If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem
The overriding view that Indian banks are not affected by the subprime mortgage mess in the US proved to be misplaced. The benchmark indices tumbled further yesterday amid news that ICICI Bank has suffered a mark-to-market loss of $264mn on some of its loans and investments. However, ICICI Bank has clarified that it has no material direct or indirect exposure to US subprime credit.
Coming to today's session, we expect another choppy day due to indecisive movement across global markets and owing to the sun outage. Given the holiday for the markets tomorrow, market participants (traders and investors seem missing!) may prefer to remain light because you never know what hits you from which part of the world while you are sleeping.
Bank stocks may continue to be under pressure due to concerns over possible losses on credit market investments. Given the weakness they have witnessed, don’t be surprised if some strong hands lap them up at lower levels. A cautious stock specific approach is the best way to combat the current turmoil.
ICICI Bank says it has a total exposure of US$2.2bn in credit derivatives. According to reports, the combined exposure of public sector banks in overseas credit instruments may total around $1.5bn. Despite the clarification from ICICI Bank, the already fragile market undertone has taken a further hit amid fears that Indian banks are not immune to the subprime crisis in the US, in some way or the other.
The meltdown in the US housing and credit markets continues to be the biggest stumbling block as far as the bulls are concerned. There are reports that Citigroup may announce more losses going ahead and could slash thousands of jobs as well. Fed chairman Ben Bernanke too has reiterated that there is more pain left in the US housing and financial system.
The Friday's US jobs report for the month of February along with many other economic reports will be critical in determining the direction of global equity markets. The Fed policy makers will meet again on March 18 to review its monetary policy. Wall Street is betting on a 75bps rate cut from FOMC to avert a recession in the US. But, the moot point is whether the rate cuts will help the Fed achieve its objective. Only time will tell.
FIIs were net sellers of Rs5.12bn in the cash segment (provisional) on Tuesday. Local institutions were net buyers of Rs1.7bn on the same day. In the F&O segment, FIIs were net buyers of Rs9.1bn yesterday. On Monday, FIIs were net sellers of Rs6.84bn in the cash segment.
Financial Technologies (FT) has clarified that Jignesh Shah is not under any investigation in his personal capacity nor he has received any notice from SEBI in this regard. The company also added that Jignesh Shah has not traded in the shares of FT. There is no other investigation by SEBI, FT said.
Asian markets are trading pretty much mixed this morning following a volatile day on Wall Street overnight.
The Nikkei in Tokyo was down 28 points at 12,964 while the Hang Seng in Hong Kong was nearly flat at 23,127. The Kospi in Seoul added 5 points to 1680 while the Straits Times in Singapore was almost unchanged at 2919.
The Shanghai Composite in China slumped 1.8% to 4258 and the Taiex in Taiwan was up 39 points to 8509.
The MSCI Asia Pacific Index fell 0.3% to 141.82 as of 10:26 a.m. in Tokyo, extending a four-day, 4.9% decline. The benchmark is down 10% this year on concern that the widening credit-market losses and a US slowdown will weigh on global economic growth.
Benchmarks also advanced in Australia and New Zealand.
US shares closed mixed on Tuesday but the broader market cut losses by the close after a tough session overwhelmed by reports of more troubles for Citigroup and Intel's profit forecasts. Fresh grim comments on the US economy from a slew of Fed officials didn't help matters either.
Financial and commodity shares led the decline initially after Fed chief Bernanke urged banks to forgive more late loans and oil, gold and copper prices dropped from record highs.
Citigroup shares tumbled to a nine-year low after Merrill Lynch cut its full-year earnings forecast. Separately, the CEO of Dubai International said Citigroup may need additional funding because of its growing losses.
ConocoPhillips and Freeport-McMoRan Copper & Gold led a retreat in energy and mining shares, the best-performing industries of the past year.
The S &P 500 Index slid 5 points, or 0.3%, to 1,326.75 after earlier falling 1.8%. The Dow Jones Industrial Average lost 45 points, or 0.4%, to 12,213.8, paring a decline of 226 points. The Nasdaq Composite finished flat at 2,260.28.
Five stocks dropped for every three that rose on the New York Stock Exchange.
