Volatility to the fore

Global markets dictated trend on Indian bourses over the past few days i.e. market rose when equities rose globally and vice versa. Global bourses witnessed alternate bouts of buying and selling caused by risk aversion or risk appetite that in turn was driven by how concerned the market was about US subprime mortgage woes.

The 30-share BSE Sensex lost 270.15 points or 1.78% to settle at 14,868.25 in the week ended 10 August 2007. The S&P CNX Nifty lost 68.20 points or 1.5% to settle at 4,333.35 in the week.

BSE Small-Cap index outperformed the market gaining 12.59 points or 0.16% to settle at 7,904.13 in the week. BSE Mid-Cap index lost 97.62 points or 1.48% to settled at 6,507.62 in the week.

In the first four trading sessions of the week till Thursday, 9 August 2007, the 30-share BSE Sensex lost 38.25 point to settle at 15,100.15. Nifty gained 1.65 points to 4,403.20.

Weakness in Asian stocks pulled Sensex down 235 points on Monday, 6 August 2007. Nevertheless, the market came sharply off lower level from an intra-day 433 points fall. Asian stock markets slumped after downbeat US economic data, including the influential non-farm payrolls report, adding to fears of the US subprime mortgage crisis.

The market recovered the next day amid mixed Asian markets. However, it came off higher level. Sensex rose 30 points. It had risen as much as 239 points at one point of time during the day.

The market surged on Wednesday, 8 August 2007, tracking rally across global markets. IT stocks led rally as rupee eased against the US dollar after the government on Tuesday, 7 August 2007, tightened overseas borrowing norms in a bid to check rupee’s rise. Stocks rose across the globe after the US Federal Reserve's positive outlook for the US economy helped soothe concerns about a global credit squeeze arising from US subprime mortgage woes.

The market lost ground on Thursday, 9 August 2007, in what was a complete reversal of trend during the day. Holding firm till afternoon trade, the market lost ground later following weak opening of European markets. Sensex lost 208 points. European shares slipped as BNP Paribas suspended redemptions from three funds citing problems in US subprime mortgages. The news came just at a time when worries about global credit problems arising from US subprime mortgatge woes appeared to be easing.

The market lost further ground the next day as markets fell across the globe. Sensex lost 232 points on Friday, 10 August 2007. Yet, it made a strong rebound from an intra-day 529 points fall.

Index heavyweight Reliance Industries (RIL) witnessed alternate bouts of buying and selling. The government on Monday, 6 August 2007, constituted an Empowered Group of Ministers (EGoM) to decide on the pricing of gas from Reliance Industries' KG basin field. The EGoM will be headed by External Affairs Minister Pranab Mukherjee. The eventual formula will apply to all future gas production in India.

Reliance Industries (RIL) is developing two deep-sea gas fields in its D-6 block in the Krishna (KG) Godavari basin, and it aims to produce 80 million cubic metres of gas per day by mid-2008.

IT shares surged on Wednesday, 8 August 2007, as rupee weakened against the dollar after the government on Tuesday, 7 August 2007, tightened overseas borrowing norms. Investor sentiment on the tech stocks has been sluggish in the last few months mainly because of the strong rupee. Rupee has been one of the best performers among Asian currencies in this calendar year so far.

At the time of announcing Q1 June 2007 results, IT bellwether Infosys had last month cut its FY 2008 earnings and revenue guidance in rupee terms due to a surge in rupee against the US dollar. A rise and rupee directly impacts the operating margins of IT firms which derive a lion’s share of revenue in dollars.

Bank stocks witnessed alternate bouts of buying and selling despite the view that Indian banks are unlikely to be impacted by US sub-prime mortgage defaults. Following the subprime loan problem, spreads of all credit default swaps have gone up. That is, their prices have gone down. Indian banks will, therefore, have to make higher provisions for losses on these swaps, when they mark to market their investments at the end of the current quarter. But these will be marginal compared to the size of their balance sheet.

Banking sector is expected to benefit from tighter overseas borrowing norms announced by the government on Tuesday, 7 August 2007, as companies looking to raise money abroad now have to turn to domestic banks for credit.

Two capital goods majors and market favourites L&T and Bhel witnessed buying at declines. Robust order book positions of the two firms give strong revenue visibility.

