers. AIG was also under selling pressure after the company said it will raise a total of $20 billion, up from its previous plan to raise $12.5 billion. Also, Oppenheimer analyst was reported to have said that the credit crisis will extend well into 2009, and may go on even longer.

Crude-oil futures for light sweet crude for June delivery today closed at $129.07/barrel (higher by $2.02/barrel or 1.6%) on the New York Mercantile Exchange. Price touched a high of $129.6 earlier during the day. The June contract expired today. The more-active July futures contract rose $2.26 (1.8%) to settle at $128.98 a barrel.

Trading volumes reached 1.2 billion shares exchanging hands on the New York Stock Exchange, with decliners outpacing gainers by 2 to 1. On the Nasdaq stock market, 844 million shares traded, with 17 shares falling for every 11 gainers.

For tomorrow, the weekly crude oil inventory report is due from the Energy Information Administration. The minutes from the Federal Open Market Committee's April policy meeting are due midafternoon.

Trading Calls - May 21 2008

Nifty (5105) Supp 5020 Res 5170

Sell Infosys (1887)
SL 1907 Target 1845, 1837

Sell BHEL (1735)
SL 1755 Target 1695, 1685

Sell REL Cap (1361)
SL 1381 Target 1321, 1311

Buy Ranbaxy (511)
SL 506 Target 522, 525

Buy HDIL (842)
SL 832 Target 862, 866

Grey Market - Anu's Labs, Gokul Refoils

Gokul Refoils 175 to 195 15 to 17

Anus Laboratories 200 to 210 38 to 40

Pre Session Commentary - May 21 2008

The Indian Market is likely to have a negative opening as the US market closed in red as well as the Asian markets are trading on the back foot. On Tuesday, the Indian market closed in negative. The investors did not showed their active participation during the trading session due to the unfavouring cues from the global markets like the surging crude oil prices above $129 a barrel and higher inflation due to depreciating rupee against the US dollar led the investors to take cautious steps to book their further positions. The market opened on the weak note tracking the negative global cues and kept on hovering in the negative territory through out the session and showed no sign of recovery till the close of the session. The banking and reality stocks were not in favour on account of heavy selling pressure. The BSE Sensex closed lower by 204.76 at 17,230.18 and NSE Nifty fell by 52.75 points to close at 5,104.95. We expect that the market may decline further during the trading session.

On Tuesday, the US market closed in red. The Dow Jones Industrial Average (DJIA) closed lower by 199.48 points at 12,828.68 along with NASDAQ fell by 23.83 points to close at 2,492.26 and S&P 500 dropped by 13.23 points to close at 1.413.40.

Indian ADRS closed in red. In technology sector Patni Computers fell by (3.88%) along with Infosys by (2.61%), Satyam by 1.40% and Wipro by (1.19%). In banking sector, HDFC bank and ICICI bank slipped by (4.64%) and (3.24%) respectively. In telecommunication sector, Tata Communication and MTNL decreased by (1.86%) and (1.38%). Sterlite industries declined by (0.58%).

Today the major stock markets in Asia are trading weak. Japan’s Nikkei is trading lower by 279.21 points at 13,880.88 along with Han Seng index trading down by 237.83 points at 24,931.63 and Taiwan Weighted trading at 8,996.80 down by 72.09 points.

The FIIs Tuesday stood as net buyer in equity and in debt also. The gross equity purchased was Rs2,882.70 Crore and the gross debt purchased was Rs4.90 Crore while the gross equity sold stood at Rs2,825.60 Crore and gross debt sold stood at Rs0.00 Crore. Therefore, the net investment of equity reported was Rs57.10 Crore and net debt was Rs4.90 Crore.

Today, Nifty has support at 4,978 and resistance at 5,152 and BSE Sensex has support at 16,762 and resistance at 17,395.

Bulls n bears…bridging the gap!

The hardest thing to learn in life is which bridge to cross and which to burn.

When it comes to gains and pains, the markets these days ensure both are taken care of; though in a range. We mentioned soaring temperatures and spiraling inflation on Tuesday. While the first one doesn't have much of a bearing on the market, the second factor has continued to haunt the market over the past 2-3 months. Inflation is likely to remain the single-biggest challenge for governments, companies, individuals and markets across the globe for quite some time.

A confluence of fundamental issues are behind the current price increases across various commodities. And, while the Government and the RBI have taken certain measures to address the menace, it will take a while for inflation to soften. Also, some of these steps are highly politically motivated, and could cost the economy dear in the medium to long term.

