Morning Murmur - June 1 2007 - A Large Carry Over

The Nifty wrapped up the May settlement around the 4300 mark that we had expected, for change not deviating from the script. I don’t usually read too much into the expiry day close, as this is a culmination of a series of events and positions that
were built and stances taken during the settlement gone bye. But markets may do well, for reasons other than the higher closing. For instance, the buoyancy of the Asian markets and the sudden reduction in the Open interest on account of expiry
of may derivatives. But the intention of the punters on Thursday was only to ensure a close in the vicinity of 4300 mark and nothing more.

The discount for the June series, increased to 17 points, which would give an insight into the punters mind. A discount of 8 points is on account of dividends, but the balance 9 points is purely a statement that they have still not thought, how they
would ant the June series to shape up. We have the highest ever-opening balance of Rs 46,862 cr as Open Interest, though not a worry at this time, but may grow into an oak of a problem later during the series. Extend your luck a bit more this month and watch your steps after the 8th of this month or Rs 70,000 cr, which ever comes earlier.

The Indian juggernaut continued to roll on the back of a boom in manufacturing and services sector, notching up a growth of 9.4% in the fiscal year ended March 31. According to the Central Statistical Organization The blistering pace was up slightly from the previous year's 9%. In the final quarter, India's gross domestic product grew at an annualised rate of 9.1%. The U.S. economy, on the other hand, grew at its weakest rate in more than four years during the opening three months of this calendar year , at 0.6%, as businesses sold off inventories and Americans imported more foreign goods.

The commerce department revised down its estimate for first-quarter expansion in gross domestic product, or GDP, to 0.6 percent from 1.3 percent that it estimated a month ago. It was the slowest rate of quarterly growth since the fourth quarter of 2002 when the economy edged ahead at a 0.2 percent rate and was below Wall Street economists' forecasts for a 0.8 percent quarterly growth rate Although the first-quarter growth rate was cut in half, some key components of GDP showed
continuing resilience that may foster a healthier pace of expansion later in the year.

Personal consumption spending that fuels two-thirds of national economic activity rose at an upwardly revised rate of 4.4 percent instead of 3.8 percent estimated a month ago.

Morning Murmur - 4300 IS A ‘SPICY’ ‘IDEA’

Bulls are going to have bears for breakfast this morning as the markets are likely to open sharply higher, following some frantic short covering. The US markets, not only sidestepped the Shanghai weakness but went onto register a new high for the Dow and finally for the S&P, which over came a 7 year resistance. Helping the US markets climb the wall of worry was the release of Fed minutes of the May 9 meeting, which
the markets read as bullish. Our take is that those minutes were clearly bearish for the markets as the concern for inflation has been re-iterated where as the concern from the sub-prime mess to temper over all economic growth have reduced.

Markets driven by liquidity can afford to arrive at an illogical conclusion and get away with it. An upward push of 50 points in the Nifty is not ruled out and that is where I suppose the May derivatives could settle. The Telecom shares will buzz today, as conjectures of Idea wooing Spice Telecom are all over the place in print and electronic
media. Technology could moderate the heavy gains, which one would have expected today.

Morning Murmur - May 30 2007

Yesterday, Nifty opened positive but it was unable to sustain and fell sharply. It took support at 4248, after that it started recovering gradually and broke the Monday’s high of 4295, it made a new high of 4298 and finally gave a all time high closing at 4293 with a gain of 0.86%. The BSE CG, BSE CD, BSE HC and BSE Oil&Gas indices outperformed the markets, However, the BSE FMCG and BSE IT index closed with marginal losses. The Advance Decline ratio was in the favour of bulls at 5:4 yesterday.

Yesterday, after taking support at 4248, Nifty started recovering, it was continuously making higher tops and higher bottoms and in last hour of trade it cleared its resistance range of 4290- 4295 with good volumes and made a high of 4298. It finally gave a all time high closing at 4293 with a gain of 0.86%. We maintain bullish view on Nifty for short term as well as for long term. Today, Nifty can test our immediate target of 4336. However, we maintain short-term target of 4454 for Nifty. For intra-day Nifty has support at 4264 and below that 4242.

