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Tuesday, December 15, 2009

Changing winds, keep adjusting!


A sailor without a destination cannot hope for a favorable wind.

The same holds true for stocks right now. The bulls appear to be suffering from some fatigue following a stellar rally from March lows. Notwithstanding the euphoria surrounding the Dubai bailout and US banks repaying federal aid, the market is likely to remain choppy. The Nifty will continue to struggle to pierce 5200, at least for the time being. It may however manage to cross that barrier before the F&O expiry.

In short, the consolidation phase is likely to prevail in the near term with a positive bias. Future advance will face hiccups at regular intervals as bulls lack conviction. Stay tuned to the latest events – local as well as global. Stick to stock-centric action. The advance tax numbers will have impact on specific stocks.

We see a flat to cautious start as Asian markets are subdued. Trading will swing to the beat of global cues. The Fed will start a two-day policy meeting today. Industrial output data for the US will be released later today. The UK CPI report is also due out today.

Hong Kong shares are down this morning, with Chinese property developers and banks coming under selling pressure after Beijing reportedly said that it will move to rein in the rapid rise in property prices in some cities.

Stocks rose across the globe on Monday as Abu Dhabi gave a $10 billion lifeline to the ailing Dubai to stave off a potential default of securities maturing. Citigroup became the last of the big Wall Street banks to exit the bailout program after reaching a deal to repay its remaining $20 billion of federal aid. Wells Fargo will pay back $25 billion TARP funds with $10.4 billion stock offering.

FIIs were net buyers in the cash segment on Monday at Rs622.7mn on a provisional basis. The local funds were net buyers of Rs1.09bn, according to figures published on the NSE's web site. In the F&O segment, the foreign funds were net sellers at Rs1.18bn. FIIs were net buyers of Rs3.42bn in the cash segment on Friday. FIIs' net investments in Indian stocks this year have crossed $16bn.

US President Barack Obama called on the CEOs of the biggest banks in the US to take "extraordinary" steps to revive lending for small business and homeowners. Meanwhile, figures from the Chicago Mercantile Exchange show a reduction in the number of bets against the US dollar and suggest its downward trend might have ended. White sugar prices hit an all-time supported by signs that Asian countries are buying refined sugar to cover domestic shortfalls.

Stocks to watch out for: DLF, Godrej Consumer, Dhunseri Tea and South Asian Petrochem.

On Wall Street, US stocks gained on Monday, with the three leading indexes closing at 14-month highs, after Citigroup said that it will pay back government bailout funds and Dubai received $10 billion to cover its debt, easing worries that the Gulf emirate might default on billions of dollars in debt.

A weak dollar also helped, lifting commodity shares and the stocks of companies that do a lot of business overseas.

The Dow Jones Industrial Average rose 30 points, or 0.3%, closing at the highest point since Oct. 1, 2008. The S&P 500 index gained 8 points, or 0.7%, closing at the highest point since Oct. 2, 2008. The Nasdaq Composite rose 22 points, or 1%, closing at the highest point since Sept. 19, 2008.

After propelling the market off of 12-year lows hit in March, the S&P 500 has risen 64% as of Friday's close. The Dow closed at a 14-month high on Friday after better-than-expected reports on retail sales and consumer sentiment, but broader gains were limited by tech weakness and a strong dollar.

Citigroup said that it will return $20 billion in bailout money to the government through a combination of stock and debt offerings. Citi said the bulk of the payment will be funded through a $17 billion common stock offering. The company also said Treasury will sell up to $5 billion of the $25 billion in Citi common stock it holds shortly, and sell the rest of it over the next year.

President Obama met with top executives of some of the nation's biggest banks, including JPMorgan Chase, Bank of America and Wells Fargo. He said his main message to bankers was that banks received extraordinary assistance during the crisis, and now that the industry is back on its feet, it needs to reciprocate. He is expected to urge bankers to provide greater lending, cut back on bonuses and support financial reform efforts.

Dow component Exxon Mobil said it will buy XTO Energy in a $41 billion stock and debt deal that values XTO shares at a 25% premium to its Friday closing price. The deal also includes the assumption of $10 billion in debt. Exxon shares fell 4% and limited any gains on the Dow. XTO shares rallied 17%.

The dollar slipped versus the euro and the yen, turning lower after the recent rally. A weak dollar has added to the more than nine-month-old stock rally over the past nine months, giving a boost to dollar-traded commodities, as well as commodity shares and the stocks of companies that do business overseas. But so far in December, the dollar has been mixed or stronger, putting some pressure on stocks.

The weak dollar gave a lift to dollar-traded commodities. COMEX gold for February delivery rose $3.90 to settle at $1,123.80 an ounce. Gold closed at an all-time high of $1,218.30 an ounce earlier this month.

US light crude oil for January delivery fell 36 cents to settle at $69.51 a barrel on the New York Mercantile Exchange.

