Thursday , September 09, 2010

Bulls may continue journey

We don't receive wisdom; we must discover it for ourselves after a journey that no one can take for us or spare us - Marcel Proust.

At the moment it looks like India is out-performing the world. This week’s movement presents ample evidence of that trend. Whether this pattern continues or not only time will tell. We expect a positive start and the same could be extended, provided there are no further hiccups in world markets. Small-caps have been buzzing, but make sure your allocation is also small on these counters given the heightened risk associated with such counters.

The overall outlook in the near term is still not very bright, mostly owing to external concerns. But, the Indian market is likely to remain resilient and could continue the gradual move up, especially when global cues are supportive. Valuations might become a bit of an issue going forward. Also keep an eye on fund flows, which have been good so far.

The big local events that could have a bearing on sentiment are: IIP data (on Friday), inflation (on Sept. 14) and RBI review (on Sept. 16). Next month we will get the latest update on India Inc.’s report card.

Economic statistics from around the world will continue to exert their influence across markets and asset classes. Uncertainty on the outlook for world markets is expected to prevail for some time to come. Which means that investors will continue to switch between risk aversion and risk tolerance intermittently. If economic data from the US was good last week, we have been hit this week by a few downbeat reports from the euro-zone (particularly from Germany).

Euro-zone banks have been in focus amid lingering worries over the region’s sovereign debt issues. Talk of proposed new capital rules for global banks have also pressured some of these financials. The markets will remain choppy in the remaining part of the week. So it wouldn't be a bad idea to take a neutral stance and await more clarity.

Shares of Gujarat Pipavav port Ltd. will list on the exchanges today. The Company has fixed the issue price for its Rs5bn public issue at Rs46 a share while price band was at Rs42-48. The issue, which opened for subscription between August 23-26, was subscribed 19.94 times. Qualified institutional investors' portion got subscribed 13.2 times. Non-institutional and retail investors subscribed 85.70 times & 9.15 times, respectively.

FIIs were net buyers of Rs2.82bn in the cash segment on Wednesday (provisionally), according to the NSE web site. Local funds were net sellers of Rs982.1mn. In the F&O segment, the foreign funds were net sellers at Rs5.43bn.

Important News Snippets For The Day:

IT companies may be in spotlight due to the news of Ohio banning outsourcing from India. Vindhya Tele Links is the stock to watch out for, after the Company, along with its consortium partners won a huge deal from BSNL.

Kale Consultants could attract attention as a report suggests that French company Accelya is looking at buying a majority stake.

Tata Power might also be in focus after chairman Ratan Tata said at the AGM that it is in talks to acquire a majority stake in UK-based InterGen from GMR Infra.

Wipro may hike client billing rates.

Royal Orchid Hotels acquires 74% in Amartala Hospitality.

HUL, P&G hikes prices of detergents.

REC plans SPV with a global bank for banking license.

NMDC will initiate talks with Australia’s Riversdale Mining for picking up a minority stake.

Tata Steel is in talks with banks to raise between US$4.5-US$5.5bn loan to refinance debt at its European unit Corus.

Tata Steel has raised Rs7bn by selling shares of Tata Motors and Tata Power to a group company, Tata Industries.

Tata Steel plans to buy a ferrochrome mine in South Africa for captive use of its ferrochrome processing unit, Tata Steel KZN in that country.

Asian Markets on Thursday:

Asian stocks are mostly up today, driving the MSCI Asia Pacific Index higher for the first day in three, as investors heaved a sigh of relief following better macro-economic developments.

Australian employers added more workers than estimated and the appetite for European government debt improved, easing concerns over the region’s fiscal mess.

The MSCI Asia Pacific Index gained 0.7% to 121.29 as of 11:32 a.m. in Tokyo. The index has climbed 4.7% from a one-month low on Aug. 25.

A Portuguese sale of bonds due in 2021 drew bids for 2.6 times the amount offered, compared with 1.6 times in a March sale. A Polish auction of five-year debt attracted the strongest demand since 2008.

Japanese shares have rebounded today after dropping in the previous two sessions. Electronics exporters and real estate companies have gained on a weakened yen and a strong overnight finish on Wall Street. Japan's Nikkei ended the morning session up 0.8% while the broader Japan's Topix climbed 0.6% in Tokyo morning trade.

