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Wednesday, December 10, 2008
US Market falters again
Postponement of share buyback plan by WalMart stall the recovery effort
Stocks at Wall Street ended with substantial losses on Tuesday, 09 December. Wall Street started the day in the red. Dow was down by more than 150 points at one point but thereafter it was able to trim its losses. At the end, losses increased and even Nasdaq which was managing to eke out gains earlier, ended in the red. Earnings warning came from Fed Ex and Texas Instruments. Pending home sales in October dropped less than expected. Crude is trading more than a dollar lower around $43 today.
On Wall Street, the Dow Jones industrial average closed down 242 points at 8,691, the Nasdaq closed down by 24 points at 1,547 and the S&P 500 moved down 21 points at 888. Nasdaq had earlier risen by almost 25 points.
All the ten sectors ended in the red today led by the financial sector. JP Morgan led the pack of Dow laggards.
Stocks were in the red right out of the gate today after Federal Express was down 14% today after reducing its fiscal year 2009 earnings guidance and capital spending forecast due to weaker-than-expected economic conditions. The weakness in Fed Ex, which is considered as a parameter for overall economy was the main reason to impart negative momentum in the market since morning.
Though indices were trimming their losses during mid day, the same once again plunged after a government filing released toward the end of the session said that WalMart is suspending its share repurchase program due to the current economic environment and the instability of the credit markets. Wal-Mart said it had about $5 billion remaining in its $15 billion program. Selling intensified after the report.
The National Association of Realtors reported on Tuesday, 09 December, 2008 that October pending home sales fell 0.7% month-over-month, which was better than the expected decline of 3%. September was revised to a drop of 4.3% from a decline of 4.6%.
The index, which is considered a leading indicator of existing home sales, was down 1% from the prior year. Pending home sales in October were mixed regionally, with declines of 8.7% in the West, and 4.3% in the Midwest.
Texas Instruments gave downside earnings or revenue guidance taking the number of semiconductor companies issuing cautious guidance to six.
On Tuesday, crude-oil futures for light sweet crude for January delivery closed at $42.07/barrel (lower by $1.64 or 3.7%) on the New York Mercantile Exchange. It touched a low of $41.83 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 74% since then. On 5 Dec, 2008, prices touched a low of $40.5. Last week, prices coughed up 25%. That was the largest weekly loss for crude in past twenty five years. For this year in 2008, crude prices have dropped 52%.
EIA reported today in its monthly short-term energy outlook that the current global economic slowdown is now projected to be more severe and longer than it expected last month, leading to further reductions of global energy demand and additional declines in oil and other energy prices. The EIA is now expecting world GDP growth to slow to 0.5% in 2009, down from an expectation of 1.8% in last month's outlook.
The weekly crude inventory report and the November Treasury Budget are the main economic reports scheduled tomorrow.
Market seen range-bound on mixed global cues
Key benchmark indices may see ranged activity and try to catch up with its global peers as it reopens after remaining shut on Tuesday, 9 December 2008 for Bakri Eid festial. Global cues were mixed with Asian markets rising today and those of the US declining overnight. The SGX November 2008 Nifty futures was up 68 points.
Meanwhile, the global economic slowdown has impacted the Indian manufacturing sector, which has cut output in the last few months and this trend is expected to continue in coming months, according to a survey by industry body Federation of Indian Chambers of Commerce and Industry (Ficci). The survey found that the manufacturing slow down is likely to continue till March 2009, which might result in job losses.
Asian markets were trading higher today, 10 December 2008, extending gains for the fourth straight day on optimism that stimulus plans will boost the global economy. China's Shanghai Composite rose 1.02% or 20.88 points at 2,058.62, Hong Kong's Hang Seng gained 2.34% or 345.71 points at 15,098.93, Japan's Nikkei advanced 1.14% or 95.68 points at 8,491.55, Singapore's Straits Times was up 0.73% or 12.73 points at 1,767.31, South Korea's Seoul Composite surged 2.79% or 30.87 points at 1,136.71 and Taiwan's Taiwan Weighted added 2.31% or 103.26 points at 4,575.92.
US markets declined on Tuesday, 9 December 2008 as profit warnings from FedEx Corp and others prompted investors to retrench after two days of big gains, while unprecedented demand for the safety of government securities signaled that fear remains a dominant force in the market.
