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Monday, August 03, 2009

A ride on the wild side!


I think the thing to do is to enjoy the ride while you're on it.

A topsy-turvy ride is on the cards though freefalls are not an immediate fear. Today, we see a cautious start and a choppy day ahead as global markets are throwing mixed signals.

One will think the market will weigh valuations against earnings. Results, both in India as well as abroad, have largely been encouraging. But, dig deeper and one may find it was mostly due to reduced costs rather than rising topline. The classic revenue-driven growth will take a while to materialise. And, so will the overall economic activity.

On the whole the undertone is expected to remain cautiously optimistic. The news flow and a whole host of data points will mostly be positive. The markets could rally further if they turn out to be stronger than anticipated. However, selling pressure at higher levels can only be expected.

A big concern is the deficient monsoon, and its possible adverse fallout. Farm output could get hit, which in turn will push the already high food prices. What could add to the inflationary woes is the Centre’s bloated fiscal deficit.

A Chinese manufacturing index climbed to a one-year high in July as the government's stimulus spending stoked domestic demand, countering a slump in exports. Australian manufacturing sector contracted in July at the slowest pace since September.

The dollar traded near the weakest level in two months versus the euro as investors shifted toward higher-yielding currencies before a report that is forecast to show that US manufacturing output touched the highest level in almost a year.

The July jobs report will be keenly followed for more clues about an economic recovery in the US. The Obama administration will report on the July labor market on Friday. Economists expect that only 275,000 jobs were lost in July on a seasonally adjusted basis, the fewest since last August and significantly lower than the 467,000 lost in June. The unemployment rate is expected to rise to 9.7% from 9.5%, the survey says. It would be the highest unemployment rate in 26 years.

Top US officials said on Sunday it may be necessary to extend jobless benefits to firm up an economic recovery unlikely to create jobs until next year and declined to rule out future tax increases to tame massive budget deficits. Although output in the US economy will begin to turn positive in the second half of this year, job growth will take longer, White House economic adviser Lawrence Summers told Sunday morning talk shows.

Meanwhile, Former Fed Chairman Alan Greenspan said on Sunday that signs of stabilization and increased confidence in the US economy could be dashed if home prices were to take another turn downward.

Iran's OPEC governor expects crude prices to reach $80 a barrel by January, the oil ministry website, SHANA, reported on Sunday. Commodity prices may rise further in 2010 as the global recession abates, said Nouriel Roubini, the New York University economist who predicted last year's worldwide financial meltdown.

FIIs were net buyers of Rs5.82bn in the cash segment on Friday on a provisional basis while the local funds too pumped in Rs3.16bn, according to figures published on the NSE's web site. In the F&O segment, the foreign funds were net buyers at Rs6.6bn. On Thursday, the foreign funds were net buyers of Rs11.84bn in the cash segment. With this, their net purchases of Indian stocks have crossed $7.3bn.

The latest government report showed on Friday that the US economy contracted at a 1% annual pace in the second quarter, a better-than-expected showing and the strongest signal to date that the recession, the longest since World War II, is finally winding down.

The Commerce Department said the slippage in gross domestic product for the April to June period came after the economy was in a free fall, tumbling at a 6.4% pace in the first three months of the year, worse than the earlier estimate of 5.5%. That made the first quarter the worst for the economy in nearly three decades.

The BSE Sensex rose to its highest level in 2009 led by positive earnings reported by India Inc. Also, FM’s announcement of additional stimulus measures to accelerate pace of economic growth and RBI’s forecast for GDP growth at 6.5% in the current fiscal boosted the sentiments on Dalal Street. Finally, the Sensex rose 1.9% and NSE Nifty rose 1.5% during the week.

On Friday, the BSE Sensex advanced 282 points or 1.8% at 15,670 after touching a high of 15,733 and a low of 14,449. The index opened at 15,449 against the previous close of 15,387. The NSE Nifty advanced 65 points or 1.4% to shut shop at 4,636.

In Asia, the Nikkei in Japan ended up by 1.9% at 10,356, while Australia's S&P/ASX ended higher by 1.2% at 4,244. The Hang Seng index in Hong Kong gained by 1.7% to end at 20,573. Shanghai index in China gained 2.5% to end at 3,412.

In Europe, stocks were mixed. The FTSE in the UK was down 0.2%. The DAX was down 0.5% and the CAC 40 was down 0.3%.

Coming back to India, among the BSE sectoral indices, the FMCG index was the top gainer, gaining 3.1%, followed by the Oil & Gas index that was up 2.6%. The BSE Bankex index up 2% and the BSE IT index was up 1.8%.

The BSE Mid-Cap index gained 1.1% and the BSE Small-Cap index ended flat.

Within the Sensex, the major gainers were Hindalco, Tata Motors, ONGC, SBI, HUL, Reliance Industries, ITC and Sterlite Industries. Among the major losers were Bharti, RCom, Hero Honda, DLF and NTPC.

Outside the frontline indices, the top gainers included Bharat Forge, Max India, Mundra Port, Nestle and Bajaj Holdings.

Among the big loser in the broader market were CESC, Ackruti, LITL, Divis Lab, Chambal Fert, GMDC and HCL Tech.

The BSE IT Index (up 4.9%): The top gainer in the IT sector was Patni. The stock shot up by over 30% during the week. The company’s Q2 revenues were up 3.3% at US$161.9mn while Net Income increased 91.7% sequentially to US$28.7mn.

Oracle Financial rose over 15% during the week. The company posted a net income of Rs1.86bn for the quarter ended June 30, 2009 as compared to Rs1.06bn for the quarter ended June 30, 2008. Total Income has decreased from Rs6.81bn for the quarter ended June 30, 2008 to Rs6.70bn for the quarter ended June 30, 2009.

Among the other major gainers were Mphasis (up 12.5%), TCS (up 9.1%) and Wipro (up 6.4%).

The top losers were Sasken Communication (down 3%) and Mahindra Satyam (down 0.1%).

Financial Technologies fell 1.2% during the week. The company posted a net profit of Rs205.37mn for the quarter ended June 30, 2009 compared to Rs1.7bn for the quarter ended June 30, 2008. Total income has decreased to Rs649.57mn for the quarter ended June 30, 2009 from Rs2.54bn for the quarter ended June 30, 2008.

The BSE Consumer Index: The top gainers in the consumer durables space were Mirc Electronics (up 9.7%) and Su-Raj Diamonds (up 6.1%).

The top losers in the consumer durables space were Titan (down 7%), Videocon Industries (down 2.3%) and Samtel Color (down 2%).

The BSE Healthcare Index (down 1.6%): The top losers in the Pharma space were Marksans Pharma (down 7.4%), Divi Labs (down 5.4%) and Morepen Labs (down 4.2%).

Sun Pharmaceutical declined by 5% during the week. The company posted a net profit after minority interest of Rs1.63bn for the quarter ended June 30, 2009 as compared to Rs5.01bn for the quarter ended June 30, 2008 thereby posting a decline of 67% decline YoY.

The top gainers in the Pharma space were Cadila Healthcare (up 19.4%), Torrent Pharma (up 15.1%), Ipca Labs (up 14.7%) and Panacea Biotec (up 13.2%).