Flat opening likely

It is better to know some of the questions than all of the answers.

Can the bulls sustain the current tempo? That is the big question worrying most players at the moment after the recent spurt. While the main indices could advance a little more in the near term, investors are still skeptical about a sustained turnaround. That is because considerable amount of headwinds still persist, both on the local as well as global front. The US, Europe and Japan are most probably already in recession, and though the credit crunch has eased substantially, it will be a while before the global economy is back on track.

India too remains vulnerable to a sharp slowdown despite the slew of measures unleashed by the Government and the RBI to arrest the slide. Not just FY09, a few economists see continued pain for the Indian economy in the coming fiscal year as well. India Inc. is now suffering from contraction in demand and difficulties in funding capex despite the RBI's liquidity-boosting steps. Among the positive events are the correction in commodity prices and a possible reversal of the interest rate cycle. The captains of Indian Industry are hoping for some more measures from the Government and the RBI, to help revive economic growth. While that may happen, the global downturn will continue to pinch in some ways or the other.

There is also a question mark over the sustainability of the recent FII buying, notwithstanding some revival in the global risk appetite. Today, we expect the market to open on a flat to slightly higher note. There could be some softening at higher levels after the recent rally, as most Asian stock benchmarks (barring the Nikkei), are down sharply. The main US stock indices too ended almost unchanged overnight ahead of the Presidential Election on Nov. 4. European shares rose for a fifth consecutive session.

FIIs were net buyers of Rs3.6bn (provisional) in the cash segment on Monday while the local institutions pulled out Rs970mn. In the F&O segment, the foreign funds were net buyers at Rs13.2bn. On Friday, FIIs were net buyers of Rs11.83bn in the cash segment.

US stocks closed nearly flat on Monday, as automakers reported dismal monthly sales and a report showed that US manufacturing activity dropped sharply in October. Investors were cautious as the race for the White House neared the finish line.

After marginal moves in either direction Monday, the Dow Jones Industrial Average fell by just 5 points to end at 9,319.83, with 16 of its 30 components posting losses. The S&P 500 Index shed 2 points to 966.31, while the Nasdaq Composite index added 5 points to 1,726.33.

Market breadth was positive. But, volume was pretty thin, narrowly topping one billion on the New York Stock Exchange, with advancing stocks outpacing declining issues roughly 9 to 7.

On the eve of Election Day, Democratic presidential candidate Barack Obama and Republican rival John McCain are making final appearances around the country, with polls consistently showing Obama ahead in the campaign for the White House.

Pacing gains among the S&P's 10 industry groups were telecommunications shares. Retail shares were mixed ahead of sales reports due later in the week. Energy shares proved the biggest laggards.

Lending rates continued to improve amid efforts of US and world governments to get money flowing again. Treasury prices rose, lowering the corresponding yields. Oil prices slipped and the dollar gained versus other major currencies.

Meanwhile, slumping manufacturing and construction activity, and plunging auto sales, added to bets that a recession is already underway. In the afternoon, Dallas Federal Reserve Bank President Richard Fisher forecast that there will be no economic growth through 2009.

Additionally, in the afternoon, the government said it will borrow a record $550bn in the fourth quarter and another $368bn in the first quarter of next year as it looks to fund the massive financial rescue plans recently put in place.

A huge drop in October auto sales left the industry on track to post the worst monthly results in 25 years. GM reported a 45% decline in October sales, versus a year ago. Ford reported October sales plunged 30% versus a year ago.

The dollar fell against the euro and gained against the yen. COMEX gold for January delivery climbed $8.60 to settle at $727.50 an ounce. Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 3.91% from 3.96% late on Friday.

US light crude oil for December delivery fell $3.90 to settle at $63.91 a barrel on the New York Mercantile Exchange. Gasoline prices fell another 2.1 cents overnight, to a national average of $2.415 a gallon.

Investors were playing it cautious ahead of Election Day. Analysts say investors will be glad to have the election over and to know that a change in administration is coming, regardless of whether Republican John McCain or Democrat Barack Obama wins.

Although Wall Street would seem to prefer business-friendly Republicans, studies have shown that stocks tend to do better under Democratic presidents than Republicans and best during times of gridlock, when one party controls the White House and another the Congress.

Across the Atlantic, European shares rose for a fifth consecutive session, as investors continued to welcome central banks' efforts to shore up sentiment.

