Market submits to all-round selling

The market remained entrenched in the red throughout the session. Heavy selling continued for the entire day, as markets across the globe were in a state of meltdown. Experts opine that one of the reasons for the current sharp correction is due to Yen carry-trade unwinding.

The 30-share BSE Sensex settled with a loss of 471.09 points (3.66%), at 12,415.04. It had opened weak, at 12,716.85, and plunged to a low of 12,344.44 as selling intensified. This is also the lowest level in nearly five months since 12 October 2006.

The S&P CNX Nifty plunged 150.25 points (4.03%), to finish at 3,564.85.

The total turnover on BSE amounted to Rs 3989 crore.

The market-breadth, which reflects the overall health of the market, has turned weak in the past few days, since the correction set in and a sell-off gripped small-cap and mid-cap shares.

It has been observed that in case of sharp corrections, shares from this segment are more likely to be sold compared their large-cap peers.

The BSE Mid-Cap Index shed 4.97%, while the BSE Small-Cap Index lost 5.64%. There were over 10 losers for every single gainer on BSE. Just 218 shares advanced compared to 2,391 that declined. Only 25 scrips remained unchanged.

The small-cap and mid-cap shares have already retreated from their highs of early-February 2007. From a peak of 6,186.86 on 7 February 2007, the BSE Mid-Cap Index had shed 11.6% to 5,466.24 by 2 March 2007. From 7,697.81 on 7 February 2007, the BSE Small-Cap Index had tumbled 13.6% to 6,645.81 by 2 March 2007.

The market reeled under the wrath of investors. A host of factors including lack of inflows at higher levels, the surprise CRR-hike, high valuations, rising inflation and rising interest rates, fears of an earnings slowdown in the coming quarters kept the sentiment edgy all along. The defeat of the Congress in Uttarakhand and Punjab, weak global markets and profit-taking at higher levels have also plagued the market lately.

Ever since the Sensex struck an all-time high of 14,723.88 on 9 February 2007, it has corrected a sharp 1,838 points (14.27%), to 12,886.13 by 2 March 2007 - in less than a month's time. Caution was also partly due to worries of a possible interest rate hike by the Bank of Japan (BoJ), which came true later. Japan's central bank raised the benchmark lending rates in the country to 0.50% on 22 February 2007.

Local bourses are under pressure as global markets, which too have been on a downtrend since the last few days, were sharply jolted today as well. The Nikkei average fell 3.34% on Monday, marking its biggest one-day tumble in nine months, and a new low for 2007, as investors continued to dump shares in exporters such as Toyota Motor Corp and Canon Inc following the yen's rise.

The sell-off pushed the Nikkei average below the psychologically important 17,000-level for the first time in nearly two months, and left investors wistfully awaiting a rebound. The Nikkei tumbled 575.68 points, to 16,642.25, its lowest closing since December and its biggest one-day percentage loss since June 2006.

The Hong Kong’s Hang Seng Index tumbled 777.13 (4%), to 18,664.88.

All European and Asia/Pacific markets were trading with sharp losses.

All constituents of the Sensex, with the exception of Gujarat Ambuja Cements (up 0.35% to Rs 110) and Grasim (up 0.31% to Rs 2105), were trading with losses.

Indian bulk drugs major Ranbaxy laboratories was the top loser, down 8.15% to Rs 319.10, on a volume of 4.59 lakh shares.

Cap maker Maruti Udyog declined 6.11% to Rs 783, on a volume of 3.06 lakh shares. It had slipped to a low of Rs 781, the scrip's low being Rs 769.

Dr Reddy’s (down 6.15% to Rs 620), Tata Steel (down 6.1% to Rs 416.50), Wipro (down 6.92% to Rs 533.55) and L&T (down 5.85% to Rs 1379) were the other big losers.

ACC slipped 5.08% to Rs 812.10, after its February shipments fell 7.2% to 1.42 million tonnes year-on-year. The production in February 2007 declined to 1.45 million tonnes, down from 1.54 million tonnes in February 2006. Production was hurt due to technical modifications at three of its plants.

Index heavyweight Reliance Industries (RIL) was down 5.03% to Rs 1251.15. A huge 18.50 lakh shares had changed hands in the heavyweight counter. The RIL scrip had also slipped to an intra-day low of Rs 1250.

Frontline IT stocks were sold after some negative announcements in Union Budget 2007-08. The BSE IT index lost 4.52%.

