Fences are made for those who cannot fly.
Six months ago one would have said bulls can fly. However, since then wings have been clipped and now bulls are more or less on bended knees. After the expected mayhem, the bulls may manage to pull off a slight bounce today. Even if they run instead of walking, the bulls won’t have the stamina to push themselves longer.
We've repeatedly talked about how the macro-economic environment has turned weaker. Interest rates still quite high, inflation is at 45-month's peak, rupee is falling and cost pressures are increasing for India Inc. What's worse, the foreign funds seem to have deserted Indian equities for the year at least. Technical and derivative signals also point to more weakness in the coming days.
But for the day, we may see some bounce back after yesterday's carnage. Stick to the defensive sectors like IT (given circumstance it is defensive for time being), Pharma and FMCG and stay away from the risky ones like Real Estate, Infrastructure and Capital Goods. Of course you can argue that the beaten down ones will recover fastest. But we are worried it may take longer. So be on the defensive.
Also, small- and mid-cap stocks could be risky, especially now. On the other hand, quite a few large caps have fallen to attractive levels. Long-term buying can be considered in these stocks.
US stocks finished mixed, while Europe was pretty much flat. Key emerging markets were still in the red. Most of the weakness this morning in Asia is coming from the markets that were shut yesterday.
Meanwhile, Chinese stocks are down as the central bank has hiked the reserve ratio for banks by a whopping 100 basis points to contain inflation. Back home too, there are talks of a fresh monetary tightening from the RBI due to the anticipated flare-up in inflation from the recently announced hike in retail fuel prices. Oil is currently hovering around $135 per barrel and is forecast to climb to $150 as the US summer approaches before it cools down (if at all it does).
FIIs were net sellers of Rs13.45bn (provisional) in the cash segment on Monday while the local institutions poured in Rs10.3bn. In the F&O segment, foreign funds were net buyers at Rs3.69bn. On Friday, FIIs were net buyers of Rs3.07bn in the cash segment. With this, they have pulled out a net of $4.5bn from the Indian market this year so far.
ABG Shipyard, Asian Hotels, Evinix Accessories, Gujarat Industrial Power, Gujarat Fluorochemicals, NALCO, Sangam India and Zandu Pharma will announce their results today.
Asian stocks are mostly down this morning, driving a regional benchmark index to a two-month low. Australian and South Korean stocks slumped on concern that a slowing US economy and rising energy costs will erode earnings.
James Hardie Industries NV, the biggest seller of home siding in the US, declined in Sydney, where the market was closed yesterday. Macquarie, Australia's biggest securities firm, plunged on concern that credit-market losses will widen after Lehman Brothers reported a quarterly loss.
The MSCI Asia Pacific Index lost 0.5% to 146.54 at 10:28 a.m. in Tokyo, the lowest since April 18. Japan's Nikkei 225 Stock Average was little changed.
Australia's S&P/ASX 200 Index lost 2.2%, set for its biggest decline since March 20. The Australian dollar fell the most in 11 weeks after US Treasury Secretary Henry Paulson said he would never rule out currency intervention.
China's stocks tumbled after the central bank ordered lenders to increase reserves for a fifth time this year. China's CSI 300 Index dropped 4.6%.
In addition to Australia, Hong Kong, China and the Philippines were closed yesterday for holidays, when MSCI's Asian gauge lost 2% after crude oil surged more than $10 a barrel on June 6 and US unemployment jumped the most since 1986.
US stock indices closed mixed on Monday with the Dow Jones advancing marginally and the Nasdaq declining slightly in a choppy session. Investors considered Lehman Brothers' big loss, Apple's new iPhone announcement and some cautious talk from Fed officials.
A steep drop in oil prices and upbeat housing data provided some relief to investors. Crude oil retreated more than $4 a barrel, but failed to reassure investors worried about rising inflation and slowing growth.
The Nasdaq Composite Index lost 15 points, or 0.6%, to 2,459.46. The S&P 500 ended virtually flat at 1,361.76. The Dow Jones Industrial Average climbed 70 points, or 0.6%, to 12,280.32.
The Dow kept dipping in and out of negative territory through the day and backed off from a morning high of 12,331. The bounce remained very timid relative to the Dow's nearly 400-point drop on Friday.
Market breadth was negative. About eight stocks decreased for every five that gained.
Financial shares weighed on the market on concerns following the capital raising announcement by Lehman Brothers. Technology shares were under pressure ahead of a quarterly update from chipmaker Texas Instruments.
Shares of Lehman Brothers dropped 8.7% after the Wall Street investment bank said it would raise $6bn in a stock offering. Lehman Brothers also expects to report a sizable second-quarter loss of $2.8bn, or $5.14 a share.
Apple shares fell 2.2% after CEO Steve Jobs unveiled a new version of the iPhone wireless handset at the firm's annual developer conference in San Francisco.
