Market turns red… What Next?
The key benchmark indices turned red in afternoon trade on profit
taking after gains in last four trading sessions. The Sensex had
jumped 7.1% in the past four trading sessions on firm global
equities. The BSE 30-share Sensex was down 32.02 points or 0.19%,
off close to 210 points from the day’s high and up close to 50
points from the day’s low. IT, FMCG, telecom and realty stocks
fell. But banking stocks rose. The market breadth was positive.
Index heavyweight Reliance Industries pared gains. But another
index heavyweight Larsen & Toubro fell.
Intraday volatility was high. The market opened on a firm note on
higher Asian stocks and overnight solid rally in US stocks. It
trimmed gains in mid-morning trade on profit taking after a sharp
surge over the past four days. The market regained strength after
falling to an intraday low in mid-morning trade. Market turned red
in afternoon trade.
Finance Minister Pranab Mukherjee said today will have to take
corrective measures on stimulus in due course and there is a need
of massive investment in agriculture, infrastructure to revive
domestic demand. He further said there is a need to maintain high
savings and investment rates. He also said economy is in the
process of recovery.
RBI deputy Governer Shyamal Gopinath today said India is actively
confronted by an upturn in inflation. She added that withdrawal
from the supportive monetary policy may diverge considerably
between developed and emerging nations. Gopinath said the RBI will
ensure there is adequate liquidity in the banking system
Last month, while announcing the monetary policy the Reserve Bank
of India signalled an interest rate hike was imminent, citing
inflationary pressures. It also started tightening some bank
credit. The RBI sharply raised its inflation forecast for end-March
2010 to 6.5% with an upward bias, from 5 % earlier.
European Central Bank (ECB) President Jean-Claude Trichet on Monday
said risks to both global growth and inflation were currently
balanced. Trichet said global economic growth was a bit better than
earlier expected, with emerging economies taking the lead. Among
growing signs of economic recovery, some central banks – such as
Norway and Australia – have already raised interest rates, while
the ECB has signalled it will start rolling back some of its extra
liquidity supplies.
Meanwhile, as part of its efforts to encourage small and
medium-sized enterprises (SMEs) to go public, the Securities and
Exchange Board of India (Sebi) on Monday exempted them from the
usual eligibility norms applicable for initial public offerings
(IPOs) and follow-on public offerings.
Sebi has also amended the Issue of Capital and Disclosure
Requirements Regulations (ICDR) to allow pure auctions for
qualified institutional investors (QIBs) in follow-on public
offerings to begin with. The method may be later extended to
initial public offerings. Under the new method, bidders will be
free to bid at any price above the floor price. At present,
allotments are made at the floor price. Retail investors, however,
will be allotted shares at the floor price.
The board also decided that the issuer is free to place a cap
either in terms of the number of shares or percentage to issued
capital of the company so that a single bidder does not garner all
the shares on offer, ensuring a wider distribution of shareholding.
A Sebi release issued after the board meeting also said the minimum
market capitalisation required by listed firms to sell shares in
follow-on offerings has been halved to Rs 5,000 crore from Rs
10,000 crore.
The government will maintain its stimulus measures for the export
sector, Trade Minister Anand Sharma said on Monday. He said it was
not yet time to withdraw stimulus.
Prime Minister Manmohan Singh said on Sunday, 8 November 2009, that
the government would push through legislative changes, including in
the insurance sector which foreign players are eyeing. Singh also
said his government would take steps in the 2010/2011 fiscal year
to wind down economic stimulus measures for Asia’s third largest
economy. He said there is a need to develop long-term debt markets,
deepen corporate bond markets, strengthen the insurance and
pensions sectors, improve futures markets for better price
discovery and regulation. He also said the government would
accelerate the sale of stakes in state-run companies.
The government, last week, mandated more sales of shares by
state-run firms and changed the rules on how it can use the
proceeds, as it seeks to boost revenues and rein in a widening
budget deficit. The government said all profitable, listed
state-run firms must have at least 10% of their shares in public
hands, and unlisted firms that had a positive net worth, no
accumulated losses and a net profit over the past three years
should list.
