The crowd gives the leader new strength.
In politics and in market, the crowd (and of course money) sure adds new strength. But that strength seems to be running out for now. After a strong start to the week, the bulls seem to be losing hold. We expect the market to consolidate further amid persistent uncertainty over the outcome of elections. The result of the stress test of large US banks and monthly jobs report may also keep investors nervous. Asian markets are trading in the red or only marginally positive. As a result, the Indian indices are also likely to open on a cautious note. Overall, the trend may remain sideways with no major movement on either side.
While the foreign funds have been aggressively pumping money into the Indian stocks, their domestic counterparts are cautious. Reports say a domestic insurance giant has been booking profits of the past few days. Mutual Funds too are also indulging in only selective buying while using the rally to lock in some gains.
Quite a few local as well as global experts are warning against getting carried away with the current momentum. To a certain extent, we also endorse their view as a full fledged global turnaround may still take longer than expected. Also, the recent run-up has been too fast, which makes the market susceptible to a sharp reversal.
FIIs were net buyers in the cash segment on Tuesday at Rs5.08bn while the local institutions were net sellers at Rs1.3bn. In the F&O segment, the foreign funds were net sellers at Rs1.46bn. On Monday, the foreign funds were net buyers at Rs14.9bn in the cash segment.
US stocks ended slightly lower on Tuesday as investors chose to remain on the sidelines after pushing the major benchmarks to multi-month highs in the previous session. The Dow Jones Industrial Average lost 16 points, or 0.2%, to 8,410.65. The S&P 500 index lost 3 points, or 0.4%, to 903.80. The Nasdaq Composite index fell 9 points, or 0.4%, to 1,754.12.
US stocks slumped as investors pulled back after a strong start to the week. On Monday, the Nasdaq ended at a six-month high and the Dow and S&P 500 ended at nearly 4-month highs.
Expectations that the worst is over for the US and the global economy have lifted global equities over the last two months. The Nasdaq has risen for eight straight weeks after falling to a six-year low. The Dow and S&P 500 have risen for 7-8 weeks, after falling to more than 12-year lows. The rally propelled the S&P 500 by 34% since March 9.
The US economy will bottom and start to rebound later this year, but the recovery process will be slow and choppy, Federal Reserve Chairman Ben Bernanke told the Joint Economic Committee of the Congress. His comments essentially reiterated the statement from the last Fed policy meeting.
At least 10 of the 19 big banks under review by the government may need to boost their capital, the Wall Street Journal reported. The government has been testing the banks' viability in case the economic slowdown accelerates in the coming months. The results of the "stress tests" are due late on Thursday.
Bank of America, Citigroup and Wells Fargo have all been mentioned over the last few days as lenders that will potentially need to raise more capital.
AIG is expected to report a quarterly loss when it releases results late on Thursday. However, the insurance titan is not expected to need more money from the US government. Its shares rallied 14%.
In other financial news, Swiss bank UBS reported a steep quarterly loss and said it expects loan losses to keep climbing in the months ahead. US bank shares slipped, sending the KBW Bank sector index down by 1.6%.
Dow component Kraft Foods reported higher quarterly earnings that topped estimates. But revenue fell as the stronger dollar hurt sales overseas. Kraft shares rallied 4%.
A variety of influential technology shares slipped, dragging on the Nasdaq, including Intel, Dell, Microsoft and Applied Materials.
The Institute for Supply Management's index on the services sector of the economy rose to 43.7 in April from 40.8 in March. Economists had forecast a gain of 42.2. Any reading below 50 still indicates contraction, but the improvement suggests the pace of the slowdown is easing.
Treasury prices slipped, raising the yield on the benchmark 10-year note up to 3.16% from 3.15% on Monday.
Borrowing costs improved. The 3-month Libor rate, a key bank lending rate, fell to 0.99% on Tuesday, its lowest point on record. The overnight Libor rate held steady at 0.24%.
In currency trading, the dollar gained versus the euro and the yen.
US light crude oil for June delivery fell 63 cents to settle at $53.84 a barrel on the New York Mercantile Exchange.
COMEX gold for June delivery settled up $2.10 to $904.30 an ounce.
After the close, Walt Disney reported weaker earnings that topped estimates on weaker revenue that missed estimates. Shares gained in extended-hours trading.
Wednesday brings the private sector employment report from payroll services firm ADP, a precursor to the government's non-farm payrolls report due on Friday. Employers are expected to have cut 643,000 jobs from their payrolls after cutting 742,000 in the prior month.
Highly volatile market ended on a flat note on Tuesday. However, buying witnessed in the Realty, Metals and Banking stocks saw the Sensex to close above the 12,000 levels for second straight trading session. The BSE Sensex ended flat at 12,131. The NSE Nifty was up 7 points to close at 3,661.
Among the 30-components of Sensex, 16 ended in the red and 14 ended in the positive terrain. DLF, ICICI Bank, Tata Steel, Tata Motors, Reliance Infra and Ranbaxy were among the top gainers.
Top losers were HDFC, ITC, Infosys, M&M, TCS and NTPC.
Shares of Strides Arcolab rallied by over 7% to Rs113 after the company announced that it started supplies of capsules used in the treatment of swine flu and plans to manufacture more than 2mn doses per month starting June. The stock hit an intra-day high of Rs117 and a low of Rs106 and recorded volumes of over 0.35mn shares on BSE.
Shares of L&T surged by over 3% to Rs978 after the company announced that it will join forces with EADS Defence & Security in the fields of defence technology for manufacturing defence electronics in India at Talegaon near Pune.
The new JV company will aim at design, development, manufacturing and related services in the fields of electronic warfare, radar, military avionics and mobile systems for military applications.
Shares of Ranbaxy advanced by 4% to Rs177. According to reports, the company’s clinical trials for its malaria drug in final trial stage. The scrip touched an intra-day high of Rs180 and a low of Rs174 and recorded volumes of over 0.6mn shares on BSE.
Shares of Purvankara Projects edged higher by 0.6% to Rs69 after reports stated that it may consider restructuring part of its Rs2.8bn debt which is due for payment over the next 12 months. The scrip touched an intra-day high of Rs72 and a low of Rs69 and recorded volumes of over 21,000 shares on BSE.
Shares of GMR Infra gained by 3% to Rs120 after reports stated that the board of directors will meet on 9th May 09 to discuss the raising of funds through the issue of various securities. The scrip touched an intra-day high of Rs122 and a low of Rs116 and recorded volumes of over 2.1mn shares on BSE.
Tuesday saw Indian markets end on a flat note, the consolidation phase might continue for some time. All eyes would now be on the election results. A government formed by either the UPA or the NDA will be welcome. But, anything other than this scenario may temporarily make some dent in the sentiment.