The Dow plunged 242.85 points, or 2.72%, to 8,691.33. The S&P 500 index declined 21.03 points, or 2.31%, to 888.67. The Nasdaq Composite index fell 24.40 points, or 1.55%, to 1,547.34.
Back home, doubts as to how much stimulus the already stretched government budget will be able to finance, curtailed early gains on Monday, 8 December 2008. The BSE 30-share Sensex rose 197.42 points or 2.2% to 9,162.62 and the S&P CNX Nifty gained 69.60 points or 2.56% at 2784, on that day.
Foreign institutional investors (FIIs) were net buyers worth Rs 350.34 crore while mutual funds sold shares worth Rs 617.05 crore on Monday, 8 December 2008, according to provisional data on NSE.
US crude for January 2009 delivery rose $1.26 at $43.33 a barrel today, 10 December 2008 on bargain hunting
Trading Calls - Dec 10 2008
Nifty (2784) Sup 2725 Res 2850
Buy Wipro (238) SL 233 Target 248, 250
Buy Tata Steel (196) SL 192 Target 204, 206
Buy BHEL (1362) SL 1340 Target 1402, 1412
Sell IVRCL (135) SL 138 Target 129, 127
Daily News Roundup - Dec 10 2008
HDFC Bank has cut its benchmark prime lending rate by 50bps. (ET)
ONGC Videsh will go ahead with its planed US$2.1bn purchase of Imperial Energy and will meet the deadline for making an open offer to shareholders of the UK firm. (ET)
RPL’s Jamnagar refinery to go on-stream by March 2009, but is likely to start producing some products by next month. (FE)
Fire broke out at RPL's under-construction refinery at Jamnagar in Gujarat. (BS)
Walt Disney and UTV Motion Pictures have inked a deal, whereby UTV will handle the sales and distribution of all the Walt Disney’s Hollywood releases in India from January 1, 2009. (ET)
Jet Airways has agreed to pay 3% commission to agents on the gross fare. (ET)
Indian Oil and Adani Energy Ltd entered into a MoU for setting up 50:50 city gas distribution joint venture. (BL)
Kalpataru Power Transmission Ltd won a gas pipeline contract from GAIL valued at Rs2.4bn. (BL)
Binani Cement has no plans to reduce cement prices post 4% excise duty cut. (ET)
Dalmia Cement Bharat plans to cut cement prices by Rs5-6 per bag from next week. (ET)
Jet Airways has leased out five aircrafts to foreign carriers. (FE)
RNRL has criticized the Government for fixing the selling price of gas from Reliance Industries’ KG basin at US$4.2 per mmbtu. (ET)
The government awarded start-up spectrum to two telecom operators Unitech and Idea Cellular in Kolkata to enable them start operations. (BS)
US drug major Eli Lilly has sued Sun Pharma over Cymbalta patent. (FE)
Unitech plans to invest Rs25bn to develop 35 hotels over the next seven years. (ET)
ACC and Ambuja Cements have slashed cement prices by Rs4-6 per 50kg bag. (ET)
GVK-BHP Billiton to invest US$400mn in 7 oil blocks in the exploratory face. (BL)
MTNL to launch 3G services tomorrow. (BL)
Gas production from RIL’s KG D6 fields is expected to be further delayed due to inclement weather condition. (FE)
Suzlon’s REpower to supply wind turbines for projects in northeast France and US state of Oregon. (BS)
RCom, Bharat Forge and United Phosphorous among others are finalizing plans to buy-back their FCCBs. (ET)
Wockhardt is in talks to raise US$100mn for clearing FCCB dues. (ET)
Nagarjuna Construction has been asked to pay a penalty to RBI and then seek a fresh permission from FIPB to offload an additional 3.5% stake to Blackstone. (ET)
Financial Technologies acquires 60% stake in Bourse Africa. (DNA)
DLF plans to build office complex in IT SEZ space in Delhi. (DNA)
Tata Coffee in talks with Russian company to set up a Joint venture deal is likely to be finalized in three months. (DNA)
Maytas Infrastructure bags a contract worth Rs1.8bn. (DNA)
Nissan-Ashok Leyland to delay India truck output. (FE)
Hindustan Motors to cut prices of its ambassador car model by Rs10,000-14,500. (FE)
Hero Honda and Bajaj Auto to cut rates of their vehicles. (BS)
Essar Oil to re-open petrol pumps next month. (DNA)