The government plans to introduce in parliament by December 2009
bills proposing the raising of foreign stake limits in insurers to
49% from the present 26% and opening up the pension sector to
private and foreign firms. It will also propose a law to cut its
holding in top lender State Bank of India to 51%
The prime minister said growth in the next fiscal year, assuming a
normal monsoon season, was expected to be more than 7% compared
with a 6.5% forecast for the 2009/2010 fiscal year. The government
has a medium-term target of 9% growth per annum, needed to help
reduce widespread poverty. Singh said the Indian economy grew 6.7%
in 2008/2009 with the help of an economic stimulus package.
The timing of the withdrawal of stimulus steps for India’s economy
will be decided when it becomes clear the economy is recovering,
but there will be no fresh stimulus, Finance Minister Pranab
Mukherjee said on Sunday.
Asian stocks rose on Tuesday, buoyed by Wall Street’s gains as
interest in risk-taking rose, with tech firms climbing and trading
houses up after gains in oil, gold and other commodities. The key
benchmark indices in China, Hong Kong, Japan, South Korea,
Singapore and Taiwan rose by between 0.11% to 0.75%.
China is quite competent to grow by 8% in 2009, Ma Delun, a
vice-governor with the People’s Bank of China, said at a banking
event in Mumbai on Tuesday. Earlier this month, the World Bank
raised its forecasts for Chinese growth, saying gross domestic
product will increase 8.4% this year and 8.7% in 2010 on the back
of massive fiscal and monetary stimulus.
Moody’s Investors Service raised the outlook on China’s A1 rating
to positive from stable on Monday, praising its economic
performance in the past year during the global financial crisis.
The agency said the country’s strong credit fundamentals would
resume its improving trend as the economy emerged from the effects
of the global recession.
In a separate release, Moody’s also said it was lifting the credit
outlook on Hong Kong’s Aa2 government bonds to positive from
stable. Moody’s said while Hong Kong has a separate credit rating
from mainland China, it deserved a review because of increasing
financial and economic ties with the fast-growing mainland economy.
The boost in outlook comes even as Hong Kong has projected
government deficits for the next two years.
Trading in US index futures indicated Dow could slide 25 points at
the opening bell on Tuesday, 10 November 2009.
US stocks rallied on Monday, with the Dow Jones industrial average
at a 13-month high, as the Group of 20’s pledge to keep aid flowing
to the world’s economy boosted investors’ appetite for risk. The
Dow added 203.52 points, or 2%, to 10,226.94, a new 2009 high. The
S&P 500 index rose 23.78 points, or 2.2%, to 1,093.08. The Nasdaq
Composite Index rose 41.62 points, or 2%, to 2,154.06.
The Group of 20 finance ministers and central bankers pledged on
Saturday, 7 November 2009, to prepare strategies to end emergency
support for their economies, but to keep the aid flowing until
recovery was assured. The world’s biggest economies – the European
Union, the United States and Japan – are either expected to or
already have emerged from recession in the third quarter.
This has prompted a discussion on when to start cutting back on the
trillions in public support pledged to cushion the worst economic
downturn since World War Two to maintain credibility of fiscal
policies with markets and consumers. Officials from the world’s 20
biggest developed and emerging economies said at the end of talks
in the small Scottish town of St. Andrews that while the economy
has improved, recovery was still uneven and depended on policy
support.
The United States sees China as a vital partner and competitor, but
the two countries need to address economic imbalances or risk
“enormous strains” on their relationship, President Barack Obama
said on Monday. Three days before leaving on a nine-day trip to
Asia, Obama said the world’s two most powerful nations need to work
together on the big issues facing the globe, and any competition
between them has to be fair and friendly.
In an interview to a news agency Obama on Monday said he plans to
raise the issue of the yuan currency with Chinese officials when he
meets with them in Beijing next week. Obama said he was confident
that both the United States and China can arrive at a broad set of
policies that encourages trade that benefits both the countries
At 13:20 IST, the BSE 30-share Sensex was down 32.02 points or
0.19% to 16466.71. The Sensex rose 178.81 points at the day’s high
of 16677.53 in early trade. The Sensex fell 79.50 points at the
day’s low of 16419.22 in afternoon trade.
