Debacle spills over to the fourth straight session

The market lost for the fourth straight day on fears of a further rise in interest rates, a hike in the cash reserve ratio (CRR), heavy unwinding in the derivatives market and a large number of IPOs lined up for the next few weeks. The bourses were gripped by extreme volatility in all the four trading sessions.

The 30-shares BSE Sensex lost 81.08 points, to end at 14,009.90. It had opened lower, at 13,990.41, and plunged to 13,805.36 under intense pressure. The Sensex managed to settle above the 14,000 level, as strong buying, most of which can be attributed to short-covering in derivatives, at the lower level kept the losses within manageable limits.

Value-buying, however, propelled the Sensex from the lower level in the late-afternoon session. The BSE Sensex also hit a fresh high of 14,036.61, as buying picked up.

Surprisingly, the S&P CNX Nifty was up 2.55 points, to 4,047.10, due to a higher weightage of Wipro, which sustained strength throughout the day. Technical analysts feel that Nifty has a strong support in the range of 4,000 – 4,040. Nifty also has a strong resistance at 4,135 and will turn bullish for a short-term only if it breaks 4,135 mark. In such a case, Nifty may again test its all-time high of 4,245.

The market-breadth, an indication of the overall health of the market, finished weak, but did not look as miserable as it was in opening trade. A weak breadth has been the feature of trading since the last few days, as small-caps and mid-caps are being offloaded heavily. Just 1,073 shares advanced, against 1,490 declining on BSE. Also, 70 scrips remained unchanged. The BSE Mid-Cap rose 14.74 points at 5,800, while the BSE Small-Cap index lost 20.33 points, at 7,067.82.

The total turnover on BSE amounted to Rs 3998 crore.

Among the 30-Sensex pack, 16 declined while the rest advanced.

Banking stocks were impacted the most by the CRR hike of 50 basis points. The BSE Bankex was the top loser among the BSE sectoral indices, down 290.14 points (3.99%), to 6,976.60.

State-run SBI was the top loser, down 5.86% to Rs 1104, on a volume of 8.31 lakh shares. It had recovered from a low of Rs 1085.55.

ICICI Bank (down 4.30% to Rs 913) and HDFC Bank (down 5.12% to Rs 1016.90) followed closely on the heels of the SBI debacle. Bank of India (down 4.6% to Rs 169.40), Bank of Baroda (down 3.05% to Rs 227), Punjab National Bank (down 4.72% to Rs 461.25), Oriental Bank of Commerce (down 7.33% to Rs 217.95) and Vijaya Bank (down 2.68% to Rs 45.35) were among the other major ones to suffer. However, they have recovered from their early lows.

Maruti Udyog (down 3.47% to Rs 860), Grasim (down 3.35% to Rs 2659) and HDFC (down 2.53% to Rs 1679) were the other eminent losers.

Bajaj Auto (BAL) was down 0.69% to Rs 3025. The company is targeting revenues of Rs 10,000 crore for the current fiscal with total sales of 28 lakh vehicles. Bajaj Auto launched its 200 cc Pulsar DTS-i for Rs 65,497 ex-showroom, New Delhi. It will be the first bike with an oil-cooled engine of 18 BHP power.

Index heavyweight Reliance Industries (RIL) ended up 1.56%, at Rs 1388, and off the day’s low of Rs 1356.60. The stock played a key role in the recovery from the lower level.

Aluminium major Hindalco was the top gainer, up 3.87% to Rs 147.60, on a volume of 40.04 lakh shares. It had advanced to a high of Rs 150, its low being Rs 139.

Telecom stocks -Reliance Communications (up 2.63% to Rs 452.65) and Bharti Airtel (up 3.15% to Rs 763) advanced due to the strong response received by an IPO of Idea Cellular by the end of the second day of the issue. Foreign investors put in bids for 122.69 crore shares compared to 19.15 crore reserved for the entire qualified institutional bidders (QIB) category by end of Tuesday (13 February 2007). By 4:00 IST on Wednesday, the IPO had received bids for 166.24 crore, which was five times the issue size of 32.69 crore.

ONGC (up 2.05% to Rs 903) and Tata Steel (up 1.93% to Rs 440.60) advanced. ONGC’s overseas arm, ONGC Videsh, picked up 20% stake in Italian ENI's deepwater block in Congo Brazzaville.

