Pre-Market report on 21.05.2008

[N.Sukumar]

Spike in oil to spoil the
sentiment
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Markets are expected to continue their southbound journey on Wednesday
after the Sensex lost more than a percent on Tuesday. The Sensex is
expected to test the 17,000 level today on the back of weak global
cues and rising oil prices. Overnight the US stocks stumbled on
worries of spike in the oil prices. Investors cut their positions on
concerns that the increase in the crude might drive the inflation
through the roof having an impact on the consumer spending. Comments
from the OPEC chairman that the oil producing nations won't raise the
output worsened the sentiment.

The price of a barrel of crude closed above $ 129 in NYMEX today. The
Dow lost nearly 200 points or 1.53 percent to close the day at
12,828.68, where as the NASDAQ lost nearly a percent to end the day at
2492.26. The Asian markets are expected to follow the US markets and
might trade lower in the morning trade.

We do not expect any thing different in Indian markets as they are
expected to correct by nearly a percentage point today. The central
bank is hinting that there might be an interest rate hike in the
coming days. The RBI governor has voiced his concerns on the rising
inflation as totally 'unacceptable'. This implies that the bank might
be favoring another round of hike. The Cash Reserve ratio might be
raised by 25 basis points to 8.50 in the next meeting. On the
Corporate front Cement firms might see an impact on their bottom line
as the booming coal prices might eat in to their profits. The
companies have been facing the heat as they have not been able to pass
on their costs to the customer because of the sanctions by the
government on the pricing front.

Looking at the current scenario, we are of the opinion that it would
be a good idea to go back to basics and stock with the sectors that
might be partially immune to a downturn in consumer spending. We see
IT and pharma sector stocks as preferable investments to take 'cover'
in these conditions, if some one really wants to invest in the current
market. It is not a bad idea to take positions and trade in select
momentum midcaps as these stocks might depend more on operator action
rather than concerns of recession. Some of the stocks that showed
strength in yesterday's trade and look promising include, Videocon
Appliances, Tamilnadu Petro, Mundra Port, Kiri Dyes, Celestial Labs,
Graphite India and Cairn India.


Market Close Box
BSE Sensex 17230.18 -204.76
NSE Nifty 5104.95 -52.75
USD Rs.42.67
Oil Nymex $129.0

N.Sukumar
Research Analyst