GDP growth too has slowed on the back of a sharp fall in industrial activity. In short, there are considerable challenges ahead, both for the Indian as well as the global economy. Though the market has rallied over the past one and a half months, the near-term looks highly uncertain and hazy. In this context, be very cautious and refrain from aggressive buying.

Today, we expect a weak opening given the grim scenario across the world. Since our markets were already down yesterday, we do not rule out some rebound later.

FIIs were net sellers of Rs3.21bn (provisional) in the cash segment on Tuesday while local institutions were net buyers of just Rs3.9mn. In the F&O segment, foreign funds were net sellers of Rs9.91bn. On Friday, foreign funds were net buyers of Rs570mn in the cash segment. Mutual Funds pumped in Rs2.28bn on the same day.

Key Results Today: Alfa Transformers, Bajaj Auto Finance, Gabriel, Gammon Infra, HDIL and Thermax.

Asian stocks are mostly down this morning, dragging a regional benchmark index to its steepest fall in five weeks, on concern that widening credit losses will erode bank earnings and slowing growth in Chinese demand will hurt raw-materials producers.

Mitsubishi UFJ Financial Group dropped the most in almost a month in Tokyo after forecasting profit will be little changed this year. BHP Billiton led declines among mining stocks after Morgan Stanley said weaker demand from China may result in soft metals prices.

China's CSI 300 Index sank for a fifth day on concern that record oil prices will fuel inflation, prompting the government to accelerate steps to cool growth.

The MSCI Asia Pacific Index fell 1.5% to 151.25 as of 11:06 a.m. in Tokyo, with more than five stocks dropping for each that climbed. Nine of the index's 10 industry groups retreated, with financial stocks as the biggest drag.

Japan's Nikkei 225 Stock Average was down 2% at 13,880.88, while China's CSI 300 Index retreated 2.4%, the region's biggest drop. All benchmarks in Asian markets declined.

US stocks slumped on Tuesday, with the Dow Jones Industrial Average losing nearly 200 points, as crude oil continued to climb while a bigger-than-expected jump in a key inflation measure rattled investors.

With oil near US$130 per barrel, many Wall Street watchers feel the Federal Reserve will have limited head room for cutting rates further. One Fed official signaled that the central bank may be done with cutting rates.

Oil surged to a new record of US$129.60 a barrel, buoyed by bullish calls by brokerages, weakness in the dollar and supply concerns. Consumer-related stocks were among the worst decliners early on.

US light crude oil for June delivery rose US$2.02 to settle at a record US$129.07 in New York. Some experts said the contract's imminent expiration sparked volatility.

The national average price for a gallon of regular unleaded gas rose to a record US$3.80 from the previous high of US$3.794, according to AAA. It was the 13th straight record high.

COMEX gold for August delivery rose US$14.40 to settle at US$924.60 an ounce. The dollar fell sharply versus the euro and yen. Treasury prices gained, lowering the yield on the 10-year note to 3.78% from 3.83% late on Monday.

The S &P 500 Index fell from a four-month high, as analysts forecast more credit losses and spiraling inflation and record oil prices threatened to erode profitability.

Citigroup, Bank of America and JPMorgan Chase led financial shares to a third straight decline as Oppenheimer said banks may write off more than US$170bn of additional reserves by the end of 2009.

AIG slid to the lowest level since 1998 on plans to raise more capital. Home Depot had its worst tumble in nine months after profit slumped 66%.

The S&P 500 lost 13.23 points, or 0.9%, 1,413.4, its biggest drop since May 7. The Dow sank 199.48 points, or 1.5%, to 12,828.68. The Nasdaq Composite Index dropped 23.83 points, or 1%, to 2,492.26.

Market breadth was negative. More than two stocks retreated for each that rose on the New York Stock Exchange.

The Producer Price Index (PPI), gained 0.2% in April, short of economists' expectations and following a rise of 1.1% in the previous month. But prices excluding food and energy costs rose 0.4%, twice what was expected.

After the close, Dow component Hewlett-Packard reported a small rise in quarterly profit that matched preliminary figures it announced last week.

Wednesday morning brings earnings from a few retailers and the release of the weekly oil inventories report. The minutes from the last Federal Reserve meeting are due for release Wednesday afternoon.

Europe's four-session winning streak came to an end yesterday. The pan-European Dow Jones Stoxx 600 index fell 2.1% to close at 325.97, matching levels last seen on Thursday. UK's FTSE 100 slid 2.9% to 6,191.60, while the German DAX 30 dived 1.5% to 7,118.50 and the French CAC-40 slid 1.7% to 5,054.88.

