You can't choose the ways in which you'll be tested.
The nerves of investors, traders and speculators are all being tested alike. The big event (union budget) is behind us now. Any hopes of a post budget rally will be laid to rest for the time being given the weak close on Wall Street and the expected gap-down opening today. A recovery in Asian/European markets may lead to some rebound in local indices. Long-term investors can chip away at quality stocks at lower levels. It’s a different matter that lower levels just get lower after you bought the stock. To add to the woes, the market will observe sun outage from March 4 to March 18. Traditionally, the key indices tend to be lackluster during this period, not to mention the extra hours most of us need to put in. The same trend may prevail this time around too.
You may once again start concentrating on your own portfolio, which in all probability is yet to fully recover from the January crash and the ensuing volatility. A lot of post budget analysis will surely take place this week as to which sector will gain the most and which ones will not. Investors, traders and experts alike will try and ascertain the near-term impact of the budget on the markets. We expect a lot of sector-centric action based on the budget proposals in the near term.
Market players will once again start looking at emerging micro as well as macro factors. The hike in short-term capital gains and the withdrawal of the tax rebate on STT could hurt the sentiment in the near term, especially for traders and brokers (on proprietary trading). It will be interesting to see what stance will the foreign funds take post the budget. A lot will hinge on their actions, as well as that of the retail investors and HNIs. All these investors still lack conviction to resume aggressive purchases given the anxiety over the US economy.
Most market observers see a rangebound and sideways movement this year given the lack of clarity on how serious is the crisis in the US housing and credit markets. On the local front too, the economy has slowed down over the past few months. Hopefully, the tax cuts and other positive measures announced in the budget will boost consumption and overall economic activity. Inflation will be a critical factor as will be the movement in interest rates. Don't expect an immediate rub-off of the budget on the Indian economy too soon. These things take time to work their way through the systems. Till that time, the market will continue to show yo-yo sort of movement with intermittent bouts of buying and selling.
FIIs were net sellers of Rs3.35bn in the cash segment (provisional) on Friday. Local institutions were net buyers of Rs7.42bn on the same day. In the F&O segment, FIIs were net sellers of Rs5.23bn on Friday. On Thursday, FIIs were net sellers of Rs5.29bn.
Most Asian markets were trading sharply down this morning, in step with the steep fall in US stocks on Friday. The Nikkei in Tokyo was down 4% at 13,057 while the Hang Seng in Hong Kong slid 2.9% to 23,632. The Kospi in Seoul was down 2.9% at 1662 while the Straits Times in Singapore shed 3% to 2934.
The Taiex in Taiwan slumped 2.8% to 8177 while the Shanghai Composite in China rose 0.7% to 4377.
Banks and automakers led the decline across Asia on deepening concerns that credit market losses will shoot up for global financial companies and that an impending recession in the US will weigh on the global economy.
Commonwealth Bank of Australia retreated to the lowest in more than two years in Sydney, while Mitsubishi UFJ Financial Group fell in Tokyo after UBS said losses in credit markets may reach $600bn.
Toyota dropped after an index of US business activity fell to the lowest level since 2001 and the yen strengthened against the dollar.
The MSCI Asia Pacific Index lost 2.9% to 143.21 as of 11:01 a.m. in Tokyo, set for its biggest decline since Feb. 20. Financial stocks were the biggest drag. The benchmark erased its 2.8% gain in February, which came amid speculation that a bailout of US bond insurers will prevent credit losses from spreading.
Meanwhile, the dollar declined to a three-year low against the yen on speculation that the US Federal Reserve will reiterate its plan to keep cutting interest rates to avoid a recession. The currency approached a record low against the euro.
The dollar fell last week against the euro by the most since December after Fed Chairman Ben Bernanke said some small banks may fail and unemployment will increase.
US stocks plunged on Friday, ending the month of February on a weak note after insurance giant AIG reported its biggest loss ever and UBS said losses from credit markets may top US$600bn. Also, a fresh batch of weak economic reports heightened worries over an impending recession in the world's biggest economy.