The pan-European Dow Jones Stoxx 600 index rose 0.6% to 223.38. The French CAC-40 added 1.2% to 3,527.97, while Germany's DAX 30 advanced 0.8% to 5,026.84 and the UK's FTSE 100 closed up 1.5% at 4,443.28.

Bulls started off November with a bang led by a rally in banking, realty and capital goods stocks. Further on, firm cues from the international equity markets coupled with the PM's assurance on growth initiatives also added to market sentiment.

The upswing propelled the BSE benchmark Sensex above 10K levels to close at 10,337. While, the NSE Nifty index surged past the 3,000 mark adding 158 points to finally end at 3,043 levels.

IDFC rallied by over 12% to Rs65 after reports stated that the company was in talks with GE Commercial Finance, to acquire about 35% stake in the latter's construction equipment finance business in India. The scrip touched an intra-day high of Rs67 and a low of Rs60 and recorded volumes of over 61,00,000 shares on BSE.

PTC India surged by over 7% to Rs56 after reports stated that the company was looking at picking up stakes in power generation projects across the country. The scrip touched an intra-day high of Rs57 and a low of Rs54 and recorded volumes of over 5,00,000 shares on BSE.

BEL advanced by 6% to Rs641 following reports that the company plans to set up its third central research laboratory at Hyderabad, which will focus on research in emerging technologies in the fields of opto-electronics and electronic warfare. The scrip touched an intra-day high of Rs645 and a low of Rs622 and recorded volumes of over 7,000 shares on BSE.

Tata Chemicals gained by 5% to Rs166 after the company reported results for the second quarter ended 30 September, 2008.

The revenue stood at Rs466.1mn with an increase of 169% yoy. The profit before tax has increased by 120% at Rs58.7mn. The scrip touched an intra-day high of Rs169 and a low of Rs161 and recorded volumes of over 3,00,000 shares on BSE.

Shares of Jyoti Ltd surged by over 3% to Rs35 after reports stated that the company has entered into technology tie-ups with German and Dutch companies for its windmill project. The scrip touched an intra-day high of Rs38 and a low of Rs32 and recorded volumes of over 11,000 shares on BSE.

Apollo Tyres advanced by over 2% to Rs24 after reports stated that the company would begin its operations in Europe by opening its first sales, marketing and technical office in Germany in January. The scrip touched an intra-day high of Rs25.2 and a low of Rs23.9 and recorded volumes of over 3,00,000 shares on BSE.

Zylog Systems gained by 5% to Rs115 after reports stated that it would spend US$17.5mn for acquiring three overseas companies. The scrip touched an intra-day high of Rs118 and a low of Rs112 and recorded volumes of over 68,000 shares on BSE.

Zee News gained by 2.5% to Rs38.7 after the company announced that it acquired 26% stake in Sky B, West Bengal, stated reports. The scrip touched an intra-day high of Rs40 and a low of Rs37 and recorded volumes of over 2,00,000 shares on BSE.

Looking at Monday's rally, bulls might extend the gains atleast in the early trades. The fall in inflation and drop in crude prices may augur well for the time being but we still have to get some confidence. For the time being, avoid some fresh buying at higher levels in large quantities as we are yet to get clarity on the economy.

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Precious metals bring some glaze back

Gold and silver prices rise after three sessions of drop

After three sessions of loss, gold prices ended higher on Monday, 03 November, 2008. Traders anticipated that bullion metals are done with current low levels that they have attained in recent times. Silver prices also rose today.

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. Losses in equity markets had also forced traders to sell gold. Since past couple of weeks, precious metals, mainly gold, had dropped as traders tried to gain back some of the money that had lost in other markets.

On Monday, Comex Gold for December delivery rose $8.6 (1.2%) to close at $726.8 an ounce on the New York Mercantile Exchange. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (30.5%) since then. Last week, gold prices ended lower by 1.6%. For the month of October, gold ended lower by 18%. It was the biggest percentage loss for gold since February, 1983.

This year, gold prices have lost 12.7% till date. The dollar index has gained 13.5% this year and of that almost 8% in October, 2008 itself. For the third quarter ended September, 2008, gold prices ended lower by 5.1%. It was the first quarterly loss for the yellow metal since the second quarter in FY 2007. Prior to that, the yellow metal ended second quarter with a marginal gain of 0.7%. For first quarter prices gained 10.7%.

