Market Outlook 26th Oct 2009

INTRADAY calls for 26th Oct 2009
+ve Script & Sector : FMCG,Pharma GSPL,Ashokley,DCHL
BUY ITC-260 for 268-275+ with sl 255
BUY EMCO-103 for 109-111+ with sl 100

BUY BajajAuto-1471 for 1487-1497+ with sl 462
BUY Dr.Reddy-959 for 975-981+ with sl 950

Positional
BUY Foursoft-24 for 29-31+ with sl 21
BUY ArvindMill-37 for 44+ with sl 35

BUY Bajajhind-232 for 259-263+ with sl 223
BUY CIPLA-285 for 311-324+ with sl 278

stocks that are in news today:
-Tata Group set for consolidation again, to merge Tata Coffee and Mount Everest Mineral with Tata Tea
-PTC board gives go ahead for fund raising plans ((size not given))
-Thinksoft Global to list today, issue price Rs 125
-Rei Agro board approves issue of FCCBs up to $100 million
-Jai Balaji board approves Rs 198.5 crore QIP issue
-GAIL may be allowed to levy marketing margins on gas – BL
-Nissan, Ashok Leyland to roll out LCVs separately – DNA
-3.05 crore HCL Info shares to hit market
-Aban, Kingfisher still in NSE F&O curb
-Compact Disc board approves investment of $3 million wholly owned US subsidiary
Ex-split:
-Gammon Infra from Rs 10 to Rs 2
-REI Six Ten Retail from Rs 10 to Rs 2

RIL says committed to drilling 3 more wells in D9 block
RIL Says
-Marketing margin not in violation of govt, EGoM (Empowered Group of Ministers) decisions
-Marketing margin in line with General Industry Practice
-Margin in consideration for risks & costs in marketing of gas
Reliance Infrastructure says RIL continues to charge marketing margin without govt approval

3G Auction update: exclusive
-Start of 3G auction on January 14, 2010
-Pre-bid conference on November 16, 2009

Reliance Communications Says
-See no additional liability on account of special audit
-Have completed review of audit report
-Audit estimates of Rs 316 crore liability is incorrect

NIFTY FUTURE LEVELS
SUPPORT
5000
4994
4975
4950
4925
RESISTANCE
5018
5031
4041
5066
5091
5116
Buy COMPETENT AUTOMO;DAI-ICHI KARKARI

Strong & Weak  futures  26th Oct Monday
This is list of 10 strong futures:

Yes Bank, Bajaj Hind, Indusind Bank, Asian Paints, Polaris, Andhra Bank, Hind Zinc, Dena Bank, Allahabad Bank & Jindal Steel. 

And this is list of 10 Weak futures:

Grasim, Idea, RCom, Bharti Airtel, TV-18, India Cement, GTL Infra, DishTV, MTNL & JP Hydro.
Nifty is in Up trend
 

NIFTY FUTURES (F & O):
Below 5000-5002 zone, expect profit booking up to 4994 level and thereafter slide may continue up to 4975-4977 zone by non-stop.

Hurdles at 5018 & 5031 levels. Above these levels, rally may continue up to 5039-5041 zone and thereafter expect a jump up to 5064-5066 zone by non-stop.

Cross above 5089-5091 zone, can take it up to 5114-5116 zone by non-stop. Supply expected at around this zone and have caution.

On Negative Side, rebound expected at around 4950-4952 zone. Stop Loss at 4925-4927 zone.
 
Short-Term Investors: 
 Bullish Trend. 3 closes above 4790.00 level, it can zoom up to 5155.00 level by non-stop. 

BSE SENSEX: 
 Lower opening expected. Uptrend should continue. 

Short-Term Investors:  
Short-Term trend is Bullish and target at around 17671.82 level on upper side.
Maintain a Stop Loss at 16613.22 level for your long positions too.

SL Triggered.
 

POSITIONAL BUY:
Buy COMPETENT AUTOMO (BSE Cash & BSE Code:531041) 
Buy with a Stop Loss of 38.45. Above 39.60, it will zoom.

Today: May hold on gains.

1 Week: Bullish, surprisingly falling.

1 Month: Bullish, as per current market conditions.

3 Months: Bearish, surprisingly going up.

1 Year: Bullish, as per current market conditions.
 
Buy DAI-ICHI KARKARI (BSE Cash & BSE Code:526821) 
Buy with a Stop Loss of 46.45. Above 49.15, it will zoom.

Today: May hold on gains.

1 Week: Bearish, surprisingly going up.

1 Month: Bearish, surprisingly going up.

3 Months: Bullish, as per current market conditions.

1 Year: Bullish, as per current market conditions.
 
Global Cues & Rupee 
 The Dow Jones Industrial Average closed at 9,972.18. Down by 109.13 points.
The Broader S&P 500 closed at 1,079.60. Down by 13.31 points.

The Nasdaq Composite Index closed at 2,154.47. Down by 10.82 points.

The partially convertible rupee INR=IN ended at 46.50/51 per dollar on Friday, stronger than its close of 46.735/745 on Thursday.
 

 

SPOT LEVELS FOR MONDAY 26TH OCT

	4997.05	( 0.17 %)	8.45
		1	2	3
Resistance		5040.25	5083.45	5111.95
Support		4968.55	4940.05	4896.85

	16810.81		( 0.13 %)	21.07
			1	2	3
Resistance			16956.65	17102.50	17198.22
Support			16715.08	16619.36	16473.51

 

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	23-Oct-2009	2731.87	3210.67	-478.8

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	23-Oct-2009	1352.82	1179.83	172.99

Interesting findings on web:
Stocks closed lower Friday as a weak forecast out of railroad operator Burlington Northern fueled worries about freight demand, a barometer of the wider economy, although technology giants Microsoft and Amazon.com escaped the declines thanks to exceptionally strong quarterly earnings.

The retreat came as cautious forecasts from railroads caused unease about the economy and a rising dollar pushed prices of commodities lower, which hurt materials and energy stocks.

The day's drop came despite some pieces of good news. The National Association of Realtors reported that existing home sales posted their biggest increase in 26 years in September.

The Dow fell 0.2 percent, to 9972.18.

The Standard & Poor's 500-stock index fell 0.7 percent, to 1079.6.

The Nasdaq composite index dropped 0.1 percent, to 2154.47.

RUSSELL600.86-12.52-2.04%

TRAN3804.95-137.73-3.49%

UTIL377.43-6.25-1.63%

S&P 100500.0-4.84-0.96%

S&P 400701.33-9.47-1.33%

NYSE7066.8-116.11-1.62%

NAS 1001753.63-9.52-0.54

Wall Street's comeback buzz is turning flat.

The Dow Jones industrial average toppled from the perch it held for days above the important 10,000-mark, while the Standard & Poor's 500 skidded from five-year highs it enjoyed in the week.

Stocks also dropped following government reports that showed housing starts rose less than forecast in September and initial applications for jobless benefits were higher than estimated.

Housing starts increased 0.5 percent to an annual rate of 590,000 from a 587,000 pace in August that was lower than previously estimated, figures from the Commerce Department showed. Permits, a sign of future construction, fell for the second time in the past three months.

Initial applications for jobless benefits rose to 531,000 in the week ended Oct. 17, topping the average analyst estimate by 16,000 and up from a revised 520,000 the prior week that were the fewest in nine months, the Labor Department said.

"The stock market is up so high right now," said Robert Calabretta, managing director for Huntington, New York-based Waypoint Capital, which oversees $60 million. "I agree with a lot of skeptics that say the economy hasn't come along with that."