The Dow Jones Industrial Average tumbled 316 points, or 2.5%, to 12,266.39. The S&P 500 slumped 37 points, or 2.7%, to 1,330.63, its biggest drop since Feb. 5. The Nasdaq Composite slid 60 points, or 2.6%, to 2,271.48.
Market breadth was negative. Eleven stocks fell for every one that rose on the New York Stock Exchange (NYSE). On the Nasdaq, decliners topped advancers three to one on volume of 2.04bn shares.
The Dow was down 0.9% on the week, 3% for February, and has now lost 7.5% year-to-date. The S&P 500 lost 1.7% for the week, 3.5% for the month and is down 9.4% year-to-date. The Nasdaq fell 1.4% over the week, is down 5% for February and off a whopping 14% for the year so far.
This was the fourth consecutive month of declines for Wall Street that remains plagued by the credit crisis and an uncertain economic outlook. The four-month losing streaks for the S&P 500 and Dow are the longest since 2002.
European shares ended February on a sour note on Friday with banking shares yet again accounting for some of the biggest losses as worries about problems related to the US subprime mortgages.
The Dow Jones Stoxx 600 index slipped 1.4% to 318.95, leading the pan-European stock market index to close February with a small monthly loss. The German DAX 30 dropped 1.7% to 6,748.13, the French CAC-40 lost 1.5% to 4,790.66 and the UK's FTSE 100 closed down 1.4% at 5,884.30.
HSBC Holdings fell 1.8% ahead of its financial results on Monday.
Major Latin American markets dropped on Friday on the back of weak US economic data. Mexico's IPC index of 35 most-traded issues fell 4% to close at 28,918.52. In Brazil, the benchmark Bovespa stock index sank 3.1% to 63,489.30 on the Sao Paulo Stock Exchange.
Argentina's Merval fell 1.7% lower to 2,162.20, while Chile's IPSA fell 2.35 to 2,836.83.
Global cues to dictate terms
An eventful day ended in negative territory after market players sharply reacted to government plans of increasing short-term capital gains tax to 15% from 10%. Sentiments were also dampened after the Finance Minister said that government would waive all loans for small, marginal farmers. From there on key indices gradually slipped lower.
However, towards the end sentiments were lifted after media reports stated that Banks would be re-imbursed Rs600bn in lieu of waivers.
Finally, the 30-share Sensex closed at 17,578 losing 245 points after hitting an intra-day high of 17,779.54 and a low of 17,258. The NSE Nifty closed at 5,223 slipping 61 points touching an intra-day high of 5290 and a low of 5098.
Overall about 1,082 stocks advanced, 1,615 stocks declined while 45 stocks remained unchanged. Among the BSE 30 index 9 stocks advanced while 21 stocks declined.
Among the 30-scrips of Sensex, SBI, L&T, Infosys, ICICI Bank and Bharti Airtel were among the major laggards. However, SBI, Hindustan Unilever and HDFC were among the major gainers.
Cement stocks lost grip after government announced its plans to levy additional excise duties on the cement makers. Finance Minister P. Chidambaram proposed imposing an additional tax of Rs400 on every ton of cement and Rs450 on every ton of cement clinker. ACC lost 1.6% to Rs795, Grasim was down 2.1%, Dalmia Cement slipped 2% and India Cement declined 2.5%.
Banking stocks initially felt the heat after the government proposed to scrap Rs500bn of loans for farmers with holdings of up to 2 hectares and the remainder for growers owning more than 2 hectares of land. However, later in the day media reports stated that Banks would be re-imbursed Rs600bn in lieu of waivers which lifted the sentiments. The major losers were index heavyweights ICICI Bank down 1.5%, HDFC Bank down 1.1% and Corp Bank slipped 1.2%. However, stocks like SBI, PNB and Canara Bank staged a smart bounce back each gaining over 3%.
The Oil & Gas stocks reacted sharply as many incentives which were expected from the budget were not delivered. Further oil refinery companies like IOC and its other state-run counterparts are barred from raising fuel prices to cover higher crude oil costs. ONGC dropped 2.3% and BPCL was down 1%.
Hospitality stocks recorded healthy gains after government announced its proposal of granting a five-year tax exemption for setting up hospitals, especially in smaller Indian cities, to encourage availability of health care in rural areas. Hospitality stocks like Fortis Healthcare surged by over 7.5% and Apollo Hospital gained 1.5%.
