The decoupling theory and expectations of increased FII inflows into India due to widening rate differential with the US have remained just theories. Historically, no great inflows have come in during huge interest rate differentials. Ben S. Bernanke has done it again. Faced with dire prospects for the US economy, the Federal Reserve has slashed benchmark interest rates by another half a percentage point. This comes on top of last week's unprecedented 75 bps cut.
We expect another cautious to nervous start, as Asian markets are trading mixed this morning. The F&O expiry will make things more volatile. Intra-day traders will continue to face a rough environment for a while. At the same time, long-term investors may be happy as they can pick up quality stocks at much cheaper rates compared to what they were a few weeks back. Volume may increase on account of the F&O expiry.
"Downside risks to growth remain," the FOMC said in a statement. In a reference to the volatility across global markets, the Fed said financial markets remain under considerable stress and credit has tightened further. The Fed's two aggressive rate cuts within just 10 days show desperation of the Bush Government in preventing a recession in the wake of the severe correction in the housing sector and the ensuing strain in credit markets. Meanwhile, the US economy almost came to a standstill in the fourth quarter, registering a slim gain of 0.6%, much lower than consensus estimates.
Most equity markets rallied after last week's Fed move. But this time around the reaction is pretty muted with US stock indices falling sharply from day's highs and Asian markets mixed. Markets in Europe too ended down following a massive fourth-quarter loss declared by Swiss bank UBS and worse than expected fall in profits for French banking major BNP Paribas.
Coming to our market, we expect the sentiment to remain subdued despite the Fed rate cuts. The move was widely expected anyways, and still doesn't guarantee complete safety for the US economy. As a result, there will be more bad news from the US in the coming months and one should brace for tough times ahead. Though India will be relatively less affected by the mess in the US and other advanced economies, it cannot remain completely insulated for long. We see the market being rangebound and choppy till FIIs resume their aggressive buying spree in India. They have pulled out US$4bn in just past 10 days. If they remain negative on India, it will take time for the bulls to rebound.
FIIs were net sellers of Rs9.11bn (provisional) in the cash segment on Wednesday. On the other hand, Domestic Institutions were net buyers of Rs7.23bn. In the F&O segment, foreign funds were net buyers of Rs16.30bn. FIIs were net sellers of Rs2.85bn in the cash segment on Tuesday, taking their net outflows over the past 10 days to over US$4bn. Mutual Funds were net sellers of Rs1.17bn on the same day.
Key Results Today: ACC, AIA Engineering, Allcargo Global, Alok Industries, Amtek Auto, Amtek India, Assam Company, Asian Electronics, Bajaj Electricals, BPCL, Bhushan Steel, Birla Corp., BPL, Cadila Healthcare, CEAT, CESC, Colgate, Cranes Software, Deccan Aviation, Deepak Fertilizers, Dewan Housing Finance, Dolphin Offshore, Emami, Escorts, Fedders Llloyd, Finolex Cables, GAIL, Gammon India, Global Broadcast News, Hero Honda, Himatsingka, Hotel Leela, IOC, Indraprastha Gas, Ispat Industries, IVR Prime, IVRCL Infra, J&K Bank, Jindal Drilling, KEC International, Kinetic Engineering, Kinetic Motor, Koutons Retail, LMW, MRF, Madhucon Projects, Madras Cement, Maharashtra Seamless, Mcnally Bharat, Moser Baer, Mukand, Nagarjuna Construction, Northgate Tech, Omaxe, Parsvnath Developers, Peninsula Land, Prime Focus, Provogue, Punj Lloyd, Puravankara Projects, Ramsarup Industries, RCOM, Rolta, RPG Transmission, Siemens, Swaraj Mazda, Tata Motors, Tata Steel, TV18, Torrent Pharma, TV Today, Unitech, UB, United Phosphorus, Uttam Galva and UTV.
Asian markets are trading mixed this morning. The Nikkei in Tokyo was up 72 points at 13,417 while the Hang Seng in Hong Kong slumping 550 points to 23,103. The Kospi in Seoul was virtually flat at 1595 while the Straits Times in Singapore dropped 22 points to 2978. The Shanghai Composite in China advanced 22 points to 4440 and the Taiex in Taiwan slipped 123 points to 7420.
