Monday, May 11, 2009

>Asia spot gold steady, weak dollar helps

Sydney - Spot gold prices were steady in Asia Monday, reacting to a weaker dollar, but overall activity was quiet, traders and analysts said.

At 0656 GMT, gold traded at $915.75 a troy ounce, down 45 cents on the New York close.

Better-than-expected U.S. non-farm payroll data Friday boosted equity markets and pared some of gold's gains, but prices held up relatively well.

While waning risk aversion on the back of signs of the U.S. economy bottoming out should clip gold, it appears to have a stronger impact on the dollar, which in turn is helping gold, said Phillip Futures Analyst Adrian Koh.

"I think the argument that concerns for rising inflation are also driving gold is premature. The market is still focused on the economy, and excess liquidity isn't going to hit for another two years down the road," Koh said.

Kitco Analyst Jon Nadler said inflation risk continues to be "practically nil at the moment. One does not come out of a deflation of this size by immediately flipping over into a highly inflationary environment. Here, and now, at best, we might have an absence of deflation."

Gold prices have shown "impressive resilience" in the past few weeks given lack of exchange traded fund buying and a rangebound dollar, Deutsche Bank said in a note.

Gold's outlook would depend on direction for the dollar. "We have argued for some time that we believe risks are more skewed to U.S. dollar weakness, which may be triggered by a relapse in global equity markets," Deutsche Bank said.

Gold holding in the SPDR Gold Trust ETF, listed in New York, were again unchanged at 1,104.09 metric tons, and moved only marginally since April 23.

At 0652 GMT, spot silver was down 2 cents at $13.97/oz. Platinum was down $5.50 at $1,141.50/oz and palladium was unchanged at $239.00/oz.

On Tocom, April 2010 gold futures were down Y13 at Y2,916 a gram, while platinum was down Y52 at Y3,633/gram.

Gold still a dollar play - Deutsche Bank

Singapore - Gold prices have shown "impressive resilience" in past few weeks given lack of ETF buying, rangebound USD, says Deutsche Bank. Adds outlook depends on direction of USD going forward, tips dollar to break its recent range in near term; "we have argued for some time that we believe risks are more skewed to U.S. dollar weakness, which may be triggered by a relapse in global equity markets." Sticks to its forecast that gold to average $914 in 2009. Notes any more signs that central banks or sovereign wealth funds diversifying into gold would also be potential positive catalyst. Spot gold at $914.55/oz, down $1.65 since Friday's NY close.

India gold futures likely weak on strong INR

Singapore - India June gold contract likely to open down pressured by strong INR, weak trend in overseas spot gold, says Tejas Seth, analyst at SMC Global Securities; tips contract in INR14,360-INR14,620/10 grams band for day. Increasing optimism of recovery in global economy is leading to decline in safe-heaven buying for gold, he adds. Contract last ended down 0.2% at INR14,506.


>Weekly Derivatives (ICICI Direct)

Nifty Highlights

■The Nifty Spot has risen by 4.22% to close at 3620 from the previous week’s close of 3474

■ The total futures OI in the market stands at Rs 33983 crore whereas all options OI stands at Rs 36841 crore

Technical Outlook

•The Nifty formed a bull candle above the head of three week’s resistance of the 3500 mark. However, the higher shadow suggests profit booking at higher levels

• The short-term trend remains positive as long as the Nifty trades above 3500 levels, which is an important immediate support

• On the higher side, 3800 remains a crucial resistance

• We expect the Nifty to trade in the range of 3800–3500 levels for the coming week

• The resistance appears at 3750 and 3800, whereas support exists around 3600, 3500 levels

To see full report: DERIVATIVES 110509

>Weekly Calls (ICICI Direct)

To see report: CALLS 110509

>Daily Derivatives (ICICI Direct)

Derivative Comments

• The Nifty May series witnessed an unwinding of 1.93 lakh shares in OI with fall in futures price by 1.62% depicting some closure of long positions in the Nifty

