Market Outlook for 10th Sep 2009

INTRADAY calls for 10th Sep 2009
+ve sector , scripts : Bank, OIL& refinery :Essaroil,Network18, Marico
BUY OPTOciru-206 for 236+ with sl 200
BUY Bankindia-343 for 360+ with sl 338

 

Breakout
BUY RPL-132 for 154+ with sl 126

BUY JindalSAW-634 for 666-688+++ with sl 625

Positional
BUY Reliance-2168 for 2290+ with sl 2130
BUY APIL-535 for 617+ with sl 515 

 

NIFTY FUTURE LEVELS
RESISTANCE
4825
4829
4844
4850
4870
SUPPORT
4808
4796
4775
4755
4749
4729
Buy CHARTERED LOGISTICS;SPICE-SENSEX

 

Strong & Weak  futures 
This is list of 10 strong futures:

Bhushan Steel, Jindal Saw, Orient Bank, Tata Motors, India Bulls Retail, Unitech Ltd, Chennai Petro, Hindalco, Ster & Opto Circuits.

And this is list of 10 Weak futures:

Power Grid, Bajaj Hind, Finan Tech, Mcdowell, MTNL, Tata Com, ITC, BEL, PTC & NTPC.
 Nifty is in Up trend

NIFTY FUTURES (F & O): 
Above 4823-4825 zone, buying may continue up to 4829 level and thereafter expect a jump up to 4842-4844 zone by non-stop.

Support at 4796 & 4808 levels. Below these levels, expect profit booking up to 4775-4777 zone and thereafter slide may continue up to 4755-4757 zone by non-stop.

Below 4749-4751 zone, expect panic up to 4729-4731 zone by non-stop.

On Positive Side, cross above 4848-4850 zone can take it up to 4868-4870 zone and supply expected at around this zone and have caution.
 
Short-Term Investors: 
 Bearish Trend. 3 closes below 4623.80 level, it can tumble up to 4092.20 level by non-stop.
SL triggered. 3 closes above 4623.80 level, expect short covering up to 4889.60 level by non-stop.
 
BSE SENSEX: 
 Higher opening expected. Profit Booking should start. 

 

Short-Term Investors:
Short-Term trend is Bearish and target at around 14235 level on down side.
Maintain a Stop Loss at 15973 level for your short positions too.

SL triggered. 3 closes above 15973 level, expect short covering up to 16842 level by non-stop.
 
POSITIONAL  BUY:
Buy CHARTERED LOGISTICS (BSE Cash) 
Buy with a Stop Loss of 92 level with a Target of 97 level.

Above 101 level, uptrend may continue. If SL got triggered then expect unwinding up to 88 level by non-stop.
 
Buy SPICE-SENSEX (BSE Cash) 
Buy with a Stop Loss of 168 level with a Target of 178 level.

Above 185 level, uptrend may continue. If SL got triggered then expect unwinding up to 161 level by non-stop.
 

 

SPOT LEVELS

	4814.25	( 0.19 %)	9.00
		1	2	3
Resistance		4831.70	4849.15	4873.25
Support		4790.15	4766.05	4748.60

	16183.55		( 0.37 %)	59.88
			1	2	3
Resistance			16251.27	16318.99	16422.24
Support			16080.30	15977.05	15909.33

 FUNDS DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	09-Sep-2009	3085.48	2892.12	193.36

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	09-Sep-2009	1619.41	1380.72	238.69

 

 
Global Cues & Rupee
 
The Dow Jones Industrial Average closed at 9,547.22. Up by 49.88 points.
The Broader S&P 500 closed at 1,033.37. Up by 7.98 points.

The Nasdaq Composite Index closed at 2,060.39. Up by 22.62 points.

The partially convertible rupee INR=IN closed at 48.51/52 per dollar on yesterday, weaker than its previous close of 48.46/47.
 
 Interesting findings on web:
The stock market extended its gains to a fourth day as the Federal Reserve said the economy was stabilizing.

The Fed's snapshot of 12 economic regions found that economic activity was "stable," showed "signs of stabilization" or had "firmed" in all areas expect the St. Louis region.

The Federal Reserve stated today that 11 of the 12 regional banks have started to see signs of stabilization and that the economy is beginning to improve after the release of the beige book. Although demand for loans had been low, many business contacts said they were "cautiously positive". The only sub-par performer was the commercial real estate sector as demand was still weak and could remain that way for some time. The report also mentioned that residential housing was weak but there were signs of improvement being seen.

Stocks responded well to the news.

The Fed's report was somewhat at odds with a growing consensus that the economy is out of recession and on the path to recovery.

"The US manufacturing sector expanded in August, the first month of expansion since January 2008," noted analysts at Bank of America-Merrill Lynch Securities in a research note. "We believe this rebound represents the leading edge of the US recovery. It is consistent with our view that Q2 will mark the last quarter of negative growth in this economic cycle before the economy begins to expand driven by inventories, housing and trade."

Stocks struggled in the first 30 minutes of trading and then made a move higher. Investors initially took a step back after the release of the Fed's "Beige Book" survey of the economy, but then redoubled their efforts late in the session.

"It's the combination of the weak dollar lifting a lot of companies with international operations and a lot of news coming out of all the techs," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.

The Standard & Poor's 500 index, which is the basis for many mutual funds, reached an 11-month high as industrial stocks rallied. The Dow Jones industrial average rose 50 points to its second-highest close of the year.