In the emerging markets, the Bovespa in Brazil was up 0.1% at 73,516 while the IPC index in Mexico was down 0.85% at 31,526. The RTS index in Russia gained 1.4% at 2453 while the ISE National 30 index in Turkey fell 3.3% to 50,741.

No breakthrough in sight

After enjoying a week of gains, bulls were unable to carry forward the momentum. Bears were back on the bourses right from the first minute on back of negative cues coming in from the Asian markets coupled with selling pressure in the index heavyweights like Reliance Industries, Bharti Airtel and ICICI Bank.

The Banking, Realty, PSU and Pharma stocks were on the receiving end. However, on the other hand consumer durables and select metal stocks bucked the negative trend lifting the Nifty index to recover over 30 points and the benchmark Sensex recouped around 80 points from day low.

Finally, the BSE benchmark Sensex ended 204 points higher to close at 17,230 and the Nifty index lost 52 points to close at 5,104.

Among the BSE Sectoral indices, The BSE Realty index was the major loser (down 2%), BSE PSU index (down 2%) and BSE Bankex index (down 2%). On the other hand, BSE Consumer Durable index (up 2.4%) and BSE Metal index (up 0.5%). Also the Small-Cap index ended in positive terrain adding half a percent.

Overall about 1,431 stocks advanced; 1,292 stocks declined while 66 stocks remained unchanged. Among the 50-Nifty 38 stocks ended in red and 12 stocks ended in green.

Videocon Industries rallied by over 17% to Rs410 after reports stated that the company would also make mobile phone handsets now. The handsets would be manufactured at its new plant in Kashipur, Uttaranchal. The scrip touched an intra-day high of Rs414 and a low of Rs348 and recorded volumes of over 32,00,000 shares on BSE.

Mercator Lines gained by half a percent to Rs116 after the company said that it entered into coal mining business through its subsidiary in Singapore. The scrip touched an intra-day high of Rs120 and a low of Rs113 and recorded volumes of over 34,00,000 shares on BSE.

Peninsula Land slipped by 1.5% to Rs94. The company said that it formed Joint venture with Arrow Webtex Ltd to enter into Hospitality Business. A SPV will be created which will be held 50-50 by both the JV partners to build Business Hotels.

In the 1st phase, an equity infusion of about Rs1bn is envisaged by both the JV partners in equal proportion; and the JV intends to build 10 Hotels of 100 rooms each, aggregating to 1000 rooms. The Company plans to enter into the state of Maharashtra in cities such as Mumbai, Pune, Nagpur, Nashik, Kolhapur, the state of Gujarat in cities such as Ahmedabad, Surat, Jamnagar, Mundra port and the state of Goa. The scrip touched an intra-day high of Rs97 and a low of Rs93 and recorded volumes of over 2,00,000 shares on BSE.

Dr Reddy’s Lab declined by 2% to Rs638 after the company announced its Q4 result with net profit at Rs1.03bn (down 68.3%) and also sales fell 14.7% to Rs13.3bn. The scrip touched an intra-day high of Rs656 and a low of Rs634 and recorded volumes of over 94,000 shares on BSE.

Max India ended on a flat note at Rs167. The company announced that it posted a net profit of Rs202.20mn for the quarter ended March 31, 2008 as compared net loss of Rs38.30mn for the quarter ended March 31, 2007. Total Income has increased from Rs522.50mn for the quarter ended March 31, 2007 to Rs1114.30mn for the quarter ended March 31, 2008. The scrip touched an intra-day high of Rs172 and a low of Rs166 and recorded volumes of over 27,000 shares on BSE.

BSEL Infrastructure surged by over 7% to Rs54 after the company said that they signed an MoU with Federal Government's Statutory body Iskandar Regional Development Authority (IRDA) wherein BSEL has committed to make investment in Iskandar Malaysia to the tune of RM 15,000,000,000 (Malaysian Ringgit Fifteen bn) over a period of twelve years.

The company collaborated with IRDA to develop Iskandar Malaysia, designed to be Southern Peninsular Malaysia's most developed region. IRDA will help BSEL seek approvals and permissions from various authorities for facilitating its development process. The scrip touched an intra-day high of Rs55 and a low of Rs51 and recorded volumes of over 6,00,000 shares on BSE.

Corporate News

GMR Infrastructure has decided to merge GMR Aviation with the company as part of a move to foray into the aviation business.

Tata Teleservices Maharashtra Ltd. (TTML) will be action post announcement of its results.

Satyam Computer may attract some attention as it has forged an alliance with GE for providing IT services to the healthcare sector.

