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Tuesday, May 05, 2009

Follow-through rally expected


In golf as in life it is the follow through that makes the difference.

Some prankster may have threatened to blow up the BSE and NSE buildings on Monday. But except the cops and a few others nobody seemed to be bothered much as the bulls were firing on all cylinders. Climbing Mount 12K has taken the Sensex six odd months if you please. The market seems to have done a global catch up rally. And it appears that the global funds are more confident than their local counterparts.

Today promises to be another bright start for the bulls. But, the Hang Seng has slipped in the red after a higher start and the Shanghai market is more or less flat.

All eyes are now on the election results. A government formed by either the UPA or the NDA will be welcome. But, anything other than this scenario may temporarily make some dent in the sentiment.

There is bound to be a correction at some point during this rally. So, lock in some gains and put the money back when the anticipated slide takes place. Overall, the mood remains upbeat on the back of improving economic data and return of risk appetite. These are times we know many won't listen but it really helps to avoid stocks with weak fundamentals.

IndusInd Bank and Swaraj Engine will announce their results today.

Larsen and Toubro (L&T) is to announce a new development in its international operations later today in Mumbai.

FIIs were net buyers in the cash segment on Monday at Rs14.17bn while the local institutions were net sellers at Rs926mn. In the F&O segment, the foreign funds were net buyers at Rs10.4bn. On April 29, the foreign funds were net buyers at Rs3.44bn in the cash segment.

US stocks surged anew on Monday, sending the key indices to multi-month highs after reports on pending home sales and construction spending added to optimism that a global economy recovery may already be underway. Data released earlier in the day showed that China's manufacturing sector registered its first growth in nine months, sending stocks in Asia and Europe sharply higher.

The Dow Jones Industrial Average gained 214 points, or 2.6%, to 8,426.74, ending at the highest point since Jan. 13. The S&P 500 index added nearly 30 points or 3.4%, to 907.24, ending above 900 for the first time since Jan. 8 and turning higher for the year. The Nasdaq Composite index rose 44 points, or 2.6% to 1,763.56, ending at the highest point since Nov. 4.

US stocks have been surging since March 9 on bets that the worst for the economy is over. Those expectations were buffeted on Monday by the day's economic news.

The March pending home sales index from the National Association of Realtors jumped 3.2% from February, surprising economists who were looking for the index to hold steady.

Another report, from the government, showed that construction spending rose 0.3% versus forecasts for a decline of 1.6%. Spending fell 1% in February.

Investors were also responding to weekend comments from Berkshire Hathaway chairman Warren Buffett, who said he sees the recession ending soon and predicts that no big bank will fail. He also talked up Wells Fargo, one of Berkshire's largest holdings.

US stocks had a strong April, in which the S&P 500 spiked 9.4%, the Dow gained 7.3% and the Nasdaq jumped 12.3%. The S&P 500 and Dow have gained for seven of the past eight weeks; the Nasdaq has jumped eight weeks in a row.

But, there are still enough headwinds for the market that makes analysts wary to predict that the bear market is over.

Financial shares are likely to be choppy ahead of the release of the government's "stress tests" on Thursday. The government will release details on the 19 individual companies tested as well as the broad group of corporations.

The results are expected to include estimated loan losses in the event that the economy deteriorates further, along with an estimate of how much more capital banks would need to raise in such an environment.

Citigroup is reportedly among the banks that will need to generate more money to stay afloat. The bank may have to raise another $10 billion, according to the Wall Street Journal (WSJ).

Bank of America shot down reports in the Financial Times (FT) that it has been told by the government that it needs to raise $10 billion in fresh capital. Wells Fargo has reportedly been asked to raise additional money as the result of preliminary stress tests.

However, shares of the three big lenders rallied, along with the rest of the bank sector, as investors took the news in stride. The KBW Bank sector index gained 14.7%.

Sprint Nextel reported a quarterly profit, excluding items, surprising analysts who were looking for a quarterly loss. Shares gained 8%.

Treasury prices were little changed, with the yield on the benchmark 10-year note at 3.15%, little changed from on Friday.

In currency trading, the dollar fell versus the euro and gained against the yen.

US light crude oil for June delivery rose $1.27 to settle at $54.77 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $14 to settle at $902.20 an ounce.

European stocks too advanced further on Thursday, helping a key regional index to record its best-ever monthly performance in April.

Trading over the 200-point mark for the first time since early February, the pan-European Dow Jones Stoxx 600 index jumped 1.5% to 200.23. This move brings gains for the month to 13.5% - the best monthly performance for the index since Stoxx started tracking the data at the end of 1986.

Germany's DAX 30 index rose 1.4% to 4,769.45, while the French CAC-40 index was up 1.4% at 3,159.85.

Indian markets extended gains to second straight trading session on Monday with the BSE Sensex rising over 1,100 points in two days.

The metals, IT and the banking indices were in momentum outperforming the main index. Even the mid-cap and the small-cap stocks attracted buying both the indices added over 3.5% each.

Finally, the BSE Sensex rallied 731 points to close at 12,134. The NSE Nifty surged by 180 points to close at 3,654.

All the 30-components of Sensex ended in the positive terrain with Sterlite, Hindalco, HDFC, ICICI Bank, Tata Steel and M&M leading from the front.

Shares of Siemens rallied by over 9% to Rs336 after the company's Energy Sector has received an order for approximately Rs790mn for the supply of 11kv Air Insulated Switchgear from the Company's technology partner Qatari German Switchgear Co. WLL for supply to Qatar General Electricity and Water Corporation (KAHRAMAA) distribution network. The order is required to be completed over a period of 2 years.

Shares of Reliance Communications surged by over 6.5% to Rs229 after net profit beat market estimates. Net income fell 3.3% to Rs14.5bn in the three months ended March 31, from Rs15bn a year earlier.

Shares of Maruti surged by over 3% to Rs838 after the company announced that it sold a total of 71,748 vehicles in April 2009. This includes 6,891 units for export.

This is the fourth consecutive month of sales crossing 70,000 units mark. The company had sold a total of 62,336 vehicles in April 2008. Maruti Suzuki's volume in the domestic A2 segment grew by 9% while in the A3 segment the sales volume grew by 69% during the month as compared to sales in April 2008.

Shares of Bajaj Auto gained by 3.7% to Rs663. The company’s total vehicle sales in April declined by 23% to 169,119 units from 221,843 units sold in the same period last year.

The company’s exports slipped by 29% in March to 51,887 units from 73,624 units from last year. Motorcycle sales declined by 26% in March. However, three wheeler sales rose by 5% to 18,867 units in March.

After a strong rally on Monday there is a likelihood of correction as traders and investors would look to book some profits at higher levels. The outcome of the Lok Sabha could also provide a trigger. Another cause for concern is the spread of swine flu and its economic fallout.