The Union Government has extended minimum alternate tax (MAT) to income in respect of which deduction has been claimed under sections 10A and 10B, to the IT sector. Currently, tax exemption under section 10A is available for units set up in software technology parks (STP). The benefit under this sector expires in 2009. As a result, effective tax rates for IT companies will go up and impact earnings. However, companies paying tax outside India will get some respite on account of double taxation avoidance treaty. Such firms can set off the tax paid outside India against MAT.

Moreover, the government has brought employee stock options under the fringe benefit tax (FBT). FBT will now be charged on the difference between market price and exercise price of the option. This will, consequently, increase the tax outgo of companies that have an ESOP scheme.

Satyam Computer (down 3.38% to Rs 412.80), Wipro (down 6.92% to Rs 533.55), TCS (down 4.21% to Rs 1157.60), and heavyweight Infosys Technologies (down 4.76% to Rs 2003.10) slipped.

ICICI Bank lost 3.37% to Rs 818, even as it decided to consider transfer of investments in four subsidiaries in insurance and mutual fund businesses to a wholly-owned subsidiary, which also may lead to the eventual listing of the holding company. ICICI Bank said on Saturday (3 March) investments in the four subsidiaries may be transferred to ICICI Holdings, the new subsidiary to be formed. ICICI Bank also informed that it may consider listing the shares of ICICI Holdings next year.

ICICI Bank plans to transfer its investments in ICICI Prudential Life Insurance Co., ICICI Lombard General Insurance, Prudential ICICI Asset Management Co. and Prudential ICICI Trust, to ICICI Holdings.

ICICI Holdings will consider a public listing of shares by December 2007, to meet a part of its capital requirements for its insurance ventures. However, ICICI Bank intends to retain its majority ownership in the new company.

Shares of top-steel producers declined by 6 - 9% after producers today decided to roll-back a Rs 300 - Rs 700 per tonne price hike of reinforced steel. The BSE Metal Index was down 4.6%, to close at 8,036.49.

JSW Steel plunged 9.4% to Rs 426.50, Steel Authority of India (Sail) lost 8% to Rs 97, Essar Steel lost 6.7% to Rs 36 and Tata Steel shed 6% to Rs 416.50. A strong 59.7 lakh shares changed hands in Sail, 19.7 lakh shares got traded in Tata Steel, 4.3 lakh shares changed hands in JSW Steel and 3.7 lakh shares changed hands in the Essar Steel counter.

The partial roll-back of the hike came after government held talks with top steel makers - Steel Authority of India (Sail) and Tata Steel. Prices of reinforced steel, used for constructing houses, were raised last Thursday (1 March 2007) to align them more closely with world prices.

Producers have also agreed to cut prices of hot rolled coils by Rs 500 a tonne. At least two steel makers, Essar Steel and Tata Steel, had raised the price of hot rolled coils by Rs 1,000 per tonne on 1 March 2007 in line with international prices. Steel makers had raised prices due to firm global prices.

Cement stocks continued to trade weak, as the finance minister warned cement companies on hiking prices. Birla Corporation (down 3.37% to Rs 227.90), JK Lakshmi Cement (down 7.05% to Rs 109.50), UltraTech Cement Company (down 7.32% to Rs 818.90), India Cement (down 6.16% to Rs 158.55) and Decan Cement (down 7.95% to Rs 136) declined.

Suzlon Energy plunged 7% to Rs 978.30, in a weak market, as the company's bid for REpower Systems at 126 euros a share has been approved by Germany's regulator of financial markets.

The scrip of Suzlon Energy had tumbled in early-February 2007 on concerns that the big-ticket acquisition will put a short-term strain on the Indian firm's financials. Suzlon's all-cash offer for REpower values the German firm at 1.02 billion euro, or 126 euros per share, which was about 20% higher than the offer by France's state-owned nuclear group, Areva, which made its offer on 5 February 2007.

R Systems International tumbled 17.93% to Rs 133, after the company reported a dismal financial performance for the fourth quarter ended 31 December 2006.

All BSE sectoral indices ended negative.

As per a research agency, India’s economy is expected to show robust growth in 2007-08, amidst concerns of overheating. India's economy grew at an average rate of 8.6% between 2003-04 and 2006-07. This is not only the strongest ever growth stimulus in India since independence, but also is in the league of the fastest growing economies of the world.

