Equity Research Weekly Market Outlook Report By Mansukh 26-March-2011

SNAPSHOT

Despite starting the week with a lackadaisical performance and ending below the crucial support levels of 5,400 and 18,000, the benchmarks convalesced on Tuesday and carried forward the strong rally for rest of the of the week as they vivaciously conquered a lot of psychological levels on their way up. The consolidation in crude prices around $105 levels despite escalating turbulences in the Middle East nations was also seen as an opportunity by the local investors who resorted to broad based buying as tabling of the banking sector amendment bill and the Constitution Amendment Bill in parliament buttressed the chances of a rebound for the domestic indices. Moreover, bourses rallied over two percentage points on the last trading day of the week to finish the action-packed week on an exciting note. The spurt on the last trading day in benchmarks was not only due to sanguine leads from the global market but also on encouraging local cues like the overall growth  in the farm sector being pegged at 5.4% along with finance minister's avowal of 9% growth in the next fiscal in the upper house of Parliament stoking investor sentiments. 

Boisterous Indian stock markets witnessed an awe-inspiring week of trade as it seemed like the bullishness of the recent past has come to the fore. The frontline indices accumulated over a gargantuan five percentage points for the week taking the benchmarks to around two month high levels as optimistic global cues coupled with encouraging local developments fortified investors' mood. The Bombay Stock Exchange (BSE) Sensex surged 936.83 points or 5.24% to 18,815.64 during the week ended March 25, 2011.The BSE Mid-cap index gained 3.25% to 6,721.56 and the Small-cap index advanced 2.61% to 8,001.63. All the sectoral indices on the BSE were in the positive terrain; Realty was up 184.64 points or 8.99% to 2,237.87, Bankex up by 741.78 points or 6.09% to 12926.07, IT up 344.65 points or 5.74% to 6,344.62, TECk up by 198.55 points or 5.62% to 3729.29 and Capital Goods (CG) up by 646.72 points or 5.23% to 12,373.27 were the major gainer. The S&P CNX Nifty zoomed 280.55 points or 5.22% to 5,654.25. On the National Stock Exchange (NSE), Bank Nifty surged 6.27% to 11,387.30, CNX IT soared 5.77% to 6,930.65, CNX Nifty Junior advanced 3.08% to 10,943.10 and CNX mid- cap gained 3.05% to 7,824.15. 

WEEK AHEAD
Amidst rising crude oil prices would continue to be threat for the equity markets in the coming week which is characterized by the volatility of  the expiry of F&O series for the month of March, Investor's in the coming week will be eagerly eyeing the core sector growth data, as measured
by the index of six key infrastructure industries, having a combined weight of 26.7% in the Index of Industrial Production (IIP) and also the HSBC India Manufacturing PMI data for the month of March. Further, investor's will keep a close watch on telecom stocks as recommendations on the proposed new policies for telecom infrastructure and manufacturing will be coming in the next week. On the global front, investor's will be eyeing lots of major economic data from the US, starting with Existing Home Sales data on March 21,2011, New Home Sales data, Durable Goods Orders and Jobless Claims data and finally the Corporate Profits data.  Therefore any closing above 5670-5690 for at least two consecutive days may reap indices towards 5800-5850 where we might see some sort of consolidation. On the flip side 5355 still a major support for the March series. HAPPY TRADING…..

Sluggish Revitalization Ups Risk For Obama By Mansukh

The economy is bouncing back two years into Obama's presidency. But the president is confronting unemployment of more than 9%, record home foreclosures and in all likelihood, the third straight federal budget shortfall of over $1 trillion. About 1.1 million nonfarm jobs were created last year, and economists are forecasting growth of 3.5% in the final three months of 2010. That said, many Americans remain out of work, even as markets have improved. There are 2.8 million fewer jobs now than in January 2009. With planning for his second White House run already underway and with Republicans gunning for his signature health-care plan and seeking aggressive federal spending cuts, Obama must convince voters he can deliver the scaled-back version of Washington they're demanding as well as targeted investments.

