Thursday, May 22, 2008

Sensex settles below 17,000

Sharp fall in US stocks overnight and surging crude oil prices weighed on the market sentiment today, triggering a broad based decline in blue chips. Asian markets which opened before Indian markets were weak. European markets which opened after Indian market were mixed.

Banking, capital goods, realty and auto stocks fell. All the sectoral indices on BSE were in red. The market breadth was weak.

On Wednesday, 21 May 2008, the US Federal Reserve cut its 2008 US economic growth forecast and signaled that mounting concerns over inflation would make further interest rate cuts unlikely, driving the three major US indexes down over 1.5%. Oil prices surged to a record high above $135 per barrel on Thursday, 22 May 2008, stoking fears of global inflation.

The 30-share BSE Sensex provisionally ended down 326.14 points or 1.89% at 16,917.02. Sensex lost 379.78 points at day`s low of 16,863.38 touched in late trade.

The broader based S&P CNX Nifty was down 89.9 points or 1.76% at 5,027.75 as per provisional figures.

The BSE clocked a turnover of Rs 5,742 crore, lower than a turnover of Rs 7,126.12 crore on Wednesday, 21 May 2008.

The market breadth was weak on BSE with 1,042 shares advancing as compared to 1,678 that declined. 67 remained unchanged.

Among the 30-member Sensex pack, 29 declined while 1 stock remained unchanged.

The BSE Mid-Cap index declined 105.49 points or 1.48% to 7,042.56 and BSE Small-Cap index declined 134.79 points or 1.53% to 8,654.19.

Banking stocks declined. ICICI Bank (down 3.43% to Rs 880), HDFC Bank (down 2.1% to Rs 1,379.90) and State Bank of India (down 3.28% to Rs 1,607) edged lower.

Realty stocks fell. Indiabulls Real Estate (down 3.9% to Rs 510), Unitech (down 3.1% to Rs 273.85) and DLF (down 2.17% to Rs 620.70) edged lower.

Capital goods stocks declined. Larsen & Toubro (down 2.57% to Rs 2,916.80), Bharat Heavy Electricals (down 1.33% to Rs 1,748.05) and Suzlon Energy (down 5.62% to Rs 291.60) edged lower.

Auto stocks declined. Tata Motors (down 3.98% to Rs 661.45), Maruti Suzuki India (down 1.79% to Rs 800.50), Hero Honda Motors (down 0.03% to Rs 788.50) edged lower.

India`s largest tractor maker by sales Mahindra & Mahindra (M&M) declined 2.2% to Rs 652.35. It has reportedly signed a term sheet with Kinetic Motors to acquire a majority stake in the company. According to reports, M&M is looking to acquire 76% stake in Kinetic Motors valued at about Rs 120 crore. A deal could fructify in the next two months if the due diligence proceeds smoothly, the reports added.

India`s largest private sector firm by market capitalisation and oil refiner Reliance Industries declined 1.89% to Rs 2,617.35.

India`s largest state-run oil exploration firm in terms of revenue Oil and Natural Gas Corporation (ONGC) declined 1.53% to Rs 924.35. It is reportedly planning to sell 30% to 40% each in two blocks in Vietnam to share the risks and drilling costs. ONGC owns 100% in the two deepwater exploration blocks. The buyer has not yet been finalised, the reports added.

India`s largest drug maker by sales Ranbaxy Laboratories declined 1.14% to Rs 498.25. It has reportedly struck two deals with group companies. Ranbaxy has sold some land and building for Rs 90 crore to a group company. It has also picked up 24.91% stake in Shimal Laboratories, another promoter family company, for Rs 93.4 crore, the reports added.

Reliance Infrastructure (down 3.97% to Rs 1,322.95), Reliance Communications (down 3.16% to Rs 584.65), Ambuja Cements (down 2.61% to Rs 104.30), Jaiprakash Associates (down 2.65% to Rs 246.10), ITC (down 2.36% to Rs 223.05), HDFC (down 2.29% to Rs 2,626.70) edged lower from the Sensex pack.

India`s largest aluminium maker by sales Hindalco Industries rose 0.2% to Rs 197.65.

Basant Agro Tech India rose rose 0.49% to Rs 61. The Company has acquired a single super phosphate fertilizer (SSP) plant in Madhya Pradesh, having installed capacity of 75,000 tonnes per annum (TPA) of SSP fertilizers and 50,000 TPA of NPK Mixture fertilisers. With this the total installed capacity of the company has gone up to 1,95,000 TPA of SSP fertilisers.