Analysts said the retreat was inevitable since uncertain economic outlooks and high unemployment continued to grind down investor optimism. Many investors had expected the seven-month run up in stocks from historic lows last March would run out of steam since the economy's fundamentals don't support such high price levels.

"We've had such a great run that you're going to get people taking money off the table, especially at the end of the week," said Bob Froehlich, senior managing director at Hartford Financial Services.

The negative tone prevailed in spite of positive economic data and as more companies beat earnings expectations. Sales of existing US homes climbed in September to the highest level in more than two years.

"The economic fundamentals are improving faster than anyone can get their head around," said Jim Paulsen, chief investment strategist at Well Capital Management, who is bullish on the stock market's prospects.

Union Pacific's CEO Jim Young said he expects the economy to "limp along" until unemployment starts to fall, while Burlington Northern also issued a tepid forecast. Railroads are seen as an early indicator of economic activity because of the key role they play in shipping goods to manufacturers and markets.

Linda Duessel, equity market strategist at Federated Investors, said the market needed to pause after the massive surge it has made over the past seven months.

"The run-up has been too fast," she said. "You need to consolidate."

"We've had this massive 60% rise off the March bottom because of all the excess liquidity," said Timothy Holland, co-portfolio manager of the Aston/TAMRO Diversified Equity Fund (ATLVX). "Short term I'm optimistic it can continue, but longer term, I'm wary," he said.

He said that assuming third-quarter results continue to impress, the S&P 500 will have registered three straight quarters of better-than-expected earnings, even if it's mostly been driven by cost cutting and no growth in revenues.

The improving quarterly results and better economic data should help stocks keep rising, he said. Also helping: ongoing impact of the government stimulus and the eventual point at which some of the trillions sitting in money market funds get put to work.

"I think we're likely to build on the gains from here, but it's not going to be at the same rapid pace we've seen," said Gary Webb, CEO at Webb Financial Group.

Longer term, stocks could be vulnerable, particularly amid a lack of clarity about the economic outlook a year from now.

"Getting into next year, we could have problems as we move past the liquidity and cost cutting and improved sentiment that's been driving the advance," Holland said. "No one is clear on what the economy is going to look like when all that is removed."

"After seven months of mostly rallying, the buyers weren't really here this week and the bears took that as an opportunity," said Paul Brigandi, vice president of trading at Direxion Funds.

Since bottoming at a 12-year low on March 9, the S&P 500 has surged over 62% through its rally high earlier this week.

Although repeated predictions for a big 10% to 15% selloff haven't materialized, smaller selloffs of 1% to 3% have popped up periodically during the past 7 months. Friday appeared to be an extension of that trend.

While the S&P 500 lost 1.1% Friday, for individual sectors, the declines were bigger.

The Dow Jones Transportation (DJT) average, which includes railroads, truckers and airlines, had surged 88% through its rally high earlier this week. On Friday it lost 3.5%.

Some market pros have said the rise in the transports is a good indicator of the economic recovery. But downbeat comments Friday from railroads Union Pacific and Burlington Northern put that optimism into question. It also gave investors an opportunity to cash out after the massive rise in the sector.

The KBW Bank (BKX) index, which tracks 20 financial firms, including Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), has rallied over 140% between March and its peak this week. The bank sector slumped as well Friday, losing 1.6%.

A strong U.S. dollar -- bouncing back from one-year lows against a slew of other currencies -- added to the downturn Friday. A strong dollar pressures dollar-traded commodities including oil, which in turn drags on energy shares. Big multinationals that benefit from a weak dollar also slipped.

Stocks had rallied Thursday following upbeat earnings from 3M (MMM, Fortune 500), AT&T (T, Fortune 500) and other blue chips. The advance propelled the Dow back above 10,000 and the S&P 500 closer to 1,100. But that advance proved unsustainable Friday, even though corporate news was upbeat.

"Investors know that the earnings for the third quarter are going to be better than expected," Brigandi said. "That's no longer going to be a catalyst. They are going to want to see something else."

Profits at companies that reported third-quarter results have dropped 14 percent, adding to a record eight straight quarters of earnings declines.

Since the start of the third-quarter reporting period, 80 percent of the companies in the S&P 500, including Apple Inc., Caterpillar Inc. and Morgan Stanley this week, have released better-than-expected results, according to Bloomberg data. That's the highest proportion in data going back to 1993.

Boeing Co. plunged 6.2 percent, the steepest drop in the Dow Jones Industrial Average, after posting a loss that was bigger than analysts estimated and reducing its full-year profit projection. Boston Scientific fell the most since February on signs heart-device sales are slowing. Burlington Northern slumped 8.4 percent, the most since March, on concern shipments of consumer products will remain weak.

"Given that the market has moved up so far, investors are looking for more demand," said Richard Sichel, chief investment officer at Philadelphia Trust Co. in Philadelphia, which manages $1.3 billion. "The earnings get more difficult to beat when it needs to come from sales, rather than just cost cutting."

Marshall & Ilsley Corp., BB&T Corp. and Zions Bancorporation dropped at least 7.4 percent as more borrowers fell behind on payments and losses from construction loans increased.

Boston Scientific plunged 13 percent to $8.75. Full-year earnings, adjusted for some items, will be 75 cents to 79 cents a share, lower than the 82 cents to 86 cents, the medical-device maker said.

The drop in Boston Scientific pushed a measure of health- care shares in the S&P 500 to a 1.7 percent loss.

Burlington Northern fell 8.4 percent to $79.12. The largest U.S. railroad forecast fourth-quarter profit of $1.10 to $1.20 a share, trailing the average analyst estimate of $1.31 a share in a Bloomberg survey.

State Street Corp. slumped 14 percent to $45.70. The world's largest money manager for institutions cut its earnings projection and California sued the company for overcharging two state pensions.

New York Times Co., PNC Financial Services Group Inc. and Capital One Financial Corp. rallied more than 12 percent after their quarterly results exceeded estimates.

More than 150 S&P 500 companies will report earnings next week, including Exxon Mobil Corp., Procter & Gamble Co. and Verizon Communications Inc.

The world's largest economy probably expanded in the third quarter at the fastest pace in two years as government stimulus programs helped bring an end to the worst recession since the 1930s, economists said before reports next week.

Also boosting the technology sector was Microsoft , the second-biggest company in the S&P 500, after it earned 40 cents per share in its fiscal first quarter compared with average forecasts of 32 cents per share. Microsoft's shares were up 5.4 per cent to $28.

Microsoft [MSFT  28.02    1.43  (+5.38%)   ] was the Dow's best performer this week, up 5.7 percent. Much of that came from today's session after the software giant blew past earnings expectations for both earnings and revenue. This came a day after Microsoft released its new Windows 7 operating system.

"Microsoft is back. They are able to succeed despite heightened competition from Apple's share gain and Google's great brand," Katherine Egbert, an analyst with Jefferies & Co., told Reuters. "The numbers were unbelievable. An absolutely blowout."

And, while Microsoft lowered its operating-expense forecast for the full year, it didn't offer any revenue guidance.

Amazon [AMZN  118.49    25.04  (+26.8%)   ] was the week's biggest gainer on the Nasdaq 100, with shares soaring more than 25 percent after the online retailer topped forecasts and delivered a strong revenue outlook. Amazon CEO Jeff Bezos said the company's Kindle e-book reader has become its top seller — both in terms of unit sales AND dollar sales.

