Hot heads and cold hearts never solved anything.
The mercury dipping over the past few days in India is akin to drop in market sentiment, which is sending chills down the bulls' spine. Where’s the bull Power? Was among the questions we received following the sell off yesterday. While the key indices had managed to remain calm till about noon, a sudden bout of sell-off took the bulls by surprise. The deep cut coincided with the release of FY08 GDP data, which showed that the Indian economy is likely to slow this fiscal.
Coming to today's market, we expect a much better start and perhaps even an improved closing. Don’t get carried away by a day's rally as the uncertainty is likely to continue for some time. Next trigger (for lack of reasons) would be the budget and perhaps a rate cut somewhere down the line. Don’t be surprised if both happen neck to neck. And of course, the resumption of FII inflows would quench the thirst for liquidity.
Back to the GDP, it is likely to grow by 8.7% from last year's expansion of 9.6%. Though the fall is substantial enough, the growth rate is still amongst the highest in the world. In fact, the Finance Minister appeared confident about attaining a 9% GDP growth. Despite the slowdown, the RBI says it doesn't see any need to change its monetary policy stance. Having said that, we maintain that rates will eventually have to moderate over the course of the year.
Sentiment may take a hit due to the grim conditions prevailing in the primary market as well. Wockhardt Hospitals has withdrawn its beleaguered IPO due to complete lack of investor interest in the issue amid tough market conditions. Emaar MGF IPO is also struggling to stay afloat, but may find enough takers. It will close on Feb. 11, which is also the day when the blockbuster Reliance Power will make its historic debut. The premium on this stock has also been hit hard due to the market correction. Listed power stocks will hog the limelight along with Reliance Power. Expectations are the stock may still hit Rs800-900 levels. But can it sustain would be known on Monday itself.
FIIs were net sellers of Rs8.6bn (provisional) in the cash segment on Thursday. At the same time, local institutions were net buyers of Rs2.31bn. In the F&O segment, they were net sellers of Rs2.67bn. On Wednesday, foreign funds pulled out Rs5.28bn from the cash segment. Mutual Funds were net sellers of Rs2.12bn in the cash segment on Wednesday.
In Asia this morning, the Nikkei 225 Average in Tokyo was down 104 points or 0.8% at 13,102. All the other key markets in Hong Kong, Singapore, Korea, Taiwan and China are shut for the Lunar New Year.
The MSCI Asia Pacific Index was down 0.6% at 141.24 as of 11:10 a.m. in Tokyo. Australia's S&P/ASX 200 Index advanced 0.9%, snapping a three-day drop.
US stocks ended marginally up after a fairly choppy session, breaking a three-day losing streak. Investors snapped up battered shares despite Cisco's lower sales outlook and some weak January retail sales.
JPMorgan Chase led the Dow Jones Industrial Average higher after CEO Jamie Dimon said bank profits will withstand downgrades of bond insurers. JC Penney and Gap helped retailers snap a three-day losing streak by forecasting earnings above analysts' estimates.
The S&P 500 Index erased a loss of as much as 0.7%, which was sparked by a sales projection at Cisco that disappointed investors. It finally gained 10.46 points, or 0.8%, to close at 1,336.91. The Dow rose 46.9 points, or 0.4%, to 12,247. The Nasdaq Composite advanced 14.28 points, or 0.6%, to 2,293.03.
Market breadth was positive. About nine stocks gained for every four that declined on the New York Stock Exchange.
US stocks had declined in the morning amid ongoing worries about business and consumer spending, and Fed policy. But the tone improved in the afternoon. The big question going forward is whether Wall Street can continue to rise in the face of regular flow of bad news.
Mostly weaker January retail sales from Wal-Mart and others added to concerns about slowing consumer spending. Dallas Fed Bank President Richard Fisher became the third central bank official this week to hint that rising inflation could limit the central bank's ability to keep cutting rates aggressively.
In corporate news, Delta Air Lines and Northwest Airlines were believed to be moving closer towards a merger that would create the largest US carrier, according to reports.
Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.77% from 3.6%. The dollar gained versus the yen and the euro after the Bank of England cut interest rates. The European Central Bank kept rates steady but hinted it may need to cut them later in the year.
US light crude oil for March delivery rose 97 cents to settle at $88.11 a barrel on the New York Mercantile Exchange. COMEX gold for April delivery added $5 to settle at $910 an ounce.
Stocks in London ended sharply down on the back of Bank of England's cautious outlook on inflation and poor earnings from GlaxoSmithKline, BT and Yell Group. The FTSE 100 index slumped 2.6%, or 151 points, to 5,724.10.
Other European markets too fell heavily. The pan-European Dow Jones Stoxx 600 index ended 1.9% lower at 314.14. Germany's DAX 30 fell 1.7% to 6,733.72, while the French CAC-40 fell 1.9% to 4,723.80.
Among the emerging markets, the Bovespa in Brazil was flat at 58,965 while the IPC index in Mexico rose 0.6% to 28,088. The RTS index in Russia tumbled 3% to close at 1887 and the ISE National-30 index in Turkey plunged 3.7% to 51,954.
