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Wednesday, May 06, 2009
Daily News Roundup - May 6 2009
Wipro has been awarded a 9-year IT outsourcing contract by Unitech Wireless worth Rs25-28bn (ET)
L&T and EADS set-up JV to make products for Indian defense segment (ET)
Pfizer sues Sun Pharma, Wockhardt and Lupin in US against generic versions of its best-selling nerve drug (BS)
SEBI issues a show-cause notice to RIL and its associated entities following a probe into charges of insider trading in shares of Reliance Petro (BS)
RIL seeks partner for its Rs400bn Haryana SEZ (FE)
Reliance Infrastructure to sign a 500MW PPA with Tata Power (ET)
SAIL records highest-ever average monthly sales of over 50,000 tons of steel products for construction in 2008-09 (ET)
BHEL to invest Rs120bn over the next four years to pick up equity in power projects and to ramp up capacity (ET)
Tata Steel and RINL have increased prices of long products sold in the spot market by Rs1,000/ton (ET)
Cipla’s HIV drug gets clearance from the US FDA (ET)
Work at the M&M’s Nashik plant has been affected following a tool down strike by the workers (BL)
Indian Hotels picks up 2.25mn shares of Orient Express for US$12.9mn (ET)
Kingfisher Airlines is understood to be finalizing a working capital loan of over Rs20bn from SBI (ET)
Jubilant Organosys has signed a R&D deal with AstraZeneca (BL)
Sobha Developers to raise Rs7.5bn and increase investment limit by FIIs to 100% (BS)
Strides Arcolabs has started exporting its flu drug to various countries (BL)
Maytas Infra to raise Rs8-10bn through asset sales and loans and gurantees from banks to complete various projects (BS)
Government considering various measures including imposing anti dumping duty on auto parts (ET)
India’s coffee exports are expected to jump by 21% to 2,30,000 tones in FY10 (ET)
Country’s engineering exports declined 13.7% yoy in 2008-09 (FE)
No crowd, no strength!
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.
Bullion metals continue to shine
Precious metals gain on news that banks might raise additional capital
Precious metals ended higher on Tuesday, 05 May, 2009 at Comex. Prices rose today on reports that banks in US might raise additional capital in the near future thereby increasing the appeal of precious metals as a safe bet for investment.
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.
On Tuesday, Comex Gold for June delivery gained $2.1 (0.2%) to close at $904.3 an ounce on the New York Mercantile Exchange. Earlier in the day, it rose to a high of $916.7. Last week, gold ended lower by 3%. Year to date, gold prices are higher by 1.7%.
For the month of April, gold lost 3.7%, the second consecutive monthly drop. For the month of March, gold fell 2.1%, down for the first month in five. But the metal gained 4.3% in the first quarter. Before March, for the month of February, gold ended higher by 7.4%. For January, 2009, gold had gained 3.9%.
On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped somewhat (15%) since then.
On Tuesday, Comex silver futures for July delivery gained 30.7 cents (2.3%) at $13.42 an ounce. Year to date, silver has climbed 13.7% this year. For 2008, silver had lost 24%.
On Tuesday, according to prepared remarks for his Joint Economic Committee testimony, Fed Chairman Bernanke stated that the U.S. economy is moving to resume growth later this year. However, Bernanke also stated that further sizable job losses are likely and inflation will remain low.
In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.
Last year, the weakening dollar and higher global demand for raw materials had led to records for commodities including gold. Gold reached a record in March 2008 as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. In the last move, the Federal Reserve has cuts its target bank lending rate to 0.25% from 5.25% in September, 2007. The Fed did it in nine steps.
Prior to 2008, 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%.
At the MCX, gold prices for June delivery closed lower by Rs 54 (0.4%) at Rs 14,379 per 10 grams. Prices rose to a high of Rs 14,538 per 10 grams and fell to a low of Rs 14,336 per 10 grams during the day's trading.
At the MCX, silver prices for May delivery closed Rs 346 (1.6%) higher at Rs 21,791/Kg. Prices opened at Rs 21,516/kg and fell to a low of Rs 21,311/Kg during the day's trading.
Crude slips
Prices drop for first time in five sessions
Crude oil ended lower for the first time in five sessions on Tuesday, 05 May, 2009. Prices fell today as traders anticipated that tomorrow's inventory report by energy department will show rise in crude inventories for last week.
On Tuesday, crude-oil futures for light sweet crude for June delivery closed at $53.84/barrel (lower by $0.63 or 1.2%) on the New York Mercantile Exchange. Last week, crude ended higher by 3.2%.
Crude ended April higher by 2.9%. Previously, March trading ended up 10.9%. It rallied 11.3% in the first quarter. For the month of February, crude prices had ended higher by 1.5%.
Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 61% since then. Year to date, in 2009, crude prices are higher by 15.1%. On a yearly basis, crude prices are lower by 48%.
Market is expecting a build up of more than 2 million barrels of crude for last week. On Tuesday, according to prepared remarks for his Joint Economic Committee testimony, Fed Chairman Bernanke stated that the U.S. economy is moving to resume growth later this year. However, Bernanke also stated that further sizable job losses are likely and inflation will remain low.
Also at the Nymex on Tuesday, June reformulated gasoline fell 1.38 cents, or 0.9%, to $1.5722 a gallon and June heating oil lost 0.83 cent, or 0.6%, to $1.4262 a gallon.