The market stumbled briefly following the release of the Fed's report on regional economies, which also found that consumer spending would rise but only because of car purchases linked to the government's brief Cash for Clunkers program. The report also said the job market remains weak.

The prolonged slump in consumer spending has been one of the most serious points of worry for economists, and the Fed's warning about it deflated some of the market's optimism. About 70 percent of the U.S. economy depends on spending by consumers.

Matt Lloyd, chief investment strategist at Advisors Asset Management, said investors were jittery following the Fed's report because many traders are fearful of a correction following a 50 percent surge in stocks over the past six months.

"To me there is no conviction" behind the market's recent gains, Lloyd said.

The Dow rose 49.88, or 0.5 percent, to 9,547.22. The index has added 267 points, or 2.9 percent, in four days. It was the Dow's second-highest close of the year, just below its Aug. 27 close.

Industrial and financial stocks led the advance, which lifted the Dow 50 points by the closing bell, having been up 80 points at once stage.

The broader Standard & Poor's 500 index gained 7.98, or 0.8 percent, to 1,033.37, while the Nasdaq composite rose 22.62, or 1.1 percent, to 2,060.39. It was the highest close for the S&P 500 index and the Nasdaq since October.

The Russell 2000 index of smaller companies rose 10.02, or 1.7 percent, to 586.40.

For the week:

The Dow is up 105.95, or 1.1 percent.

The S&P is up 16.97, or 1.7 percent.

The Nasdaq is up 41.61, or 2.1 percent.

For the year:

The Dow is up 770.83, or 8.8 percent.

The S&P is up 130.12, or 14.4 percent.

The Nasdaq is up 483.36, or 30.7 percent.

Jeff Kleintop, chief market strategist at LPL Financial Services, said a break in the rally could be good for the market to keep stocks from racing too high, too quickly.

"I think we're maybe due for a little bit of consolidation," he said.

Kleintop also contends that economic readings are becoming a less powerful force on the market as more investors begin to expect an improvement in the economy.

"Economic data has lost a lot of its power to really move the market around. The consensus has now become we're in a recovery."

All sectors were advancing on the day with conglomerates gaining 2.16 percent, energy rose 0.56 percent and technology was at a 0.99 percent gain.

Industrial shares were the biggest gainers, as investors bet that higher commodity prices will translate to increased profits if the economy strengthens. The weaker dollar also makes the goods of U.S. exporters cheaper outside the U.S.

A variety of heavily-weighted Dow components rose, including Boeing (BA, Fortune 500), 3M (MMM, Fortune 500), Caterpillar (CAT, Fortune 500), Johnson & Johnson (JNJ, Fortune 500), Hewlett-Packard (HPQ, Fortune 500) and United Technologies (UTX, Fortune 500).

Citigroup's annual tech conference, Apple's afternoon media event and mid-quarter updates from Altera (ALTR) and Texas Instruments (TXN, Fortune 500) were among the tech events Rovelli cited.

With the S&P 500 up more than 50% off the March 9 lows, stocks are going to be facing some challenges on the technical side of trading going forward, Rovelli said, as the S&P 500 bats against the 1040 to 1045 level.

Caterpillar Inc. was among the strongest advancers of the 30 stocks that make up the Dow industrials. Shares of the maker of construction and mining equipment rose $1.44, or 3.1 percent, to $48.41.

Dow's top boost was Boeing, which rose 2.1 per cent to $50.53 after a senior executive said the firm expects global air cargo traffic to return to growth next year.

Goldman Sachs upgraded Illinois Tool Works to "conviction buy" and lifted its price target on Dow components General Electric, United Technologies and 3M.

GE shares gained 2.6 per cent to $14.87 while Illinois Tool was up 5 per cent to $43.93. The S&P Industrials sector gained 1.55 per cent and was the top percentage gainer among S&P sectors.

While IBM declined 0.34 percent.

Also among tech shares, Ebay was also up 3.9 per cent at $22.98 after Bernstein upgraded the company, citing the turnaround in its core businesses and in used-auto sales.

Also, Ebay benefited from an analyst upgrade at Bernstein, which raised the price target of the online retailer to $28 from $24.

Tech stocks were among the big gainers, with Google up 1.2 per cent at $463.97. But Nasdaq's advance was limited by Apple, which fell 1 per cent to $171.14, after chief executive Steve Jobs's appearance at a company event spurred further concerns for his health.

CEO Steve Jobs delivered the keynote address at the company's media event in the afternoon, making his first appearance at an Apple event in nearly a year. Jobs returned to work this summer after taking a medical leave for the first six months of the year.

Jobs announced a new version of iTunes. Apple also said the company's 8 GB iPod Nano will include a built-in video camera and FM radio.

Earlier Wednesday, Apple (AAPL, Fortune 500) cut prices on its line of iPods by as much as $120.

Shares of McDonald's (MCD, Fortune 500), a Dow component, slumped 2%.

The fast-food chain said global sales at restaurants open a year or more rose 2.2% in August, the slowest growth in nearly a year. Weakness in Asia and a slowdown in the U.S. countered strength in Europe.

Biotech Vivus (VVUS) reported positive results from two late-stage studies of its experimental weight loss drug, Qnexa. Shares gained 71%.

Aircraft maker Textron added 2.4% after the company said it would leave its 2009 profit forecast unchanged.

Elsewhere in the markets, credit card stocks rose, after Citigroup upgraded MasterCard [MA  210.31    2.86  (+1.38%)   ] and Capital One Financial [COF  37.47    2.03  (+5.73%)   ].

