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Monday, June 18, 2007

STRATEGY INPUTS FOR THE DAY


Avoid the trap

"I don't want the cheese, I just want to get out of the trap"

This morning appears to be more of a trap for the bulls. Signs from the global markets are pointing towards a higher opening. However, the uncertainty over the latest CBDT circular on the tax treatment of stock trading may hurt sentiment. The circular says that profits from the sale of shares, which till now was being treated as business income or capital gains, will be taken on a case by case basis. This may lead to some confusion and trepidation, especially for FIIs as they are the most significant player in the market.

The public issues of DLF and the ICICI Bank may mean more offloading in the secondary market. Among the other worries is that oil prices in New York has crossed the $68 per barrel mark and there has been some talk of hike in local fuel prices as well. A further spike in oil prices will not auger well for the markets. Liquidity flows, particularly from the FIIs, have also turned volatile this month after being strong in the last two months.

In the week ended June 14, India Equity Funds recorded net outflows of $367mn, extending their losing streak to eight straight weeks, says global funds flow tracking firm EPFR Global. It was the second-worst week for these funds and took year-to-date outflows to $1.67bn. None of the major fund groups tracked posted positive performance during the week and a majority saw money pulled out by nervous investors.

We strongly advocate caution at this juncture, as the bulls are clueless about the near-term direction. There are a few uncertainties like interest rate movement across global markets, the rise in the bond yields in the US, higher oil prices and volatile global capital flows. Avoid fresh purchases in a big way for the short to medium term unless you have something stock specific. Lock in gains at every rally for better opportunities in the near future. We see a higher opening on the back of firm global markets. However, things will turn choppy as the day wears on.

FIIs were net sellers to the tune of Rs447.8mn (provisional) in the cash segment on Friday. On the other hand, local institutions pumped in Rs3.64bn on the same day. In the F&O segment, foreign funds were net buyers of Rs888.2mn.

One should keep an eye on Reliance Capital. The stock has risen sharply in the last few days and may have some more steam left for further appreciation. IFCI may do well as the troubled public sector term lender looks to close the deal for selling up to 26% stake to strategic investor(s). Idea Cellular may be in the thick of things amid reports that the merger talks with Spice Telecom have fallen through on the issue of valuation.

Zicom might gain as it is likely to tie up with the future Group (Pantaloon Retail). The company will also declare its results today. Ashapura Minechem is likely to advance amid reports that it is going to form a joint venture with mining major BHP Billiton. The company will also announce a bonus on June 27. ICICI Bank will attract a lot of attention as its follow-on public offering kicks off tomorrow. The bank has set a price band of Rs885-950 per share.

Retail firms like Pantaloon Retail and Shoppers' Stop could take a hit amid reports that the government may restrict the expansion of big organised retailers to cushion the impact on the so-called mom-and-pop stores. Sparsh BPO may see some action amid expectations that Blackstone and the management of Intelenet may announce an open offer after the former bought out the stake of HDFC and Barclays in Intelenet.

Equity shares of Glory Polyfilms will get listed in the bourses today. The issue was priced at Rs48 per share. The premium being bandied about on the street is just Rs1-2. 

UK and German stocks rose to multi-year highs on Friday. The UK's FTSE 100 closed 1.2% higher at 6,732.40, hitting a high not seen since September 2000, while the German DAX Xetra 30 advanced 2.3% to 8,030.64, a level not seen since March 2000. The French CAC-40 rose 1% to 6,105.28, and the pan-European Dow Jones Stoxx 600 index rose 1.3% at 399.26.

In the emerging markets, the Ibovespa in Brazil was up 1.5% at 54,518 while the IPC index in Mexico closed flat at 32,128 and the RTS index in Russia added 0.7% to 1883.

Asian stocks rose for a third day, led by exporters, after the yen weakened and reports showed that inflation is slowing in the US. Samsung and Toyota led technology companies and automakers higher. BHP Billiton climbed to a third straight record after metals prices advanced. 

The Morgan Stanley Capital International Asia-Pacific Index added 1% to 153.16 as of 11:55 a.m. in Tokyo, extending a two-day 1.4% rally. Five of the region's benchmarks jumped to records, with China's CSI 300 Index adding 3.2%.

Japan's Nikkei 225 Stock Average climbed 1%, while Hong Kong, South Korea, Singapore and the Philippines set new highs. Taiwan's market is closed for a holiday.

US stocks gained on Friday, helping the Standard & Poor's 500 Index to its biggest weekly advance since April. The core consumer prices, which exclude food and energy, rose 0.1% last month after increasing 0.2% in April, reducing the chance that interest rates will be hiked to tame inflation in the region's No. 1 export market.

HOW MARKET FARED


Sluggishness likely to continue

Markets ended on a flat note following its trend of losing ground in the last hour of the trading session. Thursday's impressive rally was carried forward in the early trades of Friday led by gains in the index heavy weights like BHEL, ACC, L&T and Hindalco. However, bulls faced stiff resistance at higher levels as key indices Technology, Oil & Gas and Metal stocks dragged the markets to close almost from where they started. Finally, the 30-share Sensex slipped 41 points to close at 14162. NSE-50 Nifty was flat and ended at 4171.

In a high volatile week, the BSE 30-share Sensex ended with 52 points or 0.37% to close at 14162 and NSE Nifty added 16 points or 0.38% to close at 4171.

Elecon Engineering surged by 3% to Rs509 after the Board of Directors f the company announced that they would meet today consider and approve a proposal for declaration of bonus shares. The scrip touched intra-day high of Rs527 and a low of Rs490 and recorded volumes of over 2,00,000 shares on NSE.

Nicholas Piramal slipped 2% to Rs300. Reports stated that it might hive off its R&D business and sell stake to private equity players. The scrip touched intra-day high of Rs314 and a low of Rs299 and recorded volumes of over 3,00,000 shares on NSE.

Hind Rectifiers plunged by 10% to Rs911. The company announced a dividend of 100% and also proposed a stock split from Rs10 per share to Rs2. The scrip touched intra-day high of Rs1001 and a low of Rs911.05 and recorded volumes of over 1,00,000 shares on NSE.

ANG Auto spurred by 3.8% to Rs314 after the company approved the plan to set up a wholly owned subsidiary in Hong Kong / Singapore. The scrip touched intra-day high of Rs318 and a low of Rs299 and recorded volumes of over 1,00,000 shares on NSE.

Banking stocks recorded smart gains in a volatile trading session. Index heavy weight SBI advanced by 0.8% to Rs1323, HDFC Bank was up by 1% to Rs1108 and ICICI Bank added 0.5% to Rs908. However, Union Bank, Corp Bank and OBC were the major gainers among the Mid-Cap stocks.

Capital God stocks were on the move held on to its gains in yet another volatile session. BHEL surged by over 3% to Rs1389, ABB advanced by 1% to Rs4522 and L&T gained by 1.5% to Rs1947. However, Punj Lloyd lost 1.6% to Rs239.

IT stocks were on the receiving end. Index heavy weight Infosys slipped 0.6% to Rs2009; Satyam Computer was down by 1.5% to Rs483 and Wipro edged lower by 0.4% to Rs530.

Select metal stocks also list its shine after being in the limelight in the previous trading session.  Frontline stock Tata Steel slipped by 2.3% to Rs600, Hindalco was down by 1.6% to Rs161. However, Hindustan Zinc was up by 4% to Rs672 and Sterlite Industries edged higher by 0.5% to Rs542.