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Wednesday, November 25, 2009

Nothing tempting but keep watch!


Most people would like to be delivered from temptation but would like it to keep in touch.

With F&O expiry just a day away, it would be wise to remain non-committal. We expect a flat to cautious start and another choppy day. The main indices will remain mostly sluggish in a tight range. The Nifty is likely to face resistance as it moves towards the year’s high around 5200. Support may kick in at around 5040-5050. Global events, particularly those in the US, will continue to drive the sentiment.

Markets in the US will be shut on Thursday for Thanksgiving and will close early on Friday. Next week will be important, as global markets try to gauge the mood of the US consumer this holiday season following the Black Friday, the day after Thanksgiving and the start of the crucial holiday shopping period in the US.

Back home, the immediate event to watch out for will be the second quarter GDP data, due out on Nov. 30. After a soft October and a steady November, trading in global equities could turn listless as everyone sort of wraps up the year. Fund flows might slow down, which will have repercussions for emerging markets like India. Having said that, if economic reports continue to show improvement, there is a possibility that world markets could make new highs for the year.

Meanwhile, concerns about banks came back to haunt China and Europe. In the US, stocks lost some ground amid persistent economic worries. A slow recovery is what the Fed predicts for the US along with high unemployment. This means rates will remain near zero for a few more months. The so-called ‘exit’ from the accommodative monetary policy is still some distance way. This holds true not just for the US, but for all the nations, including India.

What this also means is there is no danger to the dollar carry trade. Equities and other risky asset classes like commodities will continue to benefit at the cost of the dollar. But, it would be interesting to see how the markets behave once the dollar bottoms out. That unwinding, whenever it unfolds will have a bearing on global equities. Whether the economic recovery picks up further momentum or fizzles out will also be keenly followed.

FIIs were net buyers in the cash segment on Tuesday at Rs1.69bn on a provisional basis. The local funds were net sellers of Rs1.47bn, according to figures published on the NSE's web site. In the F&O segment, the foreign funds were net sellers at Rs1.85bn. FIIs were net sellers of Rs680mn on Monday. FIIs' net investments in Indian stocks this year have crossed $15bn. Mutual Funds were net buyers of Rs2.19bn on Monday.

US stocks ended a volatile session with modest losses on Tuesday, as the Federal Reserve's improved outlook and some signs of improvement in housing tempered a weaker revision on economic growth released in the morning.

The Dow Jones Industrial Average lost 17 points, or 0.2%, to 10,433.71. The Dow ended the previous session at its highest level since Oct. 2, 2008. The Nasdaq Composite index lost 7 points, or 0.3%, to 2,169.18 while the S&P 500 index was barely changed, at 1,105.65.

US stocks slipped in the morning after a report showed third-quarter GDP grew at a slower pace than initially reported. But stocks cut losses in the afternoon as the dollar went from mixed to weak. The minutes from the last Fed policy meeting also helped investors recover from bigger morning losses.

Since bottoming at a 12-year low on March 9, the Dow has gained 59.4% as of Tuesday's close. In that same period, the Nasdaq gained 69% and the S&P 500 gained nearly 64%.

Trading was volatile and trading volume was low, a trend likely to continue through the holiday-shortened trading week. All financial markets are closed on Thursday for Thanksgiving. Stocks trade in an abbreviated session Friday.

The Fed lifted its estimate for growth next year and cut its forecast for the unemployment rate. However, the central bank also lifted its forecast on the unemployment rate for 2011 and 2012, with job growth likely to be modest amid a slowly-recovering economy.

GDP, the broadest measure of the nation's economic growth grew at a slower pace last quarter than initially thought, adding to bets that the recovery will be sluggish. The US economy grew at a 2.8% annual rate in the third quarter, the Commerce Department said. That figure met analysts' estimates but was short of the 3.5% initially reported.

Home prices rose 3.1% in the third quarter versus the second, but remained almost 9% lower versus a year ago, according to an S&P/Case-Shiller study of the 20 largest metropolitan areas. Prices rose 0.3% in September versus August, but fell versus a year ago.

The third big economic report of the morning was the Consumer Confidence index from the Conference Board. The index rose to 49.5 in November from 48.7 in October versus forecasts for a reading of 47.5.