Apple [AAPL  203.94    -1.26  (-0.61%)   ] wasn't far behind, gaining 9 percent for the week, after the iPhone maker crushed forecasts with its results on Monday. Analysts said they think Apple is going to have a great Christmas and that the stock has further upside potential.

Apple jumped, the most in three months. Soaring iPhone and Macintosh computer sales and speculation that Chief Executive Officer Steve Jobs will unveil new gadgets next year pushed the company to close at $205.20 on Oct. 22, an all-time high.

In today's batch of results, American Express [AXP  34.58    -1.86  (-5.1%)   ] and rival credit-card provider Capital One [COF  40.95    2.62  (+6.84%)   ] also beat expectations.

Diversfied manufacturer Honeywell [HON  38.26    -0.27  (-0.7%)   ] posted a smaller-than-expected loss and held its full-year earnings target steady even though it expects to see sales level off next year.

Oilfield services leader Schlumberger [SLB  65.20    -3.40  (-4.96%)   ] edged past expectations but warned that natural-gas activity would remain weak until late 2010.

More layoffs are coming in the media sector: Time Warner's [TWC  41.24    -1.58  (-3.69%)   ] Time magazine unit is reportedly planning another round of job cuts.

The market's slide, despite a solid roster of earnings beats, raised questions about whether this latest rally that has taken the Dow above 10,000 has finally run out of steam.

Odd Haavik, CEO of Charles Monat Associates, said now might be the time for some profit-taking as this latest rally isn't based on fundamentals.

"I think there's a good chance things have gone about as far as they are going in the short-term," Haavik said on CNBC this morning. "I think right now is a beautiful time to take some money off the table."

Tech was the big winner this week, after blockbuster results from Apple, Microsoft, Amazon, Yahoo and SanDisk.

But Gerhard Fasol, CEO of Eurotechnology, said on CNBC this morning that the outlook for tech may be dimming.

"There are some dangers ahead," Fasol said. "The great news, I think, could be temporary."

Cracks started to show in tech — specifically in the chip sector: The Philadelphia Stock Exchange semiconductor index dropped 3.2 percent after disappointing results from chip maker Broadcom [BRCM  28.50    -2.23  (-7.26%)   ] and silicon maker MEMC Electronic Materials [WFR  13.87    -1.56  (-10.11%)   ].

Financials took a hit this week, despite solid results from JPMorgan [JPM  45.23    -0.48  (-1.05%)   ]. First, Obama's pay czar announced plans to cut the pay of executives at bailed-out firms by as much as 90 percent. And, bank analyst Dick Bove slapped Wells Fargo [WFC  29.32    -0.85  (-2.82%)   ] with a "sell" rating, saying there was serious erosion in the bank's loan quality in the third quarter.

Fed chief Ben Bernanke said today that regulators are considering requiring banks to hold more capital and other measures to avoid a repeat of the financial crisis.

In the day's economic news, existing-home sales jumped 9.4 percent to their highest level in over two years in September. Economists had expected a more modest rise.

But with the first-time homebuyers tax credit about to expire at the end of November, and no clarity on whether it will be extended, and mortgage rates rising, the news failed to lift the homebuilder sector.

And market pros said there are no catalysts due next week to fuel the rally — if anything, some of the news expected next week could actually trip up the rally, like the third-quarter GDP report.

Economists expect to see that the economy grew 3.2 percent in the third quarter, then trail off in the fourth quarter.

Results from Whirlpool sent the appliance maker's shares higher - up 4.8 per cent to $77.13 yesterday. Whirlpool forecast a 10 per cent fall in shipments in the US in 2009 from 2008 levels, more upbeat than earlier expectations.

Exxon Mobil and Schlumberger led energy shares lower after crude slid for a second day.

Honeywell International , the US manufacturing company, also reported better-than-expected earnings. However, it still slid 0.7 per cent to $38.26.

Helping set off some of the market's concerns about the economy, Burlington Northern's third-quarter profit fell by a less than expected 30%, but the railroad operator forecast fourth-quarter results well below Wall Street's view. Its shares fell 5.50, or 6.5%, to 79.12.

CA Inc. (Nasdaq) fell 2.30, or 9.6%, to 21.61 despite the software vendor's fiscal second-quarter profit climbing 7.9% on lower expenses, as its bookings came in below analysts' expectations.

Broadcom slid 2.23, or 7.3%, to 28.50 on Nasdaq. The communications-chip supplier's third-quarter profit fell 49% on lower sales and margins, and the company issued cautious comments about the current period.

The week ahead is equally busy for quarterly reports and also brings key readings on housing, jobs, income and - most notably - the first reading on whether third-quarter gross domestic product grew. GDP is expected to have risen at a 3.1% annualized rate, after sliding in the previous quarter.

On the earnings front, 137 of the S&P 500 are due to report this week. While it's the biggest number yet in terms of sheer volume, it's lighter in terms of the kinds of companies that drive the market. Standouts include Dow components Verizon (VZ, Fortune 500), Procter & Gamble (PG, Fortune 500), Exxon Mobil (XOM, Fortune 500) and Chevron (CVX, Fortune 500).

VIX22.271.58+7.64%.

Oil,Gold & Currencies:

U.S. light crude oil for December delivery fell 69 cents to settle at $80.50 a barrel on the New York Mercantile Exchange, edging off a one-year high.

COMEX gold for December delivery fell $2.20 to settle at $1,056.40 an ounce.

The dollar gained versus the euro, after falling to a 14-month low earlier in the week. The dollar gained versus the yen.

The dollar fell as Asian stocks gained amid signs the global economy is recovering, reducing demand for the greenback as a refuge.

The dollar weakened against 11 of its 16 major counterparts amid speculation reports this week will show confidence among U.S. and French consumers improved. The pound fell on bets a Bank of England policy maker will signal an extension of the central bank's asset-purchase program. The yen and euro strengthened after an official Chinese paper said the country should increase reserves in the currencies.

"Regional stocks are now rebounding strongly, which is supporting risk appetite," said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. "Given this backdrop, the dollar is easy to sell."

The dollar declined to as low as $1.5063, the lowest since August 2008, and traded at $1.5051 per euro at 11:23 a.m. in Tokyo from $1.5008 in New York on Oct. 23. The U.S. currency dropped to 91.68 yen from 92.06 yen. The yen fetched 137.98 per euro from 138.15.

The pound dropped to 92.32 pence per euro from 92.02 pence in New York on Oct. 23. It earlier reached 92.33 pence, the lowest level since Oct. 15.

The MSCI Asia Pacific Index of regional shares climbed 0.9 percent after earlier falling as much as 0.4 percent. The Nikkei 225 Stock Average rose 1 percent after declining as much as 0.3 percent.

China should raise its yen and euro holdings in the nation's foreign exchange reserves, the Financial News, a newspaper affiliated with China's central bank, reported today. The nation should keep the U.S. dollar as the main component of its reserves because the U.S. remains the world's preeminent economic power, the Beijing-based paper reported.

Bonds:

Treasury prices tumbled, raising the yield on the 10-year note to 3.48% from 3.42% late Thursday. Treasury prices and yields move in opposite directions.

What to expect:

MONDAY: Chicago Fed report on manufacturing; Earnings from Verizon and Corning

TUESDAY: Case-Shiller home-price index; Conference Board consumer confidence; Ruth Madoff hearing; Earnings from BP, Visa and US Steel

WEDNESDAY: Weekly mortgage applications; durable-goods orders; new-home sales; weekly crude inventories; executive-compensation hearing; Earnings from ConocoPhillips, GlaxoSmithKline and General Dynamics

THURSDAY: 80th anniversary of 1929 market crash; Weekly jobless claims; first look at Q3 GDP; Larry Summers speaks in NYC; Earnings from AstraZeneca, ExxonMobil, P&G, Aetna, Kellogg, Motorola and Sprint Nextel

FRIDAY: Personal income and spending; consumer sentiment; Earnings from Chevron

US Recession Probably Over, But Now What?

