We can only appreciate the miracle of a sunrise if we have waited in the darkness.
The bulls are waiting in the darkness and praying for a miracle. But the nightmare is likely to continue. Ahead of its scheduled meeting on Tuesday, the Fed cut discount rate by 25 basis points to 3.25% in a bid to ease the current turmoil in credit markets. The announcement coincided with its backing of JP Morgan's purchase of the embattled Wall Street firm Bear Stearns (for $2 per share) which was on the verge of going under. The twin moves are aimed at averting a major fallout from the collapse of Bear Stearns.
Back home, the bulls are likely to be on strike for considerably longer period of time. A gap-down opening is a given. Don’t buy hoping for a miracle immediately. If you have the money (not borrowed) and the patience we need not tell you to buy.
It now remains to be seen if the latest set of Fed moves leads to any improvement in investor sentiment across global markets. Asian markets are already deep in the red, with the Nikkei in Tokyo and the Hang Seng in Hong Kong down well over 4%. The dollar has taken a fresh beating against the yen, and has broken below the 96 mark. Gold is trading above the $1,000 an ounce and crude oil is at around $111 per barrel.
This is perhaps the worst crisis to hit the stock markets since the busting of the tech bubble at the turn of the century. May be it is even worse than that. Who knows how much more pain the bulls will have to endure before there is any sign of reversal.
The local situation has also worsened with the recent economic data not being very encouraging. The Indian economy, which was supposed to be insulated from the global meltdown, is headed for a sharp correction. Don't be surprise, if the UPA Government and the RBI too come out with their own set of measures to prevent a major slowdown. But in any case, the mood is so pessimistic and somber, just nobody is interested in buying at this time, as the bloodbath is most likely to continue for some more time.
The Fed on Sunday slashed its discount rate - the rate on direct loans to commercial banks - by quarter percentage point to 3.25% effective immediately, and created another lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms on Monday. The program would operate for at least six months, and would offer loans for as long as 90 days, rather than 30 days under the regular discount window.
"These steps will provide financial institutions with greater assurance of access to funds," Fed chairman Ben Bernanke told reporters in a brief conference call Sunday evening. The Fed also approved the financing of JPMorgan Chase's acquisition of Bear Stearns, including support for as much as $30bn of the beleaguered Wall Street securities firm's assets.
JPMorgan Chase said on Sunday that it would acquire Bear Stearns amid mounting fears that the failure of the troubled Wall Street firm could sent chills across the already shaky global financial markets. JP Morgan will acquire Bear Stearns for $236mn or at about $2 a share compared with $30 at the close on March 14.
Bear Stearns was on the brink of financial collapse on Friday when JP Morgan and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan. The New York-based firm's short-term creditors refused to lend it any more money and simultaneously demanded repayment of outstanding debt.
US shares nose dived on Friday after JP Morgan and NY Federal Reserve provided emergency funding to Bear Stearns to keep it going, heightening concerns that the problems in credit markets were spreading like wildfire.
The news sent the Dow Jones Industrial Average plummeting over 300 points before moving back up. The blue-chip index closed down 194.65 points, or 1.6%, at 11,951.09, with 29 of its 30 components posting losses.
The S&P 500 index dropped 27.34 points, or 2.1%, to close at 1,288.14, while the Nasdaq Composite index slid 51.12 points, or 2.3%, to end at 2,212.49.
Shares of Bear Stearns plummeted 47%, dragging the entire financial sector with it, and putting a big question mark on the brokerage's survival.
Among the other financials, Citigroup was down 6.1%, JP Morgan fell 4.1% and American Express declined 4%. Boeing proved the sole Dow component chalking up gains, up 2.8% after its upgrade to overweight from equal weight at Morgan Stanley.
The Dow gained 0.5% on the week, thanks to a 417-point rally on Tuesday, its best day in five and a half years. The broader S&P 500 ended the week with 0.4% gain. The Nasdaq ended the week unchanged.
