Market ends lower in choppy trade; small-cap, mid-cap shares mauled

It proved as the most eventful week on the stock markets. What started as a bloodbath on the street ended with a solid recovery. Credit crisis in the United State and fears of a US recession caused bloodbath on the domestic bourses at the onset of the week with share prices falling like nine pins. Margin calls created havoc on the bourses in causing a steep decline in share prices that was initially triggered by a setback in global markets and selling by foreign institutional investors.

Margin trading is where investors trade shares without paying the full cost of the share. Instead a margin or percentage is paid as collateral, and when the market moves against the investor, the margin needs to be topped up. If the investor does not make payment, the shares can be sold by the broker. A margin call is also triggered when shares that an investor had bought with borrowed money decrease in value. If the investor is not able to put up additional margin, the broker/financer will resort to sale of shares.

US Federal Reserve came to the rescue of stock markets, cutting key US interest rates by a steep 75 basis points to 3.5% late on Tuesday, 22 January 2008, after Indian markets had closed. The US central bank's move followed two days of steep losses in Asian and European equities on worries that a deteriorating US economy would drag other regions down with it. The US economy has been hit hard by rising defaults in the sub-prime mortgage sector in which Americans with bad credit records are struggling to pay back housing loans given to them during the housing boom. But a strong rebound on the Indian bourses on Wednesday proved short lived as the market lost ground again on Thursday. The market struck back with vwnegeance with Sensex registering a record gain and the first-ever, four-digit single day gain for the index, on a closing basis.

Sensex gained in 2 out of 5 trading sessions in the week ended Friday, 25 January 2008. It lost 652.04 points or 3.42% to 18,361.66 in the week. The S&P CNX Nifty fell 321.95 points or 5.64% to 5,383.35.

The BSE Mid-Cap index plunged 872.59 points or 9.81% to 8,021.12 in the week. The BSE Small-Cap index lost 1,739.55 points or 14.3% to 10.420.90.

The market extended losses in highly volatile trade led by setback in stocks across the globe with Sensex declining 1408.35 points or 7.41% to 17,605.35, its biggest single-day point fall on a closing basis on Monday, 21 January 2008. The Sensex hit a low of 16,951.50 in late-afternoon trade. At the day’s low, the Sensex had declined 2062.22 points. Metal, Oil& Gas and realty stocks battered severely. The sharp fall was triggered by setback in global markets, selling by foreign institutional investors and margin calls after a proposed US stimulus package failed to soothe fears the US will tip into recession. Small and mid-cap stocks were battered brutally. Both these indices underperformed the Sensex.

Market wide circuit filters were applied after an intra-day 10% fall occurred in key benchmark indices in minutes of commencement of trade on Tuesday, 22 January 2008. Trading on the bourses was halted for one hour as the 10% market wide circuit filters were applied after the sharp fall. Volatility was high after trading began at 10:55 IST. Sensex lost 875.41 points or 4.97% to 16,729.94 as margin calls created havoc on the bourses. Though the market ended sharply down, it came off lower level after a huge intra-day fall. European markets recovered with major markets regaining positive zone. However stocks tumbled across Asia as panic gripped markets that a US recession could derail global economic growth.

The market surged after a two-day rout with Sensex galloping 864.13 points or 5.17% to 17,594.07 on Wednesday, 23 January 2008 on speculation, more funds will move to emerging markets after an emergency 75 basis points announced by the US Federal Reserve on Tuesday, 22 January 2008, after Indian markets had closed. Despite the sharp spurt, the market breadth was negative on BSE. Trading was choppy throughout the day. The market opened with a spurt but immediately pared gains. It started firmed up again in mid-morning trade supported by firm Asian markets. Banking and financial shares surged on hopes of a rate cut from the Reserve Bank of India following the Fed rate cut. The BSE Mid-Cap index outperformed Sensex whereas BSE Small-Cap index underperformed Sensex. European markets opened higher but most of them slipped in the red as the day progressed.

The market tumbled with BSE Sensex declining 372.33 points or 2.12% to 17,221.74 on Thursday, 24 January 2008 as selling pressure emerged for index pivotals in the second half of the day. Nonetheless, it recovered some ground after a massive fall in afternoon trade. The market breadth was weak. Earlier, the market had surged in opening trade tracking rally in Asian markets. The market breadth was quite weak. European markets were strong while majority of Asian markets were trading higher.