Barrick Gold sank 6%. The world's biggest gold producer said it would increase a stock offering that it announced Tuesday by $500 million to $3.5 billion.

Starbucks [SBUX  20.09    0.89  (+4.64%)   ] was among the index's leading advancers after the coffee store chain said it had decided to take 30 stores off a closure list after the locations posted stronger sales.

DuPont [DD  31.36    -0.47  (-1.48%)   ] also hurt the bluechip index following an analyst downgrade at Goldman Sachs, which cut the company to neutral from buy.

The weak dollar seems to be the "new catalyst" in the market, said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co.

Meantime, more and more people are taking advantage of President Obama's Mortgage Relief Program. About 19% of eligible homeowners modified their mortgages through August.

But that same Treasury Department report shows 4 out of every 5 struggling homeowners still aren't getting the help they need.

Numbers released on Tuesday reveal that home loans are a hot commodity.

The mortgage bankers association says home loan applications jumped to their highest level in more than three months. Many homeowners are refinancing, taking advantage of a drop in 30 year fixed rates.

Oil,Gold & Currencies:

Light, sweet crude rose 20 cents to settle at $71.31 per barrel on the New York Mercantile Exchange.

Gold fell but still hovered near $1,000 after crossing that mark Tuesday for the first time since February.

The yen fell for a sixth day against the euro as stocks rallied before reports forecast to show China's industrial production gained and exports fell at a slower pace, damping demand for Japan's currency as a refuge.

The dollar traded near the lowest level since December against the euro on speculation two Federal Reserve officials will signal they plan to keep borrowing costs near zero, boosting demand for higher-yielding assets. The New Zealand dollar traded near a one-year high against the U.S. currency after the South Pacific nation's central bank indicated it was less likely to cut interest rates from a record low.

"The rally in stocks and China's data are proving a floor for risk appetite for the short term, weighing down on the yen," said Satoshi Okagawa, head of the foreign-exchange forward trading group at Sumitomo Mitsui Banking Corp. in Tokyo. "People are paying close attention to China."

The yen fell to 134.13 per euro as of 11:21 a.m. in Tokyo from 133.99 in New York yesterday, when it touched 134.41 yen, the lowest since Aug. 28. The dollar was unchanged at $1.4557 per euro, after reaching $1.4601 yesterday, the weakest level since Dec. 18. Japan's currency fell to 92.13 per dollar from 92.04 after hitting 91.61 yesterday, the highest since Feb. 17.

New Zealand's dollar was at 69.63 U.S. cents from 69.59. It rose to 70.08 cents yesterday, the strongest since Aug. 29, 2008.

The Nikkei 225 Stock Average advanced 1.4 percent today, extending a global equities rally that yesterday took the Standard & Poor's 500 Index to an 11-month high. The MSCI Asia Pacific Index of regional shares gained 0.7 percent.

China's Data

The yen weakened against 12 of its 16 major counterparts as economists surveyed by Bloomberg News forecast China's August industrial production may have gained 11.8 percent from a year earlier. The Beijing-based statistics bureau is set to report the data at 11 a.m. Tokyo time tomorrow.

China's exports may have dropped 19 percent last month from a year earlier, according to another survey. The data is due tomorrow. That would be the slowest decline since March.

The dollar may fall for a fifth day against the euro, its longest stretch since May, before speeches by Atlanta Fed President Dennis Lockhart and Fed Vice Chairman Donald Kohn.

Chicago Fed President Charles Evans said yesterday it's too early for the Fed to tighten credit, suggesting interest rates in the world's largest economy will remain near zero. Dallas Fed President Richard Fisher repeated his forecast for a "prolonged period of sluggish economic performance."

'Funding Currency'

"The market is working against the dollar, which is the favored funding currency when equities are rising and you want to buy risky assets," said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. "We anticipate potential further weakness of the U.S. dollar, and the euro is going to be higher."

Lockhart will speak on U.S. and global economic interactions in Jacksonville, Florida, and Kohn will deliver remarks on the unconventional U.S. monetary policy response to the financial crisis in Washington later today.

In carry trades, investors get funds in a country with relatively low borrowing costs and invest in another nation with higher interest rates.

Benchmark interest rates are as low as zero in the U.S. and 0.1 percent in Japan, compared with 3 percent in Australia and 2.5 percent in New Zealand, making the South Pacific nations' assets attractive for investors seeking higher returns.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, was at 77.025 after dropping yesterday to as low as 76.803, the weakest level since Sept. 26, 2008.

New Zealand Dollar

New Zealand's currency strengthened earlier after Reserve Bank Governor Alan Bollard left the official cash rate at a record-low of 2.5 percent amid expectations the economy faces a slow recovery from the worst recession in three decades. Bollard moved away from considering rate cuts, compared with the previous monetary policy statement on July 30.

"New Zealand's central bank wasn't quite as aggressive as it might have been, switching away from the possibility of rate cuts to a commitment to keeping rates at a record low," said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. "The kiwi is also benefiting from the current broad pessimism regarding the U.S. dollar."

Bonds:

Bond prices mostly rose. The yield on the 10-year Treasury note was flat at 3.48 percent.