Gabriel India to sack up to 150 employees at its Parwanoo plant in Himachal Pradesh. (BS)
SpiceJet is looking at re-structuring its core leadership team. (BS)
The price for the sale of natural gas by RIL from the D6 Block in the Krishna Godavari Basin will remain unchanged despite the steep fall in global crude oil prices. (BL)
Tata Teleservices has partnered with Nokia Siemens Networks and Huawei Technologies from rolling out 60mn GSM lines under separate five-year contracts valued at ~US$3.5bn. (ET)
LIC plans to invest Rs150bn in debt offerings over the next four months and Rs120bn in stock market before the end of current fiscal. (ET)
Pivet Finance, an investment arm of industrialist Analjit Singh, has picked up ~1% stake in East India Hotels for Rs450mn. (ET)
JK Tyres and Apollo Tyres have slashed their product prices to pass on the 4% excise duty cut benefit to customers. (FE)
Many MNC-local JVs – Nissan-Ashok Leyland, Hero-Daimler and Eicher-Volvo projects may get delayed due to cut in production of commercial vehicles by many players. (ET)
ICRA has assigned the highest credit rating to Rs20bn bond issue of NTPC. (FE)
J Kumar Infra projects has bagged orders wroth ~Rs5.6bn from MMRDA and MSRDC for skywalk projects. (FE)
Max India to consider rights issue. (FE)
The Government has awarded start-up spectrum to Unitech and Idea Cellular. (FE)
SBI Life Insurance may infuse ~Rs5bn in its insurance business in 2009 and consider public listing in H2 FY10. (ET)
Sun Direct has launched its DTH services in Mumbai with a starting price of Rs299 for four months, which is lower by ~50-60% than other service providers. (ET)
Merrill Lynch has sold its ~5% stake in Religare Enterprises for an undisclosed sum. (ET)
Leading automakers have passed on the benefit of 4% cut in excise duty to customers by reducing prices by 3-3.5%. (ET)
Indian auto companies are likely to take a hit of Rs10bn on unsold vehicles post 4% excise duty cut. (ET)
Cognizant wins US$100mn US contract. (ET)
Smart start, stay cautious
Be slow to form convictions, but once formed they must be defended against the heaviest odds.
After a stimulating start on Monday, the bulls failed to hold on to their gains. We expect something similar today. Though US markets ended in the red, the Indian indices could be off to a smart start. The Asian cues are positive for the time being. Use the gains to lighten and shuffle your positions as the gains could get pared unless global markets boost local sentiment. Conviction, however, continues to evade the market players.
Asian stocks rose for a fourth day as optimism that stimulus plans will boost the global economy lifted commodity producers and automakers. The auto bailout bill in the US is still pending, which probably hurt Wall Street.
The World Bank say Global gross domestic product is likely to increase by 0.9% in 2009, the weakest rate since 1970. The US economy remains a sore point and as some traders point out people have run out of reasons to initiate some buying. Canada, declared itself in recession on Tuesday. In Asia, Japan’s economy sank deeper into recession in Q3. The MSCI Asia Pacific Index has fallen 47% this year.
FIIs were net buyers in Index Future by Rs925cr with increase in open interest by 27,983 contracts (6.2%). In Single Stock Future, they have gone short to the tune of Rs171cr with increase in open interest by 31,186 contracts (3.5%). In the Index Option segment, they were net sellers by Rs340cr. FIIs were net sellers in cash segment by Rs350cr (Provisional). DIIs were net sellers in cash segment by Rs617cr (Provisional).
The Dow Jones fell 240 points or 2.7%. The Standard & Poor's 500 (SPX) index lost 2.3% and the Nasdaq composite fell 1.6%.
U.S. light crude oil for January delivery fell $1.64 to end at $42.07 a barrel.
Suzlon could see some weakness on downgrades by a foreign brokerage.
MTNL could add some weight as it is set to launch 3G services.