Treasury prices were little changed, with the yield on the 10-year note standing at 3.55%, unchanged from late on Friday.

European shares jumped, with banks advancing after debt-laden Dubai managed to obtain $10 billion in financing and stave off a potential bond default. The Dow Jones Stoxx 600 index rose 0.8% to 247.04, marking the third straight session of gains for the pan-European benchmark.

The UK FTSE 100 index climbed 1% to 5,315.34, the German DAX index rose 0.8% to 5,802.26 and the French CAC-40 index advanced 0.7% to 3,830.44.

Indian markets have been struggling for specific direction in the past few weeks and Monday was no different. The benchmark indices yet again ended on a flat note as markets continued to consolidate.

A flat start was followed by strong momentum after media reports flashed that Abu Dhabi agreed to help Dubai with a US$10bn injection, of which US$4.1bn was allocated to Dubai World to pay immediate obligations. Markets managed to hold on to their gains despite inflation jumped to 4.78% in November led by rising prices of food items as against 1.34% in October, 2009.

However, markets slumped sharply in the late trades after reports stated that Reliance Industries was concerned about LyondellBasell’s high debt, with the company’s lenders having hiked interest rates to about 12%.

The BSE Sensex ended marginally lower by 21 points at 17,097 after touching a high of 17,275 and a low of 17,048. The index opened at 17,118 against the previous close of 17,119. The NSE Nifty slipped 11 points to end at 5,105.

In Asia, the Nikkei in Japan ended flat, while Australia's S&P/ASX ended higher by 0.4%. Shanghai SE Composite was up 1.7% and Hang Seng index in Hong Kong was up 0.8%.

In Europe, stocks were trading higher. The DAX in Germany was up 1% and the CAC 40 index in France was up 0.7%. The FTSE in the UK was up 0.9%.

Coming back to India, among the BSE sectoral indices, the BSE IT index was the top gainer, adding 1.1%, followed by the Capital Goods index that was up 1% and the BSE Auto index was up 0.8%.

Major losers were BSE FMCG index down 1.4% and BSE Consumer Durables index down 1.8%.

The BSE Mid-Cap index ended marginally lower by 0.4% while the BSE Small-Cap index was down 0.5%.

Among the 30-components of Sensex, 17 stocks ended in the red and 13 ended in the positive terrain. Bharti Airtel, Hindustan Unilever, HDFC Bank, ITC and ICICI Bank were among the top laggards.

On the other hand, among the major gainers were ACC, Grasim, Wipro, BHEL and Infosys.

Outside the frontline indices, the big losers in the broader market were OBC, IVRCL Infra, Shriram Transport, Koutons, Titan and United Spirits. On the other hand, gainers included MMTC, Gujarat NRE, Nagarjuna Const and Madras Cement.

DLF announced that the board of directors of the company decided to meet on December 15, 2009, to consider integration of Caraf Builders & Constructions Pvt. together with its subsidiaries with DLF Cyber City Developers Ltd. engaged in the business of development and leasing of commercial properties.

Shares of DLF ended flat at Rs382. The scrip opened at Rs384 it touched an intra-day high of Rs386 and a low of Rs378 and recorded volumes of over 1.8mn shares on BSE.

Shares of BHEL advanced by 2% to end at Rs2409 after reports stated that the company’s unit plans to consider four-five companies as candidates for acquisition.

We are looking at investing Rs2.5-4bn for the acquisition, executive director, A V Krishnan was quoted as saying.

Last year, the unit acquired Bharat Heavy Plates and Vessels Ltd in Visakhapatnam, another public sector unit. "We are looking at a 100% take over and once it is acquired, it will become a subsidiary of BHEL," he added.

Reports also stated that the company is in talks with L&T and Pipavav Shipyard to jointly build off-shore oil rigs. The company had earlier decided to quit its deep water oil rig business as it was unable to find a suitable partner due to investment constraints, added reports.

RCom is reportedly planning to raise US$3bn in cash by selling its Flag and US Network business. Reports also added that the company’s spokesperson denied it as market rumors and speculations.

Shares of RCom erased early gains and ended lower by 1.3% at Rs181. The scrip opened at Rs181 it touched an intra-day high of Rs186.5 and a low of Rs180 and recorded volumes of over 2.3mn shares on BSE.

Suven Life announced that it secured 2 product patents from the Canadian Intellectual Property Office. Shares of Suven Life were locked at 5% upper circuit at Rs29.85. The scrip opened at Rs28.60 it touched an intra-day high of Rs29.85 and a low of Rs28.05 and has recorded volumes of over 0.11mn shares on BSE.

Parsvnath Developers surged by over 3% to end at Rs124 after the company announced that it will develop a residential site in Gurgaon, south of New Delhi, with SUN-Apollo, which will invest Rs750mn for a 50% stake in the venture. The scrip opened at Rs122 it touched an intra-day high of Rs129 and a low of Rs119 and recorded volumes of over 2mn shares on BSE.