The latest Wall Street Journal/NBC News poll, taken Jan. 13-17, showed 53% approved of the job Obama is doing as president, up eight percentage points from December. The poll was conducted after Obama signed a package of tax-cut and jobless-benefits extensions he agreed on with congressional Republicans during the December lame-duck session of Congress. Obama has been road-testing the themes for his sophomore State of the Union in recent days, including in remarks last week at a General Electric Co. plant in New York that will soon be making advanced batteries. He used the occasion to name GE CEO Jeffrey Immelt to head a new White House council on jobs and competitiveness, and underscored how investment will help the U.S. stay competitive.
Obama's address comes as the government is operating on a short-term budget that expires March 4, and a fight over raising the U.S. debt ceiling looms. Treasury Secretary Timothy Geithner has warned Congress that the country could hit its $14.3 trillion debt limit by the end of March if Congress doesn't act, but Republicans are demanding spending cuts in return for their votes. Industries are also eager to hear from the president, who has pivoted in recent weeks to a decidedly more business-friendly posture.

The recently passed tax-cut deal between President Barack Obama and Congressional Republicans has removed some of the pressure on the Fed from being alone on the front line battling the economic crisis. The eighteen members of the Open Market Committee are widely expected at their two-day meeting that kicks off Tuesday to keep interest rates steady at record low levels and make no changes to the controversial $600 billion bond-buying program. The Fed has kept since December 2008, and is expected to keep, its key interest rate in a range of 0% to 0.25% as it seeks to bolster the economy.

The market responce to state of uniom speeches

Where will price of gold move in 2011 BY MANSUKH JANUARY 2011

There is no definitive answer to where the price of gold will be in 2011. The best an investor can do is to look at possibilities based on historical data. If an investor assumes that paper currency will continue its debasing trend, what would be a high estimate on gold prices per ounce? To answer that we need to look for the highest that gold has been in the past.

Indians were on a spending spree last year. But those who shopped for gold have reason to be satisfied with their purchase gold price has seen a 26 per cent rally this year! In rupee terms, gold prices have shot up by Rs 400/gram (Standard 24 carat gold), a 22 per cent run up. In contrast, stocks weren't a better play the benchmark Sensex is up just 15 per cent year-to-date.

January 21st, 1980 saw the price of gold reach 850 US dollars per ounce. To understand how much money this is worth today one would need to adjust the figures according to the Consumer Price Index. 850 dollars in 1980 is worth 2,250 US dollars in the year 2010. If gold were to repeat the value of a previous high it could double from the price it is trading at in December of 2010.

Other situation suggest that because the current economic output is many times greater than 30 years ago, the peak price of gold could even reach 3000 to 4000 dollars per ounce in the years to come. On the other hand the argument could be made that markets are based on mass psychology and trader emotions. Some might suggest that the average person would not believe that the price of gold could ever reach up to 3,000 dollars, thus creating a resistance to that level ever being achieved.

However some market participants believe that as the market recovers in 2011 and beyond, the price of gold will retreat dramatically as the economic woe gets pushed to the backs of people's minds and their hedging tactics are tossed aside. Longer term, the market could face headwinds that come with a sustained economic recovery as global interest rates could rise, denting the appeal of gold, a non-yield bearing asset. “The market is expected to derive strength from further economic pitfalls and the near-zero interest rates maintained by the US Federal Reserve.

There are many other reasons for gold's out performance this year. One, the change in the gold-dollar relationship. While investors have traditionally bought gold when the dollar weakened, this year was different. They bought the dollar and gold simultaneously as the euro weakened. Two, strong revival in jewellery demand after the recession induced dip last year. Three, growing investment demand for the metal from emerging and also developed nations as returns from other options dwindled. Further, gold fundamentals were supported by the lack of significant increase in mine outputs during the year and a fall in scrap gold sales. With global economies still in the grip of uncertainty, gold continues to present a case for investment. The demand for gold has been traditionally driven by jewellery consumption. But that seems to be changing with investment demand for gold now driven by a range of products such as Gold Exchange Traded Funds.

some of these deals happening quite recently, there may be potential for further value unlocking in gold stocks. But before you choose mining funds over plainer options like gold ETFs do note that they are high risk bets they are more volatile than gold and also tend to under perform physical gold during a downturn. While most of the arguments presented here may well hold good in the coming year too, possible increases in interest rates that will make bond yields attractive, are a risk. Resurfacing concerns over another wave of recessionary conditions should keep investment demand for gold firm, as investors look to hedge against financial market volatility and vulnerability.