The U.S. recession is probably over, but the debate over whether the government ought to do even more to bolster the recovery isn't.

After Friday's surprisingly weak reading on British gross domestic product -- which showed the economy still mired in recession even though most other advanced economies appear to have escaped -- this week's U.S. GDP report looms large.

Economists polled by Reuters think Thursday's data will show the United States not only resumed growing in the July-to-September quarter, but at a pace substantially above the pre-crisis trend rate of about 2.5 percent.

"The U.S. economy has emerged with gusto from the longest and most severe recession since World War Two," said Harm Bandholz, an economist with UniCredit in New York.

Bandholz thinks the economy expanded at a 3.75 percent rate, which puts him a tad above the 3.2 percent consensus in the Reuters poll. He expects the current, fourth quarter to look almost as strong, yet he has his doubts on whether this is sustainable.

A breakdown of what is driving the growth -- a 108 percent annualized jump in auto sales and a 15 percent increase in residential investment in the third quarter -- explains his skepticism. Auto sales benefited from the government's cash-for clunkers program that expired in August, and a government tax credit program for first-time homebuyers is due to end next months.

Some high-ranking policy makers share his concern about the pace of recovery. Lawrence Summers, who is one of President Barack Obama's closest economic advisers, and Federal Reserve Vice Chairman Donald Kohn have both recently predicted a slow recovery with stubbornly high unemployment.

But it will cost money for the government to prod faster growth, and the United States is already looking at its heaviest debt burden since World War Two.

In an interview with Reuters last week, Summers pointed out that there are trade-offs involved when considering policies such as enacting another stimulus package or extending the government's $8,000 tax credit for first-time home buyers because "resources are obviously limited."

"I'm not sure that Stimulus 2 is a helpful concept," Summers said, although he added the White House would strongly support other measures such as extending unemployment benefits and putting more money in the pocket of senior citizens facing flat pension payments because ultra-low inflation means there will be cost-of-living increases.

Too Little or Too much?   

But what if governments haven't done enough yet?

Britain's surprisingly weak third-quarter showing has left some economists wondering whether the Bank of England will need to expand its 175 billion pound ($285 billion) asset-buying program to provide a bigger lift to the economy.

Much like the Federal Reserve, the Bank of England is buying up debt to keep credit flowing and boost the economy.

Howard Archer, chief UK and European economist at IHS Global Insight, called the third-quarter GDP figures "a real shocker and desperately disappointing," and said it reinforces the belief that the BoE won't raise interest rates until at least late-2010.

Even in China, where third-quarter economic growth came in at a robust 8.9 percent clip and prompted some analysts to question whether the economy was at risk of overheating,      officials are wary of withdrawing supports too soon.

"If China now removes these policies too early all of our previous efforts will be wasted and we could even be dealt a setback," Chinese Premier Wen Jiabao said on Friday.

Eventually, private demand will have to replace government supports, but it is hard to find evidence that households and businesses are ready to take on that role.

Japanese September retail sales figures, scheduled for release on Tuesday, are likely to show a decline; euro zone consumer sentiment figures due Thursday are likely to remain weak; and a report coming Friday on U.S. income is expected to be flat, suggesting spending power is constrained.

That is part of the reason why Wells Fargo economists argue that this recovery will not be as robust as the one that followed the deep U.S. recession in the early 1980s.

"The growth mix is heavily weighted toward one-hit wonders like cash for clunkers and the first-time homebuyer tax credit," they wrote in a note to clients.

Treasury Yield Near One-Month High Before GDP, Record Auctions

Treasuries were little changed, with yields at the highest level in a month, on speculation a government report this week will show the U.S. economy grew in the third quarter at the fastest pace in two years.

Federal Reserve officials will probably discuss next month how and when to signal the possibility of higher U.S. interest rates, the Wall Street Journal reported, without citing anyone. The U.S. is scheduled to sell $7 billion in five-year Treasury Inflation Protected Securities today, the first of four note auctions this week totaling a record $123 billion.

"Yields will rise," said Kei Katayama, who oversees $1.6 billion of non-yen debt in Tokyo as leader of the foreign fixed- income group at Daiwa SB Investments Ltd., part of Japan's second-biggest investment bank. "I don't see a huge decline in economic growth" in the coming months.

The benchmark 10-year note yielded 3.49 percent as of 11:25 a.m. in Tokyo, according to data compiled by Bloomberg. The 3.625 percent security maturing in August 2019 traded at 101 3/32. The last time the yield was so high was Sept. 23.

A Bloomberg survey of banks and securities companies projects 10-year yields will advance to 3.56 percent by year- end, with the most recent forecasts given the heaviest weightings.

Katayama said his portfolio duration is shorter than the benchmark he uses to gauge performance. Duration is a measure of a bond or portfolio's sensitivity to changes in yields, and a smaller figure indicates a more bearish position.

Shares Rise

The MSCI Asia Pacific Index of regional shares rose 0.8 percent, gaining for a second day and helping reduce demand for the relative safety of government debt.

Members of the U.S. central bank are beginning to consider the best strategy for letting the market know that an "extended period" of record-low rates will draw to an end, the Journal reported on Oct. 24.

Fed Chairman Ben S. Bernanke and his fellow policy makers cut the target rate for overnight loans between banks to a range of zero to 0.25 percent at the end of 2008. They will keep the target there until August, when central bankers will boost it to 0.5 percent, according to the median estimate of economists surveyed by Bloomberg from Oct. 1 to Oct. 8.

The world's largest economy expanded at a 3.2 percent pace from July through September, after shrinking the previous four quarters, according to the median estimate of 65 economists surveyed by Bloomberg News before the Commerce Department report on Oct. 29. Other reports this week may show sales of new homes and orders for long-lasting goods rose, according to the surveys.

Five-Year TIPs

Five-year TIPS yield 0.85 percent, falling from 1.278 percent the last time the government sold the notes on April 23. Inflation-protected notes pay interest at lower rates than Treasuries on a principal amount that's linked to the Labor Department's consumer price index.

Investors bid for 2.66 times the amount of debt for sale in April, versus the average of 2.12 times for the past 10 sales.

The difference between rates on five-year notes and TIPS, which reflects the outlook among traders for consumer prices over the life of the securities, widened to 1.48 percentage points from 76 basis points six months ago. The figure has averaged 1.99 percentage points over the past five years.

After selling $1.9 trillion of short-term securities to finance President Barack Obama's efforts to end the worst recession since the 1930s, the Treasury plans to lengthen the average due date of its outstanding debt to 72 months from a 26- year low of 49 months. That may mean boosting sales of 10- and 30-year bonds by 40 percent over the next year to $600 billion, according to FTN Financial in Memphis, Tennessee, driving down prices of longer-term securities.

'Term it Out'

"We should be trying to term it out," said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management who oversees $22 billion, and not expose "this burgeoning debt issuance that we've got ahead of us to potentially higher interest rates."

Replacing bills with bonds may drive up the so-called yield curve as the Fed keeps its target rate for overnight loans between banks unchanged near zero percent until the second half of 2010, according to the weighted average of 67 forecasts in a Bloomberg survey. The gap between yields on two- and 10-year notes widened to 2.48 percentage points from 1.29 percentage points at the end of last year.