Hong Kong shares climbed early today after European economic worries eased and Wall Street stocks finished higher. Cathay Pacific Airways and energy producers such as Cnooc are pacing the advance. The Hang Seng Index is up 0.7% to 21,234.

The Shanghai Composite index in China is marginally down at 2,818.

South Korea's central bank kept its base rate unchanged at 2.25% today, citing concerns over the global outlook. The move was against expectations of further tightening. The Bank of Korea said that it viewed major advanced economies as continuing their recovery trend, but was concerned about signs of slowdown in the US.

Australian stocks edged higher with banks rising after a higher finish on Wall Street. The S&P/ASX 200 Index rose 0.9% to 4,621.

National Australia Bank shares were up, although the Australian competition body rejected proposed undertakings by the banking group as part of its attempt to buy AXA Asia Pacific.

Shares of Virgin Blue declined after its US antirust application with Delta Airlines was rejected.

The Standard & Poor’s 500 Index gained 0.6% yesterday. The Federal Reserve said yesterday that the US economy maintained its expansion while showing widespread signs of a deceleration in mid-July through the end of August, according to a survey by 12 regional Fed banks.

US Markets on Wednesday:

US stocks ended higher as investors shifted their focus from worries about European banks to President Obama's $350 billion jobs recovery plan.

Successful sovereign debt auction by Portugal and Poland helped ease concerns about Europe, but gains were capped after the Federal Reserve confirmed that the US economy is slowing.

The Dow Jones Industrial Average rose 46.32 points, or 0.5%, to end at 10,387.01, about 40 points shy of returning to positive for 2010. Twenty-four of its 30 components rose.

The S&P 500 Index gained 7.03 points, or 0.6%, to 1,098.87, with financial and industrial companies, among the index's 10 industry groups, leading the rise.

The Nasdaq Composite Index added 19.98 points, or 0.9%, to 2,228.87.

For every stock on the decline, more than two rose on the New York Stock Exchange, where nearly 880 million shares traded.

After finishing at a record high Tuesday, gold futures fell $1.80 to end at $1,257.5 an ounce on the New York Mercantile Exchange, while crude-oil futures tallied modest gains to finish at $74.67 a barrel.

The dollar rose against the Japanese yen after sinking to a fresh 15-year low earlier, and the greenback fell against the euro and the British pound.

The yield on the 10-year Treasury note rose to 2.65% from 2.61% late on Tuesday.

In Ohio, US President Barack Obama argued for giving tax cuts to Americans making $250,000 or less, and against continuing tax cuts for wealthier Americans, saying that the country can't afford the $700 billion price tag.

President Obama officially unveiled three new proposals aimed at bolstering the shaky economic recovery in a speech in Cleveland.

They include an estimated $200 billion in tax breaks for businesses that invest in new plants and equipment; a $100 billion extension of the business tax credit for research and development; and $50 billion over the next decade to improve roads, rails and other infrastructure.

The Congress is not expected to pass the proposals soon.

The Federal Reserve's Beige Book, a snapshot of economic conditions across the central bank's 12 districts, suggested that the economy continued to grow between mid-July and the end of August, but with "widespread signs of a deceleration" compared with earlier periods.

A separate report from the Fed showed that consumer debt fell by $3.6 billion in July - far less than the $5.25 billion decrease predicted by economists.

In its survey by 12 regional banks, the Fed reported conditions mixed or decelerating in five regions and growing at a moderate pace in five.

On Tuesday, all three major US indexes fell more than 1% as investors worried that European banks are in worse shape than previously believed.

But those fears subsided a bit on Wednesday after the Portuguese debt auction was met with healthy demand. Still, experts caution that the sovereign debt problems in the euro-zone are far from over.

Austerity measures taken by several European countries and economic slowdown elsewhere in the world has led to the widening of sovereign credit spreads. This is a sign that funding government debt could become more challenging for debt-laden European countries.

Shares of BP surged more than 3% at the opening bell after Fitch upgraded the company's rating three notches. The ratings firm said that the upgrade "primarily reflects an end to the threat of further leaks from the Macondo well in the Gulf of Mexico."

Separately, the British energy giant released a report largely blaming contractors Transocean and Halliburton Co. for the worst US oil spill.

Hewlett-Packard shares fell the most among the blue chips, losing 2.8% after UBS downgraded the computer manufacturer from buy to neutral. UBS also cut Intel, with the chip manufacturer off 1.2%.

