Expect bearishness to continue

If the 5650 support breaks, the market could slide to 5525 before hitting the next serious support.

The week was uniformly bearish including the ceremonial trading on Muhurat. This trend appears unlikely to alter.

The Sensex closed on Friday at 18907 points for a loss of 5.35 per cent. The Nifty closed at 5663 points for a loss of 4.54 per cent. The Defty was down 3.95 per cent as the rupee provided a cushion. The Junior was down comparatively less at minus 1.69 per cent.

Breadth was quite negative and volumes were down on every successive session. The BSE 500 was down 3.42 per cent while the NSE Midcaps were down 0.5 per cent.

Sector indices like the CNX IT and the Bank Nifty lost disproportionate ground. The FIIs were net sellers and, while the mutual funds were net buyers until Thursday, they didn’t buy enough to redress the balance. Most of the operator volume disappeared as it usually does during Diwali.

Outlook: All the signals suggest a continuation of the downtrend. However the Nifty did land on what looked like a reliable support around Nifty 5600. In the absence of volume it is however likely to test and break that support early next week.

Rationale: Low volumes, poor breadth and dipping price lines are a clearly bearish short-term combination. If the 5600 support breaks, the market could slide till 5525 before hitting the next serious support.

In addition, the market has been in an intermediate uptrend since late August – after 10 weeks, the trend must be maturing and near-reversal.

Counter-view: If institutional attitude, especially FII attitude changes next week, the market could rise again.

This has happened several times in the past three years when fresh liquidity has changed all the technical expectations. It doesn’t seem likely given weakness in US markets but it could happen.

Bulls & Bears: It was one of those weeks when bulls were not very easy to find. There were some speculative action in PSU refiners such as BPCL and HPCL based on the hopes that fuel prices would be hiked.

However RPL saw a massive sell off, dropping about 20 per cent. There were isolated winners such as Bhel, Gail, Hindalco, Nalco, Biocon and NTPC – aluminium seems to be favoured among metals.

Most banks hit the Southern highway in contrast. Among tech stocks, both Infosys and TCS seemed to break crucial supports.

MICRO TECHNICALS

Gail Current price: 462.6 Target price: 490

The stock is generating high volumes and moving up despite the generally weak market. It made a breakout on Wednesday when it closed above 440. The target is in the range of 490-500. Keep a stop at 455 and go long.

Bhel Current price: 2771 Target price: 2850

The stock appears to be consolidating above support at 2750 although the volumes are not very good. It has a likely intra-day target of 2850 in the next four sessions and it will see resistance at 2795. Keep a stop at 2750 and go long. Book some profits above 2795.

Hindalco Current price: 202.5 Target price: 220

Friday‘s trading showed a positive engulfing pattern with a high-low range larger than the previous session, higher volumes and a positive trend. The stock has a minimum target projection of 215 with a likely rise till 220. Keep a stop at 195 and go long.

RPL Current price: 223 Target price: 200

The stock has found some support at the current price after dropping from the heights of 285. It’s likely to test support at 200 level again, at least on an intra-day basis. Keep a stop at 225 and go short. Cover below 205.

TCS Current price: 985.25 Target price: 960

The stock closed below a key support at 995. It now has a downside target of about 960. Keep a stop at 995 and go short. Cover below 965. If it closes below 955, go short again with 965 as a stop and a target of 925. If the support at 955 is broken, the stock is likely to hit support at 925.

Weekly Stock Ideas

Company: Reliance Petroleum
Research: CLSA
Rating: Underperform
CMP: Rs 221

CLSA downgrades Reliance Petroleum’s rating to ‘underperform’ with a target price of Rs 195 per share based on an average of the earnings multiples and replacement cost benchmarks. Reliance Petroleum has quadrupled since the initiation in April ’07 and now implies an asset value of $4,129/complex-bpd – 2.4x those of its US peers and a 50-70% premium to even the most expensive refinery new-build quotes in the market ($2,500). Its premium valuations ($57,800/bpd) are justified to an extent, however, given its higher earnings potential because of (a) lower capital costs ($740/complex-bpd, reflected in lower interest, depreciation), (b) tax savings due to SEZ-unit status and (c) savings from substitution of liquid fuels with lower-priced natural gas. In hindsight, CLSA’s April ’07 earnings estimates now appear too low and is upgrading FY09-12CL EPS by 52-71%. The refinery remains well-ahead of schedule as well and the FY09CL estimate builds a phased start-up from 2QFY09 (60% overall utilisation). CLSA’s fair value estimate for RPL is Rs158/share but the market is likely to look at alternative methods like earnings multiples, replacement costs, asset valuations and M&A benchmarks.

