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Tuesday, May 08, 2007

STRATEGY INPUTS FOR THE DAY


Bulls take a backseat

Difficulties are meant to rouse, not discourage. The human spirit is to grow strong by conflict.

Despite Asian markets being in a pink of health yesterday, local bulls ran out of gas with the key indices ending marginally lower. Market breadth was negative and traded volume was down, giving an impression that some fatigue is setting in after the recent rally. IT companies are still being hammered as the rupee keeps scaling new peaks against the dollar. While the RBI may be comfortable with the steep rise in the rupee as it wants to curb inflation, the relentless appreciation in the Indian currency is having some adverse impact on investor sentiment.

FII inflows have tapered off a little bit this month after last month's bumper investment. Volatility has increased in recent days amid lack of triggers. Though results are still pouring in, most of the good news from earnings are already reflected in stock prices. The monetary policy is gone and looks like one could hope for some stability in interest rates for a while. Inflation is starting to soften, but still remains a threat. Now all eyes will be on the monsoon. In the immediate future, the Fed meeting outcome tomorrow UP poll results on May 11 will be key factors.

We expect the market to open on a cautious note after two days of reversals. Just as we expected profit booking at higher levels, expect some select buying later during the day. A fear of an unexpected fall is keeping investors on tenterhooks. Remain extremely cautious and for anything in the world don't leverage. In fact as we mentioned yesterday, keep a fair amount of cash handy.

Wall Street finished flat though the Dow made another record close. Asian markets are trading slightly in the red. The market is likely to remain rangebound and choppy in the near term due to sheer lack of big events. The action will continue be stock-specific. Fresh buying at this juncture is a little risky though we do not foresee any major decline. One should instead lock in some gains and wait for better bargains when the key indices dip slightly more.

On Wall Street the story remains similar. The Dow Jones Industrial Average ended at another all-time high on Monday. With this, it has now closed with gains for the 24th out of the previous 27 sessions, matching an 80-year-old record.

The Dow rose 48.35 points, or 0.4%, to 13,312.97. The S&P 500 added 3.86 points, or 0.3%, to 1509.48. The Nasdaq Composite Index finished flat at 2570.95, dragged down by Activision and Yahoo.

Alcoa shares advanced to the highest level since January 2004, after offering to buy Alcan in a cash and stock deal worth $26.9bn. Each Alcan share would be exchanged for $58.60 in cash and 0.4108 of an Alcoa share. That values Alcan at $73.25, or 20% more than its closing price last week. Including debt, the deal would be valued at $33bn.

Investors will be keeping an eye on the Federal Reserve's next policy meeting on Wednesday. Central bank policymakers are widely expected to keep a key short-term interest rate steady at 5.25% for the seventh meeting in a row. As always, investors will be focused on what the FOMC says on the economy and interest rates going ahead.

Treasury prices ticked higher, lowering the yield on the 10-year note to 4.63% from 4.64% late on Friday. In currency trading, the dollar slipped against the euro and the yen. COMEX gold rose 60 cents to settle at $690.30 an ounce.

US light crude oil for June delivery fell 46 cents to settle at $61.47 a barrel on the New York Mercantile Exchange. The front-month contract was quoting 5 cents down $61.42 a barrel.

European markets closed flat. There were holidays in several European countries and the UK stock market was shut. The French CAC 40 ended virtually unchanged at 6,071.48. The market got an early bump higher after favored candidate, the conservative Sarkozy, defeated Segolene Royal in Sunday's final round presidential election. Elsewhere in Europe, the German DAX 30 ended up 0.1% at 7,525.69.

Mexican and Brazilian stocks fell. After soaring to a new intraday high just after the opening, Mexico's IPC reversed course and ended down 0.8%, 237 points, at 29,776.57. Earlier, the IPC set an intraday record of 30,159.13. The main Ibovespa stock index ended 0.6% lower at 50,282 after finishing at an all-time record close of 50,597 on Friday.

Asian stocks are slightly down this morning. Mitsubishi UFJ Group led Japanese banks higher as concern eased that earnings will disappoint investors. The Morgan Stanley Capital International Asia-Pacific Index added less than 0.1% to 149.51 at 11:22 a.m. in Tokyo. The index yesterday jumped 1.5% to a record. Benchmarks advanced in the Philippines and New Zealand, and fell elsewhere. Japan's Nikkei was down 21 points at 17,648, while the Hang Seng in Hong Kong dropped 38 points at 20,858. The Kospi in Seoul was flat at 1584 and the Straits times in Singapore lost 7 points at 3469.

HOW MARKET FARED


Another choppy day in store

Volatile session ended on a negative note as selling pressure in the index heavy weights like ICICI Bank, Infosys, Reliance Communication and Tata Motors. Markets got strong support from International markets in early trades but profit booking at higher levels dragged the markets lower. All the key sectoral indices except for the Oil & Gas index ended in red. HPCL, BPCL, IOC and Reliance Industries were the leading gainers among the Oil & Gas stocks. Even the Mid- Cap and the small cap stocks pared gains.

Recently listed stocks were in action, scrip’s like ICRA, Mind Tree and Advanta were the smart gainers. Finally, the 30-share benchmark Sensex dropped 55 points to close at 13879. NSE Nifty was down 6 points to close at 4111.

Pratibha Industries was locked at 5% upper circuit to Rs217.70 after the company secured orders worth Rs1.57bn. The scrip touched an intra-day high of Rs217.70 and a low of Rs203 and recorded volumes of over 4,00,000 shares on NSE.