The S&P CNX Nifty was down 8.85 points or 0.18% to 4889.55.
The market breadth, indicating the overall health of the market was
positive. Breadth weakened from strong breadth in early trade. On
BSE, 1324 shares advanced as compared with 1238 that declined. A
total of 94 shares remained unchanged.
From the 30 share Sensex pack, 10 stocks rose and rest fell.
The BSE Mid-Cap index fell 0.12% and the BSE Small-cap index fell
0.02%.
Energy major Reliance Industries (RIL) gained 1.01% to Rs 2044.95
after company on Tuesday announced its first oil discovery in its
exploration block in the Cambay Basin off Gujarat. But the stock
came off the day’s high of Rs 2100. Reliance holds 100 %
participating interest in the block. This block was awarded to
Reliance under the fifth round of the New Exploration Licensing
Policy.
The stock had jumped 3.46% on Monday on reports the firm is close
to announcing a major overseas acquisition. The likely target is a
part of the assets owned by troubled petrochemical major
LyondellBasell, which is undergoing reorganisation under the
protection of a US court, reports suggest.
The government on 27 October 2009 allocated additional 50 million
cubic metres a day (mmscmd) of gas from Reliance
Industries-operated east coast block D6. Power plants and
refineries will get the bulk of Reliance Industries’ gas from the
Krishna-Godavari basin beyond the previously allotted 40 million
metric standard cubic metres per day (mmscmd).
The empowered group of ministers (eGoM) also made some allotments
for Reliance’s petrochemical plants and refineries.
FMCG stocks fell on profit taking. United Spirits, ITC, Hindustan
Unilever, Marico, Tata Tea, Nestle India fell by between 0.05% to
2.16%
Telecom stocks extended recent fall on worries the ongoing price
war will result in a sharp fall in revenues and profits. Reliance
Communications and Idea Cellular fell by between 0.3% to 0.46%.
Bharti Airtel fell 1.44% extending 3.88% fall on Monday after
chairman Sunil Mittal told the media that the company is not
actively seeking acquisitions, after its planned tie-up talks with
South Africa’s MTN collapsed recently
Some shares of some public sector firms rose after Prime Minister
Manmohan Singh on 5 November 2009, approved divestment in public
sector companies to raise funds for social welfare. Hindustan
Copper, State Trading Corporation, MMTC, Hindustan Copper, Power
Finance Corporation rose by between 0.27% to 4.13%.
India’s largest engineering and construction firm by sales Larsen &
Toubro fell 1.1%. The company announced on Monday it won on orders
worth Rs 1635 crore.
Rate sensitive realty shares fell triggered by the RBI raising the
provisioning requirements for loans to commercial real estate from
0.4% to 1% in its monetary policy review meet on 27 October 2009..
Sobha Developers, DLF and Indiabulls Real Estate fell by between
2.7% to 6.04%.
The latest RBI move will result in increase in borrowing costs for
realty firms which depend heavily on borrowing. In view of large
increase in credit to the commercial real estate sector over the
last one year and the extent of restructured advances in this
sector, it would be prudent to build cushion against likely
non-performing assets (NPAs), the central bank said in its
quarterly policy review.
IT stocks fell on recent strong gains in rupee against the dollar.
India’s largest software company by sales Tata Consultancy Services
(TCS) fell 0.37%. The company recently secured a 150 million pounds
software implementation contract for 15 years from Cardiff city
council, UK.
India’s second largest software company by sales Infosys fell 1.11%
even as its ADR rose 2.78% on Monday. The back-office arm of
Infosys Technologies is looking at acquiring firms in Europe and in
the United States of $50 million to $100 million, a top official
said on Monday. Infosys BPO would also hire 1,200 people in the
current financial year, the unit’s chief executive, Amitabh
Chaudhry, told reporters on the sidelines of the World Economic
Forum.
Infosys said on 5 November 2009 its chairman’s wife sold company
shares worth $92 million for setting up a venture capital fund.
Sudha Murthy, wife of Infosys co-founder and chief mentor N.R.
