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Indian stock market morning report by Keynote Capitals (May 20, 2009, Wednesday, 7.00 a.m. GMT)

Views on markets today

- Amid volatility, the Sensex closed moderately up yesterday. Real estate, banks, capital goods stocks rallied while IT, pharma stocks dragged markets down.

- Market breadth was positive at 2.6x led by small and mid cap stocks.

- Markets witnessed huge FII buying yesterday (Rs48bn), while domestic institutions were net sellers of Rs20bn. Trading volumes on NSE and BSE jumped substantially to Rs402bn and Rs118bn respectively mainly due to huge institutional turnover. Strong trading volumes were accompanied by strong deliverable volumes, especially in Bharti Airtel, Reliance Industries, HDFC and SBI.

- Asian markets are mixed today. While the Nikkei is up on the better-than-expected GDP data, the Hang Seng is down on weak US markets. First quarter GDP of Japan dropped 4% qoq and 15.2% on annualised basis which was better than expected 4.4% decline on quarter and 16.5% on annualised basis.

- We expect a cautious opening for the Indian markets following cues from Asian markets. Indian markets clearly expect the new Government to deliver on reforms. However, we expect volatility to continue on intermittent profit taking.

Economic and Corporate Developments

- After a 4.3% increase over 3 days, the Indian Rupee (INR) dropped to 47.92/95 per USD, marginally below its close of 47.75/76 yesterday.

- NYMEX Crude Oil (CL) is currently trading at $60.42 per barrel.

- The Baltic Dry Index reached a 7 month high of 2,605. The index has gained 47% this month, giving hope of revival for shipping companies. Stocks to watch: Varun Shipping, Mercator lines.

- India’s falling exports has made the commerce ministry for lobbying for a series of sops for exporters, including FBT exemption, extension of tax benefits to EOU’s and additional interest subsidy on loans for the textile sector.

Buzzing Stocks

- Punj Lloyd plans to exit from its real estate business by selling its 50% stake in its two-year-old joint venture with NCR-based realty firm Ramprastha group that was supposed to develop 29-acre residential project in Ghaziabad.

- L&T has signed a memorandum of understanding (MOU) with GE Hitachi Nuclear Energy for the construction of nuclear power plants in India.

- Tata Steel has secured a Rs20bn loan from LIC, which will help it to make additional equity infusions into its UK subsidiary.

- State owned MTNL faces strike. Protesting against the top management, around 8,000 gazetted executives of MTNL struck work for the 2nd day, disrupting services in many parts of Delhi and Mumbai.

Results to be announced today
PNB, Crompton Greaves, Bharat Forge, Deepak Fertilisers, Mphasis

US markets

Bad news from the housing front with dreadful housing start figures pushed stocks lower at the open but advancing commodity and utility producers kept shares see-sawing throughout the day. With this, the US markets ended the rocky session marginally down 0.3%. Banks rally fizzled and an unexpected drop in the housing starts left investors a little shaky. Senate has passed legislation to place new restrictions on the credit card industry.

Banks ended a volatile session mostly lower. Goldman Sachs fell 1.4%, while Morgan Stanley gained 2.2% after the banks applied to pay back TARP funds. Bank of America down 4.1% and Wells Fargo down 6%, after the Senate passed a bill to overhaul credit-card rules.

Economic news

News that housing starts and building permits recently fell below expectations jostled participants in the early going and undermined what was a positive bias ahead of the opening bell. Housing starts tumbled 12.8% to an annual rate of 458,000 units in April. Building permits for April hit a rate of 4,94,000. Both these economic events marked record lows. However, there is a silver lining to the report. Fewer housing starts and building permits means there will be fewer homes on the market, which should help clear the glut of existing homes and improve pricing.

The minutes from the FOMC's April 29 meeting are due and should help provide investors with details regarding the Fed's quantitative easing efforts.