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Tuesday, September 2, 2008

Oil falls- Stock market rally continues

Storm was over- Crude oil falls- Stocks set to rise. Current short term rally in Indian stocks will continue. Thursday inflation data will set further direction to the stock markets. Crude is looking weak due to strong dollar and weak demand from China. Crude oil prices will continue to set the direction to global stock markets for some more months.


Crude oil price: Crude oil prices fell from $117 to $110 during intra-day as Gustav storm was weakened. Expect a strong rally. 1 year forecast fell to below $130 levels for the first time in recent days. Oil is now trading at 4-month low as Dollar is at 6-month high against Euro.

New RBI Governor: Andhra Pradesh born Finance Secretary D. Subba Rao will replace Y.V. Reddy as Governor of Reserve Bank of India on September 5. Subba Rao is a strong supporter of rate hikes to control inflation. Expect more bad days for inflation sensitive sectors in the coming days. Click here to know more about new RBI Governor.
Positive news:

1. Storm "Gustav" weakens to category 2 and crude oil prices fell sharply.

2. Hero Motors enter into aviation sector.

3. Tata Industries (TIL) will invest Rs 1,000 crore in biotechnology, CRAMS and alternative energy. But this stock was not listed in the markets. This stock is a must buy if it were listed. When will they list this company?

4. KG gas of RIL will flow by October end – Oil secretary.

5. Reliance Industries is betting big on textiles and on "Vimal" brand (retail plans).

6. Biofuel production at Jharia block of ONGC to begin by 2011.

Negative news:

1. DLF is threatening to pull out of Rs 33,000 crore Dankuni township project in West Bengal.

2. GDP growth will fall to 7.5%- Citi group while Goldman Sachs predicted at 7.8%.

3. Government may raise export duty on iron ore. Domestic steel prices set to fall.

4. IPO market may witness slow down- Assocham.

5. Ranbaxy Fine Chemicals Limited (RFCL) acquired US- based speciality chemicals major Mallinckrodt Baker for $340 million.

Morgan Stanley report on Indian stock markets:

They are pessimistic about India over short to medium term but optimistic on growth prospects over long term. Short term investors should book profits in every pull back rally.

1. Indian Stock markets are overvalued. It is difficult for markets to sustain these levels over short to medium term.

2. Sensex will touch below 13,000 levels in the coming months.

3. Inflation will peak around 13% in the next 4-5 weeks; then cools off gradually.

4. GDP growth for FY2009 is around 7%.

Resurgere Mines and Minerals: Only for risk takers and speculators.

Investors should stay away from this company. If you fell in the trap of operators, no one will save you. This type of speculation happened in recent days in most of the recently listed IPOs. SEBI is sleeping. Reasonable price for this stock is around Rs 200-250. I will see how many days these speculators can hold up this stock at these levels. Why promoters fixed issue price at below 200 levels when the scrip has this much potential. Just understand!

Caution: Conservative investors should stay away from stocks like Punj Lloyd and Educomp which are trading at bull market valuations. It is difficult for them to keep these levels in the next week.

Economic quote: "It is a recession when your neighbour loses job; it is a depression when you lose yours"- Harry Truman.

Bet on export stocks: Export based stocks may post good results on the basis of strong dollar in the next quarter (Q2 results). Stocks like Hanung Toys and KRBL may continue their good growth. Sectors like Textiles, CRAMS, select IT stocks and other export companies may be good bets for next 2 months.

My view: Dollar is almost at peak level. US is currently betting on exports due to weak consumption at domestic level. Strong dollar may spoil their exports growth. So it must decrease their currency strength to sustain its exports. So weakening dollar will once again propel crude prices upwards over medium term. This is my personal view. We have to wait and see how this will turn out.

Final verdict: In these days of uncertainty, it is waste to set targets for indices as things are changing on daily basis. Closely follow crude oil prices, inflation data and dollar value, plan your strategy on daily basis (if you are a short term investor). Long term investors can make fresh buys after correction to below 14,000 levels.

 


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