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Wednesday, June 06, 2007

STRATEGY INPUTS FOR THE DAY


So near, yet so far

There are many a slip between the cup and the lip.

The above more or less sums up the current market situation as the BSE Sensex is struggling to hit a new high. It has been going back and forth for the past several sessions even as its counterpart, the NSE Nifty has already scaled a new peak. Today, the key indices may open in the red due to the overnight fall in US stocks and some weakness in Asian markets. However, a bounce later in the day is not ruled out. With three more trading days to go for the week it remains to be seen whether the Sensex can get to a new milestone this week.

The market appears to have lost momentum in the past few sessions after a two-month rally. It is looking a bit top heavy though FII inflows continue unabated. The trend in the local market mirrors what is happening globally. Markets across the world have witnessed increased volatility after having rebounded from the crash in February-March period. In the absence of any big catalysts, we may see more sideways movement in the near term. Having said that the bias remains positive.

FIIs were net sellers to tune of Rs1.48bn (provisional) in the cash segment yesterday while the local institutions pumped in Rs477.9mn. In the F&O segment, they were net sellers of Rs2.48bn. 

Patni could see some action amid reports that private equity firm Apax Partners is interested in picking up majority control in the Mumbai-based IT services company. Tata Motors could also attract attention as a financial daily reports that the auto major has gone in for production cuts amid a slowdown in demand owing to higher interest rates. 

Infotech Enterprises is another stock one can keep an eye on, as General Atlantic is buying a 13% stake while Carrier International is increasing its stake by 2%. Fortis could gain as a newspaper reports that it is planning a medicity in Lucknow and is also eyeing similar projects in other states. Phoenix Mills might advance amid media reports that it is building a hotel at Lower Parel and is also looking at setting up more hotels across India. 

NTPC is reportedly considering a follow-on public issue to raise money for its expansion. VSNL on the other hand is likely to invest $500mn this fiscal on expansion and acquisitions. 

US stocks slipped on Tuesday, on the back of rising Treasury yields, cautious remarks from Federal Reserve chairman Ben Bernanke and a strong report on the services sector. The decline pulled both the S&P 500 and Dow Jones Industrial Average down from records.

The S&P 500 fell 8.23, or 0.5 percent, to 1530.95. All 10 of the index's main industry groups declined. The Dow average retreated 80.86, or 0.6 percent, to 13,595.46. The Nasdaq Composite Index lost 7.06, or 0.3 percent, to 2611.23.

The Institute for Supply Management's index of non- manufacturing businesses rose to 59.7 from 56 in April, the Tempe, Arizona-based group said. Economists surveyed by Bloomberg News had expected a reading of 55.8. Readings above 50 signal growth.

Fed chief Bernanke said that core inflation remains somewhat elevated, though officials have seen a gradual ebbing. He also said that tighter lending standards for mortgages will restrain housing demand, although the magnitude of these effects is difficult to quantify.

Treasury prices slipped, raising the yield on the 10-year note to 4.99% from 4.92% late on Monday. In currency trading, the dollar fell versus the euro and the yen. COMEX gold for August delivery fell $1.20 to settle at $675.10 an ounce. US light crude oil for July delivery fell 62 cents to $65.59 a barrel in New York.

European shares lost ground. The pan-European Dow Jones Stoxx 600 index slipped 0.5% to 397.12. The German DAX Xetra 30 closed down 0.7% at 7,919.83 and the French CAC-40 shed 0.8% to 6,078.54, while the UK's FTSE 100 slipped 0.5% to 6,632.80.

Asian stocks were mixed this morning. The Nikkei in Tokyo was up 15 points to 18,069 while the Hang Seng in Hong Kong advanced 69 points to 20,911. The Straits Times in Singapore was down 8 points at 3564.

In the emerging markets, the Ibovespa in Brazil was down 0.15% to 53,162 while the IPC index in Mexico gained 0.55% to 32,271 and the RTS index in Russia rose 0.4% to 1833.

Markets closed in positive terrain but with modest gains, as bulls managed to hold on to its gains. The BSE Bank index led from front as the index gained by 1.06%, others like Technology and Auto stocks followed suit. Individual stocks like i-Flex, Cinemax, SBI, Bombay Dyeing, IDBI, RPL and NIIT Ltd hogged the limelight. Finally, the 30-share Sensex gained 39 points to close at 14535. NSE-50 Nifty was up 17 points to close at 4284.
 
NIIT LTD rallied by over 8% to Rs990 after the board of directors of the company approved bonus issue of 1 share for every two held and also to split each share into five. The scrip touched intra-day high of Rs1028 and a low of Rs910 and recorded volumes of over 8,00,000 shares on NSE.
 
KEC International advanced 1.5% to Rs521 after the company announced that they have secured Rs3.8bn order in Kazakhstan. The scrip touched intra-day high of Rs536 and a low of Rs508 and recorded volumes of over 85,000 shares on NSE.
 
