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Monday, December 17, 2007

Mid-cap mania…take it or leave it!


It is better to take what does not belong to you than to let it lie around neglected.

Neglected mid-caps are more than warming up while markets and the weather appear to cool down. There’s snowfall in the north but the political temperature in the country has gone up several notches thanks to the Gujarat polls. In the global markets, the bulls are feeling the heat again due to fresh worries over the health of the US economy and its possible ramifications for the whole world. But, the Indian market has surprisingly been resilient during the same period, with Sensex and the Nifty hitting new lifetime highs. The small-cap and mid-cap shares have actually outperformed the large caps over the past few weeks. Going by the frenzied buying in some of these stocks, without any major events, there is a case for being cautious. Corrections, slight or sharp come in anyways. For the time being though, the current trend of small-cap and mid-cap stocks outperforming their larger counterparts will remain.

Coming to the Sensex and the Nifty, they could take a hit early in the morning given the weak global cues. US shares fell sharply on Friday a bigger than expected jump in a key inflation measure sparked fears that the Fed may not be aggressive in jacking up rates. The next FOMC meeting is in January. Next month anyways will be crucial, as companies will also announce their latest quarterly results and the RBI will also unveil its latest plan on monetary policy. FIIs will make their annual allocation across markets as well as asset classes. How much money India is able to garner only time will tell. For now though, FII inflows seem to have tapered off compared to the pre-November days. For the Sensex and the Nifty to appreciate at a much faster pace, overseas investors will have to step up their investments, which may only happen sometime next year. We expect a softer opening today and another volatile day for the market today. The main attraction will be outside the key indices.

Surya Roshni and Phoenix Lamps will attract attention as the latter is reportedly considering buying out the former. Jindal Drilling may come under some pressure as the company has approved issue of 1,200,000 new shares to Citigroup under a preferential allotment at Rs1,280 per share. The stock hit a 52-week high of Rs1,395 on Dec. 13.

Steel Strips Wheels will see some action as the company has decided to issue 12,55,856 shares at Rs170 each on a preferential basis to Kalimati Investment Company Ltd. (a wholly owned subsidiary of Tata Steel).

Omaxe may also be in the limelight as its subsidiaries have bid for a highway project in the Delhi-Agra section and a real estate project in Andhra Pradesh. India Glycols has acquired 3,17,24,200 shares of Shakumbari Sugar and Allied Industries, which is 96.6% of the total paid-up share capital of the company.

IFCI may remain in the spotlight as it has received three responses from interested parties. These responses would be considered at the Board meeting to be held today. Indiabulls Financial will be in action as the Delhi High Court has cleared its demerger plans.

US stocks tumbled on Friday, ending a tough week on a down note, after a report showing higher inflation raised worries that the Fed won't be able to keep cutting interest rates, even as the economy continues to struggle.

Market breadth was negative. All but two of the Dow's 30 issues closed lower on Friday. For the week, the Dow lost 2%, the Nasdaq lost 2.6% and the S&P 500 lost 2.4%.

The Consumer Price Index (CPI) jumped 0.8% in November, the biggest monthly jump in more than two years. CPI topped forecasts and was up from the 0.3% reading in October. It was the second day in a row that the government released reports showing higher inflationary pressures, following the Producer Price Index (PPI).

This week brings earnings reports from a few big companies, including Goldman Sachs, Morgan Stanley, Bear Stearns, FedEx, Best Buy and Oracle. Wall Street will also get a snapshot of the housing market. The National Association of Home Builders will release its December housing index. The Commerce Department will report November housing starts and building permits.

The Commerce Department will also release its final reading on third-quarter GDP. Late in the week will be the Labor Department's report on personal income and spending in November, which will also include the Fed's preferred inflation measure.

Treasury prices dipped, raising the yield on the 10-year note to 4.24% from 4.2% late on Thursday. In currency trading, the dollar rose versus the euro and yen. US light crude oil for January delivery fell 98 cents to settle at $91.27 a barrel in New York. COMEX gold for February delivery fell $6 to settle at $798 an ounce, falling with other dollar-traded commodities.

Stock indices across Europe snapped their losing streak to close higher on Friday, supported by a rally in shares of oil and utility companies. The pan-European Dow Jones Stoxx 600 index gained 0.5% to 367.24, with the utility sector gaining the most ground, up 1.2%. The UK's FTSE 100 closed up 0.5% at 6,397.00, while the German DAX 30 added 0.3% to 7,948.36 and the French CAC-40 rose 0.3% to 5,605.36.

In the emerging markets, the Bovespa in Brazil was down 0.67% to 62,444, while the IPC index in Mexico fell 0.3% to 29,994. The RTS index in Russia plunged 2% to 2269 and the ISE National-30 index in dropped 0.6% to 69,970.

Asian stocks were down this morning, with the Hang Seng in Hong Kong leading the sell-off across the region. The MSCI Asia Pacific (Ex-Japan) index is set for its longest losing streak in a month, after accelerating inflation in the US heightened concern that higher prices will curb consumer spending there.

BHP Billiton and Samsung Electronics led declines on speculation that the Fed has less elbow room to cut rates and boost growth in the world's biggest economy. US consumer prices rose the most since September 2005 last month on record energy costs.

The MSCI Asia Pacific Index fell 0.7% to 155.67 as of 10 a.m. in Tokyo, adding to a three-day, 5.1% drop. That would be the measure's longest losing streak since the period ended Nov. 13. Seven of the 10 industry indexes on the benchmark slid.