Company: PNB
Research: ABN Amro
Rating: Buy
CMP: Rs 534

ABN Amro retains its ‘Buy’ recommendation on Punjab National Bank. However, it has lowered the target price despite the rollover of valuations to FY09F. PNB’s stock has underperformed the BSE Sensex by 32% in the past one year. This underperformance has been due to declining NIMs and an increase in bad loans over the past two quarters. The decline in NIMs was partly due to a decline in low-cost deposits as a proportion of total deposits, an increase in the cost of funds and a reversal of interest income on the increased bad loans. ABN now forecasts a dip in the ratio of low-cost deposits from 46.1% for FY07 to 45.4% in FY08, and further to 43.4% by FY10 and expects NIMs to fall from 3.47% in FY07 to 3.27% in FY08, before rising marginally to 3.29% in FY09-10. PNB’s low-cost deposit ratio, at about 44%, is still among the highest for an Indian stateowned bank, which makes it better placed relative to peers in terms of ability to protect declining net interest margins. PNB’s low funding costs also compensate for the bank’s higher intermediation costs relative to peers. At 2.2% of average working funds in FY08F, the bank’s operating expenses are higher than those of many of its peers. At a revised target price of Rs 605, the stock would trade at 9.2x earnings and 1.6x adjusted book value for FY09F after writing off 100% pre-tax net NPLs.

Company: Reliance Comm
Research: Morgan Stanley
Rating: Overweight
CMP: Rs 705

Morgan Stanley maintains its ‘Overweight’ rating on Reliance Communications and revises upward the ’08/09 estimates by 1-3% based on F2Q08 results. They introduce ’10 estimates, increase net adds, raise their longer-term ARPU estimates by 7-8%, incorporate revised exchange rate estimates, and lift their price target to Rs 891. FY’07-10E operating and net profit growth are 40.2% and 42.0% p.a. respectively. Key positives include strong net adds and quarterly results, RCom’s unlocking of value in the tower business and its international operations through Flag Telecom, and Rcom’s getting the GSM spectrum for its new circles. RCom’s overall margins expanded 69 bps, to 42.8%, due to lower sales and distribution costs, as well as lower interconnect costs, despite higher network costs. Absolute EBITDA missed the estimate by 2.8%, even as RCom accounted for Rs 170 crore worth of income from the government pertaining to previous years. Still, lower depreciation charges, as well as lower tax rate and interest costs, led to net profits coming in 5.2% above the estimate. Aggressive rollout plans for ’08: RCOM invested $1.3 bn in 2Q ’08 and plans to invest $4-5 billion in ’08, the highest capex by any private operator in the country. This should enable it to enhance its passive infrastructure to 40,000 towers covering 23,000 towns and 600,000 villages and reaching 90% of India’s population.

Company: BHEL
Research: Merrill Lynch
Rating: Buy
CMP: Rs 2, 794

Merrill Lynch maintains BHEL as its top pick with a target price of Rs 3,000. On October 31, BHEL emerged as the sole bidder for yet another super-critical order – the 2x800-MW Krishnapatnam power plant of APGenco in a global competitive bid. This not only demonstrates BHEL’s ability to win supercritical orders in a competitive bid; but also takes it closer to reach a threshold level of 10 sets to achieve 90% indigenisation. BHEL is now the lowest bidder tied up for a total of six supercritical sets totalling to 4,520 MW in the last two months. Merrill Lynch expects solid new order inflows from supercritical technology to be the core driver of surprises ahead. It’s raining super-critical orders at BHEL.. The response to the global tender indicates tightness of the quality supply of super-critical power equipment. Merrill Lynch expects BHEL to outperform as the company a) addresses Chinese competition, b) gets super-critical orders in ’07, and c) looks to improve competitiveness through operating leverage - ~50% capacity expansion with less than 10% rise in labour.