Rate Increase

Treasury 10-year notes fell last week as investors speculated the Fed will begin to signal an increase in interest rates from historic lows.

The yield on the two-year security, most sensitive to monetary policy, rose above 1 percent for the first time this month as Fed Bank of Philadelphia President Charles Plosser on Oct. 22 told Bloomberg Radio his "instinct is the time for raising rates will be before many of my colleagues" think it is.

The U.S. will sell $44 billion of two-year notes tomorrow, $41 billion of five-year notes on Oct. 28 and $31 billion of seven-year securities on Oct. 29.

"The onslaught of new issue supply" is weighing on the Treasury market, Kevin Giddis, head of fixed-income sales, trading and research at the brokerage Morgan Keegan Inc. in Memphis, Tennessee, wrote in a note to clients.

Geithner Makes Bills-to-Bonds Gap Unprecedented With New Sales

Treasury Secretary Timothy Geithner's plans to lock in near record-low borrowing costs in 2010 may mean a second year of losses on longer-term bonds.

After selling $1.9 trillion of short-term securities to finance President Barack Obama's efforts to end the worst recession since the 1930s, the Treasury plans to lengthen the average due date of its outstanding debt to 72 months from a 26- year low of 49 months. That may mean boosting sales of 10- and 30-year bonds by 40 percent over the next year to $600 billion, according to FTN Financial in Memphis, Tennessee, driving down prices of longer-term securities.

"We should be trying to term it out," said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management who oversees $22 billion, and not expose "this burgeoning debt issuance that we've got ahead of us to potentially higher interest rates."

Replacing bills with bonds may drive up the so-called yield curve as the Federal Reserve keeps its target rate for overnight loans between banks unchanged near zero percent until the second half of 2010, according to the weighted average of 67 forecasts in a Bloomberg survey. The gap between yields on 2- year and 10- year notes widened to 2.49 percentage points last week, compared with an average of 0.8 point since 1977.

While a so-called steeper yield curve is usually a sign of diminishing demand from investors anticipating faster economic growth and inflation, coupons on bonds near the lowest on record show there's no lack of appetite for government debt following this year's record sales. Bond investors are on track for the biggest annual loss since at least 1978, according to Merrill Lynch & Co. index data.

Falling Interest Expense

Treasury has sold $1.6 trillion in notes and bonds to finance a budget deficit that reached a record $1.4 trillion in fiscal year 2009 that ended Sept. 30. Debt amounted to 9.9 percent of the nation's economy, triple the size of the 2008 shortfall.

At the same time, interest paid by the U.S. dropped $67.8 billion even as outstanding debt rose 34 percent to $7 trillion from $5.21 trillion, government data shows. Yields on 10-year Treasuries ended last week at 3.48 percent, less than half the average of 7.31 percent over the past 40 years.

The steeper yield curve will help banks recapitalize after $1.66 trillion in losses and writedowns since the start of 2007 as they borrow shorter-term and invest in the longest-maturity debt, profiting from the difference in yields.

Bank Earnings

JPMorgan Chase & Co., the second-largest U.S. bank by assets, said Oct. 14 that third-quarter profit rose almost sevenfold to $3.59 billion from a year earlier, as the New York company's fixed-income revenue surged. A day later, Goldman Sachs Group Inc., also in New York, said net income more than doubled to $3.19 billion on trading gains and investments with the its own money.

Yields on 10-year Treasuries, up from 2.04 percent in December, will jump to 4.19 percent by 2011, according the weighted average estimate of 57 economists and strategists surveyed by Bloomberg News. Two-year yields are 1 percent, compared with 0.76 percent at the end of 2008.

U.S. government securities due in 10 years or more are on pace to lose 12.7 percent in 2009, compared with a loss of 1.4 percent for shorter-maturity notes, including reinvested interest, Merrill Lynch bond indexes show.

Payden & Rygel, BlackRock Inc. and Fifth Third say the extra supply may cause returns on longer-maturity Treasuries to lag behind shorter-term debt for a second consecutive year, the first time that has happened since at least 1988, according to the Merrill Lynch indexes.

Consumer Borrowing Costs

An investor with $100 million in 10-year notes would lose almost $1 million if yields rise to the survey target by the end of 2010, according to Bloomberg data.

Higher yields may also hinder the Fed Chairman Ben S. Bernanke's efforts to cap consumer borrowing rates, his goal at the start of 2009 to lift the economy from its worst slump since the Great Depression.

The Libor-OIS spread, a gauge of banks' lending reluctance, has narrowed to 0.12 percentage point from as high as 3.64 percentage points in October 2008. Borrowing costs for individuals have fallen, too, with 30-year fixed mortgage rates declining to 5.15 percent on Oct. 22 from 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida.

"Rates moving up dramatically at this time would be the last thing they would want to see," said James Sarni, senior managing partner at Los Angeles-based Payden & Rygel, which manages $50 billion. "The outlook for rates is higher because of this supply demand issue."

Difficult to Tighten

Concerns that rising supply will push yields higher are overblown, said Thomas Atteberry, who manages $3.5 billion in fixed income assets at First Pacific Advisors in Los Angeles.

Without economic growth, an improving outlook for employment and rising consumer prices it will be difficult for the Fed to justify raising borrowing costs, he said. Ten-year note yields may stay within their present range of 3 percent to 4 percent, he said.

The U.S. has lost 7.2 million jobs since the recession began in December 2007, including a 263,000 drop in September payrolls. The difference between yields on 10-year notes and Treasury Inflation Protected Securities of the same maturity, which reflects the outlook among traders for consumer prices through 2011, ended last week at 2 percentage points. The rate of inflation rose 2.87 percent on average between 2002 and 2008.

A report from the Federal Reserve Bank of Cleveland last week said the yield curve suggests growth of 2.3 percent over the next 12 months.

Faster Growth

Gross domestic product increased at a 3.2 percent annual rate from July through September, according to the median estimate in a Bloomberg News survey, after shrinking 6.4 percent in the first quarter and 0.7 percent in the second. Growth will slow to 2.4 percent this quarter and 2.5 percent in the first three months of 2010, according to the median estimate of economist surveyed by Bloomberg.

The average maturity of U.S. debt fell to 49 months in the fourth quarter, the lowest since reaching 48 months in the second quarter of 1983. About 23 percent, or $1.63 trillion of the Treasury's $7 trillion in outstanding public debt, will mature next year, Bloomberg data shows.

"Extending the average length at this time to bear the brunt of longer term structural shifts in the deficit while increasing capacity in the front end of the curve to address unexpected borrowing needs is prudent," Karthik Ramanathan, the Treasury's acting assistant secretary for financial markets, said in an Oct. 1 speech in Boston. The average maturity "is expected to stabilize at six to seven years," he said.

Average Maturity

The government may reach the average maturity of six years by doubling sales of 30-year bonds to $250 billion and raising 10-year notes by a third to $350 billion, according to FTN. Those maturities would need to account for 32 percent of all auctions to achieve an average maturity of 6.5 years, up from 18 percent currently, FTN estimates.

"There's going to be a lot of Treasury supply," said Stuart Spodek, co-head of U.S. bonds in New York at BlackRock, which manages $539.6 billion in debt. "The easy money has been made."

U.S. Stocks 40% Overvalued, Headed for Declines, Smithers Says

U.S. equities are about 40 percent above their fair value and headed for a decline as central banks pull back on quantitative easing that has pushed up asset prices, according to economist Andrew Smithers.