• The options data shows a net addition of 38041 contracts in Call options compared to 6885 contracts in Puts. While the FII data on index options shows a net buy, we infer they may have bought some Call options in Friday’s session. Nearly 12700 contracts got added in the 3600 and 3700 strike price Calls while an unwinding of 6566 contracts was seen in the 3800 Call. A total of 9430 contracts got added in the 4200 Call option. The volumes in 3600 and 3700 Call options
have risen with drop in IVs from 51.48 to 49.96 and 49.58 to 48.59, respectively. The 3400 and 3600 Puts added nearly 3900 contracts each. Some Call writing was seen in the 3600 and 3700 Call options whereas profit booking by Call writers was seen in the 3800 Call. We feel short covering by Call writers is likely in 3600 and 3700 Calls in today’s session. The market may continue to hold the support of 3600 on a closing basis

• The FII Index futures witnessed profit booking of long positions to the tune of Rs 423 crore with a drop in OI by 2.24%. However, the Index options witnessed an addition of 2.21% in OI with a net buy of Rs 483 crore

Technical Outlook

• The Nifty closed in the red by 1.72% after initial gap up action. Selling pressure was seen across the sectors led by banking, metal and IT indices losing 2-3% each

• The action displayed a bear candle with longer lower shadow indicating some support at lower levels around 3590 levels. However, we have seen in the past few days that the Nifty has struggled to sustain above 3700 levels. We expect the Nifty to consolidate further and continue to face resistance around 3700 levels

• The Nifty spot has supports at 3590, 3550 and resistances at 3665, 3730

• FIIs were net sellers to the tune of Rs 100 crore whereas DIIs were net sellers to the tune of Rs 90 crore in the cash segment

To see full report: DERIVATIVES 110509

>Daily Calls (ICICI Direct)

To see report: CALLS 110509

>Daily Market & Technical Outlook (ICICI Direct)

Key points

  • Market Outlook — Open flat and trade with a negative bias
  • Positive — Inflation not in negative territory
  • Negative — FIIs selling, MFs selling consistently

Market outlook

■ Indian markets are likely to open flat following Asian cues. Our markets will be volatile before election results are announced on Saturday. The markets will rally from here if a stable government is formed at the Centre. So, traders are advised again not to take aggressive trading positions till further direction is gauged. Till then one can take stock specific positions and keep booking profit at higher levels

■ The Sensex has supports at 11770 and 11630 and resistances at 12270 and 12560. The Nifty has supports at 3590 and 3550 and resistances at 3670 and 3730

■ Asian markets were trading mixed in the morning session. The Nikkei is trading marginally down while Taiwan and Hang Seng is up mildly

■ US stocks rose on Friday, and the Nasdaq capped its longest stretch of weekly gains in a decade as stress results and reassuring jobs data fuelled hopes the worst is over for banks and the economy. For the week, the Dow rose 4.4% while the S&P 500 gained 5.9% while the
Nasdaq jumped 1.2 %. The Nasdaq registered its ninth straight weekly advance, the longest such streak for the index since an 11-week climb in December 1999. Since hitting a 12-year closing low in March, the S&P has surged 37.4% but is still down 40% from its record of October 2007

■ Stocks in news: Maruti, Bhel, Marico

Technical Outlook

We said, “Failure to trade strongly above the day’s high would prove the corrective nature of yesterday's action and test the lower range of the sideways action.” The Index failed to sustain at higher levels and tanked 400+ points intra-day to end 2% lower. The Bankex lost
3.2%. The A/D ratio also turned negative.

The action formed a bigger bear candle than Wednesday's. Its low, at 11765, is closer to the Green support line, which is currently at 11600. Holding 11765 can test the upper end of the Red channel at 12100-50. It is positive if it trades above the channel. The resistance at the upper Red channel can, however, be negative.