US stocks erased strong gains to closed marginally in the red despite the Fed announcing a half-a-point reduction in both fed funds rate and discount rate. Stocks had rallied until the last half hour of trade, with the Dow at one time up nearly 200 points. But the rally faded near the close, following rumors that one of the major bond insurers was likely to be downgraded. The latest panic about the credit market crisis has further complicated the outlook for bond insurers.
Ahead of the Fed meeting, US stocks had fallen on a weaker-than-expected fourth-quarter GDP report and Yahoo's grim profit forecast. After the close, Amazon.com reported higher quarterly earnings that met estimates on higher revenue that topped estimates. Also, Starbucks reported higher quarterly profit that topped estimates, but also said that it will open less new US stores in 2008 and close some under-performing ones.
Ambac Financial Group and MBIA, the largest US bond guarantors, led declines after Fitch Ratings revoked its top ranking on Financial Guaranty Insurance Co. The S&P 500 Index had climbed as much as 1.7% following the Fed decision. However, it ended down 6.49 points, or 0.5%, to 1,355.81 and is down 7.7% this year. The Dow Jones Industrial Average lost 37.47 points, or 0.3%, to 12,442.83. The Nasdaq fell 9.06 points, or 0.4%, to 2,349. Market breadth was negative. About two stocks fell for every one that rose on the New York Stock Exchange.
The Fed lowered the fed funds rate by 50 bps to 3%, as expected. It also cut the discount rate by a half-percentage point to 3.5%. In the FOMC's closely-watched statement, the central bankers said "financial markets remain under considerable stress, and credit has tightened further for some businesses and households." The bankers also said that recent data suggests the housing market contraction is worsening and the labor market continues to soften.
US fourth-quarter GDP growth slowed to an annualized rate of 0.6% in the Oct-Dec quarter, down from 4.9% in the third quarter, and short of forecasts for a rate of 1.2%. Another report, from payrolls services firm ADP, showed that private sector employment grew more than expected in January. This could be a good indicator for Friday's broader monthly labor market report.
Treasury prices slipped, raising the yield on the 10-year note to 3.68% from 3.67% late on Tuesday. In currency trading, the dollar fell versus the yen and the euro. COMEX gold for April delivery fell $4.50 to $926.30 an ounce, after hitting an all-time trading high of $933.50, struck on Tuesday.
US light crude oil for March delivery rose 69 cents to settle at $91.64 a barrel in New York. Oil prices had eased off their highs following the release of the government's weekly supply report, which showed crude oil and gas stocks rose more than expected.
Across the Atlantic, European shares lost ground with investor sentiment hurt by nervousness ahead of the US interest-rate decision as well as new write-downs from UBS and BNP Paribas and a negative brokerage note on the auto sector. The pan-European Dow Jones Stoxx 600 index slipped 0.7% to 322.19. The French CAC-40 fell 1.4% to 4,873.57, while the UK's FTSE 100 closed down 0.8% at 5,837.30 and the German DAX 30 eased 0.3% to 6,875.35.
In the emerging markets, the Bovespa in Brazil was up 1.3% at 60,289 while the IPC index in Mexico added 0.1% at 28,296. The RTS index in Russia was down 1.4% at 1981 and the ISE National-30 index in Turkey gained 1% at 55,587.
Bulls look to Fed for a rebound
Markets ended on the receiving end extending its losing streak to the third straight trading session. The fall could be attributed to global weakness and selling pressure in the frontline stocks like Reliance Industries, ICICI Bank and ONGC.
All the key secotral indices ended in red. The BSE Oil & Gas index (down 4.4%), BSE Power index (down 2.8%), BSE PSU index (down 2.5%), BSE Realty index (down 2.4%) and BSE Auto index (down 2.2%).
Finally, the 30-share Sensex closed at 17,758, losing 333 points. It touched an intra-day high of 18,129 and a low of 17,686. The NSE Nifty slipped 113 points to close at 5,167 after hitting an intra-day high of 5,314 and a low of 5,142.
