Wall Street indices predicted nine out of the last five recessions! – Paul Samuelson.
The recession may have already started in the US. This indication comes from none other than Federal Reserve Chairman Ben S. Bernanke. Though he didn't utter the "R" word in his testimony to the Congress, Bernanke hinted that situation in the US has deteriorated since the last official forecast in January.
What's worse, the IMF is of the view that there is a 25% chance of a global recession, and has cut its growth forecast for the year from 4.1% to 3.7%. A global recession will kick in when the world economic growth slips to 3%. In short, there is no escaping the fact that the global gloom is nowhere near the end.
US and other global equity markets had rallied on Tuesday amid optimism that the subprime mortgage induced credit crunch could be turning the corner. However, Bernanke's latest assessment of the US economy and the IMF predictions do not seem to jell with the markets' view. So, clearly, the worst may not be over yet, though the stock markets across the world seem to be proving resilient. There are more chances of markets going down than rallying from here given the "X" factor that continues to hang over the global markets.
In this context, we see the key indices in India opening on a cautious note. Yesterday, the bulls could not hang on to strong gains made in the morning though Asian markets were on a strong wicket. Traded volume improved over the Tuesday's session but remain quite pathetic to say the least. And, if the withdrawal of the STT benefit under Section 88E was not enough the street was abuzz with rumours of rationalisation in stamp duty. According to some market observers, that may have led to the steep fall in the key indices from the day's high. Having said that, we would refrain from speculation. As far as the market trend is concerned, much will continue to hinge on the emerging global equations, fund flows, local economic outlook and of course on corporate earnings and guidance for the current fiscal year.
We see the market rangebound within a couple of thousand points and choppy in the near term. No major breakout is expected till things start to stabilise, both locally as well as globally. The next few months will be painful for the bulls, though there will always be opportunities to pick up good quality stocks for the long haul which one should be careful in judging. Stick to the large caps as you build your portfolio. A small portion you may punt in mid-caps. Shares of Gammon Infrastructure Projects will get listed on the bourses today.
Asian markets are trading mixed this morning. The Nikkei in Tokyo was nearly flat at 13,200 while the Hang Seng in Hong Kong gained 218 points or 0.9% at 24,090. The Kospi in Seoul advanced 0.7% at 1754 and the Straits Times in Singapore rose 0.7% at 3146.
The Shanghai Composite index in China gained 0.9% at 3378 and the Taiex in Taiwan dropped 0.2% to 8588.
The MSCI Asia Pacific Index added 0.7% to 144.11 as of 11:12 a.m. in Tokyo, following a 3.2% surge yesterday that lifted the benchmark to a one-month high. A measure of raw- materials producers posted the biggest advance among the index's 10 industry groups.
US stocks fell for the first time in three days after Fed Chairman Bernanke acknowledged that the world's biggest economy may be in a recession.
The S&P 500 decreased 2.65 points, or 0.2%, to 1,367.53. The Dow Jones Industrial Average lost 45.44, or 0.4%, to 12,609.92 after gaining 391 points yesterday. The Nasdaq Composite Index finished almost flat at 2,361.4.
Despite market loses, breadth was mostly positive Wednesday.
The Department of Energy's weekly oil inventory report showed crude supplies increased 7.3 million barrels, much more than the 2.3 million analysts were expecting. But gasoline supplies dropped more than expected.
US light crude oil for May delivery soared $3.85 to $104.83 a barrel in New York after slipping below $100 earlier on the day. COMEX gold for June delivery added $12.40 to $900.20 an ounce after falling below $900 for the first time in nine weeks Tuesday.
The dollar fell near an all-time low against the euro but posted slight gains versus the yen Wednesday. Long term treasury prices slipped a bit, raising the yield on the benchmark 10-year note to 3.60% from 3.55% at Tuesday's close.
Before a hearing of the Joint Economic Committee of Congress, Bernanke said he believed the economy is still slightly growing at the moment, though a US recession is possible. He said he expects a continued rise in unemployment, and he noted that the economic outlook has worsened since the Fed's last forecast was released in January.
Bernanke also defended the Fed's role in the fire-sale of Bear Stearns to JPMorgan Chase last month, saying he took the actions to provide a smooth functioning of financial markets needed by all Americans.
Though stocks traded higher shortly after the morning hearing, Wall Street fell back a bit in the afternoon.
In a survey of private employers, businesses added jobs in March, according to payroll services company Automatic Data Processing. The report showed an increase of 8,000 private sector jobs last month, instead of the decline of 45,000 economists were expecting.
