Weekly Update 05 Dec, 2009 by Tanmay G Purohit

Nifty closed up 3.38% or 167 points at 5108 after strong Q2 GDP numbers at 7.9% which surpassed many expectations. RANBAXY was top gainer in Nifty with nearly 14% rise after the company launched generic version of Valtrex in US markets. Auto numbers were very strong once again and TATA MOTORS shot up 13% this week. Telecom stocks saw value buying support and BHARTI AIRTEL, IDEA & RCOM rose smartly. HERO HONDA and HIND UNILEVER lost 4% each this week.

The annual rate of inflation for food articles rose to 17.47% for the week ended November 21, 2009, data released on Thursday showed. This is the sharpest rise in food prices since 1998 and food inflation may become a major worry for the government later as it may impact manufacturing inflation also. Experts feel high food inflation coupled with 7.9% GDP growth may force RBI to resort to rate action earlier than expected.  Markets have shrugged off Dubai woes for now but UAE has become top receiver of Indian exports and USA as second top export destination for India, if both regions face some economic problems, India would be affected to some extent and a big part of remittance benefits comes from both these destinations only. The leveraged asset purchases of Dubai-based wealthy NRI in the past few years may begin to haunt them, as the collapse of real estate prices in the emirate prompts calls for additional funds as margins which may force them to sell some Indian assets, experts say. REALTY is one sector which is haunting the globe and caution is advised in this sector. India’s fiscal deficit during April-October increased to 2.45 trillion rupees Vs 1.17 trillion rupees (YoY) owing to falling tax receipts & rising spending and in percentage terms, the fiscal deficit is 61.1% of the government's full year budget deficit aim of 4 trillion rupees. Despite equity markets gaining almost 80% so far in the current year, the number of new FIIs coming to India has touched a six-year low as only 111 new FIIs got registered with SEBI till November, against as many as 375 in calendar year 2008. 

Nifty has hit double top at 5181 to its previous top in October and as long as it is not crossed comfortably, the trend may remain down. Once breakout above 5200 is seen, Nifty may test 5350-5500 levels on upside. Action has clearly shifted to cash stocks and index heavyweights are lagging for now, so stock-specific approach looks best in this market. Below 4950 caution is advised.

Stocks looking good for next week - RELIANCE, EKC, ORCHID CHEM, NEYVELI, ROLTA

Supp 5067/4943/4850 Res 5165/5250/5342

US employers cut far fewer jobs than expected last month in the best showing for the labor market since the recession began, lifting the beleaguered US dollar as investors bet a sustainable recovery was building. The economy shed only 11,000 jobs in November, well below the 130,000 loss financial markets had braced for, while the unemployment rate 

http://www.moneycontrol.com/news/world-news/us-recovery-appears-firmer-as-unemployment-drops_429192.html

Last Weekly Update:-

Nifty closed down 110 points or 2.19% week-on-week at 4941 as markets consolidated for first 3 sessions but Thursday and Friday proved to be weak days for indices. F&O expiry put pressure on longs as markets were overbought and were not able to move higher with volumes which resulted in heavy unwinding pressure on Thursday and markets fell on record volumes. Dubai debt problems gave a feeling of Black Friday but both Nifty and Sensex recovered from intraday lows after Government allayed fears and European markets opened positively which infused some buying support for our markets too. BPCL and GAIL were among top gainers on Nifty this week after Crude fell towards $73. HERO HONDA, RANBAXY and CIPLA were other major gainers. JP ASSO, SIEMENS, IDFC fell more than 7% this week after they faced heavy profit-taking. TELECOM stocks remained resilient through the week as value buying looks to emerge there.

The six ‘core' infrastructure industries have registered a 3.5-per cent year-on-year growth during October, compared to the 4.1 per cent and 7.8 per cent levels of the preceding two months and the 2 per cent for October 2008.  Hurt by production cuts and higher restructuring costs due to layoffs at Anglo-Dutch unit Corus, TATA STEEL swung to a consolidated net loss of Rs 2707 Cr for the second quarter from a year-earlier profit of Rs4772 Cr a year earlier; consolidated net sales fell 43% to 25270 Cr rupees from 44050 Cr rupees. But Tata Motors returned to profit in the second quarter after it cut costs at its Jaguar Land Rover (JLR) unit and earned returns from investments in group companies. The consolidated net profit in the quarter ended September 30 was Rs 21.78 crore, compared with a loss of Rs 942 crore a year earlier; Sales fell 8.5% to Rs 20,889 crore.