After the close on Monday, Dow component Hewlett-Packard (HP) reported higher quarterly earnings of $1.14 per share, in line with its raised forecast released last week. The computer maker reported a drop in revenue. HP also said that it was tripling its share repurchase program to $12 billion.

The dollar slipped against the euro and the yen.

US light crude oil for January delivery fell $1.11 to settle at $76.45 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery rose $1.90 to settle at $1,166.60 an ounce, a new record settle. Gold touched a record trading high of $1,174 in the previous session.

Treasury prices rose, lowering the yield on the 10-year note to 3.31% from 3.33% on Monday.

Wednesday brings reports on personal income and spending, durable goods orders and new home sales, all for October. The weekly jobless claims report is also on tap.

European shares ended lower, weighed down by losses for banks amid worries about capital levels. The pan-European Dow Jones Stoxx 600 index fell 0.6% to close at 246.88. The index jumped 2% on Monday, its first gain in five sessions.

Banks declined in Europe after a report from Standard & Poor's on the banking sector discussed capital strength of lenders using a risk-adjusted capital ratio methodology developed by the agency.

German state-controlled bank WestLB said that it is in intensive talks with the government in Berlin about offloading assets from its balance sheet into a so-called bad bank. The news triggered a sharp rise in the cost of protecting WestLB's debt against default.

The French CAC-40 index fell 0.7% to close at 3.784.62, the German DAX index lost 0.6% to settle at 5,769.31 and the UK's FTSE 100 index declined 0.6% to end at 5,323.96.

Indian stock benchmarks slipped on Tuesday, taking a cue from global markets, as investors remained a little wary of taking on more risk with only a few weeks left in the year. Valuations too are not too compelling as they were a few months back.

There are a few concerns on how the global economy will shape up in the absence of emergency support measures though governments have promised not to press the 'exit' button too soon. Still, the market may remain firm as the dollar will remain under pressure and drive the trade in risky assets.

The BSE Sensex ended a volatile trading day at 17,098.39, down about 82 points or 0.5% from the previous close. The NSE Nifty shed 25 points or 0.5% to shut shop at 5078.65. The Nifty found support at 5075 and it's near-term trading range is between 4890-5110.

Meanwhile, the non-index counters did relatively better than their heavyweight peers. The BSE Small-Cap index rose slightly while the BSE Mid-Cap index finished flat.

The new listing today, Den Networks was down about 18% at Rs160.35 after touching a high of Rs199.80 and a low of Rs149.50, on the NSE.

The big losers in the Sensex were Tata Steel, Reliance Infra, ITC, Sterlite, ONGC, ICICI Bank and BHEL. The top gainers in the BSE-30 index included Maruti Suzuki, M&M, Bharti Airtel, Hero Honda and Hindalco.

In the Nifty, Jindal Steel & Power was a big loser, along with IDFC, PowerGrid, HCL Tech, Siemens and Suzlon. BPCL, Cipla and Ambuja Cement were the other notable winners in the Nifty.

Outside the main indices, the key losers were Vishal Retail, Sobha Developers, SKF India, Mastek, GMDC, Exide, ISMT and Jubilant Organosys.

Among the top gainers were Indo Tech Transformers, HEG, Max India, Bharat Forge, TV Today, Gujarat Flurochemicals, Chambal Fertilizers, Videocon Industries, Amtek India and Balrampur Chini.

The near-term undertone will continue to hinge on global developments. A slew of economic reports are due in the US, which will have a truncated week due to the traditional start to the holiday season. Local event to watch out for is the release of Q2 GDP data, scheduled to be announced on Nov. 30.

European shares declined, with miners paring strong gains from the previous session as the US dollar recovered some of the lost ground against major rivals.

In Asian trading, Chinese shares suffered big losses owing to some profit booking in afternoon trade, with the Shanghai Composite Index ending the day down 3.5%. US stock futures were pointing to mild losses on Wall Street.

Keep an eye on the revised third quarter GDP data, to be released in the US later today. Tuesday also brings reports on US housing prices and consumer confidence in the morning. The minutes from the last Fed meeting will be released in the afternoon.