Also, outplacement firm Challenger, Gray & Christmas reported that March layoff notices fell by 26% to 53,579 from February. But that still puts the number of cuts announced 9% above year-earlier levels.
Both reports come ahead of Friday's closely watched employment report from the Labor Department, which includes private and public sector jobs data.
US factory orders fell a worse-than-expected 1.3% in February, although it was less than the 2.3% decline in January. Economists forecasted a decline of 0.8% for the month.
In corporate news, CNBC reported just before the market's close that Merrill Lynch is planning to cut 10% to 15% of its workforce - excluding brokers - sometime in May.
European shares extended second-quarter gains. The pan-European Dow Jones Stoxx 600 index closed 1.1% higher to 319.59, building on the gains made on Tuesday. The German DAX 30 rose 0.9% to 6,744.44, while the French CAC-40 advanced 0.9% to 4,911.97 and the UK's FTSE 100 climbed 1.1% to 5,915.90.
The emerging markets closed mixed. The Bovespa in Brazil was up almost 1% at 63,364 while the IPC index in Mexico was down 1% at 31,467. The RTS index in Russia rose 0.3% to 2069 and the ISE National 30 index in Turkey advanced 0.9% to 51,166.
Bulls fail to capitalise on strong start
It was a day of gradual slide for India bourses. After posting a promising start, key indices were unable to capitalize on their gains as traders preferred to book profits at higher levels. The fall was seen despite a firm close in the Asian markets. However, a weak start to the European markets slightly dampened the sentiments. The benchmark index fell nearly 500 points and Nifty index fell over 150 points from their respective highs.
Overnight gains in the US markets coupled with strong cues coming in from the Asian markets lifted the benchmark Sensex above the 16,200 mark in intra-day. There on, markets reversed and started gradually erasing its early gains as key indices faced stiff resistance at higher levels.
Further, as the day progressed slightly weak start in the equity markets across Europe dampened the sentiments. Profit booking was also seen in the Metal, FMCG and Power stocks. However, the IT and the Banking stocks were in demand.
Finally, the BSE benchmark Sensex ended up by 123 to close at 15,750 and the Nifty index ended 14 points higher to 4,754. Among the 50-Nifty 28 stocks ended in positive territory and 22 stocks ended in red.
Overall about 1,760 stocks advanced; 911 stocks declined while 49 stocks remained unchanged. Among the 30-scrips of Sensex, Tata Steel, Reliance Energy, ITC, L&T and BHEL were among the major laggards. On the other hand, ICICI Bank, Infosys and HDFC were among the major gainers.
Among the BSE Sectoral indices, the BSE IT index (up 2.9%), BSE Bankex index (up 2.3%) and BSE Auto index (up 1.5%). Among the losers, BSE Metal index (down 2.1%) and BSE FMCG index (down 0.7%).
The steel stocks lost their shine after reports stated that the government would direct the steel manufacturers to cut prices by 10-20% in a month. Tata Steel slipped 3.2% to Rs645, Tata Sponge declined 1.6% to Rs248, Jindal Steel was down 2% to Rs1973 and SAIL lost 4% to Rs167.
Airline stocks gained altitude after media reports stated that the airline companies would hike fares following an increase in jet fuel prices. Spice Jet edged higher by 0.5% to Rs41, Jet Airways was flat at Rs547.
Spice Telecom rallied by over 10% to Rs33 after media reports stated that Mr Modi, Chairman and Managing Director want to dilute promoter holding in Spice Telecom in favour of foreign players UAE's Telecommunications Corporation Etisalat. The total promoter holding in Spice Telecom is 40.8%. The scrip touched an intra-day high of Rs36 and a low of Rs32 and recorded volumes of over 37,00,000 shares on BSE.
Prithvi Info edged lower by 0.5% to Rs155. The company said that the company secured Rs120mn order from Huwei. The scrip touched an intra-day high of Rs163 and a low of Rs154 and recorded volumes of over 58,000 shares on BSE.
GTL gained by a percent to Rs259 after the company announced that the founders raised their stake to 39.31% in the company. The scrip touched an intra-day high of Rs263 and a low of Rs255 and recorded volumes of over 24,000 shares on BSE.
Steel Stripes Wheels, manufacturers of single steel wheel rims, surged by over 3.5% to Rs174 after the company declared its March sales rose 30.7% to 5,53,000. The company also announced its March production which rose 30.2% to 5,56,000 units. The scrip touched an intra-day high of Rs174 and a low of Rs168.