The surprise bailout of Bear Stearns overshadowed a benign inflation report, which sparked an early rally in stocks amid optimism that the Federal Reserve will get more headroom to cut interest rates.
The Consumer Price Index (CPI) held steady in February, as against expectations of an increase. The so-called core CPI, which excludes the often volatile food and energy prices, also remained unchanged from January levels.
Stocks in Europe ended another volatile session in the red on Friday. After registering decent gains in the wake of benign US inflation data, the pan-European Dow Jones Stoxx 600 index took a quick turn for the worst. It finished down 1% at 304.15.
Banks got pounded heavily, with Barclays and UBS leading the declines. Barclays share lost 3.9% and UBS shares dropped 7.4%. The German DAX 30 fell 0.8% to 6,451.90, the UK's FTSE 100 closed down 1.1% at 5,631.70 and the French CAC-40 shed 0.8% to 4,592.15.
In the emerging markets, the Bovespa in Brazil was down 0.5% at 61,990 while the IPC index in Mexico slid 2.2% to 29,048. The RTS index in Russia was up 0.25% at 2064 and the ISE National-30 index in Turkey gained 0.4% to 5.,040.
Can bulls extend momentum?
Finally, it was a fine Friday; as bulls managed to pull off a smart come back on the bourses. Markets managed to end with smart gains, despite weak cues from the Asian markets and a rise in India’s Inflation rate. Key indices managed to sustain its up run on back of gains in the index heavyweights like RIL, ICICI Bank, L&T and Infosys.
The Auto stocks which were losing ground also bounced back in late afternoon trades. The Pharma stocks also recorded healthy gains. On the broader indices, the Mid-Cap and the Small-Cap stocks were back in demand.
The BSE benchmark Sensex finally gained 403 points ending at 15,760 and the Nifty index added 122 points ending at 4,745.
Overall about 1,206 stocks advanced; 1,463 stocks declined while 61 stocks remained unchanged. Among the Nifty-30 stocks 25 stocks advanced while only 5 stocks declined.
JP Associates surged by over 5% to Rs230 on its debut on the benchmark Sensex on replacing Bajaj Auto Ltd., the nation's second largest maker of motorcycles. The scrip touched an intra-day high of Rs234 and a low of Rs220 and recorded volumes of over 71,00,000 shares on NSE.
RIL gained by 3.5% to Rs2322 after reports stated that the company would set up a SPV for setting up petrochemical complexes abroad along with GAIL. The scrip touched an intra-day high of Rs2339 and a low of Rs2230 and recorded volumes of over 27,00,000 shares on NSE.
Recently listed GSS America continued its momentum; the scrip further rallied by over 7% to Rs613 on back of huge volumes. The scrip touched an intra-day high of Rs625 and a low of Rs555 and recorded volumes of over 22,00,000 shares on NSE.
Jindal Stainless advanced by 1.2% to Rs130 following reports that the company would float a subsidiary in India and invest up to Rs5bn in the next few years. The scrip touched an intra-day high of Rs133 and a low of Rs128 and recorded volumes of over 91,000 shares on NSE.
Lanco Infra gained by half a percent to Rs383 after reports stated that the company would raise profitability through merchant power business. The scrip touched an intra-day high of Rs398 and a low of Rs367 and recorded volumes of over 6,00,000 shares on NSE.
Gujarat Alkalies gained by 2.2% to Rs141 as reports stated that the company is in talks with a UAE-based business group for setting up a caustic soda manufacturing facility in the UAE. The scrip touched an intra-day high of Rs143 and a low of Rs128 and recorded volumes of over 4,00,000 shares on NSE.