As per reports, ONGC is also in talks with Brazil's Petrobras for offering each other a stake in their respective oil and gas blocks. ONGC is likely to offer Petrobras a stake in a block in deepwater Krishna-Godavari basin, in which it recently discovered gas. In return, Petrobras is expected to offer ONGC a stake of equal value in blocks in the Campos basin, off Brazil's coast. ONGC Videsh already owns 15% stake in an offshore block in Brazil.

Further, the state-run firm has chalked out plans to drill ultra high-tech wells at all its on-shore assets. ONGC also proposes to drill 15 sidetrack ultra-short radius drain holes. By the end of this financial year, it hopes to complete drilling two - three wells in Mehsana, Gujarat.

Theater chain operator Cinemax India, which debuted today, settled at Rs 152.35, a slight discount. A huge 1.09 crore shares of Cinemax India changed hands on BSE. The stock debuted at Rs 175, hit a low of Rs 145 and also a high of Rs 178.90. The company had offered shares at Rs 155 per share in the recently concluded IPO.

IT services and BPO firm Mphasis BFL surged nearly 8% to Rs 294.20 on renewed buying at the lower level after a recent sharp correction. The stock had declined almost 15% to Rs 272.85 on 13 February 2007, from Rs 320.90 on 6 February 2007. The decline was after a solid 14.8% post Q3 results rally in the scrip to Rs 320.90 by 6 February 2007 from Rs 279.45 on 31 January 2007.

Punjab Tractors gained 6.8% to Rs 334, recovering from a three-day slide. Aggressive bidding is expected for a stake in the tractor firm as multiple players have joined the race, boosting the stock sharply in the last few days. Hinduja group's Ashok Leyland (ALL) is the latest entrant in the race for the 43.5% stake held by Actis and the Burmans together in Punjab Tractors (PTL).

IFCI surged 8.07% to close at Rs 28.80, on a massive 3.26 crore shares after NSE removed curbs on fresh positions in the derivative contracts of the company.

SRF surged 4.88% to Rs 170.05, after the NSE allowed building fresh positions in the derivatives contracts, and lifted the curb on the stock.

Sanwaria Agro Oils advanced 3.69% to Rs 45, after the company decided to set up a wind-based power plant in Madhya Pradesh. The greenfield project will be implemented in two phases. The wind power generated in Phase-I will be for captive use, while the power generated in Phase-II will be marketed.

Educomp Solutions gained 1.11% to Rs 933.20, after it bagged a Rs 18 crore contract to implement ICT-based education under the Ict@schools project in 264 government high schools of Karnataka. The project has to be completed within five years.

Greaves Cotton declined 1.19% to Rs 331, despite a subsidiary's plan to buyout Germany’s Bukh-Farymann Diesel for an enterprise value of 4.24 million euros. Bukh-Farymann is a profit-making company and manufactures Farymann diesel engines and components. This acquisition will facilitate Greaves Cotton to go global, and will also boost the Indian company's export initiatives.

South East Asia Marine Engineering & Construction (Seamec) surged 10% to Rs 206.25, after reporting 64.60% surge in net profit during Q4 December 2006. Seamec reported a 64.60% surge in net profit in the Q4 December 2006 to Rs 25.86 crore (Rs 15.70 crore). Net sales for the quarter surged 124.6% to Rs 61.59 crore (Rs 27.41 crore).

The central bank said the cash reserve ratio (CRR) will rise to 6% from 5.5% in two stages, the first on 17 February 2007 and the second on 3 March 2007, to rein in inflation and credit growth.

A higher CRR requirement will deprive banks of lendable resources, sucking out Rs 14000 crore from the system. Banks do not earn any interest on CRR funds kept with the Reserve Bank of India (RBI). The move is likely to make corporate loans, home loans, auto loans and personal loans more expensive.

Strong credit growth in a booming Indian economy has pushed up both lending and deposit rates of banks over the past few years. Recently, private sector ICICI Bank raised its benchmark reference rate on corporate loans and home loans by 100 basis points.

Non-food credit grew 30.2% year-on-year up to 2 February 2007 against a growth of 33.2% a year ago, while aggregate deposits expanded 23.2% year-on-year to 2 February, over and above 17.5% a year ago.

Ahead of the CRR hike, Indian bond yields ended at a 5-1/2-month high on Tuesday after a key central bank official said he was concerned by rising inflation, stoking nervousness that monetary policy may have to tighten further. The 9-year bond yield rose further on to 8.14% in initial trade from Tuesday's close of 7.96%.

