Courage is the discovery that you may not win, and trying when you know you can lose.
The Government finally managed to muster up enough courage to hike retail prices of petrol, diesel and cooking gas. (Kerosene of course was exempt and will add to the joy of adulterators). To limit the burden on consumers, the Centre has also slashed customs duty on crude and petro products besides trimming the excise duty on petrol and diesel. But, all this may be a case of too little, too late. At best, it will provide a lifeline to the PSU oil marketing companies for some time. A long-term solution to the perennial problems of India's highly politicised oil sector continues to elude us.
In an unprecedented (perhaps a desperate) move to pacify the people, the Prime Minister went on air to explain the rationale behind the move. He is also seeking a long-term solution rather than saddle the Government and oil companies with the majority of the burden. As usual, the Left parties, and the BJP slammed the Government's decision. Even the RJD, very much part of the Congress coalition, has called for a rollback. If the political temperature continues to mount, there could be a small reversal in the fuel price hike.
Coming to the markets, the much-awaited announcements didn't cut much ice with the investors. Even the shares of OMCs gave up most of their gains by the end of the day. Though the price hike and other measures will provide some relief to OMCs, they will still be in considerable pain. What's more, the fiscal situation is also likely to worsen. Inflation is soon expected to hit double-digits. Companies in sectors like Auto, Aviation, Cement and Steel will be hit the most. Banks will also be affected as higher inflation will lead to more monetary tightening.
To add to the macro-economic woes, we have the fresh concerns over the global front. There are talks that Lehman Brothers could report losses and will have to raise fresh capital to stay afloat. Two of the biggest US bond insurers may have their ratings cut by Moody's. Though oil prices have cooled off substantially from US$135 per barrel, they are still quite high. The US economy may have avoided a recession (only technically though), but it's not going to gallop either. Also, Federal Reserve chief Ben Bernanke has hinted that the central bank may not increase rates any further.
Given the slew of negative factors, we expect the market to remain under pressure in the near-term. There are more chances of it falling than rallying from here. Technical and F&O indicators too are negative. FII selling has accelerated in the past few days. So, the bulls appear to be cornered from all fronts. Amidst extreme pessimism, a minor pull-back is not ruled out. But, any rally should be looked at a chance to lighten positions.
FIIs were net sellers to the tune of Rs11.99bn (provisional) in the cash segment yesterday while the local institutions poured in Rs4.2bn. In the F&O segment, foreign funds were net buyers at Rs3.35bn. On Tuesday, FIIs were net sellers of Rs9.52bn in the cash segment. Mutual Funds were net buyers of Rs1.24bn.
Fortis Healthcare and HOV Services will announce their results today.
Asian stocks are mostly down this morning, led by raw- material suppliers and financial companies, after commodity prices dropped and Lehman Brothers cut its rating on Japanese banks to negative on rising credit costs.
BHP Billiton dropped after copper fell to the lowest in more than three months and crude oil prices retreated for a second day. Mitsubishi UFJ Financial and Mizuho Financial both declined in Tokyo.
The MSCI Asia Pacific Index lost 0.9% to 148.98 as of 10:46 a.m. in Tokyo, with more than two stocks down for each that advanced. An index tracking financial companies was the biggest drag on the benchmark index.
Japan's Nikkei 225 Stock Average retreated 1% to 14,288.47. Malaysia's Kuala Lumpur Composite Index dropped 2.2%, the region's largest decline, after the government raised energy prices and imposed a windfall tax on power producers and oil palm companies.
Fresh jitters over the ongoing credit crunch coupled with Federal Reserve chairman Ben S. Bernanke's hawkish remarks on inflation sent US blue chip stock indices lower. However, technology shares managed to buck the negative trend as investors chose to avoid exposure to the volatile financial sector.
The S&P 500 ended nearly flat at 1,377.2. The Dow Jones Industrial Average declined 12.37 points, or 0.1%, to 12,390.48. The Nasdaq added 22.66 points, or 0.9%, to 2,503.14. About the same number of stocks rose as fell on the New York Stock Exchange.
US stocks opened lower but rallied after a report showed moderate expansion in the services sector. The major indexes remained in positive territory for most of the day as oil prices declined and shares of Lehman Brothers, which have been battered by credit concerns, rose following an upgrade by Merrill Lynch.
But stocks came under renewed selling pressure later in the session after credit ratings agency Moody's placed bond insurers MBIA and Ambac on review for a possible downgrade of their credit ratings.
Rumors surrounding Lehman Brothers and worries about bond insurers prevented the market from rallying on lower oil prices. On Friday, Wall Street will get a better sense of the economy's direction when the Department of Labor releases its May unemployment report.