Automakers say they have passed on the benefit of 4% cut in excise duty to customers by reducing prices by 3-3.5%. This however is unlikely to trigger accelerated sales. Reports say auto companies are likely to take a hit of Rs10bn on unsold vehicles post 4% excise duty cut.
Construction companies should have some news to cheer with the Government approving 21 highway projects worth ~Rs283bn to be executed in the form of government-private partnership.
India Infrastructure Finance Company Ltd (IIFCL) says it will raise another Rs100bn through tax-free bonds to refinance bank loans to infrastructure projects by March.
The real estate companies’ woes could continue with reports that the government may restrict state-owned banks to offer interest rates to 7-8% on housing loans up to Rs2mn.
SEBI has allowed companies to issue non-convertible debentures along with warrants – which can be converted into shares to Qualified Institutional Buyers.
Cement companies could be hurt on the bourses too today. While fuel rates may have gone down on the road, Indian Railways has hiked the freight rates for cement, coal and coke by up to 8% per ton.
To boost the tourism sector growth, the Government is considering proposals like abolition of the 12.5% service tax on tour packages, reduction in development charges for adding more rooms in the existing hotels and convincing the states to have a 4% uniform luxury tax across the country.
The BSE benchmark index witnessed wild swings on Monday, erasing early gains on the back of profit booking. Further on, with Tuesday being a holiday, traders exited their long positions. The Sensex finally ended adding 197 points, at 9,162, and the NSE Nifty index gained 69 points to close at 2,787.
Shares of Karuturi Global surged higher after the company announced that it concluded a new contract for supply of 50mn roses, an increase of 28% over 36mn roses supplied in the previous year, from Edeka, one of the largest super markets network in Germany.
This order comes at an increased price ranging from 20% to 33% above that of the price received this year. This order will be executed through its various production facilities.
The stock rose over 4.8% to Rs11.7 and touched an intra-day high of Rs11.8 and a low of Rs11.4 and recorded volumes of over 6,00,000 shares on BSE.
RPL gained by over 3% to Rs74.5 after reports stated that the company may commission its new refinery by March and may start producing some products by next month. The scrip touched an intra-day high of Rs78 and a low of Rs73 and recorded volumes of over 72,00,000 shares on BSE.
Dr Reddy's Labs gained by 1.2% to Rs481 after reports stated that the company is considering settling Sanofi-Aventis dispute out of court.
Also reports stated that the company remains in litigation for two patents in the US, while one patent has been dismissed from the case. The scrip touched an intra-day high of Rs492 and a low of Rs477 and recorded volumes of over 17,000 shares on BSE.
Shares of J Kumar ended flat at Rs66.4. The company announced that it received a confirmation of order to construct 16 Skywalk's from Mumbai Metropolitan Regulatory Development Authority (MMRDA) & Maharashtra State Road Development Corporation (MSRDC) out of which J Kumar lnfraprojects Ltd has received work order for Rs5.59.40bn. The scrip touched an intra-day high of Rs74 and a low of Rs66 and has recorded volumes of over 3,00,000 shares on BSE.
YES Bank
We recommend a buy in Yes Bank stock from a shortterm trading perspective. It is evident from the charts of Yes Bank that it was in a medium-term downtrend from its early September peak of Rs 149 to its 52-week low of Rs 55 recorded in late October.
During this downtrend, the stock broke through the significant support level at 100 in early October. However, the stock took support at its 52-week low (Rs 55) twice in late November and early December and reversed direction.
The stock has a significant long-term support level in the band between Rs 55 and Rs 62. On December 4, the stock jumped by 11 per cent, penetrating its medium-term down trendline. We notice above average volume over the past three trading sessions, strengthening the new uptrend. The weekly relative strength index (RSI) is displaying positive divergence and daily RSI is rising in the neutral region.
We are bullish on the stock from a short-term perspective. We expect the ongoing up move of the stock to prolong until it hits our price target of Rs 77 in the forthcoming trading sessions. Traders with short-t
Precious metals end mixed
Gold rises but silver drops as dollar weakens
With a weak dollar, gold prices once again rose today, Tuesday, 09 December, 2008. Gold rose due to the falling dollar but silver fell. 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 and also vice versa. Gold also registered first weekly drop last week in last five weeks.