Omaxe declined 3.28% to Rs 220. It has appointed Leather Sport, a company promoted by Indian tennis star Leander Paes, as a consultant to provide the concept and designs for the fitness facilities for its projects

Praj Industries declined 2.87% to Rs 211.55. The company has received a contract for supply of key equipment to Vivergo Fuels, UK for yet another bioethanol plant in Europe through its subsidiary, BioCnergy Europa B. V. (a joint venture with Aker Solutions, Netherlands).

In Asia, key benchmark indices in Hong Kong, China, South Korea, Singapore and Taiwan were down by between 0.08% to 1.89%. However Japan`s Nikkei was up 0.37%.

European markets were mixed. Key benchmark indices in Frnace andd Germany were down between 0.33% to 0.52%. UK`s FTSE 100 was up 0.22%.

Earnings downgrade amid rising input and interest costs, high inflation and drying up of global liquidity due to credit crisis remain major concern for the Indian stock market. Inflation based on the wholesale price index rose 7.83% in 12 months to 3 May 2008, higher than previous week`s annual rise of 7.61%, government data released on 16 May 2008, showed. It was the highest since an annual reading of 7.93% on 6 November 2004.

Further, a steep increase in upward revision in inflation rate for the week ended 8 March 2008, to 7.78% from the provisional 5.92%, came as a rude shock to marketmen. According to retail brokerage Sharekhan, the steep upward revision in inflation rate is a cause for concern, as prices of many commodities have not been updated for varied periods. Moreover, a sharp fall in the rupee against the dollar in the past few days has heightened concerns about inflation. This is because the fall in rupee will raise cost of imports which in turn will result in further rise in inflation.

In a bid to rein in inflation, the Reserve Bank of India, on Tuesday, 29 April 2008, raised cash reserve ratio (CRR) by 25 basis points to 8.25%, to suck out excess liquidity in the banking system, in its annual monetary policy review.

With parliamentary elections scheduled next year (May 2009), the government may leave no stone unturned in its attempt to tame inflation. This is bad news for commodity scris such as cement and steel. Cement maker ACC said earlier this months that its margins will be hurt by a decision to hold its prices for 2 to 3 months that was taken after the government asked cement firms to help contain price pressures. The government recently imposed export tax on basmati rice and some steel products, and cut import duties on key inputs like ferro alloys and metallurgical coke. The government had earlier banned export of cement and non-basmati rice. On 7 May 2008, the government ordered suspension in futures trading in channa, refined soyoil, potato and rubber for four months.

Meanwhile, as per a recent study by CLSA, large amount of foreign currency convertible bonds (FCCBs) issued by Indian companies are coming up for redemption in the next 18-24 months. After recent stock market volatility many FCCBs are at risk of not converting i.e. if the stock market remains subdued, it will stop the bond holders from opting for an equity conversion as it will be easier for them to buy the stock from the open market instead of paying the agreed premium.

When the FCCBs come for redemption, some of these companies may have to take on more debt to redeem the FCCB, thereby raising interest outgo. In the event FCCBs don`t get converted, companies have the option to lower the conversion price in line with the market, leading to higher equity dilution. If companies decide to issue fresh FCCBs to finance redemption of FCCBs, it will be at lower premium than earlier.

The structural growth drivers of the Indian economy remain intact – India`s economy is expected to witness a decent-to-strong growth for a long period of time due to favourable demographics. Acceleration in infrastructure creation will be another driver of strong growth in India`s economy. A CLSA report says India`s infrastructure development is set to accelerate, backed by greater private sector participation and improved finances of government and public sector enterprises. Rating agency Crisil in its outlook for Indian economy for the year through March 2009 has stated that the overall growth scenario is expected to remain strong with investment as the main driver.

Given the continued inflow to unit linked insurance plans (Ulips) and equity linked savings schemes (ELSS) of mutual funds, stock-specific buying will continue depending on fundamentals of individual stocks. Insurance firms are now a major player in the Indian stock market given the huge mop up in Ulips in recent years. It was buying support from domestic funds which had aided the recent recovery on the bourses.

Meanwhile, as per recent reports, ELSS which offer tax benefit are catching the fancy of small savers. ELSS funds saw their collective assets jump more than nine times to about Rs 16000 crore in three years ending March 2008. In 2005 the investment limit eligible for income tax breaks was raised ten times to Rs 1,00,000 rupees for ELSS funds. Systematic investment plan (SIP) are said to be driving inflows into ELSS funds.

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