Company: HDFC
Research: Deutsche Bank
Rating: Buy
CMP: Rs 2,562

Deutsche Bank maintains the `Buy’ rating on HDFC with an increased target price of Rs. 2,925 from Rs 2,200. HDFC remains one of the finest examples of steadiness - the mortgage business volume growth has stayed above 25% in the last four quarters when the rest of the sector has clearly decelerated. Asset quality is intact and spreads have actually broken out of the 2.15-2.2% band and moved closer to 2.3%. Life insurance is back to aggressive growth after the rapid increase in distribution investments. Two distinct upside possibilities to the assumption of tempered growth are real estate prices coming off and commercial banks competing less intensely than before. Dynamic resource-raising, no duration mismatch on the balance sheet and increased access to deposits should help HDFC maintain loan spreads. Asset quality is expected to remain under control, due to the rapid rise in individual income and HDFC’s historically low ticket size. Deutsche estimates gross NPLs to remain at the current level of ~1% and values HDFC on a sum-of-parts, at Rs 2,925. The core business is valued at 24x Mar ‘09E EPS. The life business is valued on appraisal value; the asset management business on AUM, the stake in HDFC Bank at the latter’s target price and the rest on earnings.

Company: Suzlon Energy
Research: Citigroup
Rating: Buy
CMP: Rs 1,888

Citigroup increases its target price on Suzlon Energy to Rs 2,227 from Rs 1,700 as they factor in: (1) A higher P/E multiple of 26x (from 23x earlier) in line with the multiple for BHEL on FY07-10E earnings CAGR of 49% (from 44% earlier); and (2) Roll forward of our multiple to Sep ’09. Citigroup also accorded Rs 43 per fully diluted share of Suzlon for REPower and change thier risk rating to Low from Medium as (1) Uncertainties on the REPower acquisition are a thing of the past; (2) Confidence of EBITDA margins being in the 15–17% band over the medium term; (3) Reduced component shocks as Suzlon backward integrates. ~16.1% EBITDA margins look achievable — Suzlon delivered 1,000MW in 1HFY08 and is set to deliver 1,500+MW volumes in 2HFY08.

Anil Ambani attacks GSM operators

Amid the ongoing telecom tangle, Reliance ADAG Chairman Anil Ambani has accused GSM operators of "hoarding" surplus spectrum and sought Prime Minister Manmohan Singh's intervention to ensure that service providers like Vodafone and Bharti Airtel surrender the excess airwaves.

In a scathing attack on GSM players, who are demanding auctioning of spectrum and have moved telecom tribunal TDSAT on new spectrum norms, Ambani said even sector regulator TRAI, fair trade practices watchdog MRTPC as also TDSAT have issued notices to Bharti and Vodafone for "anti-consumer practices".

It is essential that the future of telecom industry is "not undermined by a few vested interest for their narrow personal interests", Ambani said in a letter to Singh days before the Diwali festival.

The letter comes after GSM lobby Cellular Operators Association of India challenged the new policy of allowing dual technology for mobile telephony and new spectrum allocation norms as recommended by telecom engineering centre. ADAG firm Reliance Communications is a key CDMA player and was the first one to apply for GSM spectrum under the new norms.

Ambani asked the government to "see through the motivated agenda of a few existing GSM operators and not succumb to their pressure tactics", and said there should be "a transparent framework for surrender of spectrum in a time-bound manner, wherever not utilised, as per guidelines".

As if supporting communications minister A Raja, who has clarified to Prime Minister the issues relating to spectrum, Ambani opposed the auction of spectrum. He said such a route would benefit a close club of few large existing GSM players who remain free to indulge in anti-consumer practices like cartelisation and price fixation.

Merrill Lynch - invest in India and China

Global investment banking firm Merrill Lynch expects portfolio investors will continue to pour money in India and China over the next one year as the two Asian nations are growing at a much faster pace compared to most other countries in the world.