GMR Infrastructure surged by over 2.5% to Rs499 after its group secured 1000mw Thermal power project in Chhattisgarh. The scrip touched intra-day high of Rs504 and a low of Rs483 and recorded volumes of over 10,00,000 shares on NSE.
 
Amtek Auto edged higher by 0.6% to Rs416 after the company acquired UK Based JL French's Witham Assets. The scrip touched intra-day high of Rs422 and a low of Rs413 and recorded volumes of over 2,00,000 shares on NSE.
 
Aurobindo Pharma gained by 0.8% to Rs726 after the company secured US FDA nod for its Cefpodoxime Oral. The scrip touched intra-day high of Rs735 and a low of Rs722 and recorded volumes of over 1,00,000 shares on NSE.
 
Telecom stocks rang with smart gains. MTNL surged by over 2% to Rs165, Bharti Airtel gained by 1.3% to Rs837, VSNL was up by 3.2% to Rs479 and R Com added 0.5% to Rs511 and Tata Teleservices gained 2.8% to Rs27.55 after the company announced that they would borrow USD400mn overseas.
 
FMCG stocks witnessed some cooling off as profit booking dragged them lower. Heavy weight ITC dropped 2% to Rs161, McDowell was down 3% to Rs1162, Tata Tea slipped 2% to Rs893 and Marico slipped by 1.7% to Rs56.
 
Technology stocks witnessed some fresh buying interest after rupee backed away from last week's nine-year high. Infosys advanced by 1.4%t o Rs1943, i-Flex has surged by 10% to Rs2226 and Rolta gained 3% to Rs460.

Insider Trades:
UFLEX Limited: Anshika Consultants Pvt. Ltd. (both part of the promoters' group) has purchased from open Market 15375 equity shares of UFLEX Limited on 1st June 2007.

Clutch Auto Limited: JM Financial Asset Management Private Limited has purchased from open market 100000 equity shares of Clutch Auto Limited on 1st June 2007.

McDowell Holdings Limited: Management of FMR Corp. and its direct and indirect subsidiaries and Fidelity International Ltd. and its direct and indirect subsidiaries acquired 1191695 equity shares of McDowell Holdings Limited.

Lower Circuit:
United Breweries, Tripex Overseas and UTV.

Upper Circuit:
GV Film, Dawn Mills, McNally Bharat, GMR Industries, Ashapura Mieichem, Global Broadcasting, Sparsh BPO, RIIL and Ruby Mills. 

Delivery Delight (Rising Price & Rising Delivery):
Andhra Bank, BILT, Bank of India, Century Textiles, Corporation Bank, Dr Reddys Labs, Geometric Software, HCL Technologies, HDFC, ICICI Bank, Infosys, Jain Irrigation, LIC Housing Finance, PNB, TVS Motor and UTI Bank.

Abnormal Delivery:
ABB, McDowell, Bombay Dyeing, Gujarat Alkalies, Cipla, SRF, Colgate, Apollo Hospitals, Lupin and Hindustan Lever.

Results Today:
Assam Company, BASF India, Cyber Media, Gujarat State Petronet, Ispat Industries, PVR and Surana Industries.

Major News:

Govt approves RIL's plan to set up SEZ in Haryana

Rolta to set up IT park in Kolkata

Bihar Tubes to give 1:1 bonus

Spanco Tele to meet on June 7 to consider investment in JV

Tata Teleservices plans to borrow US$400mn overseas

Sadbhav Engineering bags order worth Rs905mn

Amtek Auto acquires UK Based JL French's Witham Assets

Ashok Leyland may sales at 5804 units (up 3%)

JP Associates signs an accord on cement plant in Gujarat

KEC International secures Rs3.8bn order in Kazakhstan

NIIT okays 1:2 bonus issue and to split each share into five

Mercator Lines gets Rs2bn order from IOC

Crude oil...prices on a firm footing

We expect crude oil prices to remain firm in the short term, buoyed by a rise in the demand for gasoline in the U.S and with refining a bottleneck in the oil supply chain. Spare capacity is expected to remain thin over the next two years at around 1.8mb/d, adding premium to crude oil prices. EIA expects petroleum consumption to witness a CAGR of 2.1% over the next three years against 1.3% CAGR for refinery capacity. The deficit in the demand-supply situation of petroleum products will lead to an incremental demand for sweet oil, adding premium to current sweet crude oil prices. With lack of significant contribution from substitutes like ethanol and from non-conventional sources, crude oil prices are expected to remain elevated above the US$60/bbl mark over the next two years. In the short run the inability of the U.S refiners to match rising gasoline demand, we expect crude oil prices to move northwards to US$68-70/bbl levels over the next three months.

Sweet crude oil prices are expected to witness a move towards US$68-70 per barrel over the next two months. We recommend investors to add long positions on declines at US$62.50-63.25 per barrel with a target of US$68 per barrel on the NYMEX (New York Mercantile Exchange) and Rs2800-2860 on the MCX (Multi Commodity Exchange).