Suzlon Energy is considering the sale of part of its stake in REpower. (FE)

The Government takes back 5 oil exploration blocks in Kerala-Konkan basin from Reliance Industries, as it failed to meet minimum work programme. (ET)

ACC could increase prices once the three month voluntary freeze expires. (FE)

Bharti Airtel in an alliance with IOC to access 18,000 retail outlets and 5,500 Indian distributors. (ET)

GAIL plans to supply 4.67 MMSCMD gas to Tata Power and HPCL. (FE)

Cairn India to explore oil and gas in Rajasthan Hadauti region. (ET)

Reliance Industries doubles its employee base to 25,000 people in past two fiscal years. (FE)

Educomp Solutions acquires 51% stake in US based Learning.com for US$24.5mn. (FE)

L&T bags orders worth Rs6.35bn from UAE and Oman. (FE)

IOC plans to enter retail marketing business in Turkey along with setting up a 15 mtpa greenfield refinery and a petrochemicals complex. (FE)

Kotak Mahindra Bank is seeking overseas acquisitions. (BS)

Jet Airways enters into a strategic tie-up with United Airlines. (ET)

Healthcare Investment, a Mauritius based firm to pick up 8.5% stake in Apollo Health Street for Rs610mn. (ET)

M&M may buy partner Hitachi Metals stake in Mahindra Hinoday. (ET)

Bharat Forge to raise Rs4bn via right issue. (BL)

Suven Life Science gets two product patents in South Africa and China. (BL)

The Poonawala Group has picked up 7.22% stake in Orchid Chemicals. (BS)

Peninsula Land to foray into hospitality sector with a JV with Arrow Webtex. (BS)

Unity Infrastructure wins order worth Rs3.8bn from Haryana State Roads and Bridges Development Corporation. (BL)

Mercator Lines plans to acquire more oil rigs. (BL)

Tata Tea seeks to buy Turkey based Dogus Cay. (DNA)

Kesoram Industries plans to spend Rs25bn for expanding its tyre and cement capacity by 2009. (DNA)

Lanco Infratech to form a holding company for its power business. (DNA)

PSL expects to begin with Pipavav SEZ in August. (DNA)

Reliance Retail in talks with US based Neiman Marcus for a strategic alliance. (ET)

Areva T&D to invest Rs7bn in 7 months for three manufacturing facilities and a R&D Centre. (BS)

The IT department issues notice to AT&T for details of Idea stake sale. (DNA)

Arcelor Mittal to buy Bulgarian steel company Kremikovtzi controlled by Pramod Mittal. (ET)

Economic News

Finance Ministry is considering to exempt SEZ from payment of export duty of steel. (FE)

FMCG sector to witness 16% in FY09, says FICCI. (DNA)

RBI Governor indicates further measures to rein in inflation. (BL)

RBI says current inflation levels totally unacceptable. (BL)

Venus Remedies

Venus Remedies

Today's Pick - ENIL

We recommend a buy in Entertainment Network India from a short-term perspective. It is evident from the chart that the Entertainment Network India was on a medium-term downtrend from its December 2007 high of Rs 700 to its March 2008 low of Rs 332.

However, this downtrend appears to have got arrested at around the March low; the stock has been moving higher since then. In the recent times, the stock crossed over the 21 and 50-day moving averages in the daily chart, which is a bullish signal.

The volume, traded over the past two trading sessions, has also been above average. The daily Relative Strength Index is also featuring in the bullish zone.

Besides, the daily moving average convergence and divergence, which is featuring in the positive territory, is also in line with the uptrend.

We are bullish on the stock in the short-term. We expect the stock to move up to our price target of Rs 480 in the forthcoming trading sessions. Investors with short-term perspective can buy the stock while keeping the stop-loss at Rs 410.

A bright day for precious metals

Precious metals rise as crude hits new high and dollar slumps

Precious metals registered good increase today, Tuesday, 20 May, 2008 after crude oil prices rallied and dollar slipped against its rivals. The dual effect helped restore some glitter back on the precious metals. Yesterday, gold marked its first closing above $900 level in almost a week. Crude oil's rally to a fresh record high above $129 a barrel boosted the precious metal's appeal as an inflation hedge.

Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies.

Comex Gold for June delivery rose $14.4 (1.6%) to close at $920.2 ounce on the New York Mercantile Exchange. During intra day trading, prices touched a high of $923.8/ounce. Last week, gold prices ended higher by $14 (1.6%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. Prices have dropped by 11% since then.

This year, gold prices have gained 9.8% for the till date against a 8.6% drop for the dollar against the euro. For April, prices closed lower by 6.3%. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.