What to expect:

Today - Thursday, 10 Sep 2009

Symb Company Event

AEPI.O  AEP Industries Inc.  Q3 2009 AEP Industries Earnings Release

CMRO.O  Comarco Inc  Q2 2010 COMARCO Earnings Release

BSML.PK  BSML, Inc.  (Tentative) Q2 2009 BSML Inc. Earnings Release - ESTIMATED

MGPI.O  MGP Ingredients Inc  Q4 2009 MGP Ingredients Earnings Release

NAV  Navistar International Corporation  Q3 2009 Navistar International Earnings Release

VOL  Volt Information Sciences, Inc.  Q3 2009 Volt Information Sciences Earnings Release

ESMC.O  Escalon Medical Corp  (Tentative) Q4 2009 Escalon Medical Earnings Release - ESTIMATED

PDGE.OB  PDG Environmental Inc  (Tentative) Q2 2009 PDG ENVIRONMENTAL INC Earnings Release - ESTIMATED

STEI.O  Stewart Enterprises, Inc.  Q3 2009 Stewart Enterprises, Inc. Earnings Release

MCOAQ.PK  Monaco Coach Corporation  (Tentative) Q4 2008 Monaco Coach Earnings Release - ESTIMATED

MDNU.O  Medical Nutrition USA, Inc.  Q2 2010 MEDICAL NUTRITION USA INC Earnings Release

UWN  Nevada Gold & Casinos Inc  Q1 2010 NEVADA GOLD & CASINOS INC Earnings Release

PCYC.O  Pharmacyclics, Inc.  (Tentative) Q4 2009 Pharmacyclics Earnings Release - ESTIMATED

LCCI.PK  LCC International, Inc.  (Tentative) Q3 2008 LCC International Earnings Release - ESTIMATED

FNSR.O  Finisar Corporation  Q1 2010 Finisar Earnings Release

LTRX.O  Lantronix Inc  Q4 2009 Lantronix, Inc. Earnings Release

HOFT.O  Hooker Furniture Corp  Q2 2009 Hooker Furniture Corporation Earnings Release

BKRS.O  Bakers Footwear Group, Inc.  Q2 2009 BAKERS FOOTWEAR GROUP INC Earnings Release

GNET.O  Global Traffic Network, Inc  Q4 2009 GLOBAL TRAFFIC NETWORK INC Earnings Release

NSM  National Semiconductor Corporation  Q1 2010 National Semiconductor Earnings Release

Asia:

Asian stocks climbed, sending the MSCI Asia Pacific Index to a one-year high, as profit from China Yurun Food Group and a higher forecast from Texas Instruments Inc. lifted confidence the global economy is recovering.

China Yurun Food Group Ltd., the country's biggest hog processor, jumped 6 percent after first-half profit rose 37 percent. Elpida Memory Inc., Japan's largest computer memory maker, gained 3.8 percent after chipmaker Texas Instruments raised its third-quarter sales and earnings forecasts. Li & Fung Ltd., the biggest supplier of clothes and toys to Wal-Mart Stores Inc. and Target Corp., gained 3.7 percent after saying it is seeing "pretty strong" re-orders from retailers.

The MSCI Asia Pacific Index climbed 1 percent to 116.66 as of 11:55 a.m. in Tokyo, headed for the highest close since Sept. 22, 2008. The gauge has gained 64 percent in the past six months on speculation the global economy is recovering. Stocks on the index are priced at an average 24 times estimated earnings, up from 14 times at the start of the year.

"Investors are looking to upcoming earnings reports where we're likely to see a fair number of companies lifting forecasts," said Junichi Misawa, who helps oversee about $3 billion of Japanese equities at STB Asset Management Co. in Tokyo. "The market should stay strong into the end of the year, although after that we could see a pullback as stimulus measures run their course."

Japan's Nikkei 225 Stock Average climbed 1.4 percent. Hong Kong's Hang Seng Index gained 1.4 percent. Benchmark indexes throughout Asia rose, except in China, where the Shanghai Composite Index ended a seven-day winning streak.

China Yurun, Elpida

Futures on the Standard & Poor's 500 Index added 0.1 percent. The gauge climbed 0.8 percent yesterday to an 11-month high, as Goldman Sachs Group Inc. recommended industrial companies and investor Michael Price said he's finding value in American equities.

China Yurun added 6 percent to HK$14.86. First-half profit rose 37 percent to HK$841 million, the company said yesterday.

Elpida climbed 3.8 percent to 1,325. Taiwan Semiconductor Manufacturing Co., the world's largest custom-chip maker, added 1.6 percent to NT$63. Sumco Corp., the world's second-largest maker of silicon wafers, rose 4.6 percent to 2,285 yen.

Texas Instruments, the second-largest U.S. chipmaker, said third-quarter profit will be as high as 41 cents per share, compared with analyst projections for 35 cents. The company said it is seeing improving demand for chips used in some industrial applications, computers and consumer electronics.

Li & Fung gained 3.7 percent to HK$29.80. Bruce Rockowitz, president of the company, told Bloomberg Television today that spending by consumers has started to "creep up." 

Nikkei 225 10,452.51     +140.37 ( +1.36%).(08.24 AM IST).

Japan's Nikkei stock average rose 1.6 percent on Thursday, with banking shares such as Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research) rebounding following a recent slide.

Market players said Tokyo shares were taking their cue from the previous day's rise in U.S. shares but they added that gains likely to be limited ahead of the settlement of equities futures and options on Friday known in Japan as the special quotation or "SQ".

Tokyo stocks rose sharply Thursday morning after Wall Street's rally overnight, with financial shares rebounding from a recent decline and hi-tech issues bolstered by Texas Instruments Inc.'s raising its third-quarter business outlook.