Bharti Airtel gained 1.1% to Rs860 after the company declared its Q3 net profit at Rs17.22bn (up 41.7%) and sales rose 41% to Rs69.64bn. The scrip touched an intra-day high of Rs869 and a low of Rs845 and recorded volumes of over 33,00,000 shares on NSE.
Essar Oil was down 6% to Rs230 after the company declared that it posted a loss in the third quarter. It had net loss of Rs134mn in the three months ended Dec. 31 compared with a profit of Rs1.2mn a year earlier. The scrip touched an intra-day high of Rs247 and a low of Rs225 and recorded volumes of over 1,00,00,000 shares on NSE.
VSNL slipped 5.6% to Rs496 after reports stated that LIC offloaded 2% stake in the company for about Rs3.4bn. The scrip touched an intra-day high of Rs524 and a low of Rs487 and recorded volumes of over 3,00,000 shares on NSE.
Evinix gained 2% to Rs160 after the Board of Directors of the company announced a 57.96% growth in its net profit at Rs36.9mn for the third quarter ended December 31, 2007 as compared to Rs23.3mn in the corresponding period last year. Net Sales were at Rs281.8mn, a surge of 11.46% as compared to Rs252.8mn for the same period last year. The scrip touched an intra-day high of Rs165 and a low of Rs152.
Lanco Infratech lost 8.8% to Rs483. The company posted profit after tax of Rs825.19mn up 32.6% for the quarter ended December 31, 2007 where as the same was at Rs621.90mn for the quarter ended December 31, 2006. Total Income is Rs7968.21mn for the quarter ended December 31, 2007 where as the same was at Rs4507mn for the quarter ended December 31, 2006. The scrip touched an intra-day high of Rs540 and a low of Rs475 and recorded volumes of over 7,00,000 shares on NSE.
Allied Digital was frozen at 5% upper circuit to Rs841.7 after the company announced their quarter results with total income of Rs808.4mn for the quarter ended December 31st, 2007, an increase of 86.52% as compared to total income of Rs433.4mn for the quarter ended December 06. The net profit after tax for the quarter ended December 2007 was Rs121mn as against a PAT of Rs67mn for the quarter ended December 2006, an increase of 80.59%. The scrip touched an intra-day high of Rs841.7 and a low of Rs771 and recorded volumes of over 35,000 shares on NSE.
Unitech pared its gains and ended 3% lower to Rs376. Reports stated that the company was planning to sell 10-50% stake in its telecom service operations to a foreign company. The scrip touched an intra-day high of Rs400 and a low of Rs370 and recorded volumes of over 36,00,000 shares on NSE.
Bajaj Auto slid by over 3% to Rs2300 after the company announced its Q3 result with net income at Rs3.27bn vs Rs3.45bn and net sales at Rs25bn vs Rs25.68bn. The company's Q3 vehicle sales also fell to 7,13,135 units as compared to 7,38,219 units. The scrip has touched an intra-day high of Rs2380 and a low of Rs2220 and recorded volumes of over 1,00,000 shares on NSE.
M&M edged lower by 0.2% to Rs699. The company declared its Q3 result with net profit to Rs4.05bn (up 67%) and sales at Rs29.4bn (up 14%). The scrip touched an intra-day high of Rs710 and a low of Rs678 and recorded volumes of over 7,00,000 shares on NSE.
SCI dropped 6.5% to Rs216 posted a net profit of Rs1767.80mn for the quarter ended December 31, 2007 as compared to Rs2266.30mn for the quarter ended December 31, 2006. Total Income decreased from Rs11287.40mn for the quarter ended December 31, 2006 to Rs9811.20mn for the quarter ended December 31, 2007. The scrip touched an intra-day high of Rs232 and a low of Rs215 and recorded volumes of over 2,00,000 shares on NSE.