"Markets are very vulnerable to an end of quantitative easing," the economist said in an interview at Bloomberg's Tokyo office on Oct. 23. "Central banks, they've got to stop some time and if that happens everything will come down."

Asset purchases have doubled the size of the Federal Reserve's balance sheet to $2.1 trillion since the start of the current financial crisis. The Bank of England has spent 175 billion-pounds ($286 billion) over the last seven months to rescue the economy.

The asset purchases, among quantitative easing measures to increase money supply, have been responsible for inflating everything from equities to commodities and real estate prices globally, Smithers said.

In "Valuing Wall Street," his March 2000 book co-authored with economist Stephen Wright, Smithers argued that U.S. equities were grossly overvalued and should be sold. The Standard & Poor's 500 Index plunged 49 percent over 2 1/2 years from a then-record high reached that month. Smithers said he stopped buying equities in the 1990s and began purchasing them again only for a brief period during the lows of the current crisis.

Smithers based his research for the book on Tobin's Q, an indicator of whether the market is overvaluing or undervaluing company assets compared with their replacement cost. He now uses both the Q ratio, as well as a cyclically adjusted price-to- earnings ratio compiled by Yale University's Robert Shiller, for his estimate that U.S. shares are 40 percent overvalued.

Japan may be the world's cheapest major market, he said, though he doesn't forecast short-term gains from betting on the nation's stocks.

Madoff friend Jeffry Picower dies

Capmark Financial files for bankruptcy

Gas jumps nearly 18 cents in 2 weeks

Baghdad bombs kill 132, government slams neighbors.

Senate Democrats close in on health reform votes

Bank failures stack up: Now 106 for 2009

U.N. inspectors reach Iran's new nuclear site: report

Israeli police, Arabs clash near Jerusalem mosque 

New property-bubble warnings in Hong Kong

South Korea Economy Grows Fastest in 7-1/2 Years

Global Economy Bottomed But Job Market "Dire": Japan PM

Asia:

Asian stocks gained as Toyota Industries Corp.'s unexpected profit boosted the earnings prospects for automakers. Commodity-linked shares slumped after crude-oil prices dropped.

Toyota Industries, a component manufacturer controlled by the world's biggest automaker, jumped 5.9 percent in Tokyo. Honda Motor Co., which gets 47 percent of its sales in North America, jumped 2.5 percent as the weakening yen lifted the outlook for export earnings. BHP Billiton Ltd., Australia's No. 1 oil producer, retreated 1 percent in Sydney. Acom Co., Japan's largest consumer lender by market value, dropped 2.7 percent after first-half profit missed its estimate.

The MSCI Asia Pacific Index advanced 0.5 percent to 120.07 as of 10:28 a.m. in Tokyo. The gauge has climbed 70 percent from a five-year low on March 9 amid signs the global economy is recovering from its worst slump since World War II.

"There'll be more good news than bad news," said Ed Rogers, chief executive officer of Rogers Investment Advisors Y.K., a Tokyo-based fund of hedge funds. "We're going to be pleasantly surprised."

Japan's Nikkei 225 Stock Average rose 0.7 percent, while Australia's S&P/ASX 200 Index lost 0.5 percent. Hong Kong and New Zealand markets are closed for holidays.

The Kospi Index advanced 1.1 percent in Seoul after South Korea's economy expanded in the third quarter at the fastest pace in seven years. Hyundai Motor Co. added 3.7 percent.

Toyota Industries

Futures on the Standard & Poor's 500 Index added 0.1 percent. The gauge lost 1.2 percent in New York on Oct. 23 as lower oil prices drove down Exxon Mobil Corp. and Schlumberger Ltd. Capmark Financial Group Inc., the lender owned by firms including Goldman Sachs Group Inc. and KKR & Co., filed for bankruptcy protection on Oct. 25 in the U.S.

Toyota Industries, 24 percent owned by Toyota Motor Corp., jumped 5.9 percent to 2,495 yen in Tokyo. The company reported 200 million yen ($2.17 million) in net income for the six months to Sept. 30, compared with its forecast for a loss of 9.5 billion yen.

The unexpected profit "was attributable to brisk sales in the auto parts segment," Arifumi Yoshida, an analyst at Citigroup, wrote in a report on Oct. 23. The company's earnings "also raised expectations about results announcements from Toyota affiliates scheduled for next week."

Toyota added 0.8 percent to 3,620 yen. Honda, Japan's No. 2 automaker, climbed 2.5 percent to 2,875 yen in Tokyo.

Kia Upgrade

Japanese automakers rose as the yen weakened to as much as 92.21 per dollar today, the lowest level since Sept. 21, from 91.66 at the 3 p.m. close of stock trading in Tokyo on Oct. 23. A weaker yen boosts the value of overseas sales at Japanese companies when converted into their home currency.

Hyundai, South Korea's biggest carmaker, climbed 3.7 percent to 113,500 won. Closest rival Kia Motors Corp. added 2.7 percent to 18,800 won after Credit Suisse Group AG lifted the stock to "neutral" from "underperform."

South Korea's third-quarter gross domestic product increased 2.9 percent from the previous quarter, the central bank said today. That was the fastest pace since the first quarter of 2002 and compared with the 1.9 percent growth estimated by economists.

BHP declined 1 percent to A$39.80 in Sydney. Mitsui & Co., Japanese trading house, which counts commodities as its biggest source of profit, lost 1 percent to 1,290 yen. Crude oil for December delivery fell 1 percent, adding to a 0.9 percent drop in New York on Oct. 23.

Acom, a consumer lender 37 percent owned by Mitsubishi UFJ Financial Group Inc., fell 2.7 percent to 1,300 yen. The company reported first-half net income that was 85 percent lower than its forecast. Acom had its 12-month share-price estimate slashed by 43 percent to 706 yen by Takehiro Tsuda, an analyst at Citigroup Inc.

Nikkei 225 10,382.89     +99.90 ( +0.97%). (08.02 AM IST)

The Hong Kong market, meanwhile, was closed for a holiday.

The Shanghai Composite index gained 0.4% to 3,120.49, and the Shenzhen Composite Index rose 0.3% to 1,089.13.

CNPC to build RMB 20-bln petrochemical base in Jiangsu (26 Oct) 

Shui On Land's executive director Aloysius Lee resigns (26 Oct) 

CSG to issue RMB 1 bln in financing bills on Wed (26 Oct) 

FedEx expects continuous growth in China parcel delivery business (26 Oct) 

Weichai Power's net profit surges 224.99% in Q3 (26 Oct) 

CITIC Bank completes stake acquisition in CITIC Int'l Financial (26 Oct) 

Chinese stocks open 0.21% higher on Mon (26 Oct) 

China's power output up 9.5% in Sep (26 Oct) 

DBS downgrades Sun Hung Kai Properties to "hold" (26 Oct) 

AVIC to issue RMB 10 bln in bonds (26 Oct) 

Guoyuan Securities to issue 500 mln new shares (26 Oct) 

Barclays raises stakes in 4 Chinese firms (26 Oct) 

Sanofi-Aventis China to set up JV with Minsheng Pharmaceutical (26 Oct) 

Jilin Chemical Fiber acquires property from parent, posts Q3 profit (26 Oct) 

China Development Bank to issue RMB 20 bln in financial bonds (26 Oct) 

Minsheng Bank approved for HK listing (26 Oct) 

84 countries and regions converge on Beijing for int'l fiscal summit

Shanghai eyes free exchange of yuan and New Taiwan dollar
 

INVESTMENT VIEW
Lanco Industries-Strategic Play On Water Infrastructure

BSE 513605; CMP Rs 43.25
 
Owned by Electrosteel Castings, Lanco Industries manufactures about 180,000 tpa of ductile steel pipes that are primarily used for the transportation of drinking water. The Rs 650 crore entity had a reasonably good FY09, with after tax profits at Rs 18 crore, that work out to Rs 5 in EPS. For the first half of FY10, Lanco Industries has reported a 17 per cent increase in Revenues to Rs 345 crore (Rs 294 crore), with after tax profits of Rs 25 crore (Rs 9 crore) a yoy jump of 277 per cent.  