The S&P 500 briefly dropped below its lowest closing level in 18 months after Bernanke warned that the housing slump may deepen. The benchmark recovered most of its loss following the Ambac rescue report and after Cisco Systems said it plans to do more takeovers.
All three major US indices had fallen more through the mid afternoon, with the Dow at one point down about 200 points. Shares pared declines in the last hour of trading after a television network said a deal to bail out bond insurer Ambac Financial is progressing.
Wednesday will bring a raft of economic reports, including the monthly report on private sector employment from payroll firm ADP, which will be closely watched ahead of Friday's broader jobs report. Also, reports are due on factory orders and the Institute for Supply Management's reading on the services sector.
The fed's periodic beige book review of the economy is also due.
US light crude oil for April delivery fell $2.93 to settle at $99.52 a barrel in New York. The active-month contract had touched a new trading high of $103.05 Monday in electronic trading.
Gold prices retreated after heading closer to the $1,000 an ounce milestone. COMEX gold for April delivery fell $17.90 to settle at $966.30 an ounce.
Treasury prices tanked, raising the yield on the benchmark 10-year note to 3.61% from 3.53% late on Monday. The dollar stood near an all-time low versus the euro. The greenback also slipped against the yen.
European shares fell as worries about credit-market stress and fears of further asset write-downs by leading global financial firms depressed sentiment across the region. The pan-European Dow Jones Stoxx 600 index dipped 1.3% to 310.26, moving back from early gains.
In Germany, the DAX 30 tumbled 2.2% to 6,545.04, while the French CAC-40 slipped 1.4% to 4,675.91 and the UK's FTSE 100 closed down 0.9% at 5,767.70.
Most emerging markets closed in the red. The Bovespa in Brazil was down 1.3% to 63,655 while the IPC index in Mexico slid 265 points to 29,261. The RTS index in Russia dropped 0.7% to 2018 while the ISE National-30 index in Turkey was down 1.2% at 53,039.
No respite likely for bulls
Markets ended with a deeper cut on Tuesday extending its losses to the third straight trading session. Things got worse for markets post sun-outage, in particular for the banking stocks after a television news channel quoted a top Finance Ministry official saying that the country's biggest commercial bank had losses tied to the subprime mortgage crisis in the US. Also a mixed end to the Asian bourses and a weak start in equity markets across Europe further dampened the sentiments.
Finally, the 30-share Sensex closed at 16,339 losing 337 points after hitting an intra-day high of 16,754 and a low of 16,164. The NSE Nifty closed at 4,864 slipping 88 points touching an intra-day high of 4,967 and a low of 4,812.
Overall about 499 stocks advanced, 2,196 stocks declined while 42 stocks remained unchanged. Among the BSE 30 index 11 stocks advanced while 19 stocks declined.
Among the 30-scrips of Sensex, ICICI Bank, RIL, L&T and Infosys were among the major laggards. However, HDFC, Hindalco, Maruti and M&M were among the major gainers.
ICICI Bank fell over 5% to Rs971 after a television news channel quoted a top Finance Ministry official saying that the country's biggest commercial bank had losses tied to the subprime mortgage crisis in the US. The scrip touched an intra-day high of Rs1035 and a low of Rs930 and recorded volumes of over 92,00,000 shares on NSE.
EKC marginally slipped by 0.5% to Rs303. The company announced that it signed asset purchase pact with Reunion. The scrip touched an intra-day high of Rs314 and a low of Rs285 and recorded volumes of over 61,000 shares on NSE.
NTPC gained by 1% to Rs190. The company said that it is in talks to acquire mines overseas. The scrip touched an intra-day high of Rs194 and a low of Rs186 and recorded volumes of over 75,00,000 shares on NSE.
Tata Communication dropped 3.5% to Rs475. The company said that it rolled out Wimax Network with Telsima The scrip touched an intra-day high of Rs499 and a low of Rs465 and recorded volumes of over 2,00,000 shares on NSE.
Tata Power was down by over 5% to Rs1234. The company announced that they would spend Rs170bn to build plant in Mundra Tata Power says Mundra plant would generate 4,000MW The scrip touched an intra-day high of Rs1329 and a low of Rs1151 and recorded volumes of over 7,00,000 shares on NSE.
