Give me six hours to chop down a tree and I will spend the first four sharpening the axe.
After sharpening its axe for years, Infosys has finally cut a deal chopping aside all other IT deals of the past in IndiaInfosys announced the country's biggest ever acquisition in the IT space. The Bangalore-based software major has acquired UK-based SAP consulting firm Axon for $753mn or Rs33bn. At almost 20% premium to Friday's closing price of Axon and two times sales, the all-cash deal is not cheap. Its operating margin, at 15% is nearly half of Infosys. But, in the long run, it is expected to boost the company's business in the UK and Europe.
There’s a lot more to the market than Infosys. A deal of this size may save the stock for some time but not the sentiment on the sector. Overall, we may witness more weakness today, at least in opening trades on the back of the overnight fall in US shares.
All the three main US indices were down nearly 2% each. Stock benchmarks also fell in key markets in Europe and Latin America. But, Asian markets haven't fallen as much as their western counterparts. Crude oil is only marginally higher at around $115 per barrel. So, there is still hope for the bulls that things might improve as the day wears on. Expect a lot of stock centric action with Infosys likely to hog the limelight in the wake of its big-bang acquisition.
The trading was pretty dull yesterday, with the key indices managing only slim gains after a strong start due to a selloff in the afternoon session. Market breadth was more or less balanced. Interestingly traded volume was quite low, which was a bit if a surprise in a derivative settlement week. This reinforces our view that both, the bulls and the bears are a little confused about the near-term prospects of the market. They appear to be reluctant in making any firm commitment at this stage given the uncertainties surrounding local and global markets.
This is reflected in the provisional NSE figures for FIIs and local funds, both of whom did modest buying on a net basis. FIIs were net buyers of Rs629.2mn (provisional) in the cash segment on Monday. Local institutions were net buyers of Rs962.6mn. In the F&O segment, the foreign funds were net buyers of Rs14.8bn. On Friday, the FIIs were net sellers of Rs1.14bn in the cash segment. Mutual Funds were net buyers of Rs1.8bn.
US shares plummeted on Monday after rallying on Friday. The main stock indices dropped after a flurry of disappointing news about several major financial institutions. The day's housing data failed to dissipate investors' unease. Oil prices were volatile and the dollar was mixed.
At the close, the Dow Jones Industrial Average was down 241.81 points, or 2.08%, at 11,386.25 and the broader Standard & Poor's 500 index declined 25.36 points, or 1.96%, to 2,365.59. The technology heavy Nasdaq was down 2.03% or 49.12 points at 2,365.59.
All of the Dow's 30 components finished in the red, with the losses led by insurance giant American International Group (AIG). All of the S&P 500 index's 10 industry groups suffered losses, paced by a 2.7% fall in the financials.
Market breadth was pretty light with many Wall Street professionals taking the last week of August off. About 865mn shares changed hands on the New York Stock Exchange, the slowest trading day of the year. Volume last week was 35% less than the year-to-date average.
There may be a whole other leg of the ongoing credit market mess that hasn't been anticipated yet. Renewed concerns about the financial sector's health over the last few days have stopped investors from continuing any advance.
Existing home sales jumped to a five-month high in July, topping forecasts, while home prices fell. Sales of previously owned homes in the US rose 3.1% in July, a gain that masked further housing weakness as inventories of unsold properties increased.
A recovery in the US housing market is unlikely until well into 2009, Housing and Urban Development Secretary Steve Preston said.
AIG tumbled to a 13-year low after Credit Suisse said the insurer may lose $2.4bn this quarter on mortgage- related writedowns. Fitch ratings said late on Friday that it might cut its ratings on the insurance giant.
Washington Mutual and Huntington Bancshares each dropped more than 6% after Columbian Bank & Trust became the ninth US bank to collapse this year. Alcoa and Freeport-McMoRan Copper & Gold led the S&P 500 Materials Index to a 2.3% decline as gold and aluminum prices decreased.
Lehman Brothers slid 6.7% after speculation eased that state-run Korea Development Bank is likely to acquire the troubled Wall Street firm, following comments from a top Korean regulator that could discourage such a move.