Japan Medical Dynamic Marketing Inc. (7600) shares went limit-up Thursday morning, surging 80 yen from Wednesday to 290 yen.

Sony Corp. (6758) shares rebounded Thursday, rising 60 yen to 2,485 yen at one point before closing the morning session up 50 yen (or 2%) at 2,475 yen.

HSI 21125.97 +274.93 +1.32%.(08.27 AM IST).

Hang Seng Index opens 280 points higher on Thu

Hong Kong stocks rose on Thursday morning, with the benchmark Hang Seng Index opening 280 points higher at 21,131.

The index is likely to reach a level between 23,000 and 25,000 points prior to the end of this year if mainland China sticks to the moderately easy monetary policy, said Lee Shau-Kee, president of Henderson Land Development Co Ltd<0012>.

The Hang Seng China Enterprise Index, which tracks the overall performance of 43 mainland Chinese state-owned enterprises on the Hong Kong Stock Exchange, opened 159 points higher at 12,265.

PetroChina<601857><0857><PTR> rose 2.12% and opened at HK$9.14. Sinopec<600028><0386><SNP> increased 1.33% from the previous closing to HK$6.86.

Stocks in Hong Kong rose Thursday morning, with property, financial and industrials among leaders, pacing gains seen across regional markets. The Hang Seng Index was up 1.5% at 21,164.07, while the H-share index added 1.3% at 12,264.53. Notable gainers included Bank of China, /quotes/comstock/22h!e:3988 (HK:3988 4.24, +0.08, +1.93%) which added 1.9%, and China Southern Airlines /quotes/comstock/22h!e:1055 (HK:1055 2.63, +0.11, +4.37%) whose shared firmed 4.4%.

SSE Composite  2914.90   -1.06. (08.30 AM IST).

China's key stock index slipped 0.4 percent on Thursday, with a fall in liquor maker Wuliangye Yibin 000858.SZ on news it was under investigation and profit taking, offsetting media reports more funds may enter the stock market.

The Shanghai Composite Index .SSEC opened at 2,934.958 points after having jumped 12 percent by Wednesday's close since it hit this year's intraday low on Sept. 1, with government policy support countering negative factors including profit-taking pressure and heavy supplies of new shares.

"The market's latest rally is stronger than expected, with hot stocks actively traded, paving the way for the index to rise above the key 3,000-point level," said Chen Huiqin, senior analyst at Huatai Securities in Nanjing.

She said investors were also awaiting August economic data, mostly due on Friday and the tone of the keynote speech by Premier Wen Jiaobao at the World Economic Forum on Thursday.

Wuliangye Yibin, one of China's top liquor makers, dropped 3.8 percent to 21.75 yuan continuing a 6.2 percent dive on Wednesday after it said that it was under investigation by the country's stock watchdog. [ID:nSHA178939]

Company officials have declined to give details.

In the latest sign of government support for the market, state media reported that Baring Asset Management Limited has won Chinese regulatory approval to be a Qualified Foreign Institutional Investor (QFII) to invest in China's stock market.

In a related development, UBS AG (UBSN.VX: Quote, Profile, Research), which enjoys the highest QFII quota, said it would apply to enlarge its quota as China was planning to raise quotas for individual QFIIs.

Outside China, foreign equity fund managers in Asia are cautiously sticking to their bets for a domestic demand driven recovery, though market volatility in China has made some reduce their weightings on the country, a latest Reuters poll shows.

But analysts said the market's rally this month has marked a reverse of the trend in August when the index plunged 22 percent in its second worst monthly performance in 15 years. ($1 = 6.83 yuan)

Chinese stocks open 0.38% lower on Thu

Chinese stocks opened lower on Thursday morning.

The benchmark Shanghai Composite Index, which covers both A shares and B shares on the Shanghai Stock Exchange, opened at 2,934.96 points, down 0.38% or 11.3 points from the previous closing.

The Shenzhen Component Index on the smaller Shenzhen Stock Exchange opened 0.77% or 92.39 points lower at 11,954.83 points.

MOF to sell RMB 40 bln in savings bonds.

Baring Asset raises stake in Angang Steel to 7.32%.

CBA cuts stake in Anhui Expressway to 15.91%.

Guangdong Provincial Communications to issue 5-year notes.

Northern Trust cuts stake in Dongfang Electric.

China Life likely to invest in ABC or CDB.

China Overseas Land may be contractor of Shanghai Disneyland.

Agile Property achieves 81% of contracted sales target for 2009.

Great Eagle's revenue down 25.4% in H1.

China Railway Materials buys stakes in 2 Aussie firms.

Hon Hai to launch smart books with ARM chips in 2010.

Obama on Health Care: 'Time for Bickering Is Over'

After a summer of setbacks, President Barack Obama summoned Congress to enact sweeping health care legislation Wednesday night, declaring the "time for bickering is over" and the moment has arrived to help millions who have insurance and many more without it.

Obama said the changes he has in mind would cost about $900 billion over decade, "less than we have spent on the Iraq and Afghanistan wars, and less than the tax cuts for the wealthiest few Americans" passed in the 1990s.

In a televised speech to a joint session of Congress, Obama spoke in favor of an option for the federal government to sell insurance in competition with private industry. But he said he was open to alternatives that create choices for consumers.

