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Monday, February 19, 2007

STRATEGY INPUTS FOR THE DAY


Nothing stays stable

Remember that there is nothing stable in human affairs; therefore avoid undue elation in prosperity, or undue depression in adversity. - Socrates

Hope the extended weekend would have done you a world of good, especially after the roller-coaster ride last week. If you thought Thursday's bounce has brought some stability, think again. The market will remain volatile this week owing to the F&O expiry on Feb. 22. Having said that, the derivative segment is pointing to a better situation. The February futures are now trading at a premium to the Spot Nifty and the Put-to-Call ratio is also down sharply. There was a huge short-covering on the last trading day of last week. Some more unwinding/short covering could be in the pipeline. This may happen as we approach the derivative settlement.

Next week the Railway Budget and Union Budget will be unveiled by the Government. Historically, the market rises ahead of the budget and cools off thereafter. This time it's been a bit different. In any case, the budget is no longer seen as having a big impact on the stock market. What is going to have a big say on future market movement is FII inflows, which have been pretty volatile so far this year. Though corporate earnings growth is strong valuations are not cheap by any means. So, one has to adopt a stock centric approach. Plus, inflation is at a two-year peak and interest rates are also rising across the board. If this trend sustains for long, it could spoil the party for the bulls.

We see a cautious to higher opening today followed by intra-day gyrations. The suspected terrorist strike on the Samjhauta Express at Panipat in Haryana may be just another headline. When everything looks stable, be extra cautious for unexpected corrections. And it need not happen today.

ABB and GSK Pharma could do well on the back of their strong results. Bajaj Electricals is also likely to gain amid reports that it is scouting for an acquisition in western India. One might look at JMT Auto for medium to long term as the auto ancillary company is expected to do well following the completion of an expansion. One should also watch out for the capital goods and power equipment space, as the Government may announce some sops for this sector. Sesa Goa will remain in the thick of things as Mitsui & Co. will select two bidders for the last round of bidding later today. According to a financial daily, Arcelor Mittal and Rio Tinto are tipped to be the front-runners in the race so far.

Global cues are mixed. US stocks closed flat on Friday. The Dow was up 2.56 at 12,767.57. It managed to close a few points higher, ending at a fresh all-time high for the second session in a row. The S&P 500 shut shop nearly unchanged at 1,455.54, after ending the previous session at a 6-1/2 year high. The Nasdaq too ended static at 2,496.31. The major gauges rose for three straight sessions this week. US financial markets will be closed on Monday for the President's Day holiday.

US light crude oil for March delivery rose $1.40 to settle at $59.39 a barrel on the New York Mercantile Exchange. The front-month contract was 16 cents up $59.23 a barrel in extended trading in Asia.

COMEX gold for April delivery rose $1.40 to settle at $672.80 an ounce. Treasury prices crept higher, lowering the yield on the benchmark 10-year note to 4.69% from 4.7% late on Thursday. In currency trading, the dollar gained modestly versus the euro and the yen.

European shares closed slightly lower on Friday. The pan-European Dow Jones Stoxx 600 index lost 0.1% to 380.81. The U.K. FTSE 100 decreased 0.2% to 6,419.50, the German DAX Xetra 30 closed flat at 6,957.07 and the French CAC-40 shed 0.1% to 5,713.59.

Asian stocks were mixed in early trading. Many markets are closed for Lunar New Year celebrations, investors awaited a decision on Japanese interest rates later in the week. Markets in China and Taiwan are closed for the week to celebrate the Year of the Pig. South Korean markets reopen on Tuesday and exchanges in Hong Kong, Singapore and Malaysia will reopen on Wednesday.

The Morgan Stanley Capital International Asia-Pacific Index gained 0.1% to 147.08 as of 11:11 a.m. in Tokyo. Japan's Nikkei 225 Stock Average added 0.2% to 17,918.24, while the broader Topix index rose 0.1%. Australia's S&P/ASX 200 Index climbed 0.6%.

The Bank of Japan (BOJ) is holding a two-day meeting tomorrow on reviewing interest rates. Analysts are divided on whether Governor Toshihiko Fukui and his colleagues will keep the key overnight lending rate at 0.25% or nudge the rate upwards a little on Feb. 21.