Monday blues for bulls!

It was second straight day of loses for the markets as a weakening trend in the US and other Asian equity markets influenced the slide on the Indian bourses.

Key indices started off the day with strong gains with the benchmark Sensex rising to an intra-day high of 20,171.57. However, weak global cues and selling pressure emerging in the large cap stocks like Bharti Airtel, ICICI Bank, HDFC and Tata Motors dragged the markets to close in red.

The Pharma stocks which were under-performing from quite some time were in action as the index was the top gainer adding 2.5% on Friday, even the FMCG stocks gained momentum with ITC and Hindustan Unilever being the major gainers, the index was up 1.4%. The BSE Small-Cap and Mid-Cap stocks continued to be the attention seekers as both the index added over 1% each.

Finally, 30-share Sensex slipped 73 points to close at 20,030 and Nifty closed at 6,047 losing 10 points.

Atlanta gained 4.5% to Rs327 after the company announced that its unit purchased Olympic Cinema for Rs486mn. The scrip touched an intra-day high of Rs345 and a low of Rs313 and recorded volumes of over 3,00,000 shares on NSE.

Maharashtra Seamless edged lower 0.4% to Rs608. The company announced that it secured $40mn order from US. The scrip touched an intra-day high of Rs625 and a low of Rs601 and recorded volumes of over 93,00,000 shares on NSE.

Videocon Industries surged by over 6.5% to Rs648 after reports stated that the company is planning to spin-off its energy business in to a separate company. The scrip touched an intra-day high of Rs664 and a low of Rs617 and recorded volumes of over 14,00,000 shares on NSE.

Finolex Cables surged by over 11% to Rs108 after the company announced that they entered into a Joint Venture with J-Power Systems to manufacture very high voltage power cables and offer complete turnkey solutions in extra high voltage cable systems. The scrip touched an intra-day high of Rs109 and a low of Rs95 and recorded volumes of over 24,00,000 shares on NSE.

Banking stocks were on the receiving end on back of profit booking in the heavyweights like ICICI Bank was down 3% to Rs1206, HDFC Bank slipped 1.6% to Rs1728, Kotak Bank fell 3.1% to Rs1262. However, SBI added 0.6% to Rs2410.

The Telecom stocks also ended lower. Bharti Airtel slipped 3.5% to Rs952, MTNL was down 1.5% to Rs185 and RCOM marginally dropped 0.3% to Rs759.

The declining trend for the IT stocks prolonged as the rupee appreciation continued to hit the IT companies. IT bellwether fell 1% to Rs1646, Satyam Computer dipped 2.3% to Rs411 and Wipro slipped 1% to Rs495.

What the FIIs are doing

FIIs were net sellers of Rs6.47bn (provisional) in the cash segment on Friday while the local institutions pumped in Rs1.05bn. In the F&O segment, foreign funds were net sellers of Rs22bn on the same day.

On Thursday, FIIs were net buyers of Rs10.82bn in the cash segment. Mutual Funds were net sellers of Rs1.81bn on the same day.

Stocks in News:

Daimler Trucks forms JV with Hero Group to produce light, medium and heavy duty trucks.

Cummins to source US$2bn worth of auto components from Indian vendors by 2009-10; double the current year's target.

Power Grid Corp gets government approval to procure US$1.6bn loan from World Bank and Asian Development Bank (ADB).

Turkish authorities grant license to Indian Oil Corp-Calik Holding JV to set up a US$4.9bn refinery in port city of Ceyhan: media reports.

Ford Motor may name Tata Motors as a preferred bidder for its Jaguar and Land Rover brands, according to a British newspaper.

L&T shortlists three locations for its next shipyards for which the company will invest Rs20bn.

Hindustan Zinc commissions its second zinc smelter; annual production capacity to expand to 6.7mn tons by 2010.

Reliance Power and Tata Power may have to pay more as bid bond for the Tilaiya project as the government may impose revised bidding norms for UMPPs.

Coal India hikes prices by 10% after a gap of three and a half years; may consider JV for supplying imported low ash thermal coal.

Financial Technologies sells 9.6% stake in MCX, the commodity exchange, to three financial institutions for Rs4bn.

Three consortia submit their financial bids to acquire a 26% stake in IFCI.

Tech Mahindra plans to offer BPO services to banking, financial, retail and healthcare sectors to diversify its customer base.

L&T JV in Oman to set up an equipment manufacturing plant with Sohar Industrial Port Company.

S Kumars Nationwide may acquire an European company for Rs5bn, its first foreign acquisition.

Westside, the lifestyle stores chain owned by Trent, plans to expand to 65 stores in next two years from 28 stores at present.

TRAI endorses Communications Ministers’ view that spectrum for existing 2G services cannot be auctioned as telecom policy does not permit it.

General insurers to get full pricing freedom from January 1st.

WPI rises by 3.75% during the week ended December 1, higher than the previous rise of 3.01%, on dearer food items.

Cement industry to add 13mn tons in new capacity in the current fiscal year.

Non-food credit increased by Rs621bn in November as against Rs16bn in October, according to the RBI.

TRAI to recommend auction for allocation of spectrum for mobile TV.

Prime Minister expresses concerns over rising subsidies; says neither equity nor efficiency objectives are being met.

Entry fee for dual technology license as per TRAI proposals, according to DoT.

Corporate India may witness slowdown in sales to 13% in third quarter of current fiscal year.

SEBI is planning to set up a dedicated bourse for the small and medium enterprises sector.