Obama's speech came as the president and his allies in Congress readied an autumn campaign to enact his top domestic priority. While Democrats command strong majorities in both the House and Senate, neither chamber has acted on Obama's top domestic priority, missing numerous deadlines leaders had set for themselves.

In a fresh sign of urgency, Sen. Max Baucus, D-Mont., announced that his Senate Finance Committee would meet in two weeks to begin drafting legislation, whether or not a handful of Democrats and Republicans have come to an agreement. The panel is the last of five to act in Congress, and while the outcome is uncertain, it is the only one where bipartisanship has been given a chance to flourish.

Obama said there is widespread agreement on about 80 percent of what must be included in legislation. Any yet, criticizing Republicans without saying so, he added: "Instead of honest debate, we have seen scare tactics" and ideological warfare that offers no hope for compromise.

"Well, the time for bickering is over," he said. "The time for games has passed. Now is the season for action."

"I am not the first president to take up this cause, but I am determined to be the last," he added.

World oil demand to resume growth in 2010: report

World oil demand will grow next year for the first time since 2007 and return to pre-recession levels by 2012, according to a newly released report.

World oil demand is expected to grow by 900,000 barrels to 84.6million barrels per day (mbd) in 2010, and return to its 2007 high of 86.5 mbd by 2012, the report released Tuesday by IHS-Cambridge Energy Research Associates, a U.S. energy information provider, said.

Oil demand dropped by 2.8 mbd from its 2007 high to 83.8 mbd in2009. The last time that the world experienced such a severe decline in oil consumption was in the early 1980s and it took nine years for demand to return to the 1979 pre-recession high.

The current recovery will come more quickly than the last major oil crash in the 1980s thanks to robust demand from emerging markets and fewer options for substituting fuels on a global scale, said Jim Burkhard, managing director of global oil research for the firm.

"In the 1980's the largest area of the demand decline came from power generation, where oil was replaced by readily available substitutes like coal, gas or nuclear," Burkhard said.

"Today, global demand growth is coming from the transportation sector in emerging markets where there are fewer large-scale options for switching fuels," he said. 

CNPC borrows $30 bln for acquisitions

China National Petroleum Corp (CNPC), the country's largest oil and gas producer, has received a 30 billion U.S. dollar loan to finance its overseas expansion as the company accelerated oil assets acquisitions this year, China Daily reported Thursday.

Under an agreement with China Development Bank (CDB), the loan will be provided over five years at a discounted interest rate, CNPC said in a statement.

The move will greatly help CNPC to "achieve its overseas strategy and further enhance the nation's energy security", the newspaper said, citing Jiang Jiemin, president of the company.

CDB has helped fund CNPC's many overseas projects including oil-for-loan deals with Russia and Venezuela, the construction of a central Asia natural gas pipeline and the 2005 takeover of Petro Kazakhstan, said the statement.

China is now the world's second largest oil importer. This year state-owned companies have successfully made seven acquisitions of overseas oil and gas assets worth a total value of 82 billion yuan (12 billion U.S. dollars), CNPC said in a news letter on its website.

This represents an 80 percent increase compared with the same period last year, it said.

Analysts said that domestic oil companies' quickened pace in overseas expansion was in line with China's increasing oil imports. According to a recent report by the Chinese Academy of Social Sciences (CASS), 64.5 percent of the country's oil consumption is likely to be met by imports in 2020.

The gap between domestic consumption and production is the main cause for the increase in imports. CASS statistics showed that China's oil production would see a gradual decline after 2020. 

 

China's largest life insurer seeks stake in bank

China Life Insurance Co, the country's largest life insurer, plans to acquire a stake in China Development Bank Corp (CDB) to match its long term liabilities and achieve a better synergy in resource allocation, China Daily reported Thursday.

The final deal is subject to regulators' approval and the final pricing terms, said the newspaper, citing China Life's chairman, Yang Chao.

Talks are "almost" complete, and terms are "very favorable" to China Life, Yang said, but he didn't give the size of the stake.

The insurer is also actively seeking equity investment opportunities in other big, unlisted corporations, according to Yang.

China Life's wooing of CDB is its latest attempt to make it a financial holding group with a strong core business and a diversified financial business, the newspaper said.

On Aug 26, Yang said the company was considering becoming the pre-IPO investor of the Agricultural Bank of China (ABC) and the Asian unit of American International Group (AIG).

CDB received a 20 billion U.S. dollar government capital injection in December 2007 and is seeking to transform itself from a policy bank into a commercial lender. 

Japan Machinery Orders, Wholesale Prices Slide

Japan's core machinery orders fell a bigger than expected 9.3 percent in July, in a sign capital spending may stay weak in the coming months and drag on the world's No.2 economy as it crawls out of its deepest postwar recession.

Wholesale prices also slid 8.5 percent in the year to August, matching a record hit in July, pointing to deepening deflation that could force the Bank of Japan to keep its ultra-easy monetary policy in place for a long time to come.

The July fall in core machinery orders, a highly volatile figure regarded as a leading gauge of capital spending, was more than double the median market forecast for a 3.5 percent decrease from June, when orders rose for the first time in four months.

"The fall is partly a reaction to last month's increase, but the trend is weak as a whole. Capital spending probably won't recover for the rest of this fiscal year," which ends in March 2010, said Takeshi Minami, chief economist at Norinchukin Research Institute.

"If the U.S. economy really bottoms out, it's a different story. But otherwise, companies will remain cautious of increasing spending at the beginning of next fiscal year too."