Steel stocks suffered as most of the expectation were not fulfilled. Excise duty cur from 16% to 8%. Import duty on thermal coal was expected to come down to zero from 5%. However, government proposed to scrap the 5% import duty on steel-smelting and aluminum scrap to help companies pare costs amid an increase in prices of materials and freight rates. Stocks like, Bhushan Steel fell over 5.5%, JSW Steel was down 1.8%, Jindal Steel slipped 2%, Tata Steel dropped 2.7% and
FMCG stocks also recorded smart gains as reduction in excise duty from 16% to 14% and higher funds in the hands of farmers would result in increased consumption and hence is marginally positive for the FMCG sector. Hindustan Unilever was up 3%, Dabur gained 2.5%, Nirma was up 1.6% and Tata Tea was up 0.5%.
Overall impact for ITC is positive as there was no excise hike on filter cigarettes, which accounts for ~95% of cigarette profits for the company. The stock gained by 0.5%.
Auto stocks were in top gear today as the BSE auto index ended 1.2% higher on back of deduction in the excise duty from 16% to 12%. Stocks like Maruti, M&M, Bajaj Auto and Ashok Leyland were among the major gainers.
News Snippets:
NTPC plans to spend Rs73bn for setting up of second phase of Barh thermal power project in Bihar. (BL)
Nokia Siemens signs multi million euro deal with TCS to transfer its product engineering and R&D services. (BL)
Gitanjali Gems acquires the retail business of Mumbai based jewellery company Renaissance Jewellery. (BS)
Temasek is in talks with Tata Communications to pick up a stake in its new retail business. (Mint)
SCI is in talks with South Korean shipbuilder STX Shipbuilding Co. for a shipbuilding JV. (Mint)
BSNL and MTNL would together invest Rs210bn in 2008-09 through internal and extra budget resources. (BL)
Luxury hotel chain Orient Express, in which Indian Hotels is the second largest shareholder, says talks about its possible acquisition could affect its price. (FE)
Essar Group plans to invest Rs500bn in Gujarat over the next three years on SEZs, steel, oil and gas, amongst others. (BS)
Global asset management firm AIG picks up 14.5% stake in Kinetic Engineering; company raises Rs1bn. (FE)
Virgin Group has launched its Virgin Mobile brand in India in association with Tata Teleservices. (TOI)
Manipal group is close to acquiring a substantial stake in Kochi based Lakeshore Hospital for Rs1bn. (ET)
Petrobas to pick up 40% stake in ONGC’s Mahanadi block. (ET)
Tata Motors Jaguar-Land Rover deal may be delayed as issues relating to supply of engines, platforms and technologies are still to be sorted out. (ET)
Reliance Retail forms a 50:50 JV with Europe’s HAL Holdings to open stand alone optical stores across India. (Mint)
BSNL completes feasibility study for locating the country’s fourth cable landing station at Haldia in West Bengal. (ET)
GTC Industries board has granted an in-principle approval to demerge the tobacco and the real estate business into separate entities. (ET)
BEML to position itself as a leading manufacturer of metro coaches; on look out for a JV partner. (Mint)
Economic Front Page
Inflation rises to 4.89% for the week ended February 16th. (BL)
Six cement factories to be set up in Himachal Pradesh for Rs48bn to produce 2mn tons of cement annually. (FE)
Government defers by one year the target of eliminating revenue deficit set by FRBM Act; targets fiscal deficit of 2.5% for FY09. (BS)
Farm debt waiver and relief package announced in the Budget may involve a combination of special securities and cash. (BS)
Airports Authority of India proposes Rs124bn for infrastructure development at various airports in 11th plan. (BL)
Excise cut on pharmaceuticals unlikely to have an effect on drug prices as government decides to cut abatement rate for calculation of MRP based excise duty on pharmaceuticals. (BS)
Lower allocation for defence cable system may delay spectrum release. (BL)
Sixth Pay Commission impact is expected to be within 0.4% of GDP, similar to that of previous one in 1996. (BS)