PBA Infrastructure edges lower by 0.3% to Rs83. The company announced that it secured Rs423mn contract. The scrip touched an intra-day high of Rs85 and a low of Rs78 and recorded volumes of over 25,000 shares on NSE.
Nestle India gained by 2% to Rs1430 after the company announced its Q4 results with net profit at Rs936.10mn (up 50%) and revenue at Rs9.05bn (up 21.6%). The scrip touched an intra-day high of Rs1441 and a low of Rs1378 and recorded volumes of over 39,000 shares on NSE.
Reliance Industries slipped 2.7% to Rs2243. Reports stated that the pipeline to evacuate gas from the company’s block in the KG basin is set to be commissioned in the next three months. The scrip touched an intra-day high of Rs2338 and a low of Rs2210 and recorded volumes of over 45,00,000 shares on NSE.
News Snippets:
Exploration deadlines for Reliance Industries and ONGC may be extended on account of delays due to rig shortage. (BL)
Tata Motors may license out manufacturing of its small car Nano. (Mint)
Unitech’s US$1.5bn QIP postponed to first quarter of 2008. (BS)
BSNL plans to spend Rs4bn on CDMA expansion. (Mint)
Oil India to pioneer converting gas into LNG to reduce carbon emission levels. (Mint)
ONGC forecasts US$1.6bn fuel subsidy burden. (Mint)
Decision of allowing Cairn India to recover cost of setting up pipeline from crude oil sales will be taken in two weeks. (Mint)
Union Bank to raise Rs6bn through tier II capital and is set to enter new business. (Mint)
Tata Communications to invest US$500mn in Wimax by 2010. (Mint)
M&M acquires Italian automotive design company G.R. Grafica Ricerca Design for an undisclosed amount. (Mint)
NTPC may need 270MT of coal a year by 2017. (Mint)
Tata Steel still in race for Liberian iron ore deposit project. (BS)
Tata Power plans to spend Rs170bn on Mundra plant. (BS)
Indraprastha Gas cuts CNG prices by 30 paise in Delhi. (BS)
Bajaj Auto cuts prices by up to Rs3,000. (BS)
The DoT permits Tata Tele to operate GSM services in 19 circles. (BS)
Vijay Mallya may dilute 15% in the merged Kingfisher Airlines to raise Rs160bn. (BS)
Bank of Baroda, Andhra Bank and UK’s Legal and General group sign JV for life insurance. (BS)
Reliance Retail ties up with Pearle Europe for launch of optical stores in India. (BL)
Ranbaxy secures USFDA approval to sell generic version of Risperdal. (ET)
PNB to sell 27% stake in subsidiary, PNB Gilts. (ET)
IRB Infrastructure secures a 30 year contract for road development and maintenance in Kolhapur from Maharashtra State Road Development Corporation (MSRDC). (ET)
Gail bids for 5.2% stake in Petronet LNG Ltd for Rs15bn. (FE)
DCB to raise Rs3bn to Rs4bn during next fiscal year for its business growth. (FE)
ONGC plans to set up dual cracker petrochemical complex at Dahej with a capacity to produce 1.1mn ton of ethylene. (FE)
Wipro launches e-business suit solution for service providers and network operators. (FE)
NTPC to enter into a JV with two Indonesian coal firms Persada Investama and Sugico Graha. (FE)
Economic Front Page
Union Chemicals Minister to request the Prime Minister to roll back the budget proposal of imposing 5% customs duty on Naptha. (Mint)
The Finance Minister rules out any rollback of budget proposals. (BL)
Government to consider easing FDI norms. (BS)
Government reduces prices of controlled drugs following the excise duty cut on the pharma sector. (BS)
SEBI board may clear real estate mutual funds. (BS)
Finance bill proposes to allow the revenue department to charge excise duty on any article which could be bought or sold. (ET)
DoT rejects special committee reports that recommended a cut in levies on telecom sector. (ET)
SEBI likely to cut all regulatory charges. (ET)
RBI asks Indian banks to work out a policy on issuing Letters of Comfort (LoCs) to their overseas subsidiaries and branches. (FE)
National Pharmaceutical Pricing Authority (NPAA) asks drug companies to cut prices of formulation packs falling under schedule category of 4.58%. (FE)