Search Now

Recommendations

Friday, August 15, 2008

Market runs out of steam after rallying for 5 weeks in a row


Key benchmark indices ran out of steam after five–week rally to edge lower in truncated week ended Thursday, 14 August 2008. Poor industrial growth, fall in car sales after 33-months and rebound in crude oil prices from a 3-month low, led the fall. The BSE Sensex and the S&P CNX Nifty settled below their psychologically important levels of 15,000 and 4,500 respectively. Market remains closed on Friday, 15 August 2008 on account of Independence Day.

The barometer index BSE Sensex declined 443.64 points or 2.92% to 14,724.18 in the week ended Thursday, 14 August 2008. The S&P CNX Nifty lost 98.80 points or 2.18% at 4,430.70 in the week.

The BSE 30-share Sensex is down 5562.81 points or 27.42% in the calendar year 2008 so far from its close of 20,286.99 on 31 December 2007. It is 6482.59 points or 30.56% away from its all-time high of 21,206.77 struck on 10 January 2008.

The BSE Mid-Cap index fell 63.55 points or 1.07% to 5,823.42 in the week ended Thursday, 14 August 2008. The BSE Small-Cap index slipped 71.30 points or 0.99% to 7,110.44 in the week.

Foreign institutional investors (FII)’s bought shares worth Rs 986.10 crore in the August 2008 (till 13 August 2008). FIIs sold shares worth Rs 26,315.90 in the calendar year 2008. Mutual funds sold shares worth Rs 228.60 crore in August 2008 (till 12 August 2008).

Trading for the week began on an upbeat note with the market logging gains on Monday, 11 August 2008, on positive global cues and slide in crude oil prices. The BSE 30-share Sensex rose 336.10 points or 2.22% to 15,503.92 and the S&P CNX Nifty rose 90.90 points or 2.01% to 4620.40, on that day.

Key benchmark indices ended sharply lower on Tuesday, 12 August 2008, led by heavy selling in metal, banking and IT shares, on poor industrial output data. The BSE 30-share Sensex fell 291.79 points or 1.88% to 15,212.13 and the S&P CNX Nifty fell 68.15 points or 1.47% to 4552.25, on that day.

Weak global markets played the spoilsport on Wednesday, 13 August 2008. The BSE 30-share Sensex fell 119.01 points or 0.78% to 15,093.12 and the S&P CNX Nifty slipped 23.2 points or 0.51% at 4529.05, on that day.

Market extended losses for the third straight day on Thursday, 14 August 2008 after a rebound in crude oil prices rekindled fears of inflationary pressure. The BSE 30-share Sensex declined 368.94 points or 2.44% to 14,724.18 and the S&P CNX Nifty lost 98.35 points or 2.17% at 4,430.70 on that day.

India’s largest private sector firm by market capitalisation and oil refiner Reliance Industries was up marginally by 0.17% to Rs 2275.30 in the week. As per reports, the Bombay High Court on Tuesday, 12 August 2008 once again adjourned the hearing on a dispute between the company and Reliance Natural Resources (RNRL) till 21 Aug 2008. The dispute is about, which firm has the rights over gas supplies and at what price.

Worlds sixth largest steel maker Tata Steel declined 4.14% at Rs 616.20. The company’s Singapore unit signed a joint venture agreement with Vietnam Steel Corp and Vietnam Cement Industries to build a steel complex in the Southeast Asian country.

India’s largest aluminium manufacturer in terms of sales Hindalco Industries shed 4.37% to Rs 135.80. The company’s board will meet on 14 August 2008 to determine the price and other terms and conditions of the proposed rights offering. As per reports, Hindalco will set rights issue price at Rs 96 per share.

India’s largest engineering and construction firm by outstanding order book position Larsen & Toubro dropped 3.53% to Rs 2660.55 even as the company said its consortium has bagged engineering, procurement and construction orders worth Rs 3,816 crore from the steel and zinc industry.

NTPC was down 0.98% to Rs 181.65. On 11 August 2008, the company signed a memorandum of understanding with NHPC, Power Finance Corporation and Tata Consultancy Services for incorporation of a joint venture company to set up and operate a power exchange at national level.

Shares of frontline telecom services providers fell. Reliance Communications (down 3.34% to Rs 423.90), Bharti Airtel (down 3.63% to Rs 819.30), and Idea Cellular (down 3.37% to Rs 86.15), edged lower. Reportedly, in a move that may delay the rollout of 3G services in the country the finance ministry has said it was not consulted on the financial implications of the 3G policy guidelines.

Shares of top three banks edged lower on expectations that inflation might continue its uptrend. State Bank of India (down 4.32% at Rs 1458.20), ICICI Bank (down 4.98% at Rs 673.25), HDFC Bank (down 6.26% at Rs 1175.20), declined.

Shares of three IT pivotals outperformed the Sensex during the week as Indian rupee weakened against the US dollar. Infosys (down 1.86% to Rs 1689.45), Satyam Computer Services (down 1.12% to Rs 411.90), and Tata Consultancy Services (down 2.34% to Rs 831.45) slipped.