Robust economic growth story has made foreign institutional investors (FIIs) to look at India and China as their favourite investment destinations. India has seen a flow of over $17 billion in the equity market since January.

In future, synergies of the two giants will reward the investors in the two economies which are beginning to combine their expertise for fresh growth potentials, it said.

"Combination of India and China will be powerful moderating influence on global prices of goods and services, stimulating new consumption around the world and demand for Chinese and Indian products," Merrill Lynch's Investment Strategy report said.

"Growth in Asia is likely to be led by India and China because the two economies are getting associated which is driving rapid growth," the study observed.

Indian software developers are also providing the software and design for many of the things being manufactured in China.

Just as China is cornering the market for manufacturers, India is doing the same with services. India plays a crucial role in the global innovation chain with multinationals like Hewlett-Packard and Cisco Systems using teams of software designers and programmers for hardware manufactured in China.

India's services sector account for over half of real GDP growth, enabling it to take a huge leap in catching up with other developing economies.

China and India are forecast to have the strongest growth of around 9 to 11 per cent over the next few years while the regional average is slightly above six per cent.

India's economy is around $1,125 billion as compared to China's $3,250 billion economy.

"In India, FIIs own 21 per cent of the market and 45 per cent of the free float," a report by Merrill Lynch said.

Within Asia, India has the second-strongest growth and the second largest economy after China.

Another reason for the FIIs going bullish on India and China is the fact that elsewhere in the world, there is not much growth expected in near future, with Merrill Lynch's forecast of 1.4 per cent GDP growth for the US next year, 1.0 per cent for Japan and 2.3 per cent for Europe.

Ramesh Damani - expect corrections

Q: Very divergent performances this year from various sectors. A lot of them have not performed in this festivity at all, and a lot of them like capital goods, banks, metals have been tear away performers. Do you see that kind of divergence this year as well? What would be your favourite horses if you just look at themes going into the next one year?

A: Why has it been divergent is because, this market for the last 4,000-5,000 points has been led by the FIIs. The romance with Indian equities was in full bloom for the first half of this year. And then tend to prefer the bigger names, because they can invest serious amount of money in one shot. So, whether it is a Reliance, Reliance Capital, ICICI Bank or Bharti, that was the favoured stock.

As we are well aware, the retail investors have been selling; they have not been convinced of this bull run. But there is evidence that they are now being convinced that this bull run is for real. My sense is that at falls they would be buying the cash shares and B group shares. So, the breadth has started to improve at least anecdotally in the market. So, I would wager that if the market regains its health, if it crosses 20,000, it would be on a burst on stream with good breadth and by good participation in cash shares and by the public investors.

In terms of the themes, my sense is what I have been saying for the last few years is that we want to focus on domestic consumption stories. Companies insulated from dollar depreciation problems. So, I continue to look at cement, logistics, banking, these are great shares. One basket of stocks that we are recommending to our investors in our brokerage firm, is a lot of these MNC companies is my understanding are going to be privatized over the next year or so. If one looks at a basket of these MNC companies, over a year, they have quite a lot of safety in terms of lack of depreciation. And when the buy would happen, there would be a significant premium to current market prices. So, domestic consumption themes and MNC privatisation stories are two themes we are zeroing in on.

Q: Has anything surprised you as a sectoral performance, as a story and do you think that is going to be the big star to watch out for over the next few months?

A: I think there have been some great calls in this bull market starting 2003, the real estate story, Reliance Group. How it has absolutely dazzled in terms of its performance, the telecom story, it has been a great story. As you have also said it has been a great bull market and these kinds of bull markets produce these kinds of spectacular returns. So, yes a lot of these old hands including me were caught surprised at the vengeance of the real estate move, the vengeance of the Reliance group has moved. And congratulations at the end of the day these managements have delivered for their shareholders. So, yes it has surprised me.