On Tuesday, Comex Gold for February delivery rose $4.9 (0.6%) to close at $774.2 an ounce on the New York Mercantile Exchange. Earlier in the day, it reached a high of $780.7. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (26%) since then. Last week, gold prices ended lower by 8.2%.
For the month of November, gold prices ended higher by 14%. Prior to this, for the month of October, gold had ended lower by 18%. It was the biggest percentage loss for gold since February, 1983.
This year, gold prices have lost 7.8% till date. Futures have averaged $878 in 2008. The dollar index has gained 11% this year. For the third quarter ended September, 2008, gold prices ended lower by 5.1%. It was the first quarterly loss for the yellow metal since the second quarter in FY 2007. Prior to that, the yellow metal ended second quarter with a marginal gain of 0.7%. For first quarter prices gained 10.7%.
On Tuesday, Comex silver futures for December delivery fell 12 cents (1.2%) to $9.85 an ounce. Last week, silver lost 7.7%. For the month of November, silver prices had gained 5%. Till date, silver has lost 34.2% this year.
For the month of October, silver had slipped by 20%. Silver had ended month and quarter of September 2008 with a loss of 10%. For the second quarter, it had gained a paltry 1.4%. Silver had gained 16% in Q1. The metal also had gained for seven straight years.
At the currency market on Tuesday, the dollar fell sharply against the Japanese yen, but was mixed against other major currencies. Dollar weakness typically boosts dollar-denominated commodities such as gold. The dollar index, which tracks the performance of the greenback against a trade-weighted basket of six major currencies gained 0.3%.
Earlier this year, the weakening dollar and higher global demand for raw materials had led to records this year for commodities including gold. Gold reached a record in March as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. In the latest move, the Federal Reserve has cuts its target bank lending rate to 1% from 5.25% in September, 2007. The Fed did it in eight steps.
It was reported today that gold production in South Africa fell by 14% year-on-year in October. The country's total mining production, however, rose by 3.5% year-on-year in October, with non-gold output rising 6.5%.
Gold had witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Silver had climbed 16% in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.
Crude drops
Prices shed more than $1 after yesterday's rally
After rallying yesterday, crude prices slipped lower once again on Tuesday, 09 December, 2008. Prices fell due to a couple of factors. First was the fact that traders anticipated that tomorrow's weekly inventory report will show build up in crude inventories. Next, crude also fell on chances of OPEC going for a production cut to restore crude prices in its next meeting.
On Tuesday, crude-oil futures for light sweet crude for January delivery closed at $42.07/barrel (lower by $1.64 or 3.7%) on the New York Mercantile Exchange. It touched a low of $41.83 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 74% since then. On 5 Dec, 2008, prices touched a low of $40.5. Last week, prices coughed up 25%. That was the largest weekly loss for crude in past twenty five years. For this year in 2008, crude prices have dropped 52%.
For the month of November, crude prices ended lower by 19.7%. Before this, for the month of October, 2008, crude prices had ended lower by 32.6%, the biggest monthly drop since 1983.
EIA reported today in its monthly short-term energy outlook that the current global economic slowdown is now projected to be more severe and longer than it expected last month, leading to further reductions of global energy demand and additional declines in oil and other energy prices. The EIA is now expecting world GDP growth to slow to 0.5% in 2009, down from an expectation of 1.8% in last month's outlook.
At the currency market on Tuesday, the dollar fell sharply against the Japanese yen, but was mixed against other major currencies. Dollar weakness typically boosts dollar-denominated commodities such as gold. The dollar index, which tracks the performance of the greenback against a trade-weighted basket of six major currencies gained 0.3%.
The Organization of Petroleum Exporting Countries ended meeting in Cairo last month without any decision on a production cut to restore crude prices. OPEC President and Algerian Oil Minister Chakib Khelil said he expects oil demand to decline from a month ago, and said the group would take necessary action on 17 December when it meets in Oran, Algeria.
For the third quarter of the year crude prices ended lower by 28%. This was the biggest quarterly drop since 1991. Before that, crude prices had gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. For the month of September, prices registered drop of 13%.
Against this background, January reformulated gasoline fell 2 cents to end at 94 cents a gallon and January heating oil dropped 5 cents to end at $1.44 a gallon.
Natural-gas futures for January delivery edged up 1 cent to finish at $5.58 per million British thermal units.
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