Taking their cue from firm global markets, share prices surged with the Sensex registering its biggest ever single day rise in absolute terms on a closing basis on Friday, 25 January 2008. The 30-share BSE Sensex rose 1158.85 points or 6.73% to 18380.59, its biggest gain in absolute terms on a closing basis. It was also the first-ever, four-digit single day gain for the index. Stocks across the globe were buoyed by several factors including strong corporate sentiment in Germany and a return of some confidence in the US economy after solid employment data and a congressional fiscal package. The Bush administration's fiscal package includes $150 billion of tax rebates and business incentives meant to prevent a slowdown in the country's economy.

India’s second largest private sector bank in terms of net profit HDFC Bank rose 1.62% to Rs 1,601.40. The company’s net profit rose 46.2% to Rs 429.36 crore on 64.4% rise in operating income to Rs 3,405.79 crore in Q3 December 2007 over Q3 December 2006.

India's fourth largest IT services exporter Satyam Computer Services rose 9.04% to Rs 406.30. The company’s net profit rose 5.71% to Rs 441 crore on 8.33% rise in sales to Rs 2,110.58 crore in Q3 December 2007 over Q2 September 2007.

Grasim Industries plunged 9.2% to Rs 3,033.45. The company’s net profit rose 34.6% to Rs 553.79 crore on 15.3% rise in sales to Rs 2,629.93 crore in Q3 December 2007 over Q3 December 2006.

India's largest oil exploration firm by sales ONGC declined 16.04% to Rs 1,015.45. The company’s net profit declined 6.5% to Rs 4,366.54 crore on 2.9% decline in sales to Rs 15,120.83 crore in Q3 December 2007 over Q3 December 2006.

India’s largest private sector bank by assets ICICI Bank rose 1.11% to Rs 1,259.25 on reports its broking unit aims to raise up to $1 billion through a pre-IPO placement. The board of ICICI Securities, the brokage arm of ICICI Bank, at a meeting held on 19 January 2008 had approved the proposal for an initial public issue and private placement of securities. The maximum dilution of ICICI Bank's holding in ICICI Securities through the proposed public offering and private placement would be up to 15% of the post-issue capital base of ICICI Securities, the bank had said in a statement to BSE. ICICI Bank holds 99.9% in its brokerage arm ICICI Securities.

India's largest engineering and construction company in terms of revenue Larsen & Toubro slipped 1.01% to Rs 3,890.40 after the company said it has bagged orders worth Rs 1057 crore from the Gulf region. Larsen & Toubro LLC, Oman a subsidiary of Larsen & Toubro (L&T) has bagged three engineering, procurement and construction (EPC) contracts worth Rs 457 crore from Oman Electricity Transmission Company (OETC) for electrical grid stations and associated transmission system in Oman.

India's second largest power utility firm by revenue Reliance Energy declined 4.42% to Rs 2,030.25. The company said on 23 January 2008 it won a railway project worth Rs 2500 crore from the Delhi Metro Rail Corporation in consortium with Spain's CAF.

Reliance Industries (down 6.79% to Rs 2,609.55), DLF (down 6.03% to Rs 945.10) declined in the week. Infosys (up 3.87% to Rs 1,521), State Bank of India (up 1.55% to Rs 2,405), HDFC Bank (up 1.62% to Rs 1,601.40) edged higher.

Finance Minister P Chidambaram said on 22 January 2008, the fundamentals of the economy are strong. Chidambaram said there was no reason at all to allow the worries of the Western world to overwhelm us. Our economy is very different from some developed economies which are facing some stress, he said.

On 23 January 2008, Petroleum Secretary M.S. Srinivasan informed that the government may consider cutting government tax levies alongside a rise in fuel prices to compensate state-run oil firms reeling under millions of dollars of daily losses. A decision on raising administered retail prices for petrol and diesel is unlikely before next month as a Group of Ministers that is expected to decide on the issue cannot meet before then.

A total of 8.11 million telephone connections were added in December 2007 compared with 8.22 million connections added in November 2007. The total number of telephone connections stood at 272.88 million end December 2007 over 264.77 million in November 2007. The overall tele-density was 23.89% end December 2007 as against 23.21% in November 2007.

On 23 January 2008, Director of External Relations of the International Monetary Fund, Masood Ahmed stated that a significant slowdown in world economic growth appears inevitable and downside risks still predominate.

The US Federal Reserve in a surprise move on Tuesday, 22 January 2008, cut Fed funds rate and discount rate by 75 basis points each. The Fed funds rate is now at 3.5%.

Annual inflation, based on the wholesale price index (WPI), edged up 3.82% in the week ended 12 January 2008 from 3.79% in the week ended 5 January 2008. The market estimate was 3.83%. Inflation stood at 6.15% in the corresponding week last year.