With cost key raw material inputs having come down, and rupee appreciation actually making imported coke cheap the margins of the corporate are looking up. At a prospective EPS of Rs 12 for FY10, Lanco Industries is the cheapest stock in the ductile pipes space. A reasonable PE for this type of business would be 7 to 10 giving the scrip a 12 month prospective price target of Rs 84 to Rs 120. Middle East based Trinity Holdings is a large investor in the company holding 28 lakh shares. Of these 13 lakh got sold at Rs 44.50 on the NSE and BSE..the balance should also get absorbed over the next few days, making the grounds cleared for a take-off in the scrip price. 


Backdrop 


Water-related demand – thrust should continue

 

We believe water and irrigation offers a very strong business opportunity for Indian pipe manufacturers, in addition to the opportunity from the energy sector. A combination of greater government focus on irrigation, higher multilateral lending for water-related sectors and enhanced private sector participation in water supply projects increase the potential for a rise in demand from this segment.

 

Key focus area for the government according to 11th plan

 

Irrigation remains a key focus area for the government and more so for the state governments due to the politically sensitive nature of the investments. Combined with water supply and the sanitation segment, which is essentially driven by the government plan for Jawaharlal Nehru National Urban Renewal Mission (JNNURM) projects, this segment is the second-most important focus for the government after the power sector as per the 11th five-year plan.

 

The 11th plan envisages ~US$83bn of investments in irrigation and water supply and sanitation over FY08–12.

 

Bharat Nirman programme – significant addition of 5.9m hectares of irrigation potential in four years

 

Under the irrigation component of Bharat Nirman (the flagship programme of the government of India to improve infrastructure in rural areas), there was a four-year target (FY06–09) to create additional irrigation potential of 10m hectares. This was planned to be met largely through expeditious completion of identified ongoing major and medium irrigation projects in addition to minor irrigation schemes through surface flow and ground water development.

 

Irrigation potential added in five key states

 

The programme succeeded in creating additional irrigation potential of 5.94m hectares over the last four years (FY06–09), with Uttar Pradesh, Andhra Pradesh, Maharashtra, Gujarat and Rajasthan leading the way, creating 66% of the additional potential among them. However, there still remains a deficit of 34.6m hectares irrigation potential in India. India's estimated irrigation potential is around 139.9m hectares; after the four-year Bharat Nirman plan, the irrigation potential could be 105.3m hectares.

 

Andhra Pradesh remains the leader in providing thrust to irrigation investments

 

The re-elected government in Andhra Pradesh has plans to double spending on irrigation over the next five years. This could also lead to higher irrigation spending by neighbouring states such as Maharashtra and Madhya Pradesh.

 

Urban Infra – rapid approval of projects augurs well for order inflows

 

Investments in Urban Infra tend to be much in doubt given the fiscal scenario of state governments and urban local bodies. However, significant Jawaharlal Nehru National Urban

Renewal Mission (JNNURM) projects have been approved during the past year, with project approvals having increased to Rs494bn from Rs270bn a year ago. The major positive is the increase in assistance released by the government of India (GOI) in the past year; that assistance has gone up almost three-fold from Rs29bn to Rs74bn.

 

Water supply/sewage projects contribute 76% of total projects

 

Water supply, sewage and drainage projects account for 76% of all project approvals. The mass rapid transport system (MRTS) and roads follow with contributions of 10% and 7%, respectively. The top six sectors account for 97% of all the approved projects.

 

32% of government's contribution already disbursed – expect surge in order flows

 

The total contribution of the central government is Rs234bn, representing 47% of the total project cost. The central government has already released Rs74bn under the first instalment for 461 projects in 21 states and Union Territories. We view the release of funds by the government of India as a proxy to progress on the ground because funds are only released for specific projects for which detailed project reports (DPRs) have been approved.

 

Given the strong activity on the ground, we expect a surge in orders in the areas of water supply, sewage and drainage during the next 6–12 months.


(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.)
 

 

Index Outlook: Commodities steal the thunder
 

Sensex (16,810.8)

Market participants straggling in to trade last Tuesday were shaken out of their festive stupor by stocks doing a volte-face and heading southwards. Sensex ended the week below 17,000 while Nifty closed below 5,000. Investors should brace themselves for a roller-coaster ride next week as October derivative contracts roll into expiry against the back-drop of the RBI's monetary policy review and the continuing flow of earnings announcements.

Attention shifted from equities to commodities last week as a weakening dollar sent most commodity prices sky-rocketing. CRB Index that tracks the movement of commodities rose above 470 as crude topped $80 a barrel and gold climbed above $1,060 an ounce again. We retain the view that the CRB index can rise to 480 or 518 before this leg of the rally terminates. The implication for equities would be that the global funds can start chasing commodities again, allowing stocks to take a breather.

Volumes were tepid and breadth too was indifferent through last week. FIIs were net sellers in the second half of the week while domestic institutional investors were net sellers all through.

Interestingly, though the Sensex moved beyond the 61.8 per cent retracement of the previous fall at 16200, BSE 500 has only just reached this level and is facing difficulty moving beyond it. BSE mid-cap index has retraced only half of last year's losses while the small-cap index has not even reached the half-way mark yet in recouping its losses. Oscillators continue to advise caution. Three consecutive down closes last week resulted in the 14-day relative strength index declining below 55. Weekly momentum indicators continue to exhibit negative divergence, but they are moving sideways since August. The Sensex has alternated monthly gains with losses since June this year. October appears set to continue this pattern since the index is already down over 300 points this month.

A five-wave pattern did come to an end last week and the Sensex is currently in a corrective mode. Since the up-trend that has been in place over the last two months is currently being corrected, the decline can persist for a couple of weeks more. But possible levels where this correction can halt are 16,650 and 16,419, which are not very far away.

A rebound above these levels can make the correction take the shape of a sideways move between 16,400 and 17,500.

The move outlined above will retain the bullish medium term perspective and keep open the possibility of a surge to the 17,800 or 18,000 before the rally from 13,219 terminates. Close below 16,000 is needed to signal the end of the medium term up-trend.

A rocky ride is expected next week as the presence of a slew of supports in the vicinity will provide the platforms from where bulls can stage a recovery. The Sensex can decline to 16,650, 16,482 or 16,419 in the early part of the week.

A rebound is possible from either of these levels. But a decline below 16,419 will take the index to the key medium term support of 16,230. Resistances will be at 17,198 and 17,500. Bears will have the upper hand as long as the index trades below the first resistance.

Nifty (4,997)

The Nifty declined from the peak of 5,182 recorded on Tuesday to end the week 3 per cent lower.

The short-term trend in the index is down and traders can initiate short positions in rallies with a stop at 5,100.

Move above 5,100 will turn the short-term view neutral again. It, however, needs to be borne in mind that there might not be a deep decline in the near term since the index has the immediate targets of 4,926 and 4,862.