“A combination of global and domestic factors could moderate the growth momentum slightly in fiscal 2008. A mild slowdown in the US economy, relative to its 2006 performance, and a drop in the Chinese growth rate are key global influencers; however, growth momentum is more vulnerable to high inflation and overheating in the domestic economy,” the research agency added.

With GDP growth expected at around 8%, the fiscal targets for 2007-08 appear to be within reach. For 2007-08, it expects GDP growth to moderate to 8.4 - 9%, inflation at 5 - 5.5% and 10-year GSec yields at 7.8 - 8%. The INR/US exchange rate is expected to stay in the band of 44 - 45 in 2007-08.

US stocks plunged on Friday (2 March) following weak European and Asian markets as diminished investor appetite for risk capped one of the most punishing weeks for global equities in years. In volatile trade, the Dow Jones Industrial Average ended down 120.24 points, or 0.98%, at 12,114.10. The Standard & Poor's 500 Index ended down 16.00 points, or 1.14%, at 1,387.17, while the Nasdaq Composite Index ended down 36.21 points, or 1.51%, at 2,368.00.

Except MTNL, all Indian ADRs lost on the US bourses. Rediff and VSNL fell sharply and tumbled over 3%, while Tata Motors and Infosys Satyam, Wipro, HDFC Bank and ICICI Bank declined over 1-2% each. Patni Computers also ended with a loss, albeit a marginal one.

Weak global markets had spooked domestic bourses last week. The turmoil across the globe began with a steep slide in China. The yen bouncing back against the US dollar, a near 9% fall in Chinese stocks on 27 February 2007, followed by a 3.2% fall in Dow Jones Industrial Average on the same day, prompted some investors to cut carry trades, where they borrow cheap in Japan and invest in countries with higher yields. Hedge funds have been borrowing funds in yen due to low interest rates in the world's second largest economy, and redeploying them in other assets, a source of liquidity that has fueled speculation in the stock market and other asset classes.

FIIs have pressed substantial sales in the past few days in contrast to an intermittent surge in inflow in February 2007. As per provisional data, FIIs were net sellers to the tune of Rs 613 crore on Friday (2 March 2007), the day when the Sensex had lost 273 points. Their net outflow was worth Rs 3080.80 crore in four trading sessions, from 26 February 2007 to 1 March 2007. This was in contrast to a robust inflow of Rs 2909.90 crore in five trading sessions, from 2 February 2007 to 8 February 2007. The inflows had surged in early-February 2007, following an upgrade in India’s sovereign ratings by global ratings agency Standard & Poor's (S&P) on 30 January 2007.

FIIs were net sellers to the tune of Rs 47 crore in index-based futures on Friday. They were net buyers to the tune of Rs 91 crore in individual stock futures on the same day. Nifty March 2007 futures settled at 3,690.30 on Friday, a steep discount of 36.45 points over the spot Nifty closing of 3,726.75.

A section of the market believes that the present fall offers a good buying opportunity for long-term investors. From a lifetime closing high of 14,652.09 on 8 February 2007, the Sensex has lost 14.8%. Deutsch Bank, in a post-Budget report, states that Bhel, Infosys, Punjab National Bank and Grasim (a high-risk, high-return play) are its top picks.

UBS shares a similar view. ‘Post the recent correction, relative valuations don’t appear as expensive as they used to be. India is now the fourth most-expensive market in Asia compared to the most expensive tag it had about a month back’, UBS states in its post-Budget report. At current levels, the Sensex trades at 15.8 times 1-year forward EPS – an 8% premium over the long-term average of 14.6, the report adds.

Oil prices dropped sharply on Monday, as the market responded to continuing stock market declines and concerns about the world economy. Light, sweet crude for April delivery fell 78 cents, to $60.86 a barrel, in Asian electronic trading on the New York Mercantile Exchange. Last week's US inventories report showed stockpiles of gasoline and distillates, which include heating oil and diesel fuel, dropped by a larger amount than analysts had forecast. In other Nymex trading on Monday, heating oil futures fell 1.53 cent to $1.7529 a gallon, while natural gas prices rose 0.7 cent to $7.250 per 1,000 cubic feet.

Trading on the bourses has been extended by 45 minutes till 16:15 IST starting today due to sun outage. Daily trading time has been extended up to 19 March 2007. Trading on NSE will be stopped from 11:45 IST to 12:25 IST everyday during the same period.