To see full report: OPENING BELL 110509


Caution is key...

Global stock markets rallied signifi cantly last week, with Singapore, Hong-Kong and Thailand stock markets showing spectacular gains of around 12-16%. While emerging markets like India and China rose 4-6% during the week, developed markets like the US and Europe, too, recorded modest gains. Clearly, the Indian stock markets continue its dream run, with the BSE Sensex notching up its ninth consecutive week of gains, rallying more than 46% from its March 9 lows.

This rally initially began with positive global cues and better-than-expected economic data emanating from the US. The positive new fl ow from the US continues to overwhelm markets worldwide, raising hopes of a slowdown in the pace of economic decline and an early global recovery. In fact, as we go to press, the US data on job cuts for April has come in lower than expected, indicating the possibility of a soft landing for the economy.

Moreover, the much-awaited stress test results did not feature any negative surprises, and that proved to be a positive for global markets. The Fed Chairman Ben Bernanke pointed out that the results of the stress test should provide considerable comfort to stakeholders. Overall, we believe that global equity markets are better placed for further upside post the stress test results.

Meanwhile, with the Great Indian General Elections being played out in all its glory in the world’s largest democracy, most political analysts expect one of the most fractured verdicts in the nation’s political history. With no clear winner in sight, the high “uncertainty” would result in significant “market volatility” as we lead up to the election results and its aftermath. Not only are the potential single-largest parties—the Congress and the BJP—expected to garner seats far short of the magic figure, but even their respective alliances—the UPA and the NDA—may find it difficult to notch up the required numbers, particularly with the emergence of the Third Front. Hence, caution is highly recommended in these uncertain times. Investors can stay away from the markets until greater clarity emerges or they can partially hedge their portfolios by buying put options in the derivatives market.

To see full report: KARVY BAZAAR BAATEIN

Trade Winds (KARVY)

Markets during the stress tests…

Global stock markets rallied significantly, amid expectations of stress test results for major US banks. Markets across the globe recorded significant gains, with Singapore, Hong-Kong and Thailand stock markets gaining around 12-16% last week. Other developed markets like the US, Europe and Japan also recorded significant gains. Meanwhile, emerging markets like India and China added 4-6% during the week.

The week observed a broad-based rally in equities and commodities across the globe on expectations of a slowdown in the pace of the economic recession as well as a possible recovery in the global economy. The much-awaited stress test results did not have any negative surprises, and that proved to be a positive for global stock markets, as the review of the capital structure of major US banks provided considerable comfort to the stakeholders. Overall, global equity markets are better placed for further upside after the stress test results.

Meanwhile, the Indian stock markets are passing through another virtual stress test in the form of election results scheduled to be announced on May 16, 2009. The Nifty rallied about 4.22% during the week, with metals, energy, construction, capital goods, BFSI and sugar sectors leading the rally. However, the Index faced stiff resistance at around 3700 levels, witnessing profit -booking during the weekend session, ahead of the election results. But buying momentum emerged at every dip due to strong global cues during the week. In the backdrop of positive global cues, the outcome of the general elections will set the trend for the next big directional move for the stock markets.

Overall, the Nifty is likely to be highly volatile within the broad range of 3500-3800-4000 levels during the week. Long positions can be assumed in the stock from energy, metals, construction, capital goods and BFSI sectors from lower levels. Short positions can be assumed in telecom, software and cement sectors. However, buying options is the preferred trading strategy, and this would limit the maximum loss while providing unlimited profit potential for short-term traders in these highly volatile times that lead up to the election results and its aftermath

To see full report: TRADE WINDS

>Info Edge Ltd. (MORGAN STANLEY)

Mar09 Results In-line; Outlook Remains Muted for 1HFY10; Maintain UW

Quick Comment – Impact on our views: Management expects Q1-Q2FY10 to be difficult and expects recovery in the second half of the year. Till then, management hopes to continue working on reducing costs and tightening the operational expenses. Management indicated that its job index might remain close to the bottom seen in Dec08 and may not move meaningfully
higher or lower over the coming months. We believe, if the current pace of revenue decline continues, revenues could disappoint in FY10e. However, management’s ability to cut advertising expenses and employee costs could help cushion the downside to earnings.