Corporate Front Page
Jindal Stainless plans Rs60bn expansion; targets 2.5mn ton capacity by 2012.(BS)
Unilever expects India, other emerging markets to contribute to 50% of turnover by 2010.(FE)
Air Deccan gets in-principle approval to fly abroad from August of this year.(BL)
BSNL to invite bids for 8mn digital subscriber lines. (ET)
Tata group and South Africa based Sasol get approval for India’s first coal to liquid project worth US$8bn.(FE)
Cummins India to invest Rs8.5bn in Maharashtra to manufacture truck and bus engines, diesel and gas gensets and diesel engines.(BS)
Indiabulls Real Estate and Unitech put on hold their plans for IPOs of their respective REITs in Singapore due to volatile markets.(FE)
Reliance Power to buy out a coal mine in Indonesia for Rs10bn. (ET)
BHEL would acquire Vizag based Bharat Heavy Plates and Vessels by the first half of 2008-09.(FE)
BSNL, Tata Teleservices may get DoT approval for launching Blackberry services.(BL)
ITC to expand its writing instruments division; targets Rs10bn in revenues in three years.(BL)
China Huaneng has outbid Reliance Energy and GMR group by placing highest bid of US$3.1bn for Tuas Power.(ET)
Rajasthan government opposes shifting delivery point of Cairn-ONGC crude oil from wellhead to the Gujarat coast.(BS)
GoAir to expand its fleet from six to 11 aircraft in the next 12 months; (ET)
Glenmark Pharma is close to acquiring a front-end sales firm in US. (DNA)
Jet Airways is expected to close talks with Indian and foreign PE firms and financial institutions for offloading up to 10% of the promoters stake. (DNA)
AT&T eyes stake in Videocon subsidiary Datacom which has been issued mobile licenses.(FE)
Omaxe to start a high-end project with luxury apartments and penthouses in Noida; to invest Rs1.8bn.(DNA)
RPG Group’s Spencer Retail to invest Rs30bn across the country in 2008-09. (TOI)
Promethean India picks up a minority stake in Oberoi Group promoted hotel chain EIH (ET)
Quippo Oil, promoted by Srei Infrastructure Finance, plans to invest US$600mn over next two years on onshore rigs, offshore supply vessels and offshore pipeline-laying barges.(BS)
Jindal Stainless plans to set up an independent power project and a foray into the logistics sector.(DNA)
Tata Motors close to convincing Ford to supply Jaguar and Land Rover engines at a pre-agreed price under a long term contract. (ET)
Tata group’s Infiniti Retail plans to invest Rs8bn on expansions.(BS)
Vishal Retail plans to enter into the real estate business.(DNA)
Economic Front Page
About two-thirds of the Rs600bn farm loan waiver would be reimbursed to lending institutions in cash by August 2009.(BL)
Finance minister announces a fiscal deficit of 3.66% of GDP for FY08 by incorporating off budget liabilities.(BS)
Non-food credit increased by Rs400bn to touch Rs22tn for the fortnight ended February 29th.(BL)
PSU oil companies to invest Rs2.4tn in oil and gas exploration, fuel retailing, refineries and petrochemicals during the 11th Plan period.(BS)
The steel minister is planning to ask the finance ministry remove import duties on steel and impose duty on its exports. (ET)
Government says three new UMPPs, with investments of Rs160bn, could be set up in Orissa in addition to nine UMPPs already proposed across the country.(BL)
Entertainment and Media industry grew by 17% to reach Rs500bn in 2007.(Mint)
RBI plans to overhaul norms for all foreign currency derivatives.(BS)
TRAI to submit its recommendations on number portability by first week of April.(BL)
Oil and Gas exploration may get costlier after government clarifies on ship rental tax.(Mint)
Government to release Rs250bn in cash to banks by July 2008. (ET)
Finance Ministry directs other ministries and government departments to deposit at least 60% of the idle funds under their control with PSU banks.(ET)
Government approves 18 FDI proposals worth Rs 16bn.(BL)
International claims of Indian banks rise by 41% as of June 2007 on account of higher exposure to guarantees, derivatives and credit commitments.(BS)
Government to rationalize tax on DTH, cable firms.(BS)
Government allows mining companies to trade mineral licenses freely.(ET)