Yahoo rose 0.5% after billionaire investor Carl Icahn fired another salvo in a bid to take control of the web giant's board.
In a sign that the US housing market may gain some strength in coming months, an index of sales contracts on previously owned homes rose 6.3% in April from the prior month, the National Association of Realtors reported.
A couple of Fed officials issued comments adding to concerns that the central bank may have to raise interest rates later this year to counter rising inflation. New York Fed President Timothy Geithner gave a speech to that effect, as did Dallas Fed President Richard Fisher.
In other news, presumptive Democratic presidential nominee Barack Obama has called for Congress to inject another $50bn into the economy to lift the economic gloom.
The national average price for a gallon of regular unleaded gas rose to a record $4.023 from a record $ 4.005 the previous day, AAA reported. Oil prices slumped, with US light crude oil for July delivery losing $4.19 to settle at $134.35 a barrel on the New York Mercantile Exchange.
The dollar gained versus the euro and yen, recovering after its recent slide. Treasury prices slumped, raising the yield on the 10-year note to 3.99% from 3.91% late on Friday. COMEX gold for August delivery fell 90 cents to $898.10 an ounce.
European shares finished relatively flat as strong gains for oil companies and utility firms offset fresh worries about the health of the banking sector. The pan-European Dow Jones Stoxx 600 index ended the day off 1.58 points, or 0.5%, to 308.71.
Germany's DAX 30 gaining 0.2%, to close at 6,815.63, while the French CAC-40 rose 0.1%, to 4,799.38 and the UK's FTSE 100 slipped 0.5% to 5,877.60.
In the emerging markets, the Bovespa in Brazil was down 0.7% at 69,281 while the IPC index in Mexico too lost 0.7% to 30,933. The RTS index in Russia rose 0.6% to 2357 while the ISE National 30 index in Turkey dropped 1.2% to 47,552.
Some bounce back likely
Weak global cues, coupled with heavy selling pressure in the index frontrunners like Reliance Industries, IT bellwether, Infosys, HDFC, ONGC and ICICI Bank dragged the benchmark Sensex to slip below the 15k mark during the day.
Most of the stocks badly beaten down were from the realty sector. The BSE Realty Index was down 7.05% against a 3.25% fall in the benchmark Sensex. Realty major DLF Ltd and Omaxe slipped below their public issue price. The two companies had come out with their IPO in 2007. DLF had its issue price at Rs525 per share and Omaxe at Rs310 per share.
The Nifty also dropped below the 4,500mark. However, bulls managed to partially recover early losses led by the gains in select Pharma and the Metal stocks. However, in the last hour of the trading session, bulls slightly gained momentum lifting the Nifty to close above the 4,500mark recovering nearly 100 points from days low hits new 2008 low during intra-day.
Among the 30-scrips of Sensex, 27 stocks ended in red and only 3 stocks ended in green. Finally, the BSE benchmark Sensex lost 506 points to close at 15,066 and the Nifty index lost 126 points to close at 4,500.
Shares of Spice Communication ended higher by 2.5% at Rs53 following media reports that Telekom Malaysia would hike stake to 51% in the company. There were also reports stating that Idea would pick up stake in Spice Communication and would eventually merge the company with Idea. The scrip touched an intra-day high of Rs54 and a low of Rs49 and recorded volumes of over 39,00,000 shares on NSE.
HT Media ended with positive gains and was up by a percent to Rs126 after one of India's largest media company, and the German media group, Hubert Burda, announced it formed a joint venture to tap growing media platforms in India and Asia.
The joint venture leverages HT Media's world class expertise in printing and publishing, and Burda’s large and global multimedia operation, combining it with India's unique competitive advantage in several current and new business platforms. The scrip touched an intra-day high of Rs127 and a low of Rs120 and recorded volumes of over 4,000 shares on NSE.
Great Offshore dropped by over 6.5% to Rs634. The company announced that the Board of Directors decided to propose to the stakeholders of the overseas company to acquire one of the two rigs under construction, by the overseas company. The scrip touched an intra-day high of Rs675 and a low of Rs620 and recorded volumes of over 22,000 shares on NSE.
BHEL was down by over 3% to Rs1376. The company announced that it secured Rs35.88bn contract. The scrip touched an intra-day high of Rs1395 and a low of Rs1325 and recorded volumes of over 6,00,000 shares on NSE.
Cadila Healthcare slipped 2% to Rs289. The company announced that its unit acquired 70% stake in Simayla Pharmaceuticals, South Africa. The scrip touched an intra-day high of Rs291 and a low of Rs274 and recorded volumes of over 4,000 shares on NSE.
