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Tuesday, September 18, 2007

World worries, reason for concern


There is a great difference between worry and concern:
Worry frets without a problem; concern solves the problem.

The Fed will finally take a call on cutting interest rates, but the big question is by how much? Will it be 25 bps or 50 bps? Even more so, whether the cut (and a few more down the line) will be sufficient enough to lift the US economy out of the abyss that it has fallen into. And, even as world market awaits the action from Ben Bernanke & Co., his predecessor, Alan Greenspan has been making a lot of noises about the health of the US economy and what has led to the current crisis of confidence in the credit markets. According to him "this was an accident waiting to happen". He says the odds of a recession have grown since earlier this year, even though the world's largest economy is not doing badly at this stage.

We'll hear today what Bernanke thinks about the US economy, the turmoil in the housing sector and its ramifications for the global economy. Any adverse remarks from Bernanke could worsen the sentiment across global markets, and would also impact money flows towards emerging markets such as India.

With red ink splashed all over the world, we expect another weak opening, though on the whole the market will remain guarded ahead of the big event in the US later today. Lack of aggressive follow- up buying has made the market choppy of late, and until that happens the key indices will struggle to cross their previous lifetime highs. Eventually they will do so, given the strong outlook on the Indian economy (ADB has raised its forecast for India). But, one major worry will remain. That is global liquidity and FII flows. The outlook in the short term is that of caution and fresh purchases should be avoided till the haze is cleared. We see a couple of weak weeks ahead. Use this week to lighten your position as short term spurts are likely.

US stocks closed marginally down on Monday ahead of the crucial Fed meeting amid continuous worries about a wider fallout of the subprime contagion. Withdrawals from British lender Northern Rock fanned fears over the current credit market turmoil and sent the S&P 500 Index down for the first time in five days.

Citigroup, Bank of America and Merrill Lynch led the fall among financial companies as traders pared bets the Fed will lower its benchmark rate by 50 bps. Microsoft fell after losing a European antitrust appeal.

The S&P 500 slipped 7.6 points, or 0.5%, to 1,476.65. The Dow Jones Industrial Average decreased 39.1 points, or 0.3%, to 13,403.42. The Nasdaq Composite Index dropped 20.52 points, or 0.8%, to 2,581.66.

About 1.1 billion shares changed hands on the New York Stock Exchange, the second fewest for a full session this year.

Fed funds futures contracts show a 50% chance that the American central bank will slash its benchmark rate from 5.25% to 4.75%, down from 58% odds on Sept. 14. Traders are certain of a cut of at least a quarter point.

Northern Rock tumbled to a seven-year low in London as hundreds of clients removed at least 2bn pounds ($4bn), or about 8% of the UK bank's total, since Sept. 14, according to an estimate by JPMorgan Chase.

The overnight rate banks charge to lend British pounds soared 60 basis points to 6.47%, according to the British Bankers' Association. The overnight rate for dollars rose 17 basis points to 5.3%.

After the close, discount brokerage E-Trade cut its profit outlook, saying that tighter credit conditions will force it to get out of businesses that don't deal directly with retail investors. Shares slumped 8% in extended-hours trading.

Former Fed chief Alan Greenspan says a risk of recession in the US is greater now than it was at the beginning of the year. In an interview with Fortune, Greenspan also said that the Fed is in a tricky situation now where they can't just cut rates anymore without risking boosted inflation.

Market breadth was negative. On the New York Stock Exchange, losers topped winners by 2 to 1 on volume of 1.1 billion shares. On the Nasdaq, decliners topped advancers by more than two to one on volume of 1.43 billion shares.

Treasury prices fell modestly, with the yield on the 10-year note standing at 4.46%, little changed from late on Friday. COMEX gold for December delivery rose $6 to settle at $723.80 an ounce.

US light crude oil for October delivery rose $1.47 to settle at $80.57 a barrel on the New York Mercantile Exchange, a fresh record close. The price of crude briefly hit an all-time trading high of $80.70 a barrel. The front-month contract was quoting 49 cents higher at $81.06 a barrel in extended trading in Asia.

Across the Atlantic, European shares lost ground with the banking sector once more under pressure amid Northern Rock's move to seek out emergency funding from the Bank of England. The FTSE 100 closed down 1.7%, or 106.50 points, to end at 6,182.80. The French CAC-40 slid 1.8% to 5,439.37. The German DAX 30 dipped just 0.2% to 7,479.85.

In the emerging markets, the Bovespa in Brazil lost 0.6% to 54,342 while the IPC index in Mexico was down 1% at 29,794. The RTS index in Russia slipped 1.4% to 1915 and the ISE National 30 index in Turkey fell 0.2% to 63,900.