The BSE CG index outperformed the broader markets yesterday. It closed strong at 10896 with a gain of 2.81% & is still looking very strong on the charts. We maintain bullish view for this index with the target of 11128 and long-term target of
12107. Stocks like BHEL, LT , Siemens, ABB, Crompton greaves and Punj Lloyd are still showing strength on the charts.

Yesterday, The BSE HC index has broken five-month-old trendline with very good volumes and closed at 3857 with a gain of 1.70%. Now it can come up to 3991 and if it sustains above 3995 then it can test 4111 in the coming days. However, the
level of 3881 will play as a resistance for this index. Stocks like Cipla, Sun Pharma, Sterling Bio and Orchid Chem are looking strong on the charts.

Morning Murmur - May 29 2007

Markets opened with a flourish Monday but lost momentum in the afternoon. The strength in the rupee spooked the IT stocks. Apparent intervention by the banks to shore up the dollar did result in Rupee depreciation but that failed to lift the
IT stocks back to the morning levels. The current settlement seems to have run into a wall of 4300 level in the Nifty. The markets are likely to consolidate in the 4200-4300 region. The Rupee-dollar gyrations will be the key driving factor for the markets. We do not advice rolling over to the existing settlement at this point of time.

HONGKONG AUTHORITIES WORRIED

The Hong Kong Monetary Authority, the Chinese territory's de facto central bank, added its voice to the growing chorus of concern about the risk of an asset bubble in China. "Excess liquidity may help create an asset-price bubble in China. The situation is worrying," the monetary authority said in a document it sent to the Legislative Council ahead of a meeting with legislators next week.
The HKMA said while Hong Kong may be affected by fluctuations in the Chinese economy caused by monetary tightening, it believes Hong Kong can withstand the impact on its economy and consumer prices.

DEAL POSSIBILITIES BUOYA AVAYA
Telecommunications-equipment maker Avaya Inc, in the US, is in talks with private-equity and strategic bidders about selling part or all of the company, according to people familiar with the matter, the latest sign that there could be a new round of mergers and acquisitions in the telecommunicationsequipment industry.
The Indian stock hit the upper circuit of 20% on this news.

After Market Hours

Elder Pharmac has entered into an agreement with Cymbiotics of USA for in-licensing arrangement for marketing of their pharmaceutical formulations for Diabetes, Chronic Pain, Skin Care, etc. Rico Auto and Zhejiang Jinfei Co. of China have signed a joint venture agreement for establishing joint venture company in India to manufacture Aluminium Alloy Wheels for two wheelers.
SEBI banned promoters of Adani Group from dealing in stock markets for two years for their involvement in Ketan Parekh securities scam. TCS announces formation of TCS Financial Solutions, a new strategic business unit to consolidate its
financial products business.

During Market Hours

Bharati Shipyard secured an order worth Rs 418 crore for supply of two platform supply vessels from Germany's Man Ferrostaal AG.
Cambridge Technology board approved the acquisition of US based ComCreation Inc. for US $ 3.5 million. Crompton Greaves to acquire Ireland-based Microsol Holdings for an enterprise value of around 10.50 million euro (over Rs 57 crore).
Era Constructions board approved to Issue 55 lakh warrants convertible into equal number of Equity Shares on preferential basis to the Promoter Group and Non Promoter Group.
Glenmark Pharma Swiss subsidiary Glenmark Pharmaceuticals S.A. (GPSA),has completed Phase I clinical trials for GRC 6211 in Europe. GRC 6211 is its lead Vanniloid Receptor (VR1) antagonist compound for a range of pain indications like naturopathic pain, osteoarthritis and urinary incontinence.
Hindustan Zinc cuts zinc prices by Rs 6,600/t to Rs 171300
ICI India has recommended to buy-back its own shares at a price not exceeding Rs 575 per share from minority shareholders through market operations.
Jain Irrigation has signed definitive agreements through a wholly owned subsidiary in Netherlands to acquire 50.01 % of the share capital of Na'anDan Irrigation Systems, Israel for US $ 21.5 mn.