Many Japanese firms, saddled with excess capacity and workers, are cautious on the outlook for final demand because the boost from stimulus spending on the ongoing economic recovery is expected to peter out early next year.

Weakness in the Japanese economy could increase deflationary pressure as firms cut capital spending and jobs, adding to policy challenges for the Democratic Party as it takes over the government next week after a landslide election victory.

The fall in wholesale prices, as measured by the corporate goods price index, was slightly larger than a median market forecast for an 8.4 percent drop. It matched an 8.5 percent annual drop in July, which is the biggest decline on record.

Price falls are likely to moderate later this year as the effect of the slide in oil prices from record levels last year wears off, but economists expect deflation to persist given weak demand in the world's No. 2 economy.

In a sign weak final demand is playing an increasing part in pushing down prices, overall final goods prices, or the prices of finished products charged to businesses, fell 5.1 percent from a year earlier in August.

Domestic final goods prices, which loosely track the consumer price index, dropped 3.6 percent.

Revised figures on Friday are expected to confirm that while Japan's economy emerged in April-June from its worst recession since World War Two, recovery will be slow and far from assured as much of it depends on stimulus measures.

Stock market may collapse again, TCW's Gundlach says

The stock market's recent rally is likely to run out of steam soon and equity prices may collapse again, Jeffrey Gundlach, chief investment officer at Los Angeles-based mutual-fund giant TCW Group Inc., said Wednesday.

The benchmark Standard & Poor's 500 index is "extremely unlikely" to climb above 1,100, before collapsing again, he said during a conference call.

"You've made 90% of the money you're gonna make in this rally," Gundlach said, advising investors to sell on strength when the S&P 500 is above 1,000.

The S&P 500 closed at 1,033 Wednesday, leaving it up more than 50% since early March.

Gundlach, who also runs TCW's flagship Total Return Bond Fund /quotes/comstock/10r!tglmx (TGLMX 9.98, -0.01, -0.10%) , had spotted cracks that subprime mortgages were forming in the financial system by June 2007 and was among the first to warn that an era of easy money would come to a bad end. See full story on Gundlach's warning.

His new concern is the massive debt being accumulated by the U.S. government as it tries to stimulate an economy that's been mired in the worst recession since the World War II.

"We're basically borrowing money and calling it economic growth," he said on Wednesday. "It's not real economic activity."

Debt-fueled government stimulus, such as the "cash for clunkers" program, may keep the U.S. economy growing for one or two years, but then growth will probably "just die," Gundlach said.

Cash for clunkers, in which the government gave up to $4,500 to new car buyers if they handed in old gas-guzzling vehicles, illustrates another of Gundlach's concerns, that of deflation.

"Deflation is so strong that you can't even sell cars unless you slash prices 20% through government subsidies," he said.

Gundlach is similarly bearish on credit markets and commodity prices, arguing that "a turning point is close at hand in these markets."

One of the few areas he's bullish on is the U.S. dollar -- but not for good reasons.

Gundlach sees such large debt defaults in coming years that he thinks the trend will cut the supply of dollars, pushing up the currency's value.

"We're standing on the edge of a major default wave," he said. "Defaults are the elimination of dollars. You could eliminate so much actual wealth that this could be the source of a strong dollar rally." 

Fed officials see slow recovery for labor market

U.S. labor markets could take years to recover from the setbacks of the current recession, which have pushed the unemployment rate to a 26-year high, top Federal Reserve policy-makers said on Wednesday.

But the officials said the Fed may need to end its ultra-accommodative policy stance long before the jobless rate starts to plummet if inflation starts to rise.

For now, though, that seems some way off given the tentative nature of the economic recovery.

"Given the lag between the time monetary policy is initiated and when it impacts the economy, that wind-down process needs to begin as soon as there are convincing signs that economic growth is gaining traction," Dallas Federal Reserve Bank president Richard Fisher told a meeting of the North Dallas Chamber of Commerce.

It would be hard to determine just when that time would be though, Fisher said. "It all depends on the economy," he told reporters after the event.

Speaking in New York, Chicago Federal Reserve president Charles Evans became the latest Fed official to suggest that the languid pace of the 2004-2005 policy tightening would not be repeated.

Although rate hikes are still some time off, "as the economy continues to improve, and when we see rising inflation pressures, Fed policy will respond aggressively," Evans said.

Evans is a Federal Open Market Committee voting member in 2009, but will be off the voting rotation in 2010, when financial dealers guess the first rate hikes could come.

HALF OF REGIONAL FEDS CITE IMPROVEMENT

Also on Wednesday, the Fed issued its Beige Book survey, an anecdotal overview of the U.S. economy.

Half of the Fed's 12 districts -- Dallas, Boston, Richmond,

Cleveland, Philadelphia and San Francisco -- saw evidence the economy had improved by the end of August, although labor markets remained weak and retail sales were flat.

Most districts noted that the outlook for economic activity among their business contacts was cautiously positive.

"The report was quite consistent with the recent dataflow, noting upside from manufacturing and residential real estate but continued weakness from commercial real estate and sluggish consumer spending," Michelle Meyer, economist at Barclays Capital, said in a note to clients.

Fisher, whose next vote on the FOMC will be in 2011, said that getting the Fed's balance sheet back down to size by winding down the various emergency lending programs was the first order of business to blunt prospective inflation.

The Fed has held interest rates near zero since December 2008, but has massively expanded its balance sheet with a series of emergency lending programs aimed at getting credit markets to function more normally.

