The market may edge higher tracking gains in the Wall Street overnight. Most of the Asian markets are closed today for the Lunar New Year holiday.
The 30-share BSE Sensex slumped 612.56 points or 3.38% at 17,526.93 on Thursday, 7 February 2008, weighed down by weak sentiment in global markets. Sensex has lost 3,679.84 points or 17.35% from a record high hit on 10 January 2008, due to heavy selling by FIIs amid credit crisis in the United State and fears of a US recession. Huge unwinding of positions in the futures & options segment was another key trigger for the fall.
The current setback on the bourses has materialized despite a boost in liquidity in the secondary markets as investors have started getting refund of excess application money in the heavily subscribed Rs 11000-crore Reliance Power IPO. It, however, remains to be seen how much money from Reliance Power IPO refunds actually comes to the secondary market in the light of immense volatility witnessed on the bourses last month.
Reliance Power, which raised a record $3 billion in its initial share sale in January 2008, said on Friday, 1 February 2008, it had begun refunding excess application money to investors. The initial public offer had received bids for $190 billion.
Meanwhile, a poor response to the IPO due to depressed secondary market conditions caused Wockhardt Hospitals to withdraw its IPO on Thursday, 7 February 2008. The IPO was subscribed just 20% by Thursday, the last day of the issue. Recently, volatility in the secondary market conditions had forced property developer Emaar MGF Land to extend its initial public offer until 11 February 2008 and lower its indicated price for a second time.
It remains to be seen if the strong domestic liquidity will offset selling by FIIs. FIIs sold shares worth a huge Rs 13035.70 crore last month amid ongoing credit crisis in the US and in the backdrop of US recession fears looming large.
As per provisional data, FIIs sold shares worth a net Rs 860.35 crore on Thursday, 7 February 2008. Domestic funds bought shares worth a net Rs 230.70 crore on that day.
FIIs were net sellers to the tune of Rs 266.56 crore in the futures & options segment on Thursday. According to data released by the NSE, FIIs were net sellers of index futures to the tune of Rs 512.28 crore and bought index options worth Rs 45.92 crore. They were net sellers of stock futures to the tune of Rs 206.73 crore and sold stock options worth Rs 6.92 crore.
The Bank of England on Thursday, 7 February 2008, cut its key interest rate by a quarter percentage point to 5.25% to help shore up the economy but policymakers remained worries about inflation, dampening hopes of rapid-fire rate cuts. The European Central Bank kept euro-zone rates unchanged at 4% on the same day.
Markets in China, Hong Kong, South Korea, Singapore, and Taiwan were closed today for the Lunar New Year holiday. Japan’s Nikkei 225 average was down 0.88%.
US stocks rose on Thursday, as relatively cheap valuations tempted investors back to Wall Street after a three-day losing streak. The Dow Jones industrial average was up 46.90 points, or 0.38%, at 12,247.00. The Standard & Poor's 500 Index was up 10.46 points, or 0.79%, at 1,336.91. The Nasdaq Composite Index rose 14.28 points, or 0.63%, at 2,293.03.
Even if the US goes into the recession, it may not impact India’s economic growth in a big way given that domestic demand is a key driver of the Indian economy. India’s economy is expected to post strong growth for a long period due to favourable demographics. Moreover a healthy investment cycle will continue to support India’s growth through a self-perpetuating cycle of income creation, savings and investment.
India's economy is expected to expand at 8.7% in fiscal 2007/08, slower than 9.6% growth in 2006/07, which was its strongest pace in 18 years, government's central statistics office (CSO) said on Thursday, 7 February 2008. CSO has pegged manufacturing output growth at an annual 9.4% this fiscal compared with 12% growth in the previous year.
Farm output growth is estimated at 2.6% for the full year 2007/08 compared with 3.8% growth in 2006/07. Services sector growth is estimated at 10.7% for the year against 11.1% growth in 2006/07.
Corporate earnings growth remains decent. Deutsche Bank expects 20% compounded annual growth rate in earnings of 30-Sensex firms during the period from FY 2007 (year ended 31 March 2007) to FY 2009 (year ending 31 March 2009).