Chilled bulls look for warmth

Hot heads and cold hearts never solved anything.

The mercury dipping over the past few days in India is akin to drop in market sentiment, which is sending chills down the bulls' spine. Where’s the bull Power? Was among the questions we received following the sell off yesterday. While the key indices had managed to remain calm till about noon , a sudden bout of sell-off took the bulls by surprise. The deep cut coincided with the release of FY08 GDP data, which showed that the Indian economy is likely to slow this fiscal. Coming to today's market, we expect a much better start and perhaps even an improved closing. Don’t get carried away by a day's rally as the uncertainty is likely to continue for some time. Next trigger (for lack of reasons) would be the budget and perhaps a rate cut somewhere down the line. Don’t be surprised if both happen neck to neck. And of course, the resumption of FII inflows would quench the thirst for liquidity.
Sentiment may take a hit due to the grim conditions prevailing in the primary market as well. Wockhardt Hospitals has withdrawn its beleaguered IPO due to complete lack of investor interest in the issue amid tough market conditions. Emaar MGF IPO is also struggling to stay afloat, but may find enough takers. It will close on Feb. 11, which is also the day when the blockbuster Reliance Power will make its historic debut.The premium on this stock has also been hit hard due to the market correction. Expectations are the stock could witness heavy selling pressure immediately after listing. The challenge for Reliance Power would be to remain in the green on listing day.
Back to the GDP figures, it is likely to grow by 8.7% from last year's expansion of 9.6%. Though the fall is substantial enough, the growth rate is still amongst the highest in the world. In fact, the Finance Minister appeared confident about attaining a 9% GDP growth. Despite the slowdown, the RBI says it doesn't see any need to change its monetary policy stance. Having said that, we maintain that rates will eventually have to moderate over the course of the year. Listed power stocks could well hog the limelight ahead of the Reliance Power listing. Expectations are the stock may still hit Rs800-900 levels. But can it sustain those levels only time will tell.
FIIs were net sellers of Rs8.6bn (provisional) in the cash segment on Thursday. At the same time, local institutions were net buyers of Rs2.31bn. In the F&O segment, they were net sellers of Rs2.67bn. On Wednesday, foreign funds pulled out Rs5.28bn from the cash segment. Mutual Funds were net sellers of Rs2.12bn in the cash segment on Wednesday.
In Asia this morning, the Nikkei 225 Average in Tokyo was down 104 points or 0.8% at 13,102. All the other key markets in Hong Kong, Singapore, Korea, Taiwan and China are shut for the Lunar New Year.
The MSCI Asia Pacific Index was down 0.6% at 141.24 as of 11:10 a.m. in Tokyo. Australia's S&P/ASX 200 Index advanced 0.9%, snapping a three-day drop.
US stocks ended marginally up after a fairly choppy session, breaking a three-day losing streak. Investors snapped up battered shares despite Cisco's lower sales outlook and some weak January retail sales.
JPMorgan Chase led the Dow Jones Industrial Average higher after CEO Jamie Dimon said bank profits will withstand downgrades of bond insurers. JC Penney and Gap helped retailers snap a three-day losing streak by forecasting earnings above analysts' estimates.
The S&P 500 Index erased a loss of as much as 0.7%, which was sparked by a sales projection at Cisco that disappointed investors. It finally gained 10.46 points, or 0.8%, to close at 1,336.91. The Dow rose 46.9 points, or 0.4%, to 12,247. The Nasdaq Composite advanced 14.28 points, or 0.6%, to 2,293.03.
Market breadth was positive. About nine stocks gained for every four that declined on the New York Stock Exchange.
US stocks had declined in the morning amid ongoing worries about business and consumer spending, and Fed policy. But the tone improved in the afternoon. The big question going forward is whether Wall Street can continue to rise in the face of regular flow of bad news.
Mostly weaker January retail sales from Wal-Mart and others added to concerns about slowing consumer spending. Dallas Fed Bank President Richard Fisher became the third central bank official this week to hint that rising inflation could limit the central bank's ability to keep cutting rates aggressively.
In corporate news, Delta Air Lines and Northwest Airlines were believed to be moving closer towards a merger that would create the largest US carrier, according to reports.
Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.77% from 3.6%. The dollar gained versus the yen and the euro after the Bank of England cut interest rates. The European Central Bank kept rates steady but hinted it may need to cut them later in the year.
US light crude oil for March delivery rose 97 cents to settle at $88.11 a barrel on the New York Mercantile Exchange. COMEX gold for April delivery added $5 to settle at $910 an ounce.
Stocks in London ended sharply down on the back of Bank of England's cautious outlook on inflation and poor earnings from GlaxoSmithKline, BT and Yell Group. The FTSE 100 index slumped 2.6%, or 151 points, to 5,724.10.
Other European markets too fell heavily. The pan-European Dow Jones Stoxx 600 index ended 1.9% lower at 314.14. Germany's DAX 30 fell 1.7% to 6,733.72, while the French CAC-40 fell 1.9% to 4,723.80.
Among the emerging markets, the Bovespa in Brazil was flat at 58,965 while the IPC index in Mexico rose 0.6% to 28,088. The RTS index in Russia tumbled 3% to close at 1887 and the ISE National-30 index in Turkey plunged 3.7% to 51,954.