Nifty took important support around weekly trendline at 4800 and the recovery was very sharp intraday. 6 weeks have elapsed since we have seen yearly highs at 5181 on Nifty and so far we have seen Nifty hitting 5138 this week which is a lower top. Nifty needs to move past this top quickly to regain the lost momentum. Nifty has closed below its short-term 8 and 15 Day Moving averages and as long as it stays below 5025, the trend is expected to be weak. Below 4700 major panic selling is not ruled out. Being stock-specific would be a better way to look at this market and investors may look at stocks like IGL, BHARTI AIRTEL, TATA COMM, IDEA where value buying is still possible. EKC, IFCI, HUL look good for short-term buying. Avoid BANKING and REALTY stocks. GDP data for Q2 to be announced on Monday, Q1 GDP was at 6.1%.

Supp 4830/4762/4610 Res 5025/5110/5228

World Markets Into Downspin After Dubai Debt Problems

Just a year after the global downturn derailed Dubai's explosive growth, the city is now so swamped in debt that it's asking for a six-month reprieve on paying its bills — causing a drop on world markets Thursday and raising questions about Dubai's reputation as a magnet for international investment.

Dubai has shocked investors by asking for a debt standstill at Dubai World, the government’s flagship holding company that has developed some of the world’s most extravagant real estate projects. Dubai’s surprise move angered some investors who had been reassured by local officials for months that the city would meet all obligations on its $80bn (£48bn) of gross debt in spite of recession and a real estate crash. Bond markets reacted sharply to the news with investors demanding higher premiums to hold debt from the region. In London trade it cost about $460,000 annually over five years to insure $10m worth of Dubai government debt against default, compared with $360,000 on Tuesday. Prices rose for its neighbours with Abu Dhabi protection $100,000 more than on Tuesday. State-run Dubai World has $59 billion of liabilities, its subsidiary Nakheel said in August, a large proportion of Dubai's total debt of $80 billion. 
Without much oil revenue, Dubai is reliant on debt markets not only to pay for its ambitious infrastructure projects, but also to service previous borrowing that funded explosive growth in recent years. It and its corporate entities have nearly $50 billion in debt coming due over the next three years, according to Standard & Poor's.
Debt Standstill
Mechanism by which a country agrees to cease payments on its debts until a restructuring agreement has been negotiated with its creditors.
Aftermath of Dubai Debt Problems:-

• European banks were hit by concern about potential exposure to debt problems in Dubai on Thursday, while companies where Middle Eastern investors own big stakes also came under pressure. 
• By 1230 GMT on Thursday the DJ Stoxx European bank index was down 3.3 percent at 222 points, putting it on track for its biggest daily fall since June. 
• Companies with significant Middle Eastern shareholders, such as the London Stock Exchange, were also hit by concern the holdings could be cut to meet obligations at home. Among the biggest fallers were HSBC, Royal Bank of Scotland , Lloyds Banking Group and ING, whose shares all fell over 4 percent.

Shares in Asia tumble before Europe started panicking:-

• Japan's Nikkei stock average has hit a 4-month closing low on Thursday as the dollar sank to a 14-year low against the yen, pressuring exporters. 
• Stocks in Hong Kong and China ended down on Thursday as China Minsheng Banking made a disappointing debut, weighing on recently battered banking stocks, while concerns over asset prices put pressure on the Shanghai market.
• China's key stock index sank 3.62 percent in heavy trade on Thursday, with banks weak as investors fled the market amid mounting worries that the government may take steps to clamp down on surging asset prices. Chinese banking stocks have come under pressure from concerns over potential cash calls by the sector on expectations the government may lift capital-adequacy ratios for larger state lenders next year follwoing a lending boom.
• Indian shares fell 2 percent on Thursday, the most in more than three weeks, led by losses in banks as investors unwound positions on the last day of monthly derivatives taking cues from lower world markets.

UK bank shares tumble on Dubai debt woes http://www.citywire.co.uk/personal/-/news/markets-companies-and-funds/content.aspx?ID=370043
Moody’s Investors Service has downgraded the ratings of all six government-related issuers (GRI’s) in Dubai and left them on review for possible downgrade http://www.ft.com/cms/s/0/c56003be-da12-11de-b2d5-00144feabdc0.html
Dubai debt `standstill' raises alarms about image http://www.google.com/hostednews/ap/article/ALeqM5hihmivQQAAa6vYldwnJrO0FK3TDgD9C79GKG0
Dubai shock after debt standstill call http://www.ft.com/cms/s/0/46b4065c-d9f7-11de-b2d5-00144feabdc0.html
Will It Affect Indian Markets?
UK and European stocks have reacted negatively to Dubai Debt problems and Japan, Hongkong, China have fallen because of their own problems. India has historically corrected in global equity meltdowns and in such a time it shows high-beta nature by falling more than the rest, this we saw when Lehman went bankrupt during subprime crisis. Banking stocks in many parts of the world looked vulnerable - China bank stocks fell on expectations the government may lift capital-adequacy ratios for larger state lenders next year, European banks have fallen after Dubai problems and here in India too Banking stocks saw selling after RBI comment on merger and Government may also delay bank merger had a negative impact. 
Is this the start of the correction for overstretched Indian equities? 
Nifty has returned 69% this year but after hitting 5181 in October, we have not yet seen a new top even after more than a month of trading activity. Volumes have dropped and FIIs have been in selling mode recently. Nifty crucial supports are at 4900 and 4750 below which the correction may deepen. For rally to shape once again, a move past previous top around 5181 with large volumes is necessary.