The 50-day moving average at 4,805 will also be a reliable support in declines and traders holding short positions need to be extra vigilant of reversals from these levels.

As explained last week, one leg of the up-move from August 19 low could have ended in the Muhurat session and the correction that follows is expected to last at least couple of weeks more. The cut can however be shallow and halt in the zone between 4,850 and 4,900.

The intermediate term view for the Nifty stays positive as long as it holds above 4,700. But a sideways move between 4,800 and 5,300 is envisaged for a few more weeks as the move that began in July completes itself.

Global Cues

Equities had a turbulent week but most benchmarks held on to the gains made in the previous weeks. Markets with greater concentration of commodity stocks performed well .

Dow appeared a trifle nervous at the 10,000 mark and closed the week marginally in the red. But the short and medium-term trends in the index continue to be up.

Close below 9,830 is required to turn the short-term outlook negative for this index.

If this level holds, medium-term target remains between 10,350 and 10,500.

Since crude oil has moved beyond the resistance at $75, next target for the commodity is $90. 1:1 extrapolation of the move from February lows makes even $100 a barrel possible soon.

Pivotals: Reliance Industries (Rs 2047.3)

Muhurat session on the Indian exchanges saw the RIL stock whizzing up to a high of Rs 2,304 but it could not sustain there for long and closed the session at Rs 2,224. The slide that followed in the stock reiterates the importance of the resistance at Rs 2,200. We retain a cautious medium term view for this stock and the downward targets for this period stay at Rs 1,727 or Rs 1,667. We need to get an emphatic close above Rs 2,200 to mitigate this view.

The short-term trend in the stock is down and it has closed below its 50-day moving average as well as the previous trough at Rs 2,070. Traders can go short in rallies with a stop at Rs 2,115. Downward targets are Rs 1,930 and Rs 1,880.

SBI (Rs 2,353.8)

SBI moved past its previous life-time high of Rs 2,395 to record an intra-week peak of Rs 2,500. The evening star pattern seen in the week ended October 9 turned out to be a failure and the intermediate term up-trend appears set to unfurl to the second target at Rs 2,553.

However, failure to hold above the previous high at Rs 2,395 and a weekly close below this level is a negative.

The medium-term trend will reverse if the stock closes below Rs 2,050.

The stock is currently in a short-term decline. But it is halting above the first support at Rs 2,330. Traders can hold their longs until this level holds. Decline below this level will imply that the stock is heading towards Rs 2,278 and Rs 2,225. Resistances for the week would be at Rs 2,430 and Rs 2,500.

Tata Steel (Rs 531.0)

Tata Steel made a false break-out above the medium-term target of Rs 560 to record a high of Rs 600 in the Muhurat session. But the subsequent decline implies that this level (Rs 560) remains a formidable resistance. If we extrapolate the move from March lows, the targets for Tata Steel are Rs 540 and then Rs 676.

We retain the view that traders ought to remain cautious until the stock records another close above Rs 580. The medium-term trend in the stock will, however, reverse only if the stock records a close below Rs 495.

Short term supports for the stock are at Rs 528 and Rs 485. Resistances for the week would be Rs 572 and Rs 600. Failure to move above the first resistance would be the cue for traders to initiate fresh short positions.

Infosys (Rs 2,260.2)

Infosys has been in a gentle decline over the last month but it is too early to decide if this is the onset of a medium-term decline or just a short-term pull-back. The decline can continue to Rs 2,120 in the near-term. Investors need to start worrying only on a close below this support. Subsequent targets for the stock are Rs 1,936 or Rs 1,906.

Resistances in the week ahead would be at Rs 2,316 and Rs 2,415. Failure to move above the first resistance will imply that the weakness will prolong.

ONGC (Rs 1,175.1)

ONGC too failed to achieve the break-out targets of Rs 1,350 despite the strong move above Rs 1,230 in the pre-Diwali week.

The decline below this level last week denotes weakness and a possible move towards Rs 1,135 in the near-term.

The medium-term view will however be roiled only on a strong close below Rs 1,125. Subsequent medium-term target would be Rs 993.

Maruti Suzuki (Rs 1,517.3)

Maruti Suzuki is in a pronounced short-term down trend though it is halting at the key near-term support at Rs 1,465. Short term resistances are at Rs 1,570 and Rs 1,640. Traders can initiate fresh short positions if the stock fails to clear the first resistance. Downward targets are Rs 1,447 and Rs 1,386. —

 

Index Strategy: Playing time value to your advantage

It is not uncommon to see stock prices and indices trade erratically during the derivative expiry week. While the volatility in the markets during such times may yield many profit opportunities, trading in options becomes unusually difficult, as the option premiums tend to erode. So while this would make buying current month options foolhardy, going long in the next month options too doesn't appear very prudent now. Traders can therefore consider a short strangle. But before we go about it explaining it, it merits note that though this strategy limits your returns it involves taking significantly higher risk. And since it involves selling of options, there is a high margin requirement too. The strategy therefore may best be left for traders with a high-risk appetite and deep pockets.

The Spread

The short strangle can be set by selling Nifty Oct 5100 call that closed at Rs 19.7 and Nifty Oct 4900 put, which closed at Rs 20.9. The strategy would entail an initial credit of Rs 40.6 per share, which is also the maximum profit that can be made. The initial credit can be pocketed only if the index closes Thursday between the strikes prices of the options sold.

The strategy would turn out of money if Nifty breaches the upper or lower breakeven points. The breakeven for this spread can be calculated thus:

Upper breakeven: Call strike price + net premium received. In this case, it would be 5140.6. This means your spread would become loss making if Nifty moves beyond 5140.

Lower breakeven: Strike price – net premium received. In this case, the lower breakeven point would be 4860, breaching which the spread would be out of money.

Exit options

If anytime before expiry, Nifty breaches either of the breakeven points you can consider a premature closure of the spread to contain losses.

Stocks Strategy: Weak outlook for Tata Steel, GAIL

Tata Steel (530): The Tata Steel stock is likely to see further correction if it dips below its crucial support at 520. In that event, the stock can reach 495 first and then even 445, if the sentiment remains weak. The stock finds strong resistance at 555. As long as it stays below this level, the chances of the stock reaching the downside target levels appear bright.

Tata Steel futures (market lot 764) saw a rollover of 21 per cent, which is low compared with the previous occasions. Besides, accumulation of open position on Friday in the October series itself shows that traders were not covering their short positions. Among the options, calls were the most active in the November series, suggesting the strong emergence of call writers. The 540 November put is less active but commands higher premium as compared with the 540 call. Consider going short on Tata Steel November futures with a stop-loss at 555. Adjust the stop-loss progressively.

Alternatively, traders can also consider writing Tata Steel 540 November call, which closed the week at 25. The maximum profit here is the premium earned while the loss could be unlimited if the stock trends upwards. This strategy is only for traders who are willing to take high risk.

GAIL (364): It was the other counter that turned extremely weak. High volumes also accompanied the recent fall. The stock finds resistance at 372 and support at 360. A drop below the support could weaken it to 345 and may even take it to 325. On the other hand, a move above 372-375 could take the stock to 400-405. The latter's possibility however appears rather remote.

Rollover of open position remained poor at just 16 per cent. Option trading provides little cue, as there was no trading in November series. Even in the current month contracts, options aren't as active.

Consider going short on GAIL India November futures keeping the stop-loss at 375.

Both the short strategies are for slightly longer period.

 

 

--
Arvind Parekh
+ 91 98432 32381