Mar09 results: Info Edge reported revenues of Rs577m (-2.1% qoq, -11.2% yoy) significantly below our estimates. EBIT margins were better than expected due to aggressive cost cutting efforts: staff costs down -14% qoq, -2%yoy and ad expenses down -7% qoq, -45% yoy. Lower sales incentive and fewer employees led to lower employee cost in Q409. For FY09 advertising expenses were down -10% yoy. Net income at Rs138m (-20%qoq, -11%yoy) was below our estimates.

Conference call highlights: 1) Hiring in IT accounts for ~26% of revenues. It continues to remain a challenging segment as IT companies have been slow in hiring; 2) Pricing remains a challenge for high value products and the company has not raised prices; 3) Clients are not certain of the future but are hopeful of improvement from October onwards; 4) Management expects its Naukri business to be a lead indicator to the overall economic recovery; and 5) Real estate business all check deals was hived off into a separate subsidiary.

Valuation: Info Edge stock currently trades at 26x FY09 EPS for declining earnings in FY10e. We maintain our UW rating on the stock and in the absence of any near term triggers, we would expect the stock tounderperform over the coming quarters.

To see full report: INFO EDGE

>Crude near '09 highs on economy recovery theme

London - Crude oil futures traded near 2009 highs Tuesday during ongoing optimism over the outlook for the economy, before drifting lower on nervousness over fundamental support for a break higher.

Nymex crude topped out at USD54.60 a barrel Tuesday, just shy of the USD54.66 a barrel mark set in March, representing crude's highest traded level of 2009.

While expectations of more stockpile builds in U.S. inventory data, due Tuesday, proved a deterrent to a test of the highs, strength in equity markets retained the potential to push crude through them, analysts said.

"Sentiment in stock markets appears to be improving and that's been helping the market again," said Ole Hansen, manager of futures and fixed income trading at Saxo Bank in Copenhagen. "We're heading into storage numbers but, despite the high numbers we've seen recently, the market has been ignoring them. The market wants to hang onto the recovery theme and it's difficult to go against it."

At 1122 GMT, the front-month June Brent contract on London's ICE futures exchange was down 10 cents at USD54.48 a barrel.

The front-month June light, sweet, crude contract on the New York Mercantile Exchange was trading 22 cents lower at USD54.25 a barrel.

The ICE's gasoil contract for May delivery was up USD5.50 at USD455.25 a metric ton, while Nymex gasoline for June delivery was down 2 points at 158.58 cents a gallon.

Macro data Monday bolstered optimism that the worst of the global economic decline may now be in the past, which, along with firmer equity markets, has hinted at a more positive outlook for crude demand.

A rise in China's purchasing managers index above 50 for the first time in nine months, as well as a 3.2% increase in U.S. pending house sales, were among the latest "green shoots" to help nurture hopes for the global economic outlook.

Nymex crude settled Monday at a fresh 2009 high as U.S. share markets surged on U.S. macro data.

"With the outlook for risky and pro-growth assets continuing to improve (particularly as U.S. equity markets turn positive for the year), we are growing more constructive on energy markets," said technical analysts at Barclays Capital.

Weekly U.S. inventory data due later Tuesday and Wednesday, expected to reveal further builds in crude stockpiles, nonetheless stoked some nervousness over whether crude has sufficient support to push higher Tuesday, despite previous bearish data failing to weigh on prices.

The American Petroleum Institute is set to release weekly U.S. inventory data at 2030GMT Tuesday, a precursor to weekly data from the U.S. Energy Information Administration Wednesday. The EIA is expected to report a 2 million-barrel increase in the country's crude stockpiles in the week to May 1, according to the average prediction from seven analysts polled by Dow Jones Newswires.