Weekly Update 20 Nov, 2009 by Tanmay G Purohit

Nifty closed up 53 points week-on-week at 5052 as markets consolidated around 4950-5070 after Monday rally. DENA BANK rose nearly 16% this week after news reports talked about possible merger between DENA and CANARA BANK. GLENMARK gained 14% this week after the company settled all pending litigation with Medicis Pharma. PFC and SAIL were among major gainers on the back of disinvestment talks and government is set to cut its holding in SAIL by 20%. SUZLON, ULTRATECH, TATA STEEL were other major winners. PATNI COMP lost 12% after promoters denied any stake sale possibility and chose open market to shed some stake. REL INFRA, BHARTI AIRTEL, HCL TECH, UNITECH were major losers from Nifty this week.

The government has asked the country’s largest state-run banks to look out for mergers and acquisitions opportunities, saying  consolidation is imperative to augment efficiency, and prop up the country’s GDP.  There are 27 public sector banks operating in the country and consolidation in the sector will allow them to achieve scale that would have other ways taken them years, all bank stocks rose on Friday in late trade after the news hit the market. Parliament Winter Session started on Thursday but adjourned in quick time after protests from opposition parties against Centre's sugarcane price move that discourages states from fixing higher prices. Food inflation rose to 14.55% in the first week of November Vs 13.68% fuelled by higher prices of staple items like potatoes, onions and pulses. 

Nifty has comfortably traded past 5050 so far but we have seen a lower top of 5079 against 5181 seen in October, going by lower top lower bottom theory, we may still see a low below 4538 but disinvestment announcements and banking sector consolidation are two positive developments which may drive the short-term trend for markets. India to announce GDP numbers for September Quarter on 27 November and this will be watched closely.

Value Buys - IDBI, TATA COMM, BHARTI AIRTEL

Supp 5000/4932/4790 Res 5115/5180/5300

European Central Bank President Jean-Claude Trichet said the bank will gradually withdraw the emergency cash it has pumped into the economy in order to ensure it doesn’t fuel inflation. http://www.bloomberg.com/apps/news?pid=20601087&sid=aJKfoYdTlLpM&pos=2

Telecom regulatory Authority of India (TRAI) on Friday announced the charges for mobile number portability (MNP) which enables subscribers to switch telecom operators without getting their phone numbers changed. TRAI said the MNP users will have to pay a maximum of Rs 19 to change the telecom operator while retaining the old number. Number portability will be a reality in Metros and A category circles by December 20 and across India by March 2010. http://profit.ndtv.com/2009/11/20175633/Mobile-users-to-pay-Rs-19-to-r.html

Last Weekly Update:-

Nifty closed up 4.23% or 202 points as markets continued the pullback that started last week. HCL TECH, SAIL, TATA MOTORS, IDFC and TCS were major gainers in Nifty this week while RELIANCE rose more than 8% on the back of reports about acquisitions by the company. REALTY and TELECOM stocks were on the losing side as BHARTIAIRTEL, DLF, UNITECH  and RCOM were dragging the Nifty. PSU stocks such as NEYVELI, EIL, NMDC and REC rose sharply after disinvestment announcements from Government. Nifty has completed nearly 3/4th of the correction in quick time which gives a feeling that this is still just a pullback. Though breadth has been very strong, volumes have remained quite low to make the rally dubious. Last 3 consecutive sessions, Nifty has made tops at 5016, 5014 and 5017 which is a kind of triple top formation and in case Nifty is not able to close past 5050 comfortably this week, a serious wave of selling may start once again. 4800 is an important support level below which caution is advised.

IIP data for Sep'09 was out and the industrial growth came in at 9.1% which was very encouraging as far as recovering of the economy is concerned. Prime Minister in G-20 meeting has said India would exit Stimulus as growth as picked up, so in next few months roll back excise and customs duty can be possible and which would lead to re-rating in stocks as few sector enjoyed higher profit as they didn’t pass on the full benefits to end users. PM has said deficit and inflation can be a threat to Indian recovery and if stimulus measures are rolled back, many sectors like Auto may see decline in profits and rise in costs. India’s sovereign rating won’t be raised unless the government works toward reducing its budget deficit and debt, according to Moody’s Investors Service as the agency feels India has a lot of domestic-currency debt, a very high debt-to-GDP ratio, and a very high budget deficit year after year. Govt plans 30% hike in gas price and it would be beneficial for GAIL, GSPL, OIL and ONGC. Nifty making new highs above previous levels around 5181 would indicate a euphoric rally ahead where the gains will be fast but may not last long, for now being stock-specific is only advised - GAIL,BHARTI AIRTEL, PTC, IGL show promising signs and can be held as downside looks limited there. 