Ashok Leyland dropped by 1.6% to Rs38. The company announced its April Vehicle sales at 5849 units (up 16%). The scrip touched an intra-day high of Rs40 and a low of Rs38 and recorded volumes of over 41,00,000 shares on NSE.

Raj Television surged by over 4% to Rs186 after the company announced that they would broadcast the Neo Sports Live Feed for the India Bangladesh cricket Series in Tamil & Telugu language. The scrip touched an intra-day high of Rs187 and a low of Rs179 and recorded volumes of over 2,00,000 shares on NSE.

Union Bank of India marginally slipped 0.6% to Rs108. The company announced that they would pay Rs2 as final dividend. The scrip touched an intra-day high of Rs112 and a low of Rs107 and recorded volumes of over 9,00,000 shares on NSE.

Trent surged by over 2.5% to Rs751 after the company announced that they would pay interim dividend of Rs7 a share. The scrip touched an intra-day high of Rs800 and a low of Rs735 and recorded volumes of over 7,000 shares on NSE.

Oil & Gas stocks ended on a strong note led by gains in the index heavy weight Reliance Industries gained by 1.4% to Rs1604, HPCL surged by over 4.5% to Rs290, BPCL advanced 4.6% to Rs350 and IOC added 4.1% to Rs460.

FMCG stocks are also on the receiving end. Colgate has dropped by 4% to rs380, Tata Tea is down by 1.6% to Rs750, ITC has declined by 0.7% to Rs160 and Nirma has slipped 0.6% to Rs162.

Auto stocks also were among the losing sector. M&M lost 1.8% to Rs775, Tata Motors slipped 0.6% to Rs728 and Maruti edged lower by 0.4% to Rs804. However, Hero Honda advanced 1% to Rs706.

Technology stocks were on the receiving end as the Indian Rupee further strengthened against the US Dollar. Satyam Computer slipped 2.2% to Rs460, Infosys was down 1.5% to Rs2041 and Wipro declined 2.6% to Rs552. Others like Moser Baer, Polaris and NIIT Ltd were major losers among the Mid-Cap stocks.

Insider Trades:
Vishal Exports Overseas Limited: Industrial Development Bank of India Ltd has sold in open market 7562946 equity shares of Vishal Exports Overseas Limited on 30th April 2007.

The BSE IT index was the major loser and lost 0.88%. BSE Bank index (down 0.78%), BSE Metal index (down 0.51%) and BSE Auto index (down 0.49%) were among the other major losers. However, BSE Oil & Gas index gained by 1.06%.

Volume Toppers:
IFCI, Nagarjuna Fertilizers, TTML, RNRL, Ispat Industries, IDBI, SAIL, IBREAL, RPL, Dish TV, ICRA, Zee News, UTI Bank, Ashok Leyland, ITC, FSL, Rolta, Orbit Corp, R Comm, India Cements and Parsvnath Developers.

Lower Circuit:
Tele Data Informatics, Tanla, Deccan Aviation, Today Writing, Tripex Overseas and Marg Construction

Delivery Delight:
ABB, ACC, Essel Propack, Federal Bank, Gujarat Narmada Valley Fertilisers, IOC, Jain Irrigation, Ranbaxy Laboratories, Tata Chemicals, Tata Tea, UTI Bank and VSNL.

Abnormal Delivery:
Eicher Motors, Century Textiles Century Textiles, Grasim Industries, SAIL, Tata Tea, Ashok Leyland, HCL Technologies, Mahanagar Telephone Nigam Ltd and Indian Hotels.

Stock Futures with Largest Increases in OI:
Cairn India, IOC, J&K Bank, Canara Bank, HPCL, Renuka Sugar, ABB, Alok Industries, JP Associates and GE Ship.

Stock Futures with Largest Decreases in OI:
UTI Bank, IFCI, SCI, Cummins, Ranbaxy, Tata Tea, Divis Labs, Karnataka Bank, Arvind Mills and Chennai Petroleum

Results Corner:
Tech Mahindra Q4 loss at Rs3.29bn after a one-time payment of Rs5.25bn to a customer reduced its earnings, revenues at Rs8.75 (up 107%)

J&K Bank Q4 profit at Rs452.8mn (up 98.6%), revenue at Rs5.75bn (up 16%) and to pay dividend of Rs11.5 per share.

Brokers Recommendation:
Hindalco – Underperform from CLSA with target of Rs140.

Long Term investment:
IOC

Major News Headlines:
Vijay Mallya interested in buying stake in Deccan Aviation: reports

Electrosteel Castings approves investment of Rs5bn

Aurobindo Pharma gets USFDA nod for its Zolpidem

Pratibha Industries secures order worth Rs1.57bn

Trent to pay interim dividend of Rs7 a share

Union Bank of India to pay Rs2 as final dividend

Ashok Leyland April Vehicle sales at 5849 units (up 16%).

RESEARCH

Apollo Tyres (ATL) – Q4FY07

CMP: Rs318
Rating: BUY
Target Price: Rs424

Q4FY07 Financial Highlights

Net Sales increases by 22% to Rs9.1bn

Operating profit increases by 78.1% to Rs1bn

Operating margin increases by 340 bps to 11%

PAT increases by 61.9% Rs427mn

We have revised upwards our EPS estimates for FY08 and FY09 from 27.0 and 31.2 to 29.0 and 33.5 respectively to give effect for rubber price reduction. We expect tyre companies to improve volumes as economy progresses well and not to get affected due to slowdown in automobile sales. We revise our target upwards from Rs397 to Rs424. Our target discounts FY09 estimated earnings by 12x and giving Rs22 per share for Dunlop Tyres (South Africa), earnings. Maintain BUY.