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Friday, October 12, 2007

Bears hope for a weak end!


Our age knows nothing but reaction, and leaps from one extreme to another.

Infosys numbers may have been below our expectations. But it does not warrant the kind of reaction seen yesterday. The metrics like pricing were in fact good. A partial recovery may be seen on the Infosys counter and other IT shares. If it wasn't for the steep drop in software shares, the Sensex may have crossed the 19K mark yesterday itself. Nevertheless, one should not be too obsessed with these landmarks and focus on one's own portfolio.

The bulls seem to be betting big on Reliance AGM. Any big bang announcement could cause a spurt. But don’t be surprised if weakness sets in sooner than later. For the medium to long term a lot of announcements are expected in the coming months and 3000 mark may be just a few months away.

Today's IIP numbers (for August) and the following reports will give some clues on the health of the economy. We expect a soft opening due to the weak trend across global markets. Reliance alone may find it difficult to hold the indices. If the current momentum continues, bears hopes of a weak end will remain just that.

Koutons Retail India will list on the bourses today. The IPO of apparel retailer was subscribed 45.21 times and the company has set an issue price of Rs415 per share. It could open at a premium of over Rs100 at least. Shares of Raymond have been on an upswing of late, ahead of Kouton's listing. Today also, Raymond is likely to do well. Mastek will be in action. The company has reported good result for the July-Sept quarter, but its guidance is muted, just like that of Infosys.

IT sector is clearly losing favour with the investors due to the continuous rise in the rupee. What's worse, the future too looks bleak, as the rupee is expected to appreciate in line with the strength in the Indian economy. Also, the dollar will remain under pressure with the slowdown in the US economy. Another concern is that starting FY10, the IT sector will have to pay higher taxes as the tax holiday they currently enjoy will come to a close. Still, we expect a slight bounce back in IT shares today after yesterday's thrashing.

On the whole, the sentiment remains bullish purely because of the strong foreign capital inflows, though valuation-wise the market looks overbought. We expect the market to remain choppy this month with a positive bias. Results will continue to drive the sentiment. Globally, the scenario is quite good, barring oil prices, which have crossed $83 per barrel and is close to the all-time trading high of $83.90 set on Sept. 20. But with the government announcing issuance of bonds, oil PSUs as well as consumers can heave a sigh of relief.

One worry is what the RBI will do in its mid-term review of the annual monetary policy on Oct. 30, which will be announced a day before the FOMC meeting in the US. Given the unprecedented overseas inflows, the RBI may decide to go for another CRR hike. At the same time, credit growth is moderating, which is also a worry.

Among the prominent companies announcing their results today are: Aban Offshore, Exide, Geojit, HDFC Bank, Omnitech, Rallis India and Tata Metaliks.

Technology shares led a broader stock market sell-off on Wall Street, with investors locking in some gains after pushing the Dow Jones Industrial Average and S&P 500 index to record intra-day highs.

The S&P 500, which rose as much as 0.9% to a record earlier in the day, lost 8 points, or 0.5%, to 1,554.41. The Dow, which also hit an intra-day record, dropped 64 points, or 0.5%, to 14,015.12. The Nasdaq Composite Index decreased 39 points, or 1.4%, to 2,772.2.

Market breadth was negative. On the New York Stock Exchange, losers beat winners 5 to 3 on volume of 1.52 billion shares. On the Nasdaq, decliners topped advancers 7 to 3 on volume of 2.54 billion shares.

In economic news, the trade deficit fell to a seven-month low, thanks to strong sales overseas and the impact of the weak dollar.

The number of Americans filing new claims for unemployment fell last week, versus expectations for no change in the number. The four-week moving average, considered to be a more reliable number, also dropped.

Another report showed that the number of mortgage delinquencies fell in September after hitting a 32-month high in August.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 4.63% from 4.65% late on Wednesday. COMEX gold for December delivery rose $10.70 to settle at $756.70 an ounce.

US light crude oil for November delivery rose $1.78 to settle at $83.08 a barrel on the New York Mercantile Exchange. Oil prices gained after the weekly government report showed a drop in crude inventories.

European shares closed higher. The pan-European Dow Jones Stoxx 600 index rose 0.57% to end at 390.43. The UK's FTSE 100 rose 1.38% to 6,724.50, the German DAX 30 added 0.59% to 8,033.69, and the French CAC-40 climbed 0.42% to 5,862.83.

Latin American stocks dropped. Brazil's Bovespa fell 1.2% to end at 62,455.77, giving back 741 points as it retreated from an all-time high above the 64,000-point level. Mexico's IPC fell 0.5% to 31,980.95. Chile's IPSA slipped fractionally to 3,392.86 as investors waited an interest-rate decision from the central bank. Argentine stocks fell 1.3% to 2,246.85.

Most Asian markets were down this morning following the decline in US shares.

Bulls eye 19k

Another impressive session ended with sharp gains shrugging off all the negative sentiments from the poor quarterly figures of Infosys. All the other IT stocks followed as the whole of IT index lost 5.6%.

However, bulls fought back as both the key indices closed at new all time highs. NSE Nifty closed above the 5,500 mark for the first time. Auto, Capital Good and Metal stocks led from the front.

Finally, BSE 30-share benchmark Sensex ended 155 points higher to close at 18,814. NSE Nifty advanced 83 points to close at 5,524.