Supp 4920/4860/4780 Res 5055/5120/5205 

Market Crashes After Politics Takes Centre Stage
The Nifty closed below the psychological 5,000 mark. The benchmark indices opened flat and tumbled in the second half of trade. The sell-off was seen across all the sectors; realty, oil & gas, technology, telecom and metal were the major losers in today's trade.
SUGAR Turned Astringent!

The first day of Parliament's winter session on Thursday was rocked by protests from Opposition parties against Centre's sugarcane price move that discourages states from fixing higher prices. The entire Opposition raised the sugarcane price issue. Lok Sabha was first adjourned till 1200 hrs IST after Opposition parties and even some United Progressive Alliance (UPA) constituents came out against the Union Government's new ordinance to replace statutory minimum price for sugarcane.
The ordinance fixes the fair remunerative price for sugarcane at Rs 130 per quintal, much below the Rs 280 per quintal that farmers have been demanding. Earlier, thousands of sugarcane farmers launched massive protests in Delhi to coincide with the opening day of the Winter Session of Parliament.
http://ibnlive.in.com/news/lok-sabha-shuts-down-over-sugarcane-politics/105550-37.html?utm_source=IBNdaily_MCDB_191109&utm_medium=mailer
Sugar stocks fell massively after the commotion in Parliament about Sugarcane prices -

Farmer protest, delay in crushing pull sugar stocks down http://www.moneycontrol.com/news/market-edge/farmer-protest-delaycrushing-pull-sugar-stocks-down_425949.html
Insurance Bill Makes Market Players Nervous
A bill to reform the insurance sector is unlikely to be cleared by the parliament's winter session, a finance ministry official said on Thursday. "The insurance bill is unlikely to be passed in the current short session," the official, who did not wished to be named, said. The winter session began on Thursday. The bill, which was stalled in the last parliament, proposes raising the foreign investment limit in insurance companies from 26 percent to 49 percent.
The positive sentiment in stocks quickly turned negative - HDFC, ICICI BANK, DABUR, EXIDE, MAX are having tie-ups with foreign Insurance players.
HDFC Standard Life - HDFC holds 72.43% and Standard Life holds 26%
ICICI holds 74% and Prudential Plc 26%
Max holds 74% while New York Life holds 26%
Dabur has 74% stake and Aviva has 26%
Exide 50% shareholding in ING Vysya Life Insurance Company
Parliament nod unlikely for insurance bill http://in.reuters.com/article/businessNews/idINIndia-44087720091119
JSW-JFE deal adds to the market panic
JSW STEEL saw profit-taking after deal between JFE of Japan and JSW STEEL was announced, initially many news reports suggested that JFE would be buying 10% stake in JSW but tie-up announcement led to panic sale in Metal stocks. 
JSW Steel Ltd has informed BSE regarding a Press Release dated November 19, 2009 titled "JFE Steel Corporation & JSW Steel Limited come together in a strategic collaboration" http://www.bseindia.com/xml-data/corpfiling/announcement/JSW_Steel_Ltd_191109.pdf
India may take steps to slow capital inflows if foreign investments surge, Finance Secretary Ashok Chawla said amid exporter concerns of a stronger currency reducing their competitiveness abroad. “As the situation evolves we’ll see what needs to be done,” Chawla told reporters in New Delhi today. “As of now, inflows are not a cause for serious concern.” Foreign funds purchased a net 732.5 billion rupees ($15.77 billion) of Indian stocks this year, after being net sellers in 2008, sending the rupee higher by 4.8 percent and hurting sales at exporters including Gokaldas Exports Ltd. Over the past month, Brazil and Taiwan imposed capital controls to check appreciation in their currencies. http://www.bloomberg.com/apps/news?pid=20601091&sid=aa7xKpqe_PA4

EDUCOMP CMP Rs 780 - The stock looks bearish

• EDUCOMP has multiple support near Rs.680-690 but the stock has clearly failed to participate in the recent rally for the last 4-5 sessions. 
• The improving outlook for the IT sector has seen the CNX IT index soar while EDUCOMP has distinctly under-performed, in spite of a 1:5 stock-split and good revenue growth of 92% this quarter. 
• If the stock sustains below Rs.690 it would be a major breakdown and a further decline of 15-20% may be seen where the stock may grossly underperform the broader indices. Next support around Rs 540-560 may be tested.
• The stock shows a huge bearish Head & Shoulders formation where breakdown happens below Rs 690. It will be a fatal breakdown once that happens as the stock would move below all major moving averages.