On Monday, Comex silver futures for December delivery rose by 2 cents (0.2%) to $9.75 an ounce. Last week, silver fell 1.9%. For the month of October, silver slipped by 20%. Till date, silver has lost 35% this year. Silver had ended month and quarter of September 2008 with a loss of 10%. For the second quarter, it had gained a paltry 1.4%. Silver had gained 16% in Q1. The metal also had gained for seven straight years.

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies. Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices and vice versa.

In the currency market on Monday, the U.S. dollar posted broad-based gains against other major currencies rising both against the British pound and the euro ahead of key interest rate decisions in Europe due later this week. The dollar index, a measure of the greenback against a trade-weighted basket of six currencies, rose 1.3% to 86.35.

On Monday, crude for December delivery closed at $63.91, lower by 5.8%. It gained 5.7% last week but ended 32.6% lower for the month of October, 2008.

Earlier this year, the weakening dollar and higher global demand for raw materials had led to records this year for commodities including gold. Gold reached a record in March as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. In the latest move, the Federal Reserve has cuts its target bank lending rate to 1% from 5.25% in September, 2007. The Fed did it in eight steps.

Gold had witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Silver had climbed 16% in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.

At the MCX, gold prices for December delivery closed lower by Rs 118 (1%) at Rs 11,614 per 10 grams. Prices rose to a high of Rs 11,777 per 10 grams and fell to a low of Rs 11,545 per 10 grams during the day's trading.

At the MCX, silver prices for December delivery closed Rs 180 (1.06%) lower at Rs 16,768/Kg. Prices opened at Rs 17,100/kg and fell to a low of Rs 16,617/Kg during the day's trading.

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Crude plunges

Prices slip by almost 6% on demand concerns and firm dollar

Crude prices ended with losses on Monday, 03 November, 2008. The firm dollar and the current global crisis were the main reasons behind the subdued crude prices. Today's weak economic data also added to this.

On Monday, crude-oil futures for light sweet crude for December delivery closed at $63.91/barrel (higher by $3.9 or 5.8%) on the New York Mercantile Exchange. Prices reached a high of $147 on 11 July but have dropped almost 57% since then. Last week, prices rose by 5.7%. On a yearly basis, crude price is lower by 33%. For this year in 2008, crude prices have dropped 35.2%.

For the month of October, 2008, crude prices ended lower by 32.6%, the biggest monthly drop since 1983.

In the currency market on Monday, the U.S. dollar posted broad-based gains against other major currencies rising both against the British pound and the euro ahead of key interest rate decisions in Europe due later this week. The dollar index, a measure of the greenback against a trade-weighted basket of six currencies, rose 1.3% to 86.35.

Among najor economic report for the day, the Institute of Supply Management (ISM) Index survey reported today, Monday, 03 November, 2008 that national manufacturing activity at US in October fell to the lowest level since 1982.

Specifically, the ISM Manufacturing Index declined 4.6 to 38.9 in October, which was worse than the expected reading of 41.0. The number indicates contraction in manufacturing and the overall economy. Readings below 50% in the ISM diffusion index indicate that more firms are contracting than growing. The ISM tracks the breadth of growth across firms, asking purchasing managers if business is better or worse this month than last month.

OPEC officials decided last month at its meeting at Vienna that OPEC will pare production by 1.5 million barrels a day w.e.f 1 November, 2008. The official production quota is currently 28.8 million barrels, and it cut by 1.5 million in November.

Last week, the Centre for Global Energy Studies said that global oil demand may fall for the first time in 15 years in 2008 and stagnate next year.

For the third quarter of the year crude prices ended lower by 28%. This was the biggest quarterly drop since 1991. Before that, crude prices had gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. For the month of September, prices registered drop of 13%.

Against this background, December reformulated gasoline futures fell 13.3 cents to close at $1.3625 a gallon and December heating oil futures shed 10.1 cents to end at $1.9828 a gallon.

December natural gas saw a modest gain by the close. It finished at $6.838 per million British thermal units, up 5.5 cents.

At the MCX, crude oil for November delivery closed at Rs 3,167/barrel, lower by Rs 165 (4.95%) against previous day's close. Natural gas for November delivery closed at Rs 326/mmbtu, higher by Rs 5.2/mmbtu (1.6%).