JP Morgan said the market value of its investments in Fannie Mae and Freddie Mac preferred stock has likely fallen by half to $600mn, according to reports. brokerage said that this could impact its quarterly earnings.
Fannie Mae and Freddie Mac shares managed to bounce back after Freddie's debt offering saw strong demand.
Oil prices seesawed after tumbling $6.59 a barrel on Friday. US light crude oil for October delivery rose 52 cents to settle at $115.11 per barrel on the New York Mercantile Exchange.
Retail gas prices continued to drop overnight, extending their downward trend, according to a survey of gas station credit-card activity. Gasoline prices are down 10% from all-time highs hit in mid-July.
In the bond market, Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.78% from 3.86% late on Friday. The dollar gained versus the euro and slipped against the yen. COMEX gold for October delivery fell $6.70 to $822.80 an ounce.
The dollar's rally over the past month is close to unprecedented in the 35 years since the US currency was decoupled from gold and will have room to rise on bets the European Central Bank (ECB) will begin cutting borrowing costs, according to Lehman Brothers.
Tuesday brings reports on July new home sales, August consumer confidence and the minutes from the last Federal Reserve policy meeting.
Stocks in Europe drifted lower in thin trading, paced by a decline in banks. The Dow Jones Euro Stoxx 50 fell 32 points, or 1%, to 3,280.41. Germany's DAX 30 fell 45.47 points, or 0.7%, to close at 6,296.95 and the French CAC 40 dropped 44.58 points, or 1%, to end at 4,355.87. The London Stock Exchange (LSE) was closed on Monday for a public holiday.
In the emerging markets, Brazil's Bovespa was down 2.5% to 54,477 while Mexico's IPC index fell 1.7% at 26,416. The RTS index in Russia tumbled 3.2% to 1647 and the ISE National-30 index in Turkey was down 0.5% at 50,263.
Markets gave up early gains gradually as traders and investors preferred to book profits at higher levels. However, despite a falling trend, key indices managed to end with modest gains as bulls extended its winning streak to second trading session.
Among the 30-components of Sensex, 16 stocks were in the green and 14 stocks were in red. HDFC, ICICI Bank, HDFC Bank and Bharti Airtel were among the major gainers. On the other hand, Reliance Industries, BHEL and Tata Power were among the major laggards.
Finally, the benchmark Sensex gained 48 points to close at 14,450 and Nifty ended 8 points higher to close at 4,335.
Shares of HCL Technologies gained by a percent to Rs223 after the company announced that it would acquire Control Point Solution for US$20.8mn. The valuation is on cash free and debt free basis. The scrip touched an intra-day high of Rs227 and a low of Rs222 and recorded volumes of over 22,000 shares on BSE.
Shares of Gujarat Apollo Industries advanced by over 4.5% to Rs183 after the board of directors of the company considered issue of bonus shares in the proportion of one share for every two shares held. The scrip touched an intra-day high of Rs206 and a low of Rs180 and recorded volumes of over 89,000 shares on BSE.
Era Infra ended 0.4% lower at Rs475. The company announced that it secured a contract worth Rs423.5mn for construction of industrial worker housing (1892 Dwelling Units of Type-I, Type-III & Single Room Dormitory) with cost effective technologies (Composite Work) complete at Narela Industrial Complex from Delhi State Industrial and Infrastructure Development Corporation Ltd (DSIIDC). The scrip touched an intra-day high of Rs498 and a low of Rs468 and recorded volumes of over 64,000 shares on BSE.
JK Lakshmi Cement advanced over 2.5% to Rs79 after reports stated that the company is planning to expand its capacities. The company is planning to set up five ready-mix concrete plants, for an investment of up to Rs10bn by end of this fiscal. The scrip touched an intra-day high of Rs84 and a low of Rs78 and recorded volumes of over 55,000 shares on BSE.
Purvankara Projects surged by over 5% to Rs188 after media reports stated that its arm is in talks with PE firms to raise Rs7.5bn. Reports also stated that the company’s arm would dilute 30-40% stake in 7 low cost projects. The scrip touched an intra-day high of Rs194 and a low of Rs186 and recorded volumes of over 12,000 shares on BSE.