Natural gas for June delivery slid 11 cents, or 3%, to $3.615 per million British thermal units.
Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.
At the MCX, crude oil for May delivery closed at Rs 2,676/barrel, lower by Rs 2 (0.07%) against previous day's close. Natural gas for May delivery closed at Rs 178.4/mmbtu, lower by Rs 6.2/mmbtu (3.3%).
Market seen opening firm in volatile trade
Key benchmark indices are seen opening slightly higher mirroring mixed global cues. The SGX Nifty futures for May 2009 expiry rose 11 points in Singapore. However profit booking after the recent rally cannot be ruled out.
Volatility may swell as political uncertainty, with polling for India's 15th Lok Sabha underway. The month-long parliamentary elections that began on 16 April 2009 will conclude on 13 May 2009 with results due on 16 May 2009. Poll estimates point to a fractured mandate.
Asia-Pacific stocks were slightly higher ahead of US bank stress-test results on Thursday, 7 May 2009. Key benchmark indices in China, Hong Kong, Singapore, Taiwan, rose by between 0.39% and 2.79%. South Korea's Seoul Composite index fell 0.29%.
US stocks edged lower on Tuesday, 5 May 2009 as cautious investors were worried about bank stress test results and energy shares succumbed to the pressure of lower oil prices. The Dow Jones Industrial Average fell 16.09 points, or 0.19%, to 8,410.65. The Standard & Poor's 500 Index lost 3.44 points, or 0.38 per cent, to 903.80 and the Nasdaq Composite index dropped 9.44 points, or 0.54%, to 1,754.12.
Meanwhile, US Federal Reserve Chairman Ben Bernanke told the US Congress Joint Economic Committee yesterday, 5 May 2009 that the US economy is on track for a recovery, but it will be slow. He said unemployment will continue to rise as businesses remain cautious about hiring.
Back home, the two key benchmark indices - the BSE Sensex and the S&P CNX Nifty saw divergent trend with the Sensex falling marginally and the S&P CNX Nifty rising slightly in what was a highly choppy trading session on Tuesday, 5 May 2009. The BSE 30-share Sensex ended marginally lower by 3.67 points, or 0.34%, to 12,092.96. The S&P CNX Nifty rose 7.90 points, or 0.22%, to 3,661.90, its highest closing since 3 October 2008.
Recovery in the Indian economy triggered a solid rally on the domestic bourses in the past few days. The rally was also a part of a sharp surge in global equities triggered by hopes the worst of the global economic recession may be over. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex jumped 3974.35 points or 48.70% to 12134.75 on 4 May 2009.
As per the provisional figures on the NSE, foreign institutional investors (FIIs) bought shares worth Rs 508.51 crore on Tuesday, 5 May 2009 while domestic institutional investors sold shares worth Rs 129.85 crore.
Asian stocks open on negative note
Asian stocks fell, as people familiar with the matter said Bank of America has the largest need for new capital among the 19 biggest US banks subjected to stress tests.
Hong Kong`s Hang Seng index fell 81.32 points, or 0.49%, to trade at 16,348.76.
China`s Shanghai Composite declined 5.77 points, or 0.22%, to trade at 2,561.57.
Taiwan`s Taiex index went up 81.81 points, or 1.28%, to trade at 6,461.75.
South Korea`s Kospi index shrank 2.41 points, or 0.17%, to trade at 1,395.51.
Singapore`s Straits Times dropped 16.91 points, or 0.82%, to trade at 2,057.44. (7:47 a.m., IST)
Japan`s Nikkei is not trading today.
GMDC
We recommend a buy in the Gujarat Mineral Development Corporation (GMDC) stock from a short-term perspective. It is apparent from the charts of GMDC that it has been on a medium-term uptrend since the March low of Rs 31. The stock has been forming higher peaks and higher lows since this trough. On April 15, the stock conclusively broke through a resistance at Rs 54, by gaining 10 per cent, with heavy volume. The stock resumed its uptrend on May 5 by surging 7 per cent following a minor pull back. We notice above average volume during the stock’s recent surge. GMDC is trading well above 21 and 50-day moving averages. The daily relative strength index (RSI) has re-entered in to the bullish zone from the neutral region and weekly RSI is steadily heading towards the bullish zone. Our short-term forecast on this stock is bullish. We expect the stock to move up further until it hits our price target of Rs 65 in the upcoming sessions. Traders with short-term trading perspective can buy the stock while maintaining a stop-loss at Rs 55.
Turnover surges
RIL, HDIL, SBI May 2009 futures at discount
Nifty May 2009 futures were at 3,659, at a discount of 2.90 points as compared to the spot closing of 3,661.90. Turnover in NSE's futures & options (F&O) segment surged to Rs 52,712.16 crore from Rs 46,344.80 crore on Monday, 4 May 2009.
Reliance Industries (RIL) May 2009 futures were at discount at 1881.15 compared to the spot closing of 1883.65.
Housing Development and Infrastructure (HDIL) May 2009 futures were at discount at 171.40 compared to the spot closing of 172.60.
State Bank of India (SBI) May 2009 futures were at discount at 1339.95 compared to the spot closing of 1345.20.
In the cash market, the S&P CNX Nifty gained 7.90 points or 0.22% at 3,661.90.
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