Wachovia led 20 of 23 companies in the S&P 500 Banks Index lower after Bernanke said price stability is the Fed's top priority. Intel and Cisco gained, sending the Nasdaq to its biggest advance in a week, as an industry report showed stronger-than-forecast growth at service companies.
US light crude oil for July delivery fell US$2.01 to US$122.30 a barrel on the New York Mercantile Exchange, following the release of the government's weekly oil inventories report. The report showed a bigger-than-expected rise in gas stockpiles and a surprise drop in crude supplies.
The national average price for a gallon of regular unleaded gas rose to US$3.983 from US$3.978 the previous day, AAA reported. It was the 27th record high in 28 days.
The dollar slipped versus the euro and the yen, after rising for the past few sessions. Treasury prices fell, lifting the yield on the 10-year note to 3.97% from 3.89%. COMEX gold for August delivery fell US$1.70 cents to US$883.80 an ounce.
The Institute for Supply Management said its services sector index reading for May dipped to 51.7 from 52 in April, versus forecasts for a drop to 51. A reading above 50 indicates growth in the sector, and a reading below 50 represents a sector-wide decline.
Payroll services firm ADP reported non-farm private employment rose 40,000 last month, countering forecasts for a decline of 30,000. The report is a lead-in to Friday's more closely watched government employment report.
The US government said that first-quarter productivity was revised to a gain of 2.6% from an initial read of 2.2%, topping forecasts for a rise to 2.5%.
United Airlines, unit of UAL Corp., said it will reduce its fleet by 100 planes and cut as much as 1,600 jobs amid losses related to higher fuel costs. UAL shares gained nearly 9%.
Smuckers, the jam and jelly maker, has agreed to purchase Folgers, the coffee company from Procter & Gamble, in an all-stock deal worth US$3bn.
European shares dropped sharply, as fresh credit worries hammered the banking sector, while the energy sector sank along with oil prices. The pan-European Dow Jones Stoxx 600 index fell 1.2% to 317.06, its worst one-day drop since May 23. UK's FTSE 100 closed down 1.5% at 5,970.10, while Germany's DAX 30 dropped 0.8% to 6,965.43 and the French CAC-40 lost 1.4% to 4,915.07.
Most emerging markets closed in the red. The Bovespa in Brazil was down 1.9% at 68,673 while the IPC index in Mexico fell 0.14% at 31,448. The RTS index in Russia dropped by 3.1% to 2353 while the ISE National 30 index in Turkey dived 1.9% to 48,285.
No relief in sight for bulls
Markets slipped for fourth consecutive trading session. Indian bourses witnessed a deeper crack on Wednesday as almost all the BSE Sectoral indices i.e. the Auto, Banking, Realty, Capital Goods and PSU indices all touched their January lows.
Markets took a nose dive in the afternoon trades post fuel price hike on back of rising inflation worries; the Nifty index slipped below the crucial support level i.e. the 4,630 mark after which the index further lost ground closing below the 4,600mark for the first time since March 17 2008. The market breath was also very weak. Overall 1,944 stocks declined while only 700 stocks advanced and 75 stocks stayed unchanged.
Finally, the BSE benchmark Sensex ended 447 points lower to close at 15,514 and the Nifty index lost 130 points to close at 4,585.
Deepak Fertilizers edged lower by 0.5% to Rs102. The company announced that it is planning to enter contract-mining operation. The company is looking at third-party mining contracts in India, which will involve drilling and blasting rock on ground, mining chemicals, and related products, according to reports. The scrip touched an intra-day high of Rs107 and a low of Rs102 and recorded volumes of over 2,00,000 shares on BSE.
NTPC slipped by 1.2% to Rs157. According to reports, the company has started preparations to add nearly 7,000 mw in the hydro sector by the end of the 12th Plan (2016-17). The investment in the eight upcoming hydro projects would be around Rs350bn. The company is in the process of developing three hydel projects —Koldam (800 mw) in Himachal Pradesh, Loharigang Pala (600 mw) and Tapovan Vishnugad (500 mw) in Uttarakhand. These projects are likely to be developed within the 11th Plan period.
The scrip touched an intra-day high of Rs163 and a low of Rs156 and recorded volumes of over 35,00,000 shares on BSE.
GAIL declined by 3.7% to Rs370. GAIL Gas Ltd, the city gas distribution company of state-run GAIL India, applied for a liceBSE to set up CNG stations and piped gas network in six cities, including Gwalior, Mathura and Ghaziabad, according to the reports. The scrip touched an intra-day high of Rs390 and a low of Rs368 and recorded volumes of over 4,00,000 shares on BSE.
Shoba Developers lost over 4 percent to Rs448. According to reports the company plans to diversify its portfolio through slum redevelopment schemes and SEZ, retail and commercial projects. The scrip touched an intra-day high of Rs477 and a low of Rs445 and recorded volumes of over 12,000 shares on BSE.