Gasoline stockpiles may have built by 500,000 barrels and distillates, including heating oil and diesel, by 1 million barrels, the survey showed.

"The fundamental picture still remains a weak link," said David Hart, oil and gas analyst at Hanson Westhouse in London. "That said, expectations for another (U.S.) inventory build this week are already priced into the market, suggesting these factors are less of a concern for investors at the moment."


>India Essentials (MACQUARIE RESEARCH)

India Essentials

Dabur (Downgrade to Neutral)
Nice... but not at this price

We revisit our thesis on Dabur. While longer-term prospects remain strong, we believe the stock is expensive post the recent rally. We downgrade Dabur to Neutral from Outperform while maintaining our target price of Rs100. Strong results highlight core business potential: Dabur has posted strong 4Q09 results with 20% topline (13–14% volume) and 31% bottom-line growth. Growth rates likely to decline: While the 31% growth in earnings was above our as well as street expectation, we believe Dabur will have to contend with a tough base post 2Q FY3/10.

Macquarie Commodities
Base metals stock changes; some more bullish trends emerging

The latest trends in reported stock changes are more bullish in copper, nickel and zinc (declining stocks) and less bearish in aluminium (stocks still increasing, but at a slowing trend rate). Latest news Base metals traded sharply higher on Wednesday, as April private employment figures in the US finished above expectations. Copper recovered from Tuesday's losses to close 4.7% higher, despite a 1.8% stock increase, as workers went on strike at Xstrata's Lomas Bayas mine (65ktpa). China's iron ore imports in April rose to a record 53.5mt, according to preliminary reports from the Ministry of Transport.

India Market performance

This section includes detailed information on :
  • Market Performance
  • Fixed Income, currencies, commodities
  • ADR/GDR (US$)
  • Daily net flows (US$m)

To see full report: INDIA ESSENTIALS

>Reliance Communications (INDIA INFOLINE)

Revenue growth below estimates on weak wireless showing
Rcom Q4 FY09 revenues increased 2.2% qoq, lower than our expectations, on a weak wireless performance. Mobile revenues increased 2% over the previos quarter, much below our estimate for a 5.6% rise, However global segment made up for a relatively subdued wireless showing with a robust 12% jump in revenues. The company attributed this to ongoing synergies on integration of VANCO and Yipes Inc. Most of the growth came from data business with negligible contribution from voice.

ARPU fall worse than expected; MOU disppoints
ARPUs declined 10.8% qoq, worse than our expectations and also that for peers like Bharti. MOU at 372mins was disappointing especially since free minutes offered as part of GSM launch in 14 circles.

OPM increase in-line; staff, SG&A expenses decline
Rcom reported OPM of 38.2% in-line with our estimate. Although network opex and access charges increased, these were cushioned by decline in staff and SG&A costs. PAT growth came in above our expectations on higher interest and other income.

Capex intensity to decline; Maintain BUY
Rcom has incurred capex of Rs190bn in FY09, about 24% lower as against a revised guidance of Rs250bn, partly owing to network optimization. Wireless capex is likely to be completed by Sep'09 and the company has guided for a spending of Rs100bn in the current fiscal. It expects the incremental revenues from GSM subscribers to accrue from the current quarter. We project revenue CAGR of 19.5% over Fy09-11 while PAT growth would trail revenues due to net interest expenses from current year. Maintain BUY with a revised price revised target of Rs 252 from Rs213 earlier.


>HDFC {Housing Development Finance Corporation} JP MORGAN

4Q09: Positive surprises - ALERT

• HDFC surprises positively on 4Q numbers with the bottom line at Rs7334mn, 11% above our and Street estimates, reporting 16% growth at the pretax, pre-extraordinary level.

• Hence the stock was up a significant 13.8%% today and has outperformed the Sensex by 22.6% since its recent lows in March.