Unreversed, balance sheet growth is a reliable path to problems, Evans and Fisher agreed.

Economies "running the printing presses on overdrive, usually to finance unsustainable fiscal deficits," typically end up with high inflation, Evans said.

ECONOMIC STAMINA?

Most economists guess that the U.S. economy started growing again in the current quarter, mostly on the back of unglamorous and temporary "inventory adjustments."

GDP growth in the third and fourth quarters of 2009 could be in the 2.0 percent range, Fisher said, adding that the staying power of recovery is still in question.

But Fisher said he is less certain about longer-term prospects, especially since consumer spending is not expected to be a strong engine for the economy this time around.

In a second appearance on Wednesday, Evans echoed Fisher's downbeat assessment on the retail spending outlook.

"Consumers are worried about their job prospects and whether or not they'll continue to have a job and that's restraining consumption spending," Evans said in comments taped for the PBS show "Nightly Business Report."

Still, Evans said he does not expect a double-dip recession -- one where the economy grows for some time before contracting again.

The biggest worry for growth is the labor market, Evans said, adding that full employment could be years away.

"I would guess that at the end of 2010 the unemployment rate is going to be above nine percent and 2011 its going to be uncomfortably, high probably in the seven's," he said.

August payrolls data showed that a large proportion of lay-offs are of a permanent rather than temporary basis, part of a reshaping of the U.S. economy.

Fisher said businesses trying to shore up profits will continue to focus on cost controls by shedding workers and attempting to drive up productivity.

That output gap meant deflation was still the biggest threat to price stability, Fisher said.

Evans disagreed. "Deflation has been averted," he said, adding that a timely and deft Fed response can prevent the inflation spikes that some economists have predicted.

So far, the recession has prevented the sharp rise in bank lending that often triggers inflation, Evans said.

Even though the U.S. monetary base has nearly doubled in the past year as the Fed has rapidly expanded its balance sheet, sluggish growth in bank credit has held broader money growth to about 8.0 percent, he added.
 
INVESTMENT VIEW
NHPC: Did you buy a Rs 18 stock for Rs 36 per share?
Investors have done just that buying NHPC at Rs 36 per share they have effectively ascribed a market cap of $ 9 bn to the company. And this is the fallacy, until investors realise an appropriate entry price into a stock there chances of making a gain by flipping the IPO stands virtually at nil. 

Over the last five years the ROE of NHPC has ranged from 4.8 per cent to 6.7 per cent (10 year GOI yield in India is 7 per cent currently). Over the next 5 years we do not expect the ROE of NHPC to go up much higher than 7 per cent. Meanwhile the price band of the IPO implied a Price to Book of 1.8 to 2.2X on March 2009 net worth. Effectively it means you have bought a GOI owned company that generates similar ROE as return on a Government Bond but is selling at a times Book. As a result your yield drops down to a pauper like 3.4 per cent or indirectly it gives a PE of 30 to the NHPC stock. 
 

On a different plank, NHPC offers exciting growth of 9 per cent CAGR over the next 5 years. Thus, if you were to hold the NHPC stock for 5 yields your earnings yield will go up to 4.8 per cent by the year ending March 2014 and even then it will imply a PE of 21X FY14 earnings. 

What you could have done? 

For investors interested in the Indian Power sector and those expecting stable returns we would recommend buying NTPC which offers higher returns,  lower earnings volatility, predictable growth (and a likely bit higher growth than NHPC), with much better control over its project costs, execution and valuations. 

So what exactly have investors spent Rs 6000 crore while buying NHPC? 

Largest hydro power company in India that is 100 per cent owned by the GOI currently. Current Capacity 5 GW. Another 5GW under construction.

Why is NHPC's ROE low? 

1. Long gestation period of hydro power project means that substantial capital is always tied up in CWIP. Unlike HK utilities which earn returns on CWIP, Indian utilities do not earn any returns while projects are under construction. 

2. Frequent delays in project execution given substantial risks/uncertainties involved in hydro power construction. Cost over-runs -which are not always approved by the regulator. Hence you spend the money but do not earn anything on that. 

3. Over $ 800 mn of cash and equivalents on balance sheet. So why raise another $ 1 bn? Probably because they can in the current market conditions. 

Will NHPC's ROE's remain low? 

1. The nature of business does not change. Gestation/execution periods will remain long. Execution risks remain. 

2. Another $ 1 bn cash is a further drag on the extant ROE. 

3. In recent years NHPC's O&M costs have not been sufficient to recover all the costs. We also suspect that NHPC is not run as efficiently as NTPC. 

Footnote: 

The NHPC issue will be a bloomer on the books of GOI as was RPower on the books of the ADAG group. Unless of course the GOI sponspored DIIs pick up the entire slack from the market, the stock can easily move down to Rs 18 over the next few months, where Risk/Reward will seem equal. 

Secondly, and most importantly the biggest of NHPC projects are being executed in the State of Arunachal Pradesh-a territory claimed by the PR China as it's own. 

Thirdly, in deference to the wishes of the government of PRC the Indian government had dropped plans to pursue the 20,000 MW upper Siang project and NHPC will now undertake projects only on the middle and lower Siang. 

Fourthly, all rivers of the North East including the mighty Brahamputra and it's numerous tributaries originate from glaciers in Tibet, where the Government of PRC is planning massive hydel plants. A few years down the line, there may not be enough water to run the hydel plants proposed on the Siang.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)

--

Arvind Parekh

+ 91 98432 32381