India’s third largest software services exporter Wipro slumped 4.31% to Rs 429.15, underperforming the Sensex.

Auto pivotals were mixed on reports the government might not soften retail fuel prices despite fall in global crude oil prices. Maruti Suzuki India (down 2.69% to Rs 650.55), Hero Honda Motors (down 4.27% to Rs 785.15) and Tata Motors (down 2.69% to Rs 432.25) edged lower.

However Mahindra & Mahindra (rose 1.22% to Rs 583), Bajaj Auto (up 0.45% to Rs 561.85), gained.

On 11 August 2008, Vishal Information Technologies (VITL) settled at Rs 194.15 on BSE, a premium of 29.43% over the initial pubilc offer (IPO) price of Rs 150. VITL provides IT-enabled services (ITeS) in the areas of data digitisation, e-publishing and digital library.

The Bombay Stock Exchange (BSE) on Wednesday, 13 August 2008, revised a list of group ‘A’ companies which will come in effect from 25 August 2008. BSE has decided to include 23 scrips from group B to group A. These include Bajaj Auto, Bajaj Finserv, Balrampur Chini, BGR Energy, Blue Star, Future Capital Holdings, Indiabulls Securities, Jubilant Organosys, KSK Energy, IRB Infrastructure, Jain Irrigation, Marico, Mphasis, Mundra Port, NDTV, NMDC, Onmobile Global, Opto Circuits, Patni Computer, Rural Electrification, REI Agro, Shree Renuka Sugars and Sterling Biotech.

Simultaneously, BSE shifted 22 scrips from group A to group B. These include ABG Shipyard, Central Bank, Andhra Bank, Ansal Properties, Brigade Enterprises, Deccan Aviation, Dish TV, Engineers India, Great Offshore, HMT, IndusInd Bank, Jindal Saw, LMW, Maytas Infra, Nagarjuna Fertiliser, Rajesh Exports, Reliance Industrial Infrastructure, Shree Precoated Steels, Sobha Developers, TV 18 India and Vijaya Bank and Moser Baer (India).

National Stock Exchange will add 39 stocks in its futures & options segment from 21 August 2008. They are ABG Shipyard, Akruti City, Asian Paints, Balaji Telefilms, Concor, Core Projects, Deccan Chronicle, Dish TV, Everonn, Firstsource, GSPL, GTL Infrastructures, HCL Infosystems, Indiabulls Real Estate, ICSA, KLG Systel, KS Oils, MIC Electronics, Mindtree Consulting, Mercator Lines, Monnet Ispat, MRF, Nava Bharat Venturs, Noida Toll, Opto, Orbit Corp, Prism Cem, PTC, Reliance Ind Infra, Sintex, SREI, Thermax, Torrent Power, TV18, UCO Bk, UTV, Voltamp, Walchandnagar

On Wednesday, 13 August 2008, Securities & Exchange Board of India (Sebi)’s chairman C B Bhave said a review of participatory notes (PNs) was taken but no decision was taken by the board. Market men were expecting Sebi to relax restrictions on PNs.

Marketmen were anticipating that Sebi may extend the period for unwinding PNs, on underlying derivatives from 18 months to 24 months. PNs are issued by foreign institutional investors registered in India to unregistered overseas investors. In October 2007, Sebi had also restricted issuance of PNs in the spot segment to 40% of assets under custody and expectation was that it might raise the cap to 45% from 40%.

Sebi also slashed the time period of rights issues to 43 days from current 109 days. Sebi has also changed the pricing rules with issue of shares by companies to qualified institutional buyers (QIB) in light of volatile markets. A QIB issue will now be based on the average share price of the previous two weeks, rather than a choice of an average of two weeks or six months, whichever is higher. The market regulator has also extended the deadline for companies reporting consolidated results to two months from the quarter-end from one month now.

Releasing the Economic Outlook for 2008-09, the Prime Minister’s Economic Advisory Council (EAC) on Wednesday, 13 August 2008, projected a lower GDP growth rate of 7.7% during 2008-09 mainly on account of lower agriculture and industrial growth, and adverse fallout of global developments. The EAC had earlier in January 2008 projected a growth rate 8.5% for 2008-09.

Car sales recorded a dip in sales for the first time in 33 months as interest rates, inflationary pressures and hike in fuel prices dented demand. Passenger car sales declined 1.7% to 87,724 units in July 2008 over July 2007, according to data released by the Society of Indian Automobile Manufacturers.

Relentless monetary tightening by the RBI has finally started to catch up with industrial growth. A slowdown in the manufacturing sector pulled down India's industrial growth in June 2008 to 5.4% from 8.9% a year ago. This is however higher than 4.1% growth as per revised figures in May 2008. The index of industrial production (IIP) went up 5.2% in Q1 June 2008 compared to 10.3% in Q1 June 2007.