Comex Silver futures for July delivery rose 69.7 cents (4.1%) to $17.725 an ounce. Silver has gained 19% in 2008 till date. For April, it closed lower by 5.5%. Silver gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.

At the currency markets on Tuesday, the U.S. dollar fell against its major rivals on higher inflation in Germany and tamer U.S. inflation. The dollar declined as much as 1.1% against the euro on speculation the European Central Bank will keep interest rates high. The dollar index, which tracks the performance of the greenback against other currencies, fell to 72.43 from 73.059 in late North American trading on Monday.

Since last September, Fed has axed interest rates seven times and brought it down to 2%. The ECB has kept rates unchanged at 4% since June, 2007.

Dollar weakness typically benefits dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Among major economic news of the day, a government report today showed U.S. producer prices, excluding food and fuel, rose more than forecast in April. Food costs last month surged the most in 18 years.

In the crude market, crude-oil futures marked their first close above $128 a barrel on Tuesday. Crude-oil futures rallied touching a high of $129.45 a barrel in New York, as weakness in the U.S. dollar underpinned oil prices and concerns about global supply and demand continued. Crude oil rose for a third straight session after billionaire hedge-fund manager Boone Pickens said prices will reach $150 a barrel this year as demand outpaces supply. Last week, crude-oil futures rallied to a fresh record high near $128 a barrel as Goldman Sachs raised its second-half-of-the-year forecast for oil prices by 32% to $141.

At the MCX, gold prices for June delivery closed higher by Rs 250 (2.1%) at Rs 12,606 per 10 grams. Prices rose to a high of Rs 12,645 per 10 grams and fell to a low of Rs 12,353 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 857 (3.6%) higher at Rs 24,331/Kg. Prices opened at Rs 23,500/kg and went to a high of Rs 24,400/Kg during the day’s trading.

Crude touches almost $130

Higher price forecasts push crude prices to a new high

Crude-oil futures closed above $129 a barrel for the first time ever on Tuesday, 20 May, 2008. Crude oil rose for a third straight session after billionaire hedge-fund manager Boone Pickens said prices will reach $150 a barrel this year as demand outpaces supply. A strengthening of the euro against the dollar added to the gains. The dollar fell after the International Monetary Fund said the U.S. housing slump still poses serious risks to financial markets.

Crude-oil futures for light sweet crude for June delivery today closed at $129.07/barrel (higher by $2.02/barrel or 1.6%) on the New York Mercantile Exchange. Price touched a high of $129.6 earlier during the day. The June contract expired today. The more-active July futures contract rose $2.26 (1.8%) to settle at $128.98 a barrel.

Last week, crude prices closed higher by 29 cents. For the year, crude is up by 29.6 % till date. Prices have just doubled on a yearly basis.

At the currency markets on Tuesday, the U.S. dollar fell against its major rivals on higher inflation in Germany and tamer U.S. inflation. The dollar declined as much as 1.1% against the euro on speculation the European Central Bank will keep interest rates high. The dollar index, which tracks the performance of the greenback against other currencies, fell to 72.43 from 73.059 in late North American trading on Monday.

Since last September, Fed has axed interest rates seven times and brought it down to 2%. The ECB has kept rates unchanged at 4% since June, 2007.

Dollar weakness typically benefits dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Last week, prices almost kissed $128 after Goldman Sachs raised its forecast on Friday for the average price of West Texas Intermediate oil in the second half of 2008 to $141 a barrel from $107 a barrel. As per the company’s reports, long-term oil prices will need to continue to rise to bring trend oil demand growth in line with trend supply growth. Credit Suisse Group AG and Societe Generale SA raised their oil price forecasts for 2008 and 2009 today, citing investor flows and limited supply.

Natural gas rises in tandem with crude oil

Brent crude oil for June settlement today rose $2.78 (2.2%) to $127.84 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.

Natural gas in New York advanced as crude oil rose to a record and the dollar fell against the euro. Natural gas for June delivery rose 41.1 cents (3.8%) to settle at $11.365 per million British thermal units.

Against this backdrop, June reformulated gasoline climbed by 6 cents to close at a record $3.30 a gallon. June heating oil finished at $3.775 a gallon, up 9 cents for the session.

Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.

At the MCX, crude oil for May delivery closed at Rs 5,450/barrel, higher by Rs 120 (2.2%) against previous day’s close. Natural gas for July delivery closed at Rs 484.1/mmbtu, higher by Rs 13.2/mmbtu (2.8%)

Tech Mahindra

Tech Mahindra

SAIL

SAIL

Eveninger - May 20 2008

Eveninger - May 20 2008