Modison Metals Board to meet on June 04, 2007 to consider stock split.

Northgate Technologies board approves 1:1 Bonus Issue.

OM Metals Infraprojects Board approved to sell/dispose off the shares held by the Company in JV

Companies to a newly incorporated 100% subsidiary & to Hikes FII limit to 49 %.

Omax Auto board approved selling a part of its stake in subsidiary Omax Steels Ltd.

Morning Murmur

Markets are likely to begin the week on a buoyant note. Coaxing the stocks higher will be the bullish sentiment that prevailed on Friday, when Dalal Street downed its shutters for the week. The international cues this morning would only fuel this morning rally. The US markets would be closed today for the Memorial Day holiday. So the local punters could call the shots on Tuesday as well as there would be no US clue.
Both the Nifty and the Sensex have taken support from the upward sloping trendline formed by joining the April 2 and May 11 lows. The bounceback for both indices occurred around the support levels on this trend line, bringing credibility to thebounce and the line. The biggest thing to watch would be the IT sector, where OI has risen by Rs 1977 Cr and the CNX IT has not gone anywhere, though the Nifty has inched up by 1.7%. The IT stocks are likely to open higher and could lead the rally. They can also pose the greatest risk, whenever the rally stalls. Meanwhile, a report in the press, saying that the SBI will extend its footprint to one lakh more villages in the next two years could give sleepless nights to the MNCs in the
business.

Last week, when Dalal street downed its shutters for Friday, the Open Interest (OI), a sum total of all contracts in the Futures and Options segment , reached an all time high mark of Rs 66,427 Cr. The earlier record was Rs 63,586 cr seen on January 24th this year.

This has prompted some alert Television anchors to raise an alarm over the weekend. It is customary for the media, whether print or electronic, to raise a red flag, whenever earlier records are broken. Ever since the global market Pundits blamed the high OI at that time, Rs 54, 156 Cr to be precise, for the May debacle that sliced off 3872 points of the Sensex, the markets have shivered whenever OI has gone up.

While on the surface, a higher OI is a logical concern, but a study of the composition tells you that the heavens are not going to fall because of this. The markets are better place than what they were last May, from a derivatives perspective.
The first reason is that the share of the Nifty OI out of the Total OI , is 48% today as compared to just 30% then. Trading in the Nifty is more liquid . Puts and Calls are also more liquid in the Nifty. If a trader has a bullish view and has bought the Nifty futures, he can conveniently buy a Put in the Nifty, which prevents any further losses at the same time keeping his upside gains open.

The Puts and Calls in individual stocks are not that liquid. In a stock like Glaxo, you may not find a seller of Call or Put and even if you do, it will be at a price, which will be closer to the moon than terrafirma. So a high proportion of Nifty OI means, that the traders are in a relatively safer terrain, where exit is possible, with limited losses.
That brings us to the second piece of vital statistics. What is the proportion of Stock Futures to the total OI. 64.92% of the OI in May 2006, consisted of Stock Futures. The ratio at present is only 45.80. This is again very healthy.

And here is the clinching evidence. Aggregate Stock Futures in absolute terms today stand at Rs 30,277, lower than what they were in May, 2006, at Rs 34,784 Cr.
This is despite a higher Index , a higher total OI and more number of stocks in the F&O segment. The number of stocks in the segment last year were 118. Today they are 186. This data effectively puts things in perspective.

Other Recommendations.

Emkay Shares meanwhile has put a HOLD on Shree Cement with a target price of 1200. They say, Shree Cements commissioned its incremental capacity of 1.5 million tonnes in FY08.

With about 6.0 million tonnes of incremental capacity expected we feel demand –
supply gap would still be maintained. In such a scenario, Shree Cement would gain
on account of increased volumes. At the current price of Rs 1095, the stock trades
at a PE of 10.9x FY09 and an EV/EBITDA of 5.1x and would like to put a target of 1200.