In terms of headline in the future, the trick in the stock market is to buy cheap, buy value, things worth Rs 100 for Rs 25. So, these stocks may not be particularly cheap at this point. But in a mature phase of the bull market momentum begets momentum. So, the big gets bigger. So, it is typical behaviour what happens in the bull market. The leadership breaks away from the pack and dazzles the market with superior returns. I think we are seeing something like that happen.

Q: The way some of the stocks have moved 20-25%, have they rung any alarm bells or not quite? They are just part of any big bull run?

A: It has raised alarms. When the midcap or smallcap stocks went up, we were worried, but they didn’t have an impact on the markets because they were relatively puny at may be 2% of India’s market cap. After these kind of blow-off runs, investors should pause for thought.

Bull markets do not end with retail investors selling their shares. Many bull markets in India has ended when the IPO pipeline faded or when huge sums of money were raised on prices that were not justifiable. I have not seen that kind of frenzy take place in the Indian IPO market. I am sure given time, a lot of corporates will raise upwards of USD 50-100 billion over the next one or two years in India. The Mundra IPO and many such IPOs suggest that there is latent demand for IPOs in this country.

There would be huge IPO offerings and some of them might time the markets. But for now, look at the positives. Liquidity should remain okay. We are seeing direct tax collection shooting ahead of indirect tax collections. The breath of the market and GDP growth are okay. Markets will see a repeat of the violent corrections that we had in 2007. Broadly, the markets will hold. At present, the bull market seems intact.

Bartronics India

Bartronics India

Omaxe, United Spirits

Omaxe, United Spirits

SBI rights issue

The Union Cabinet is likely to take a call by November 22 on State Bank of India`s proposed plan to raise about Rs 18,000 crore through a rights issue.

"We have prepared a cabinet note and it will be taken up at the cabinet meeting either on November 15 or November 22," said official sources.

Incidentally, the winter session of parliament is beginning on November 15 and the government will have to get the parliament sanction to subscribe to the issue, which is likely to cost the government about Rs 10,000 crore. The bank is likely to raise Rs 17,000-18,000 crore through the rights issue to meet regulatory requirement and business growth, the sources said.

Although the rights issue would not change the shareholding pattern, the unsubscribe portion of the issue by existing retail shareholders could increase the government share in the country`s biggest lender.

The government`s stake in SBI, which is currently at 59.73%, could go up after the rights issue, if some investors did not take up the offer. Retail investors currently have around 4 % shares in SBI.

As SBI`s share price is currently ruling at over Rs 2,000, some investors, especially retail ones andmay not subscribe to the rights offer. The government`s holding in SBI may go up to 61-62 %, depending on the unsubscribe portion of rights issue, the sources said.

SBI shares closed down Rs 22.15 at Rs 2,162.50 at the end of Muharat trading on Friday against Rs 2,184.65 in the previous day.

SBI chairman O P Bhatt had earlier said that the bank needs not only the growth capital but also the funds for implementation of Basel II norms, which benchmark the quantum of capital that a bank is required to put aside for covering the financial and operational risks.

"The bank requires close to Rs 5,000 crore just for meeting Basel II norms," he had said.

The Reserve Bank of India has asked all banks having overseas operations to be Basel II compliant by March 2008.

"We also need capital for complying with AS15 (accounting standard 15 norms relating to employees statutory dues). Banks like SBI would require between Rs 4,000 crore to Rs 5,000 crore. These two needs (Basel II and AS15) alone would require Rs 10,000 crore," bhatt had said.

According to government estimates, SBI needs to raise around Rs 89,600 crore over the next five years.

SBI has witnessed a 36.04 % rise in net profit at Rs 161.14 crore during the second quarter this fiscal against Rs 118.44 crore in the corresponding period of 2006-07.

Total income rose by 33.42 %to Rs 1,365.82 crore during the quarter ended September 30, 2007 from Rs 1,023.73 crore in the second quarter last fiscal.

Post Diwali is usually better - historically!

Investors worried over the recent bear attack on the bourses can look forward to a rewarding month ahead as returns have been mostly better post-Diwali compared to the one-month period till the festival of wealth.

If this historic trend charted by the market barometer Sensex in the one-month period before and after Diwali holds true this year also, then the market would reclaim yet again its 20,000-point milestone in the next 30 days.