L&T declined by 3% to Rs2765. There were reports stating that the company secured order to supply main power equipments for a proposed 1,600mw power project in Andhra Pradesh. The scrip touched an intra-day high of Rs2868 and a low of Rs2750 and recorded volumes of over 3,00,000 shares on BSE.
Suzlon Energy ended lower by 4% at Rs247. The company along with six others leading wind turbine manufacturers in the world has signed an agreement with the US government for improving quality and manufacturing standards, with a view to make the US generate 20% of its electricity from wind energy sources by 2030, according to reports. This pact may aid Suzlon Energy win more orders for power equipment and improve manufacturing technology. The wind energy equipment company has already captured over 8% of the US wind energy market in the recent two to three years. The scrip touched an intra-day high of Rs264 and a low of Rs240 and recorded volumes of over 19,00,000 shares on BSE.
Corporate News
Private equity firms Blackstone, Apax Partners and Carlyle are raising US$5bn for Reliance Communication Ltd’s deal with MTN. (FE)
Reliance Communications hires Deutsche Bank to fund MTN takeover. (BS)
Tech Mahindra bagged US$2.5mn deal to provide end to end systems integration services to the Botswana Tele-Communications. (BL)
Bharti Airtel to opt for the mobile virtual network operator (MVNO) model to increase its footprint overseas than acquisitions abroad. (FE)
SAP plans to invest around US$4-5mn which could go up to US$8-10mn in start-up companies in India through its investment arm, SAP Ventures. (ET)
National Aluminium Company (NALCO) to invest Rs400bn in Greenfield and brownfield projects. (BS)
RBI bars Sahara India Financial Corporation from accepting public deposits due to violation of regulations. (BS)
IVRCL Infrastructure bags RS8.36bn project from ONGC Petro Addittions. (BS)
Phoenix Mills to raise US$450mn from private equity investors to fund its mall and hospitality business. (BS)
Reliance Retail in talks with Liz Claiborne for a JV to open its stores in India. (Mint)
Novartis has bought US-based Protez Pharmaceuticals in a deal worth up to US$400mn, giving it rights to an antibiotic which could be used to fight superbugs such as methicillin-resistant Staphylococcus aureus (MRSA). (ET)
Biocon launches pre filled syringes for two drugs for kidney and for cancer patients. (BS)
Essar plans to partner or buy controlling stake in Kalindee Rail Nirman to benefit from the high spending by the railways. (Mint)
Tata Sky not granted relief by Delhi High Court on petition filed for ‘misleading’ advertisement by Dish TV. (BS)
FITCH Ratings placed Reliance Infrastructure on negative rating watch, indicating that the ratings may be downgraded or remain at the current level. (ET)
Air India to induct seven Boeing 737-800’s to its fleet of 18, making its total fleet to 25. (BS)
Orissa based Ruserger Mines and Minerals has applied for license for three mines in Sindhudurg in Maharashtra. (BS)
TVS Motor has entered into a contract manufacturing arrangement with Mahabharat Motors Manufacturing Pvt Ltd. (BL)
TATA BP Solar plans to launch its solar-powered hoardings product called I-Sign by September. (ET)
Raymond launched its new readymade garments range, Raymond Finely Crafted Garments and is close to forming a joint venture with an overseas company. (ET)
Himalaya Drug Company is going to launch a new strategic business unit (SBU) for expanding into smaller towns and hinterland districts. (ET)
Economic News
The Centre to sanction Rs45bn for Mumbai Metro Rail project.
National Bank for Agriculture and Rural Development (NABARD) to open a special liquidity assistance window for cooperative credit institutions to assist during tight resource conditions. (BS)
State governments have decided to reduce the sales tax on petrol and diesel, to reduce the impact of increase in prices. (BL)
The Board of Approval (BoA) for Special Economic Zone (SEZ) cleared 21 SEZs proposal, but there was no decision on Goa SEZ. (FE)
Infrastructure development in and around Mumbai could come to a halt as a result of the proposed coastal management zone (CMZ) regulations. (ET)
The print media industry recorded a growth of 16% last year and stood at Rs149bn according to the ministry of information and broadcasting (I&B). (ET)
In its recommendations on satellite radio Trai has recommended an FDI cap of 74% and a 4% revenue share for all players who want to offer services on this platform. (ET)
The general insurance industry grew by 14% in April led by strong growth in premiums collected by private sector insurers. (ET)
FMC will frame new rules on appointment of directors and tenure of board members in commodity exchanges in a move to improve corporate governance in these entities. (ET)
The Centre has decided to keep the base prices of edible oils unchanged for this fortnight. (ET)