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Winning streak continues

The market continued to add to its value for the fourth consecutive session as firm Asian indices and strong buying in frontline stocks helped the sentiment remain bullish for the whole trading session. After accumulating over 1,300 points in the last three sessions, the Sensex opened marginally above its previous close and rallied sharply to touch an intra-day high of 10,373. While, the market remained well above 10,100 mark in the first half, it came off the high, as traders booked profits at higher levels. However, resumption of buying at lower levels in realty and capital goods (CG) stocks towards the close saw the Sensex recover from its lows. The Sensex finally ended the session with a gain of 550 points at 10,338, while Nifty added 158 points to close at 3,044.

The market breadth was neutral. Of the 2,652 stocks traded on the BSE, 1,968 stocks advanced whereas 634 stocks declined. Fifty stocks ended unchanged. Among the sectoral indices, the BSE Realty jumped 8.29% followed by BSE CG (up 8.19%), BSE Bankex (up 7.51%) and BSE Power (up 6.14%).

Most of the heavyweights ended with solid gains though some select frontline stocks closed with marginal losses. Among the blue chips, Reliance Infrastructure shot up by 17.15% at Rs535.10, DLF soared 14.89% at Rs253.05, JP Associates surged 13.36% at Rs81.45 and Ranbaxy Laboratories advanced by 12.33% at Rs190.35. State Bank of India (SBI) added 11.81% at Rs1,240.55, Tata Motors moved up 11.12% at Rs190.90 and Larsen & Toubro (L&T) scaled up 10.78% at Rs892.25. Among the laggards Satyam Computer Services fell 1.54% at Rs300.10 and Infosys Technologies slipped 0.23% at Rs1,378.50.

Realty stocks shone in today's trades and closed with strong gains. Orbit Corporation vaulted 33.15% at Rs70.70, Peninsula Land soared 14.91% at Rs23.50, DLF surged 14.89% at Rs253.05 and Parsvnath Developers advanced by 11.59% at Rs45.25.

Over 2.13 crore Reliance Natural Resources shares changed hands on the BSE followed by Suzlon Energy (1.54 crore shares), Cals Refineries (0.99 crore shares), GVK Power & Infrastructure (0.89 crore shares) and Unitech (0.87 crore shares).

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RBI cuts CRR and repo rates

After infusing Rs 1,85,000-crore liquidity into the banking system, the RBI on Saturday effected yet another 100 basis points cut in Cash Reserve Ratio (CRR) and a 0.5 percent reduction in key short-term lending (repo) rate, signaling softening of interest rates to prop up growth.

The one percentage point cut in CRR, the amount which banks have to park with the apex bank, has been brought down to 5.5 percent to infuse additional liquidity of Rs 40,000 crore into the system.

The CRR cut will be in two tranches and the first one of 0.5 percent will be effective retrospectively from October 25 and the second from November 8.

The RBI also cut the repo rate, the rate at which it lends to banks, by 0.5 percent to 7.5 percent with effect from November 3.

The central bank has also reduced the statutory liquidity ratio (SLR), the amount which banks are mandated to park in government securities, by 100 basis points to 24 percent.

Welcoming the decision, ICICI Bank Joint Managing Director Chanda Kochhar said, "it will release much needed liquidity into the system and signal reduction in interest rates."

The SLR cut would inject about Rs 40,000 crore into the banking system.

To provide further comfort on liquidity and to impart flexibility in liquidity management to banks, the Central Bank has introduced a special refinance facility to scheduled commercial banks.

Under this facility, the banks will be able to borrow short-term funds from Reserve Bank up to a maximum period of 90 days.

The RBI also said that it would continue to sell foreign exchange (US dollars) through agent banks to augment supply in the domestic foreign exchange market or intervene directly to meet any demand-supply gaps.

"The Reserve Bank would either sell the foreign exchange directly or advise the bank concerned to buy it in the market. All transactions by the Reserve Bank will be at prevailing market rates and as per market practice," the apex bank said.

The apex bank, has also, "as a temporary measure" decided to permit systemically important non-deposit-taking non-banking financial companies (NBFCs-ND-SI) to raise short-term foreign currency borrowings under the approval route.

This is, however, subject to their complying with the prudential norms on capital adequacy and exposure norms, it said.

It has also decided to conduct buy-back of market stabilisation scheme (MSS) dated securities so as to provide another avenue for injecting liquidity of a more durable nature into the system.

Earlier, under the MSS, government securities had been issued to sterilise the expansionary effects of forex inflows.

But now, with considerable forex outflows, it has been decided to conduct buy-back of MSS dated securities, the RBI said.

This would be calibrated with the market borrowing programme of the government and the securities proposed to be bought back and the timing and modalities of these operations would be notified separately, the RBI said.

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