Asian stocks fell for a second day in a row after E*Trade and Bank of America said fallout from the subprime-mortgage crisis will hurt earnings. Mitsubishi UFJ Financial was set for its biggest drop in a month, while National Australia Bank slid to a six-week low.

Toyota and Hynix Semiconductor declined on speculation that widening mortgage losses will hurt demand for their products in the world's largest economy.

The Nikkei in Tokyo was down 284 points at 15,846 while the Hang Seng in Hong Kong fell 119 points to 24,479. The Kospi in Seoul dropped 20 points to 1851 while the Straits Times in Singapore shed 13 points to 3462 and the Taiex in Taiwan was down 131 points to 8899.


Markets closed lower in a choppy trading session led by fall in IT stocks. Subex led the IT stocks down by announcing a cut in its guidance for FY08 due to postponement of capex commitments by a US customer. Weakness was also seen in other major equity indices across the globe with Asian and European markets trading lower. After a positive start, indices swung between green & red territory in a range but closed near day’s low on back of selling pressure in index heavyweights like ICICI Bank, Infosys and HDFC. IT, Realty and Banking stocks were among the major losers. While, Metal and FMCG stocks ended on a firm note. Finally, the 30-share Sensex closed at 15504, down by 99 points after touching day’s high of 15726 and a low of 15467. NSE Nifty fell by 23 points to close at 4495.

ABAN advanced by nearly 2% to Rs3094 after the company received order from ONGC worth Rs20bn. The scrip touched an intra-day high of Rs3145 and a low of Rs3055 and recorded volumes of over 2,71,000 shares on NSE.

Tata Investment Corporation was locked at 20% upper circuit after Tata Sons proposed to make an open offer for 29.3% equity stake in Tata Investment Corporation at Rs600 per share, a 33% premium to Friday’s closing of Rs450.

Fresh buying was seen across the sugar stocks in a highly choppy market. Bajaj Hind was up by over 5% to Rs147, Balrampur Chini was up by 5% to Rs67 and Renuka Sugar was up by 3% to Rs553.

Profit booking brought the banking stocks lower. After a positive start, select banking stocks slipped into red. ICICI Bank was down by over 1% to Rs895, PNB was down by 1% to Rs488 and Orient Bank was down by 2% to Rs2211

IT stocks continued its downtrend amid concerns about wage inflation and rupee's appreciation. Infosys fell by 1.7% to Rs1805, TCS dropped over 2% to Rs998 and Satyam Computer declined by 1.8% to Rs423.

Indian Hotels has acquired a 10% stake in US-based Orient Express Hotels for Rs8.5bn. Orient Express owns & manages 35 hotels across the world, beside luxury trains and cruises.

SAIL and ILF&S Infrastructure Development Corp will develop, operate and maintain SEZ at Salem, Tamil Nadu for steel sector.

Indian pharma companies including Ranbaxy, Wockhardt and Sun Pharma are in a race to acquire US based Par Pharmaceutical.

Reliance Communications and Bharti Airtel are among the 12 companies to bid for Qatar’s second mobile licence.

US private equity major Blackstone plans to invest over $1bn in Indian real estate, in association with Nagarjuna construction.

Among the other stocks to watch out for: JP Associates, Mangalam Cements, Moser Baer and HDIL.

Finance Ministry has decided to refund service tax paid by exporters on 4 non-input services such as services by major ports, minor ports, road transport from ICD to port and rail transport from ICD to port.

The Government has ruled out the January-February General Election due in 2008,assuming a lower voter turnout to April-May.

Fund Activity:

FIIs were net buyers of Rs943.4mn (provisional) in the cash segment on Monday and the local institutions pulled out Rs1.41bn. In the F&O segment, foreign funds were net sellers of Rs9.31bn.

On Friday, FIIs were net buyers to the tune of Rs11.59bn in the cash segment. Mutual Funds were net sellers of Rs2.16bn on the same day.

Upper Circuit:

RIIL, Hindustan Motors, Bartronics, Marksans, Bombay Burmah, Prakash Industries, IID Forgings, Jai Corp and Advani Hotels.

Major Bulk Deals:

ABN AMRO Bank has picked up Adhunik Metaliks; Citigroup has sold Centurion BoP while an investment arm of Narottam Sekhsaria has bought the shares; Bear Stearns has purchased more shares of Ganesh Forgings; Reliance MF has sold Hindustan Motors; UBS has bought Milkfood; Merrill Lynch has picked up Temptation Foods