Data on last Friday (9 February)showed annual inflation rose to a two-year high of 6.58% in late January, above the central bank's target range of 5 - 5.5% for the end of the fiscal year to March 2007.

At its quarterly policy review on 31 January 2007, the RBI had also raised its key short-term rate, the repo rate, by 25 basis points.

The fall started on Friday (9 February), when the Sensex lost 113 points. The Sensex tanked 348 points on Monday (12 February 2007), partly due to weak Asian markets, and partly on concerns about a further rise in interest rates. The Sensex declined a further 100 points lower on Tuesday (13 February 2007) in highly volatile trade.

Meanwhile, most stock markets around the world were trading higher. Hong Kong's Hang Seng Index rose 0.39%, while the Nikkei 225 Index gained 0.74%.

FIIs turned net buyers in index-based futures on 13 February 2007, after their heavy sales of Rs 1764 crore in the previous two trading sessions, from 9 February to 12 February. FIIs were net buyers to the tune of Rs 129 crore in index-based futures on 13 February 2007.

As per provisional figures in the cash segment, FIIs were net sellers of equities worth Rs 385 crore on 13 February 2007.

MFs sold shares worth a net Rs 389 crore on 12 February 2007. As per the latest data, NSE F&O open interest increased by Rs 99 crore to Rs 58,189 crore, the marketwide rollover stood at 9%, while the Nifty rollover was 16%.

A lack of support from mutual funds has also led to the sharp correction in the market. Mutual funds are turning net sellers in the equity markets in a strategy aimed at piling up cash, anticipating a post-budget churning of portfolios, analysts said. Between 2 - 12 February 2007, mutual funds were net sellers of stocks worth Rs 1,083.50 crore. Mutual fund houses were net sellers in equities to the tune of Rs 1,342.23 crore in January too.

In contrast, foreign institutional investors (FIIs) were net buyers of equities during the same period (2 - 12 February 2007), propelling the benchmark stock indices to record levels last week. Since 2 February, FIIs have lapped up equities worth Rs 2,713 crore. The Sensex jumped to an all-time high twice last week.

US stocks jumped on Tuesday, led by gains in the Dow industrials as talk that aluminum maker Alcoa may become a takeover target bolstered optimism about deals, and energy shares gained with a sharp rebound in oil prices.

The Dow Jones industrial average climbed 102.30 points, or 0.81%, to end at 12,654.85. The Standard & Poor's 500 Index shot up 10.89 points, or 0.76%, to finish at 1,444.26. The Nasdaq Composite Index rose 9.50 points, or 0.39%, to close at 2,459.88.

US crude oil shed 19 cents to $58.87 a barrel on Wednesday after rising above $59 overnight as the International Energy Agency raised its 2007 demand forecast and said it expected oil market fundamentals to tighten.

Meanwhile, domestic financial institutions (FIs) are expected to take away a substantial chunk of equity being offered by India’s premier stock exchange, the Bombay Stock Exchange (BSE), under the demutualisation scheme. According to reports, local financial institutions will be given priority while divesting 51% stake of broker shareholders in the corporatised exchange.

Reports add that Germany's Deutsche Boerse is reported to have bought 5% in Asia's oldest bourse, the Bombay Stock Exchange(BSE). Deutsche Boerse had bought the stake for $42.7 million. The BSE will sell a further 21% to private equity funds.

The BSE intends to reduce the stake held by its brokers by offering 26% to strategic investors and a further 25% through an IPO for listing of shares on the exchange. Any one strategic investor's stake is limited to 5%. Analysts have valued the BSE, which was established in 1875, at about $1.1-$1.3 billion.

The Singapore Stock Exchange has also expressed its desire for a stake in BSE. The Nasdaq Stock Market and the London Stock Exchange are also in the running. The NYSE Group in January paid $115 million for 5% in the National Stock Exchange (NSE). Private equity firm General Atlantic, SoftBank Asian Infrastructure Fund and investment bank Goldman Sachs also bought 5% each in NSE.

The BSE is also expected to rope in one or more global stock exchanges as equity partners. Under the corporatisation and demutualisation scheme approved by Sebi in 1995, the BSE is required to bring down brokers’ collective stake from the current 100% to 49% to facilitate segregation of ownership and management of trading rights of members.