Narayana Murthy, sold 20 lakh shares, or about 22% of her total
holding, on the Bombay Stock Exchange on 5 November 2009, the
company said in a filing. Last month, Narayana Murthy, who
co-founded Infosys with six other software engineers in 1981 with
$250, had sold a total of 800,000 shares worth $37 million to set
up a venture capital fund which he plans to set up in India. The
company said the Murthys have confirmed they did not plan to raise
further capital for the fund.
But, India’s third largest software company by sales Wipro rose
0.15% as its ADR rose 4.05% on Monday. Wipro, sees robust deal
pipeline on the back of improving IT demand worldwide, Suresh
Vaswani, joint chief executive said on Tuesday The company said on
5 November 2009 it had agreed to buy some personal care businesses
of Yardley for about $45.5 million, adding to its consumer goods
business. Wipro said it had signed an agreement with UK-based
Lornamead group, which owns the Yardley brand, for the businesses
in Asia, the Middle East, Australasia and some African markets.
The Indian rupee weakened after strengthening to a new three-week
high against the dollar on Tuesday. The partially convertible rupee
was at 46.51/52 per dollar, weaker than its close of 46.46/47 on
Monday. A firm rupee adversely affects operating profit margins of
IT firms as the sector derives a lion’s share of revenue from
exports.
Banking shares rose on hopes of financial sector reforms. India’s
largest private sector bank by net profit ICICI Bank rose 1.58% as
its ADR rose 8.86% on Monday, 9 November 2009. The bank’s net
profit rose 2.6% to Rs 1040.13 crore on a 12.7% decline in total
income to Rs 8480.73 crore in Q2 September 2009 over Q2 September
2008. The result was announced during trading hours on 30 October
2009.
India’s second largest private sector bank by net profit HDFC Bank
rose 0.38% as its ADR rose 8.35% on Monday.
India’s largest bank by net profit State Bank of India (SBI) rose
1.88% after gaining 5.19% on Monday. State Bank of India said on
Monday it had entered into an agreement with T. Rowe Price to sell
a 6.5% holding each in UTI Asset Management Company and UTI Trustee
Company. State Bank currently holds 25% in each of the companies
and after the sale its holding would be reduced to 18.5%, it said
in a statement.
SBI announced after market hours on Friday 6 November 2009 it has
revised downwards interest rates on deposits by 25-50 basis points
for a few maturities effective from 9 November 2009. The bank’s
consolidated net profit rose 28.29% to Rs 3,133.16 crore on 22%
rise in consolidated income to Rs 33,101.65 crore in Q2 September
2009 over Q2 September 2008. The results were announced on 31
October 2009.
Punjab National Bank rose 0.85%. The bank said on Monday it will
sell 6.5% stake in each in UTI Asset Management and UTI Trustee Co
to T. Rowe Price. The stake sale in the asset management company
will fetch the state-run lender Rs 163 crore.
Bank of Baroda rose 0.49%. The bank said on Monday it signed a
definitive agreement to sell 6.5% stake each in UTI Asset
Management Co and UTI Trustee Co to T. Rowe Price. The bank’s
shareholding in both these companies will fall to 18.5% after the
divestment, Bank of Baroda said in a statement to the stock
exchange.
The RBI did not relax mark-to-market rules for bank’s debt holdings
at a quarterly policy review on 27 October 2009. The market was
been agog with talks of the central bank hiking the ceiling on the
portion of government securities that banks can park in
held-to-maturity (HTM).
The central bank also decided to streamline provisioning
requirement on non-performing assets. The RBI, asked banks to
ensure by September 2010 that the total provisioning coverage
against non-performing or bad loans aren’t less than 70% of the
outstanding amount.
Bajaj Auto rose 0.69% after Carlos Ghosn, chief executive of French
car maker Renault and Japan’s Nissan Motor Co, said on Tuesday an
agreement had been signed with Bajaj Auto for a low-cost car which
would come to India in 2012.
Phoenix Mills jumped 4.22% to Rs 190.20 after Reliance Mutual Fund
bought 8.17 lakh shares of the company at Rs 170 on the BSE on
Monday, 9 November 2009.
Nagarjuna Construction Company was down just 0.09% to Rs 168.40,
having recovered from the session’s low of Rs 164.55, after the
company secured five orders aggregating Rs 722 crore.
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