Era Infrastructure marginally gained 0.2% to Rs587 after the company announced that it secured order worth Rs40mn from Jeet Builders. The scrip touched an intra-day high of Rs610 and a low of Rs555 and recorded volumes of over 51,000 shares on BSE.
Bank of Maharashtra was up by a over 3% to Rs50. The Bank's decision to establish General Insurance Joint Venture in partnership with M/s. Shriram Financial Services Holdings P Ltd, Chennai and Sanlam Ltd of South Africa, could not be finalized as per the Bank's requirement and hence the Bank has opted out of the said Joint Venture. The scrip touched an intra-day high of Rs51 and a low of Rs49 and recorded volumes of over 33,000 shares on BSE.
IVRCL Infrastructures advanced by over 2% to Rs394 after the company announced that the Buildings & Industrial Structure (B & IS) Division bagged orders of the value of Rs4.84bn. Scope of Work:- Construction of various Buildings varying from G+4 to G+25, approximate Construction Area of 40 Lacs Sq. ft, out of total Integrated Township of approximate 1.2 Crore Sq. ft construction area in 237 acres of land located on the Bank of River Ganges at New Bata Road, Batanagar, Mahestala, Kolkata, to be completed in 42 months. The scrip touched an intra-day high of Rs420 and a low of Rs387 and recorded volumes of over 1,00,000 shares on BSE.
FIIs were net sellers of Rs1.36bn (provisional) in the cash segment yesterday while local institutions pumped in Rs2.64bn. In the F&O segment, foreign funds were net buyers of Rs17.73bn yesterday.
On Tuesday, FIIs were net sellers of Rs11.88bn in the cash segment. Mutual Funds were also net sellers of Rs2.85bn on the same day.
Corporate News
HUL announces a performance-linked bonus along with a steep hike in salaries to its top management. (ET)
Tata Motors planning to raise 100bn yen on Tokyo exchange. (ET)
NTPC plans to enter into captive power generation and retail distribution in the upcoming SEZs. (FE)
TCS to invest Rs9bn in Pune to create a capacity for 20,000 seats over next three years. (FE)
A consortium of M&M and ICICI Ventures signed definitive agreement to buy 100% in Italian gear maker Metalcastello. (ET)
GMR Infra plans to raise US$3bn over the next 4-5 years to fund expansion of power projects. (DNA)
NTPC has signed a JV with a state entity in Uttar Pradesh to set-up a 1,320 MW power plant. (DNA)
American Tower Company (ATC) is close to investing in tower entity of Tata Tele. (DNA)
Suzlon Energy’s US arm bags a contract to supply 200MW from a local company. (ET)
IVRCL’s buildings and industrial structure division wins orders worth Rs4.84bn. (BL)
TVS Motors plan to sell 60,000 electric scooters in 2008-09. (DNA)
Welspun Gujarat is setting-up a new 0.3mtpa facility in the US. (DNA)
Voltas wins a contract from a UAE-based company for construction of a cooling plant at the Dubai International Financial Centre. (DNA)
Suzlon’s January-March results may see a hit due to company’s forex exposure. (FE)
Telekom Malaysia might partner with strategic investors to increase their combined stake in Spice Communications to 74%. (BS)
Gateway Distrparks’ arm to raise Rs3.3bn from private equity investors. (ET)
Provogue lines up JV for foray into infrastructure. (ET)
Maytas Consortium to build two airports for Rs2bn in Karnataka. (BS)
Royal Orchid Hotels has acquired a 50% stake in Cosmos Premises Pvt Ltd which owns Galaxy Resorts in Goa. (DNA)
Steel Strips Wheels Ltd gets an order of Rs1.1bn for supply of about 1mn steel wheel rims over five years from Renault. (BL)
Zensar Technologies is targeting over 10% of revenues from West Asia and South Africa. (BL)
Koutons Retail promoters are looking at diluting 5-7% stake in 2009-10 to raise funds for more than doubling the number of exclusive outlets by 2011. (BL)
Economy News
Government has asked cold rolled (CR) steel makers to voluntarily reduce prices. (ET)
Government is considering a ban on cement exports. (BS)
Retail rentals see little or no growth in Delhi NCR, Bangalore, Hyderabad and Kolkata while continue to soar in Mumbai in the past six months. (ET)
Railways increases freight rates on iron ore transportation by 5-6%. (DNA)
Industrial output growth to dip further to 3.4% in April-July 2008 says Assocham. (ET)