Cement shares, too, witnessed buying at declines due to firm cement prices. Cement firms reported strong dispatches for the month just gone by.

Omaxe settled at Rs 349.95 on BSE on Thursday, 9 August 2007, a premium of 12.8% over IPO price of Rs 310. The stock debuted at Rs 400. The IPO of Omxe had received strong investor response. It was subscribed 68 times. The company had priced the IPO at the top end of the Rs 265 to Rs 310 price band.

India Index Services & Products (IISL), a joint venture between NSE and CRISIL, on Tuesday, 7 August 2007, launched a new sectoral index based on the infrastructure sector. The 25-stock CNX Infrastructure Index includes companies belonging to the telecom, power, port, air, roads, railways, shipping and other utility services providers.

CNX Infrastructure Index constituents represent about 21.01% of the total market capitalisation as on 31 July 2007. The index is a market-capitalisation-weighted index with base date of 1 January 2004, indexed to a base value of 1000.

BSE has revised free-float adjustment factor of four constituents of BSE Sensex. It has raised the free-float adjustment factor of Maruti Udyog to 0.45 from 0.4. It has cut free-float adjustment factor of Bajaj Auto to 0.65 from 0.7 and that of Hindalco to 0.7% from 0.75%. It has cut free float adjustment factor of Ambuja Cements to 0.65% from 0.7%. The revised free float factors would come into effect from 13 August 2007.

Free float adjustment factor is used for calculating a scrip’s weightage in Sensex. The free float of a listed security is the proportion of shares available for purchase in the market by investors. In principle, it is the part of shares not held by strategic shareholders or promoters

BSE decided to transfer a total of 32 stocks to trade-to-trade segment to be effective from Friday, 10 August 2007. The stocks transferred to trade-to-trade segment include Adarsh Derivatives, BCC Fuba India, Bihar Sponge Iron, Garware Polyesters, Ras Propack Lamipack and Tanu Health Care, among others.

A Securities Exchange Board of India (Sebi) committee on launch of dedicated infrastructure funds (DIFs) has suggested that the proposed DIFs should operate as a closed-ended scheme with a maturity period of seven years. The committee has also suggested listing options for DIFs to provide liquidity to investors in the fund.

The committee, which submitted its report on Monday, 6 August 2007, also suggested that retail investors investing in DIFs be given tax incentives. The committee has, however, added that such tax benefits should be available only to the original investors.

India's industrial production rose an annual 9.8% in June 2007, lower than the downwardly revised annual growth of 10.9% in May 2007. Manufacturing production was up an annual 10.6% in June 2007, compared with a provisional annual growth of 11.9% in May 2007.

The wholesale price index rose 4.45% in the 12 months to 28 July 2007, higher than the previous week's 4.36% due to increased food and manufactured product prices.

The US Federal Reserve on Tuesday, 7 August 2007, left its benchmark interest rate unchanged at 5.25% in a widely expected move and said while tightening credit conditions had increased downside risks to the US economy, inflation was still its main concern.

Indian government on Tuesday, 7 August 2007, put stiff restrictions on overseas borrowings, a measure sought by the Reserve Bank of India (RBI) to enable it to check the rupee’s sharp appreciation. External commercial borrowings (ECBs) above $20 million have now been allowed only for foreign currency expenditure for permissible end-uses and are required to be parked abroad.

As a result, interest costs for companies might jump by 75-100 basis points as ECBs were usually at lower interest rates than domestic borrowings, reports suggest. Indian companies had raised a total of $24 billion of ECBs in 2006-07 against the government’s internal target of $22 billion.

According to Society of Indian Automobile Manufacturers (SIAM), domestic motorcycle sales contracted 17.25 % to 3,75,004 units in July 2007 over July 2006. Total domestic sales of two-wheelers fell 9.95% to 5,03,356 units in July 2007 over July 2006.

Domestic passenger car sales increased 11.18% at 89,548 units in July 2007 over July 2006. Domestic sales of commercial vehicles edged up 2.53% to 33,496 units in July 2007 over July 2006.

The prime minister's office on Wednesday, 8 August 2007, said India is committed to the present system of fertiliser subsidy for this year and will ensure adequate funds are made available.

The Reserve Bank of India said on Thursday, 9 August 2007, it has formed a working group to find ways to revive trading of interest-rate futures and to consider whether foreign investors should be allowed to trade in the derivatives.