H-P moved court on Tuesday in an effort to block former chief executive Mark Hurd from joining Oracle Corp., its rival in the server computer market.

Oracle has offered the ousted H-P executive a salary of $950,000 and a bonus of as much as $10 million for fiscal 2011, plus stock options, to join it as a co-president. 

European Markets on Wednesday:

European stock indices rose after a successful Portuguese debt auction helped alleviate some concerns over sovereign debt issues facing the peripheral Europe, although many financial stocks remained weak.

The Greek and Irish stock markets declined, bucking the positive trend.

The Stoxx Europe 600 index rose 1% to finish at 262.33 points.

The German DAX 30 index ended up 0.8% to 6,164.44, led higher by car makers' shares. The UK FTSE 100 index gained 0.4% to 5,429.74. In France, the CAC 40 index advanced 0.9% to 3,677.21.

Concerns that European governments will struggle to fund deficits diminished after a Portuguese sale of bonds due in 2021 drew bids for 2.6 times the amount offered, compared with 1.6 times in a March sale.

The Portuguese government saw its borrowing costs rise, from previous debt auctions, but demand was relatively strong.

A Polish auction of five-year debt attracted the strongest demand since 2008.

Most banking stocks were weak, following sharp losses in the previous session, as worries over exposure to sovereign debt in peripheral European markets have come back into focus.

The benchmark Irish ISEQ index slipped 0.8%. Worries about Ireland have in part been sparked by the rising cost of bailing out Anglo Irish Bank. Those fears have pushed Irish government bond yields to record levels.

The Irish government said it will split nationalized lender Anglo Irish Bank into two separate businesses in an effort to minimize the cost to taxpayers of bailing out the failed firm.

Greece was also in focus after the National Bank of Greece said late on Tuesday that it will raise 2.8 billion euros of fresh capital. Shares of the bank dropped more than 6% in Athens.

Greek authorities also revised down second-quarter gross domestic product (GDP) figures, saying that the economy contracted 1.8% in the quarter, compared to the previous estimate of a 1.5% decline.

The country's benchmark ASE Composite index dropped 2% to 1,586.62.

Data from Germany was also relatively weak. Figures showed industrial production rose by a smaller-than-expected 0.1%.

BP shares rose in London after the oil giant spread the blame for the Gulf of Mexico oil spill and its credit rating was upgraded by Fitch Ratings. In its internal report, BP said a series of complex events, rather than a single mistake, led to the tragedy and that multiple parties, including Halliburton and Transocean, were involved.

Vodafone Group slipped after the company said it will sell its entire 3.2% stake in China Mobile for around 4.3 billion pounds ($6.6 billion). The company is selling the shares through an accelerated bookbuild and will return 70% of the net proceeds to shareholders through a buyback.

Nifty ends above 5600 for 2nd day

Despite weak global cues the NSE Nifty ended above the 5600 levels for the second straight trading session on Tuesday. The come back which was seen in the last hour was on the back of banking heavyweights like Bharti Airtel, ACC, SBI and Hindustan Unilever.

The telecom, IT and the Realty stocks were among the top gainers, even the BSE Mid-Cap and the Small-Cap stocks were trading higher. On the other hand, Capital Goods, FMCG and select power stocks were under pressure.

The Sensex gained 22 points to close at 18,666. The index hit an intra-day high of 18,721 and an intra-day low of 18,540.

The NSE Nifty marginally added 3 points to close at 5,608 after touching a high of 5,625 and a low of 5,568.

Among the BSE sectoral indices, the BSE Teck index was the top gainer the index was up 0.9%, followed by BSE IT index (up 0.6%) and BSE Realty index (up 0.4%) and BSE Pharma index (up 0.5%).

Even the broader indices ended with gains, the BSE Mid-Cap index was up 0.3% and BSE Small-Cap index was up 0.5%.

Markets in Asia ended in the red; the Nikkei in Japan lost 2.1%, Australia's S&P/ASX ended lower 0.7%, the Hang Seng index in Hong Kong lost by 1.5% and the Shanghai SE Composite edged lower by 0.2%.

The European indices were trading mixed, the DAX in Germany was up 0.1%, the CAC 40 index in France was up 0.2%.

Outside the frontline indices, the big gainers in the broader market were IDBI Bank, Max India, REI Agro, Bajaj Holdings and Opto Circuits. On the other hand, losers included Madras Cement, India Cement, EIH and Fintech.