Punjab Chemicals gained by 0.5% to Rs280 after the board of directors of the company announced that they would meet on August 29, 2008, to consider acquiring stake in an agrochemical formulation unit. The scrip touched an intra-day high of Rs285 and a low of Rs276 and recorded volumes of over 35,000 shares on BSE.
RIL may transfer 80% in KG D6 to its four unlisted subsidiaries (ET)
Tata Motors to pull out of Singur, if the situation does not improve within the next fortnight (ET)
NTPC seeks government nod to raise ECBs worth US$25bn (BL)
SAIL has expressed concerns over likely delays in its expansion projects due to problems in equipment supply (BL)
Norway’s StatoilHydro is keen to treble its stake to 30% in a gas block operated by ONGC in KG basin (BS)
ONGC notifies four new discoveries and plans Rs4.5bn to enhance its E&P capabilities (BL)
BSNL, Bharti, Tata Comm and Saudi Telecom to invest around US$400mn in an undersea cable link (FE)
NALCO has floated a tender to export 30,000 tons of alumina (BL)
Wipro to launch Unza’s personal care portfolio in India this month (ET)
HCL Tech has signed an agreement to acquire US-based Control Point Solutions (ET)
Bharti Airtel ties up with IBM for sharing technology and services (ET)
BHEL and Heavy Engineering Corp Ltd plan to join hands to manufacture forging equipments for nuclear power plants (DNA)
IOC, HPCL and BPCL have asked the government for US$4bn forex loan from the RBI (FE)
Trai data reveals that Airtel and RCom tops the list of most congested networks (BS)
Britannia Industries to increase prices if input cost continue to spiral (BS)
Government is taking a tough stance against oil majors ONGC, RIL and Cairn for delaying payment of royalties (ET)
Essar Oil’s arm to bid for more oil & gas blocks in Australia (BL)
Jet and Kingfisher to spend about Rs1bn each towards global brand campaigns (DNA)
Dr Reddy’s has renamed its US subsidiary Reddy Pharmaceuticals as Promius Pharma (ET)
GHCL has decided to undertake a restructuring program involving hiving-off the home textile business (ET)
PTC is planning to import coal and buy stakes in overseas coal mines to diversify its business (BS)
Fortis Healthcare is undertaking a restructuring exercise and expects to achieve 16% operating margin in the current fiscal (ET)
Emami plans overseas buy to drive growth (BS)
Eicher Motors to increase price of three models of its Royal Enfield motorcycle with effect from 1st September 2008 (BS)
Tata Metaliks gets prospective license for iron ore in Maharashtra (BS)
HOV Services to mull restructuring of its subsidiary companies (BS)
Purvankara arm in talks with four PE funds to raise about Rs7.5bn (BS)
Royal Orchid to invest Rs5bn to add eight new hotels by 2010 (ET)
Emco is looking for coastal sites for setting up a power plant that will use imported coal (DNA)
Visa Steel to invest Rs20bn over neat 2-3 years (DNA)
Sasken expects good growth from its handsets business (DNA)
Nitin Fire Protection receives approval from BIS for its industrial and compressed natural gas cylinders (BL)
Era Infra has bagged orders worth Rs420mn (BL)
Economy Front page
Telecom Commission has decided to auction 3G spectrum for CDMA players in the 800 MHz band (ET)
Steel exports dip 25% in April-July 2008 to 2.75mn tons (BS)
India adds a record 9.22mn wireless subscribers in July 2008 (ET)
Fiscal Deficit target of 2.5% for 2008-09 is likely to be exceeded by a significant margin says Planning Commission Deputy Chairman, Montek Singh (ET)
State-run oil companies have proposed a Rs57/litre price for diesel they sell to industrial users (ET)
India may attract US$40bn FDI in 2008-09 (ET)
Three-year lock-in period to remain for FDI in real estate in ‘mixed’ projects that include hotel and tourism activities (ET)
The Department of Pharmaceuticals has asked the NPPA to clear price revision applications received from drug companies within a period of 30 days (ET)
Cement firms may cap prices on fear of glut (BS)