Tata Chemicals slipped by over 5% to Rs328 has posted a net profit after tax of Rs1254.80mn for the quarter ended December 31, 2007 as compared to Rs1167.70mn for the quarter ended December 31, 2006. Total Income has decreased from Rs13188.1mn for the quarter ended December 31, 2006 to Rs12365.20mn for the quarter ended December 31, 2007. The scrip touched an intra-day high of Rs354 and a low of Rs322 and recorded volumes of over 7,00,000 shares on NSENews Snippets:
Tatas may have to pay more for Jaguar and Land Rover due to better sales performance in 2007. (ET)
Godrej Appliances plans new products for high-end customers. (ET)
Reliance Retail opens its second hypermarket store 'Reliance Mart' in Jamnagar. (ET)
Bharti Airtel gets extra 2G spectrum in 5 circles of Gujarat, UP (West), Assam, WB and Haryana. (ET)
TRAI wants BIS to set technical standards for advanced DTH services. (ET)
Variable pay cut by TCS is not a cause for concern, says Infosys' HR Head. (ET)
ICICI Bank may have to wait for its entry into Singapore; SBI will be allowed first to open branches in Singapore. (ET)
Global Broadcast News (GBN) to raise Rs8bn, launch regional channels. (Mint)
Tata Tea plans to take Chai Unchai retail outlets abroad. (Mint)
Indian Oil is unable to sign long-term LNG supply contract with Algeria. (Mint)
Coal India to consider IPO only after getting Navratna Status: Chairman. (Mint)
Civil Aviation Ministry approves Air India's plan for employee stock options. (Mint)
Tamil Nadu Govt threatens to takeover lock-out MRF plant. (BS)
Wockhardt Hospitals cuts IPO price band to Rs225260 from Rs280310 due to volatile markets; the IPO opens on Jan. 31.
United Spirits plans to launch Whyte & Mackay brands in India; to double share in Scotch whisky market in 2 years to 24%. (BS)
Delhi High Court stays CLB order against Essel Group's acquisition of news agency UNI. (BS)
Govt defers approval for the proposed Hero-Daimler joint venture for CVs. (BS)
Dubaibased Landmark Group, which operates the Lifestyle chain, plans to invest US$500mn in India by 2010. (BS)
Videocon group proposes new investments in WB, including a deep-sea port and revival of an abandoned airstrip. (BS)
L&T plans to launch AMC; finalises Travelers as JV partner for non-life insurance venture. (BS)
UK's CDC to pump US$1bn in new emerging market infra fund to be run managed by Actis. (ET)
NTPC seeking location Nigeria to set up its 500mw coal based and 700mw gas based power plants.
JSW steel may acquire its own captive resource to feed upcoming expansion. (FE)
Godrej Group is planning to set up additional manufacturing facilities in Himachal Pradesh. (FE)
IOC and Essar Oil delayed crude pipeline at Vadinar in Gujarat is likely to shape soon. (FE)
Spice Communication has been accused by DOT of giving false statement. (FE)
TTK Prestige has forayed into modular kitchen business. (FE)
BPCL may acquire SPIC petrochemical asset. (TOI)
DLF, Emaar MGF and Unitech among others bid for developing spare railway land. (BL)
Andhra Bank will soon start its operation in New Jersey. (BL)
Novartis Pharma to ramp up its operation in India by adding 700 employees in next 18 month. (BL)
Economy News
Govt hikes FDI limit in 7 sectors; FDI in nonscheduled airlines capped at 74%; foreign investment in commodity exchanges capped at 49%.
SEBI has ruled that investors in close-ended MFs should not bear initial issue expenses.
Government considering launching Sovereign Wealth Fund. (ET)
India's forex reserves to swell by US$100bn in 2007-08: Chidambaram.
NCAER revises FY08 GDP growth forecast to 9.1% from earlier projection of 8.9%.
GoM meet on new pharma policy ends inconclusively. (ET)
Govt clears FDI proposals worth Rs22.88bn. (ET)
Weight of fuel group to increase in the revised WPI; current weight is 14.22%. (BS)
Govt targets US$10bn spice exports by 2018. (ET)
Andhra Pradesh may get another Ultra Mega Power Project. (Mint)
Jawaharlal Nehru Port Trust faces capacity constraints. (Mint)
Director general of hydrocarbons (DGH) has agreed drilling holidays on account of global rig shortage. (FE)
Indian Railway's may announce Rs350bn capex plan in the upcoming budget. (FE)
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