Shares of Reliance Industries was badly beaten up, the scrip below its previous low of Rs2120. The stock was down by over 3.5% trading at Rs2163 touching an intra-day high of Rs2218 and a low of Rs2112 and recorded volumes of over 17,00,000 shares on NSE.
Sadbhav Engineering dropped by 4.5% to Rs868 after the company announced that it entered into an agreement to acquire 74% stake in Ocean Bright Corporation Ltd a company incorporated in Hong Kong through its 100% subsidiary- Sadbhav Natural Resources Pvt. Ltd. The scrip touched an intra-day high of Rs920 and a low of Rs735 and recorded volumes of over 3,000 shares on NSE.
Suzlon Energy dropped by over 6.5% to Rs261. Suzlon Wind Energy Corporation, USA, a step-down wholly owned subsidiary of Suzlon Energy Ltd had signed a contract for an aggregate of 300 units of S88-2.1 MW turbines with Edison Mission Energy of Irvine, California ("EME").
The two phase contract called for delivery of 150 units of the turbines in calendar year 2008 and 150 units of the turbines in calendar year 2009, with an option to EME to elect not to purchase the 150 units due for delivery in calendar year 2009. The scrip touched an intra-day high of Rs274 and a low of Rs250 and has recorded volumes of over 31,00,000 shares on NSE.
Sahara India Finance was frozen at 5% lower circuit to Rs160.70. Reports stated that Supreme Court directed Sahara India Finance to appear before RBI on June 12. The scrip touched an intra-day high of Rs160.70 and a low of Rs160.70 and recorded volumes of over 8,000 shares on NSE.
Era Infra Engineering ended 4.7% lower to close at Rs579. The company announced that through their construction & contracts division it bagged a contract worth Rs852mn from Mumbai Railway Vikas Corporation Ltd. for the construction of EMU Maintenance Car Shed between Nallasopara and Virar stations of Western Railway through International Competitive Bidding (ICB). The scrip touched an intra-day high of Rs579 and a low of Rs555 and recorded volumes of over 36,000 shares on NSE.Corporate News
Idea cellular to buy out 40.8% BK Modi’s stake in Spice Communication for Rs22bn. (ET)
TCS hedges US$1.5bn to safeguard it from Rupee fluctuations. (BS)
UB group to offer stake in airline business to raise funds. (BL)
ONGC may not accept Gazprom’s offer to pick up 50% in its (Gazprom’s) shallow water exploration asset in the North Eastern coast off Orissa. (BL)
Educomp Solutions has secured contracts from 395 schools under the ICT segment. (BL)
M&M to capitalise on the recent acquisition of the US$12mn Italian two-wheeler design company, made by its component arm Systech. (BL)
Paramount Airways has joined the race for buying Spicejet. (ET)
Great Offshore drops plans to acquire two rigs; the company is now planning to buy only one rig. (ET)
HT Media has signed a JV with German media group Hubert Burda. It will set up a printing facility near its own Greater Noida facility. (BL)
Ashok Leyland to borrow Rs10bn in two equal parts to raise its India capacity. (Mint)
Moser Baer plans to set up Rs20bn manufacturing facility near Chennai to make photovoltaic products. (BL)
Aditya Birla Group may acquire 51% stake in Apollo Sindhoori Capital, a broking firm promoted by Apollo Hospital Group. (ET)
SC directs Sahara India Financial Corporation to approach RBI on Thursday to convince it that its financial activities are in order. (BS)
Zydus Cadila acquires majority stake in South Africa based Simalaya Pharmaceuticals. (BS)
BSNL reduces STD rates for its fixed line and cellular subscribers by up to 50%. (BL)
Gujarat High Court has stayed on NPPA order to cut prices of Cadila's drug Envas. (ET)
Cognizant Techology has acquired Strategic Vision Consulting, Inc (SVC), a management and technology consulting firm in US. (BL)
Pipavav Shipyard plans to build offshore patrol vessels for the Indian Navy. (Mint)
Integreon is likely to acquire three companies for US$100mn in next two-three years. (ET)
Economic News
The Government may revise gas pricing formula by raising the cap for gas and crude oil prices at KG basin. (ET)
Finance Minister says the direct tax collection target will be hiked to Rs4 trillion for the current fiscal year. (ET)
According to the Nasscom, the Indian IT industry to witness a 3-4% dip in growth in FY09 as against a 28% growth it achieved in FY08. (BS)
SEBI has proposed to expedite the process of disclosures made by listed companies. (BS)
SEBI proposes to shrink time period for disclosure from 9 days to 2 days. (BL)
The Centre is mulling over a fresh proposal for decontrol of the sugar industry. (BL)
The Government to enforce corporate governance norms in the Navratna Central Public Sector Enterprises CPSEs. (BS)
Steel prices in the spot markets of Delhi, Mumbai and Chennai have gone up during the first week of June. (BL)