Global markets to dictate trend
The worst is far from over for the bulls. Just when sentiment started to feel better, jitters from US market continues to haunt Dalal Street. Markets opened on a cautious note and remained lackluster in the morning trades on lack of cues from Asian markets, as most of the m were closed on account of Chinese New Year, barring Nikkei. However, in the afternoon trades, bears again made their presence felt dragging the benchmark Sensex lower by over 600 points and Nifty down by nearly 200 points. Lower GDP estimates for FY08 dampened the spirits of the bulls.
Selling was seen across the board with Index heavyweights bearing the burnt of the sharp fall. RIL, ICICI Bank, SBI, Bharti Airtel and L&T were among the major losers dragging the Sensex lower by 626 points to close at 17513. Nifty closed at 5132, down by 191 points. With markets across the world sinking in line with the weak US trend, the local sentiment has once again taken a beating today.
Markets fell sharply after the latest Government report showed that India’s economy is estimated to expand 8.7% to March 31, the weakest pace since 2005. The growth was at 9.6% in the last financial year.
Interestingly, mid caps and small caps which were holding steady from last two days also succumbed to profit booking. Jindal Steel, Neyveli Lignite, MRPL and Rolta were among the notable losers from the midcap space.
Among the key Sectoral indices, BSE Metal index (down 4%), BSE Realty index (down 4%), BSE BANKEX index (down 4%), BSE IT index (down 3%) and BSE Auto index (down 2%).
It was again one of those days, when technical charts went for a toss and the crucial support levels for Nifty were broken, and markets plummeted deep into red in the afternoon trades. For Friday, a lot will again depend on the US markets. However, weak opening will give investors an opportunity to pick up sound stocks at cheap prices. Instead of trying to trade for the day, enhance your portfolio with a few frontline counters with a long term perspective. Invest (not trade) a small part of your cash holding and take an extended weekend.
News Snippets:
Mcnally Bharat plans to invest Rs2bn over next 15 months for heavy engineering and forging unit in West Bengal. (Mint)
Nicholas Piramal to sell hypertension device in India manufactured by Israel’s InterCure. (Mint)
ArcelorMittal applies for iron ore mines in Orissa and Jharkhand. (BL)
NTPC forms JV with Bharat Forge for manufacturing castings and forgings for power plants at an investment of Rs30bn. (BL)
Ennore Foundries to invest Rs3.5bn for doubling capacity to 220,000tpa by 2010-11. (BL)
Sintex Industries plans to invest Rs2bn in pre-fabricated segment. (BL)
Reliance Infratel to erect 56,600 towers by 2010. (BS)
Ispat Industries to spend US$115mn on African blocks. (BS)
Vakrangee Software to invest Rs2bn in setting up digital printing centres in 10 cities by 2010. (BS)
Indiabulls Real Estate buys out DLF’s stake in Kenneth Builders. (BS)
Kingfisher Airlines plans to float its own dedicated cargo airline through tie-up with foreign company. (BS)
ONGC’s helium unit in Tamil Nadu to go on stream soon. (BS)
PNB Housing cuts home loan rates by 50bps. (BS)
NTPC revises plans to develop wind power project with generation capacity of 100MW from original 50MW. (FE)
Tata Chemical plans to raise up to Rs3.25bn by offloading investment in Tata Investment Corp. (TICL) to Tata Sons. (FE)
Suzlon Energy’s wholly owned subsidiary, SE Drive Technik Gmbh, forms JV with Re Power Systems AG, Germany. (FE)
Reliance Retail plans to set up 1,200 ‘Reliance Wellness’ stores in India at an investment of over Rs30bn in 2-3 years. (FE)
George Soros picks up 3% stake in Reliance Entertainment for $100mn. (FE)
UTV Toons, animation division of UTV Software to be merged with the UTV Motion Business. (FE)
Sujana Metals to invest Rs16bn to treble its capacity to 1mn tons till 2010. (FE)
Bharti Airtel and VSNL seek a ‘crisis observance code’ to ensure that operators access each others' infrastructure in crisis situation. (ET)
ADAG hikes its stake in Deccan Aviation to 10.76%. (ET)
Indiabulls Real Estate picks up stake of DLF in Tehkhand residential project at South India. (ET)
Tata Motors officials to meet JLR union unite on Friday to discuss Pension, Job security and other concerns. (ET)
Economic Front Page:
Cabinet clears railway line electrification along 801kms network in east Bihar and North East India by 2012. (Mint)
Union Cabinet approves Rs437bn outlay for national projects under Accelerated Irrigation Benefits Programmes during the 11th Plan (BS)
Losses of PSU oil marketing companies double in three years on account of under-recoveries. (BS)
SEBI signs agreement with French (AMF) Autorite des Marches Financiers for mutual regulatory understanding and exchange of information. (FE)
A parliamentary panel on Petroleum & Natural Gas to discuss the issue of fuel price hike today. (FE)
Government plans to increase the corpus of the Rural Infrastructure Development Fund (RIDF) by Rs20bn to Rs140bn. (FE)
Government to consider cutting down land requirement of UMPP by up to 40% in a phased manner. (ET)
Steel Minister to meet with all intergraded steel producers on Feb 11 to discuss downward revision of prices. (ET)