Global softening, inflation in focus

Success is the ability to go from one failure to another with no loss of enthusiasm.

The bulls certainly lack enthusiasm at the moment, and conviction as well to build on last month's rally. Losses mounted for the bulls yesterday even as crude oil repeatedly touched new all-time highs, stoking fresh concerns over inflation, which is already at a 3 1/2 year peak. The Government will announce its latest data on inflation at noon today, and the same is likely to increase further from 7.57%. However, it has been observed that the market at times have completely brushed aside rising inflation and has charted its own course. Last Friday was a case in point when the Sensex rallied by over 300 points despite inflation touching a 42-month high. The same trend may play out today as well, especially because the Sensex has lost more than 500 points this week. Having said that one should not fooled by any spurt, as the market is most likely to witness profit booking on every rally. Any fresh purchases should be restricted to high-quality stocks (preferably large caps) with clear visibility in terms of earnings growth. That too should be done in smaller chunks.

One should not get carried away by momentum in any scrip, as the trend could reverse rapidly. The market is still facing several headwinds, both local as well global. We are unlikely to see a one-way movement this year unless the factors that are hurting the market sentiment turn around. This may take a while. The market doesn't like uncertainty. And, with no immediate triggers for a big-bang rally, the market is expected to swing in a range of a few thousand points (Sensex: 16k-18k) with alternate bouts of buying and selling. Today, we expect yet another cautious to lower opening for the market. Asian markets have turned sharply lower after a flat opening. The Hang Seng was last seen down over 400 points, while The Nikkei was down by more than 100 points at mid-day break. The trend will remain dull till inflation numbers are out. Thereafter, its anybody's guess, though the bulls would be hoping for a better end to what has been a bad week.

FIIs were net sellers of Rs7.24bn (provisional) in the cash segment yesterday while local institutions poured in Rs6.1bn. In the F&O segment, foreign funds were net sellers of Rs13.69bn yesterday. On Wednesday, FIIs were net buyers of Rs3.25bn. Mutual Funds were net sellers of Rs231mn.

Key Results Today: Apollo Tyres, Asian Paints, Bharat Bijli, Kotak Mahindra Bank, Novartis India, Shalimar Paints and Su-Raj Diamond.

Meanwhile, the rupee fell to the lowest level in almost 13 months as crude oil traded near an all-time high, boosting demand for dollars from oil refiners. Crude oil is up 10% in the past week. " The rupee's fall reflects the uncertainties in global financial markets," said RBI Governor YV Reddy. Apparently, there were no dollar sales by either RBI or exporters. A weak stock market also hurt sentiment on the rupee.

The rupee declined 0.9% yesterday to 41.7375 per dollar, the lowest close since April 20, 2007. It is down 2.7% this week, the most in a five-day period since November 1997. The local currency may fall to 42 in the coming days, according to currency experts.

Asian stocks were mostly down for a third day, led by automakers and technology companies, after Toyota and Olympus forecast lower profits on rising raw material costs.

Toyota shares slumped after saying higher gasoline prices and a US economic slowdown will erode profit. Olympus tumbled the most in three months. BHP Billiton and Japan's Inpex Holdings gained after oil futures traded above $124 a barrel.

The MSCI Asia Pacific Index was down 0.5% at 149.90 as of 11:02 a.m. in Tokyo, after earlier advancing as much as 0.1%. The benchmark is poised for a five-day, 1.3% fall, its worst weekly performance in two months and snapping a two-week rally.

Japan's Nikkei 225 Stock Average was down 0.9% at 13,815.68. Australia's S&P/ASX 200 index climbed 1.2%, the biggest gain in the region, after National Australia Bank announced a 26% increase in its profit. Most other Asian markets declined.

US stocks rose marginally on Thursday, as investors welcomed some better-than-expected April retail sales. But, gains were capped by record-high oil prices and weakness in the financial sector.

Wal-Mart rose as the retail giant reported better than expected sales. News Corp. jumped on revenue that was lifted by advertisements for American Idol and the Super Bowl.

Freeport-McMoRan Copper & Gold and Chevron helped send raw-material and energy companies to the biggest gains in the S &P 500 Index. Alcoa climbed to a six-month high after naming a new CEO.

The S&P 500 added 5.11 points, or 0.4%, to 1,397.68. The Dow Jones Industrial Average gained 52.43 points, or 0.4%, to 12,866.78. The Nasdaq Composite Index rose 12.75 points, or 0.5%, to 2,451.24. About six stocks gained for every five that fell on the New York Stock Exchange.

Seven of 10 industry groups in the S&P 500 advanced as the market was also boosted by a government report that showed that initial jobless claims dropped last week more than economists had forecast.

With most of the quarterly earnings reports already having been released, the focus over the next few weeks will be on the economic news and the direction of commodity prices.

AIG shares dropped 2.1% after a S&P equity analyst slashed her forecasts for the insurance major ahead of it's first-quarter results. After the close, AIG reported a steeper-than-expected quarterly loss of $7.8bn and said it will look to raise $12.5bn in capital.

The national average price for a gallon of regular unleaded gas rose to a record $3.645 from $3.618 the previous day, according to AAA.

US light crude oil for June delivery rose 16 cents to settle at a record $123.69 a barrel on the New York Mercantile Exchange Thursday. Oil hit a record $124.49 in after-hours electronic trading.

COMEX gold for June delivery rose $11.10 to $882.30 an ounce. The dollar was little changed versus the euro and fell against the yen. Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.78% from 3.84% late on Wednesday.

The number of Americans filing new claims for unemployment fell by 18,000 last week to 365,000. Economists thought claims would post a narrower drop to 375,000 new claims.

Another economic report showed that wholesale inventories fell 0.1% in March, missing forecasts for growth of 0.5%. February's reading was revised down to growth of 0.9% from an initial reading of 1.1%.

Banking major Citigroup is holding an investor conference on Friday. It is likely to announce its strategy to deal with the ongoing crisis.

Most European stock benchmarks ended lower, as the European Central Bank and the Bank of England kept interest rates on hold, flagging inflation concerns. The pan-European Dow Jones Stoxx 600 index closed nearly unchanged at 329.28, with banks leading the decline.

ECB President Jean-Claude Trichet emphasized that inflation risks remain to the upside. After the comments from Trichet, the euro firmed and stocks moved further into the red.

The German DAX 30 ended 0.1% lower at 7,071.90, while the French CAC-40 slipped 0.4% to 5,055.58 and the Italian S&P/MIB index closed 1.3% lower at 34,082.00. The UK's FTSE 100, however, gained 0.2% to 6,270.80.

In the emerging markets the trend was mixed. The Bovespa in Brazil was up 1% at 69,722 while the IPC index in Mexico finished flat at 30,751. The RTS index in Russia surged by 3.75% to 2283 and the ISE National 30 index in Turkey slid 2.9% to 52,071.