According to an analysis of historic patterns recorded by the Sensex since 2000, the 30-share barometer index has posted an average return of 6.85 % in the one-month period after Diwali. This is about five times the average return of 1.46 % in the one-month period prior to Diwali.

If the Sensex manages to grow by this average, it could achieve a level above 20k, from its current level of 18,907.60 points. The index had first crossed 20,000 levels on October 29 and scaled a peak of 20,238.16 on October 30. However, a subsequent downslide on the bourses has brought the index over 1,500 points away from its lifetime high.

Notwithstanding a fall of 151 points in Muhurat trading and a five-day downslide, the Sensex still managed to record a gain of 3.43 % in the one-month period till Diwali on November 9, 2007.

The post-Diwali one-month period has always given a positive return for Sensex, while it has been negative twice since 2000 in the prior-Diwali period -- in 2005 and 2000. On other five occasions, the Sensex gained between 3.43 % and 11.75 % in one month prior to Diwali.

Besides, the post-Diwali month has recorded a lower return than the pre-Diwali period only once -- in 2003 when Sensex grew by 11.75 per cent in one month before Diwali and by 1.92 % after Diwali.

The market experts believe that the post-Diwali positive trend gets a boost from the fact that Diwali marks the beginning of a new accounting year for market participants and is similar to the way the western world celebrates Christmas, which heralds fresh buying on the bourses.

In 2000, the Sensex lost 10.44 % in one-month till Diwali, but rose 6.43 % in the following 30 days. In 2005, the Sensex dropped 7.99 % pre-Diwali, but rose 12.59 % post Diwali.

Similarly, in 2001, the BSE-barometer rose 4.59 % in the pre-Diwali period, while in the post-30 days it gained 7.72 %.

In 2002, Sensex rose 1.95 % pre-diwali, against a much higher 7.35 % post Diwali. In 2004 and 2006, the one-month returns in pre-Diwali periods were 5.06 % and 3.76 % respectively, while post-Diwali periods gave higher returns of 5.1 % and 6.9 %.

India - world's third largest oil importer before 2025

India is set to become the world’s third largest oil importer after the US and China before 2025, according to the International Energy Agency (IEA).

While India’s importance as an exporter of refined oil products would increase on the back of planned investments in this space, the energy needs would propel India to overtake Japan as the third largest net importer of oil before 2025.

India is ranked fourth in terms of oil imports. According to the ‘World Energy Outlook 2007´ report published by IEA, rapid economic development in China and India would push up the global energy demand.

In addition, the growing demand from the two Asian nations would also bring major economic benefits to the rest of the world.

“Economic expansion in China and India is generating opportunities for other countries to export to them, while increasing other countries’ access to a wider range of competitively priced imported products and services.”

“But growing exports from China and India also increase competitive pressures on other countries, leading to structural adjustments, particularly in countries with competing export industries,” IEA noted.

Dominated by fossil fuels, India and China would account for 45% of the world’s energy needs in 2030.

India IT Services

India IT Services

Trading Calls, Derivatives - Nov 12 2007

Trading Calls, Derivatives - Nov 12 2007

Market Outlook - watch the levels

The markets slipped last week on the back of weakness in the global markets. Major Asian indices, like the Hang Seng and Nikkei, were down over 5.5% each at 28,783 and 15,583, respectively. The Shanghai Composite index plunged 8% to 5315.

The Sensex ended in red right through last week, and dropped 5.3% (1,068 points) to 18,908. The index moved in a range of 1,272 points from an opening high of 20,009 to an intra-week low of 18,737.

Last week, we had mentioned that the index may consolidate and test its near-term support of 18,660. The index is close to its support level and in case the support fails to hold, which seems quite possible, it may take a sharper dip towards its major support area of 17,300-17,000.

The sentiment, however, is likely to remain bullish as long as the Sensex stays above the key support level.

This week, the Sensex is likely to face resistance around 19,400-19,550-19700, and find support around 18,420-18,270-18,120.