Reliance Industries gained by 0.6% to Rs2630 after the company announced that would receive formal approval from the government for its KG basin gas pricing formula. The scrip touched an intra-day high of Rs2659 and a low of Rs2582 and recorded volumes of over 49,00,000 shares on NSE.

DLF surged by over 3% to Rs918 after the company announced that they would raise $1.5bn debt via overseas arm. The scrip touched an intra-day high of Rs929 and a low of Rs897 and recorded volumes of over 23,00,000 shares on BSE.

IDFC surged by over 7.5% to Rs184 after reports stated that the company’s Private Equity, a wholly owned subsidiary of the company is expected to raise $700mn. The scrip touched an intra-day high of Rs194 and a low of Rs166 and recorded volumes of over 93,00,000 shares on NSE.

L&T spurred by over 3% to Rs3484 after the company announced that they have acquired Switchgear Company in Malaysia. The scrip touched an intra-day high of Rs3508 and a low of Rs3380 and recorded volumes of over 11,00,000 shares on NSE.

Maruti Suzuki regained 1.6% to Rs1119. The company announced that they are in venture with Magneti and Suzuki Motor. The scrip touched an intra-day high of Rs1134 and a low of Rs1084 and recorded volumes of over 12,00,000 shares on NSE.

Infosys dropped by over 7% to Rs1976 after the company reported a consolidated net profit of Rs11bn in the second quarter versus Rs10.79bn in the quarter ended June, translating into a sequential growth of 2%. Consolidated net sales have risen by 8.8% QoQ at Rs41.06bn versus Rs37.73bn in the quarter ended June. The scrip touched an intra-day high of Rs2100 and a low of Rs1963 and recorded volumes of over 44,00,000 shares on NSE.

Hindustan Zinc slipped by 2% to Rs853. The company announced that it has cut Zinc prices by Rs4,000 per ton and cuts Lead prices by Rs8,800 per ton. The scrip touched an intra-day high of Rs865 and a low of Rs823 and recorded volumes of over 96,000 shares on NSE.

IT stocks were badly beaten up on back of disappointing Q2 numbers by IT bellwether Infosys, the scrip was down by over 7% to Rs1976, Satyam Computer slipped 7% to Rs478, Wipro declines 3% to Rs488 and TCS dropped 4.7% to Rs1072.

Oil marketing stocks were in limelight after Cabinet approved Rs234.58bn of oil bonds to refiners. Bongaigaon Refinery rallied by over 9.5% to Rs68, BPCL rose 1.1% to Rs376 and Cairn was up 2.5% to Rs183.

Stocks in News:

L&T to buy the switchgear business of Tamco in Malaysia for US$108mn.

Patni stake sale is said to be back on track after Ashok Patni and Gajendra Patni quit as EDs.

DLF plans to raise US$1.5bn through a global debt float.

Kotak Mahindra Bank raises US$410mn via stake sale.

Jai Corp plans to raise a VC corpus of Rs400bn through its wholly owned subsidiary for its real estate business.

Bharati Shipyard has bagged Rs3.5bn order from SCI for four anchor handling tugs cum supply vessels.

Gitanjali Gems is close to buying a US jewellery retailer for $100mn.

IDEA has tied up long-term financing of Rs30bn from IDBI led consortium of banks and financial institutions.

Wipro takes over Nokia Siemens Networks radio access related R&D activities in Germany along with 58 employees.

United Phosphorous plans to raise up to Rs20bn through an issue of equity shares, FCCBs or GDRs to QIBs.

Nokia Siemens Networks bags a order from BSNL to deploy broadband access across 7,000 villages.

ITC's paper arm plans to invest Rs15bn to set up a pulp and paper manufacturing unit in AP.

Maruti Suzuki forms JV with Fiat group company Magneti to produce electronic control units for diesel engines.

Tata Motors has signed a definitive JV agreement with the Fiat for manufacture of passenger cars and engines at Ranjangaon.

Bajaj Auto has launched its new 200cc motorcycle Avenger DTS-i.

PFC has decided to charge Rs50mn each to the developers of the remaining seven identified 4,000MW power projects.

IFC has decided to fund the 4,000MW ultra mega power project to be built by Tata Power at Mundra in Gujarat.

Hyundai India will lose Rs1.56bn this financial year due to the
appreciation of Rupee which works out to Rs13,000 per car.

PFC is in talks with several international private equity players for establishing an equity fund for financing power projects in India.

Government announces Rs235bn bonds to partly compensate under recoveries of PSU oil companies.

Government has scaled down current year’s power capacity addition target from 16,875MW to about 14,000MW.

Bank of Japan holds the key interest rate steady at 0.5%.

Government mulling over a proposal to allow FDI in commodity brokerages.

Fund Activity:

FIIs were net buyers of Rs7.95bn (provisional) in the cash segment on Thursday while the local institutions pulled out Rs4.2bn. In the F&O segment, foreign funds were net buyers at Rs3.5bn.

FIIs were net buyers of Rs17.48bn in the cash segment on Tuesday. With this, their net investment in the month has crossed US$4bn and year-to-date the same is US$16.3bn.

Major Bulk Deals:

Reliance Capital has bought Emami while Sundaram MF has sold it; UBS has picked up Genus Power; Macquarie Bank has purchased JK Tyre but HDFC MF has sold the same.

Upper Circuit:

RIIL, Jindal Drilling, Deep Industries, Tourism Finance, Evinix, REI Agro, Jai Corp, IID Forgings and KEI Industries.

Lower Circuit:

Malu Paper, Genus Power and Lloyd Metal.