• 4Q09: Retail and wholesale disbursement growth was healthier than
expected at 17% firm spreads at 2.2%. Cost-income ratio continues to improve and so does asset quality.

• Demand dynamics: Consumer and wholesale demand expected to grow
18-20% in FY10E with average loan size at Rs1.5 million. Boost expected in 2H10E as real estate prices and interest rates bottom out.

• Valuations: Stock trades at 3.6x FY10E book. Momentum appears to be swinging back in favour of retail asset-led and wholesale liability-led financial intermediaries. Reiterate Overweight.

To see full report: HDFC

>Firstsource Solutions Ltd. (MERRILL LYNCH)

Not out of the woods, yet

Maintain Underperform post Q4FY09
Post Q4 results and management discussions, we maintain our Underperform and modify estimates. Stock trades at 10x FY10 PE and over 16x FY10 PE, if one adjusts for imputed interest on FCCB. We will look for stability in Credit Card collections (~10% of revs) and healthcare (~40% of revs, mainly eligibility services & collections) and progress in FCCB buyback before we would consider reevaluating our rating. Impact of Fidelity National Information Services buying shareholder and business partner, Metavante, an uncertainty. Our PO of Rs15 at ~10x FY11 adj. EPS, treating FCCB as debt.

4Q FY09 operations in line, adj. profits below BAS-MLe
Revenue 8% higher than BAS-MLe, led by Credit Card collections. Apart from seasonal strength, FSOL also benefited from some commission hikes & higher productivity of collectors. US healthcare services continued to see payment delays, as govt. focuses on improving efficiency of monies spent on healthcare programs. Likely pricing pressure from hospitals too. EBITDA margins 67bps below BAS-MLe. Adjusted for non-recurring gain on FCCB buy back and 1-time expenses, profits at Rs102m vs BAS-MLe at Rs224m due to higher interest cost & forex losses.

Rev challenges persist
We believe while worst may be behind in the collections business, it is still early to assume any improvement in liquidation rates. Outlook in healthcare services still murky, with delayed payments as US govt. looks to step up efficiency of healthcare programs & some states cap enrollment services/trim svc coverage. Also see risk of pricing cuts from hospitals/other clients.


>Spot gold steady on weaker USD, technicals

London - Spot gold held steady above a key psychological support Tuesday on dollar weakness and positive technicals.

Traders said gold was looking to equity and currency markets for cues that would help it extend its recent rally.

At 0934 GMT, spot gold was trading at USD902.75 a troy ounce, up 40 cents, or 0.04%, from 0000 GMT. Gold rallied to a one-week high Monday and closed above USD900/oz Monday, a mildly bullish near-term signal, traders said.

"After breaking the USD900 level, it should become support now," said Afshin Nabavi, head of trading and physical sales at Swiss bullion house MKS Finance. "I think overall people have to buy dips."

Nabavi said next resistances for gold were at USD909/oz and USD916/oz.

Light physical buying and fresh gold ETF investment were also giving gold some upwards momentum, traders said.

While physical buying has tailed off since gold touched a low of USD865 in mid-April, physical demand did provide a floor to prices and investors may try to keep gold above USD900 now that it has regained that support, said Commerzbank gold trader Michael Kempinski. "I think we'll try to defend USD900."

The stronger tone in gold came despite the ongoing recovery in global equity markets, which were up again overnight.

If gold continues to do well, investors may keep their money in gold rather than shifting it into equities, said Kempinski. Still, better economic data may not benefit gold as much as equities, as the threat of inflation is still far on the horizon, he said.

U.S. manufacturing data later Tuesday is expected to provide some impetus to gold, as should any news about the upcoming results of the U.S. government's stress tests for banks.

Spot silver was 0.5% higher at USD13.078/oz.

Spot platinum was unchanged at USD1,117/oz, and spot palladium fell 0.7% to USD216.50/oz.