The NSE Nifty moved in a range of 342 points - a high of 5957 and a low of 5615 - before settling with a loss of 4.5% (269 points) at 5663. In the process, the index briefly dipped below the 5675 support level.

The next significant support level for the Nifty is around 5425 below which the index may drop to the 5000 level.

This week, the index may face resistance around 5795-5835-5875 and find support around 5530-5490-5450.

The Nifty Moving Average Convergence Divergence (MACD) is bearish since it is trading above its 'signal line'. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the signal line, functions as a trigger for buy and sell signals.

Market will continue to be nervous

The Indian stocks are perched at uncomfortable levels and if the global cues continue to remain weak, there could be further selling in the domestic markets. The weak closing on Muharat day suggests that the ongoing correction might continue, amid volatility. Friday’s close far below the opening levels, accompanied with low volumes, was also an indication that bears were making their presence felt. The market has already corrected by 7 per cent from its all-time high. But since the near-term trend looks weak, a pull-back may attract further profit booking.

The stock market has given 50 per cent returns in Samvat 2063, as has been the trend in the last three years. But the market is lately showing signs of some nervousness as foreign investors have got into a sell mode since the Sebi proposed to regulate participatory notes (P-notes). Since 17th October, the FIIs have been net sellers in the cash market to the tune of 2.3 billion dollars. The domestic institutions have supported the market during this period, buying shares worth $1.35 billion. Foreign investors have reasons to sell as valuations appear to be rich. Asian markets in general have received strong inflows as they have been perceived as safe investment heavens. The resultant rise has made historical valuation irrelevant.

A Citi group report has said that Asia is now the most expensive region. It is trading at a P/E premium of 29 per cent to the developed world and 14 per cent against the general emerging markets. On a PV (price to book value) basis though, Asia is at a moderate discount against the general emerging markets despite the recent selling by foreign funds in the Indian market.

The Indian and Korean specific country funds attracted inflows worth $1.6 billion in the last four weeks, almost double the inflows into the Hong Kong and China funds. This would translate into buying at lower levels. Despite pressing sales, the FIIs were not eager to take money out due to the rupee appreciation, according to banking circles. “Hedge funds are selling as they need to have cash to pay dividend to their investors,” said an FII broker. The impact of sub-prime crisis is showing in the September quarter results of US-based hedge funds, thereby forcing them to book profits.

The crude oil prices, which are at a sniffing distance of the $100 mark, are expected to affect corporate bottom-lines as the prices of many industrial raw materials and intermediates have started moving up. Imports have already become costlier and domestic companies have started raising the prices of their products. Petrochemicals, polymers, chemicals and solvents and furnace oil prices are moving up. The government is under pressure to revise prices of petrol and diesel, which will make transport costlier. Globally, the Asian and US markets have been correcting for some time due to the high crude oil prices and re-emergence of the sub-prime crisis. Once stability returns, foreign money waiting in the wings is bound to enter the Indian markets. Hence, the global factors hold the key to a recovery back home.

Strong support at 5,600

The market is bullish above the level of 5,750 on Nifty futures. One could get bullish confirmation only if the Nifty futures close above 5,750. The market would weaken below 5,650. Kamlesh Langote, VFMDirect, said that today’s breakdown below yesterday’s low is not a good sign.

The next immediate support exists at 5,500, where considerable put writing exists. However, a truncated session such as today’s, marked by low volumes, could give wrong break-downs/break-outs and hence Monday’s session would be crucial.

Stock-specific action was seen in National Aluminium, Gail, Neyveli Lignite, Federal Bank, Bajaj Hindustan, Power Finance, GMR Infrastructure and Oswal Chemicals last week, with the prices of November futures moving up by over 10 per cent accompanied with a sharp increase in open interest.

Bajaj Hindustan November futures closed at 218.55, up 14.8 per cent, while the OI increased by 2.3 million shares or 42.2 per cent.

Federal Bank futures surged 15.9 per cent, while the OI increased by 31.6 per cent.

GMR futures closed 13 per cent up and the OI increased by 22.8 per cent.

The firming up in open interest, coupled with the appreciation in stock futures by over 10 per cent, points towards further bullishness in the above mentioned stocks.