The higher you climb on the mountain, the harder the wind blows.
Earlier, we used to think about a wall of worry. The issues plaguing the financial markets seem to be gaining mountainous propositions. Many would have expected global financial markets to be back on their feet as the US government's $700bn bank bailout plan became law. Much to the dismay of the bulls, things still remain quite fragile and precarious. There is a growing feeling that the rescue plan unleashed by Washington will not be enough. That perhaps could explain Friday's fall in US shares despite the House of Representatives clearing the bailout bill. US economic data continues to be grim. If the troubles in the US were not enough, we now have most of Europe struggling badly. Government after government is announcing plans to rescue their respective financial institutions. And, though European nations have pledged to keep doing whatever they can to support their banking systems, the rhetoric doesn't seem to be working. The blood-letting continues.
Back home too, the Government and regulators are having sleepless nights and nightmares. In an effort to stem the tide, capital market regulator SEBI is likely to ease some of the curbs imposed on Participatory Notes (PNs) a year ago. That again is a hope. The market regulator is holding a board meeting today to discuss ways to reverse the foreign capital outflows. FIIs have already pulled out more than $9bn from the Indian markets till date. More outflows are not ruled out given the dire liquidity crunch faced by hedge funds and others. So, it remains to be seen what measures SEBI, RBI and the Government will take to prevent further bloodbath in the local markets. Also, any positive impact on the markets will be only temporary.
We expect the market to open on a weak note yet again given the sharp losses in Asian markets, which are down 3-4%. For the day, the key indices movement will hinge on the outcome of today's SEBI meeting. It is not clear whether the announcement from the market watchdog will be during or after market hours. We would continue to advise caution at this juncture, though valuations are quite compelling. Look at some shopping at lower levels. Remember, that beyond the mountains, there are mountains again. So, keep some cash handy, as there is no guarantee that we have hit a bottom.
The outlook in the near-term will be driven by global news and of course the upcoming quarterly results. Indiabulls Real Estate, Infosys, Mastek and Sintex Industries are some of the prominent companies that will announce their earnings this week. We will also have the mid-term review of the monetary policy from the RBI and the Federal Reserve later this month. Some easing in monetary policy by central banks could be the next step in salvaging the markets from the ongoing financial contagion. Shares of 20 Microns will be listed on the bourses today.
Asian stocks fell for a third day, led by financial companies, as the global credit crisis deepened in Europe and the US lost the most jobs in five years. The MSCI Asia Pacific Index fell 1.9% to 102.68 as of 9:50 a.m. in Tokyo. Last week, the regional stock benchmark posted the biggest weekly drop since August 2007 on concern that the US bank bailout will fail to stimulate demand for the region's exports.
National Australia Bank, the nation's largest lender, dropped 3.8% after Germany's Hypo Real Estate Holding became the latest casualty of the financial turmoil. Newcrest Mining, Australia's biggest gold producer, and Inpex Holdings, Japan's largest oil explorer, retreated at least 2% after prices of the two commodities sank.
Japan's Nikkei 225 Stock Average fell 2.8% to 10,636.18 while the Hang Seng in Hong Kong was down 2.5% at 17,236. The Kospi in Seoul was down 4.3% at 1359 while the Straits Times in Singapore dropped 2.7% to 2234. The Shanghai Composite in China - resuming trade after a week-long holiday - fell 3.1% to 2222. The Taiex in Taiwan shed 3.4% at 5549 and the S&P/ASX 200 index in Sydney was down 3.4% at 4536.
US stocks slumped on Friday, capping another trouble-torn week on a grim note despite the House of Representatives passing the much-hyped bank bailout bill. The S&P 500 index had its worst week since the Sept. 2001 terrorist attacks, amid mounting worries that the US$700bn rescue package may not revive the stressed money markets and avert a recession.
The Dow Jones Industrial Average hit session highs as House members began to vote, rising more than 300 points, only to scale back as the measure passed. The bluechip barometer closed at 10,325.38, down 157.47 points or 1.5%. It lost 7.4% on the week. On a point basis, the Dow lost 818 points this week, its biggest weekly point loss in seven years and the third biggest weekly loss ever.
The Standard & Poor's 500 index lost 15 points or 1.4% to close at 1,099.23. The broader market indicator closed down 9.4% on the week, its worst in seven years and fifth worst ever. But the weekly point drop of 236 points fell outside the ten worst on record.
The Nasdaq Composite index fell by 29 points, or 1.5% to shut shop at 1,947.39. The tech-laden index slid 10.8% during the week. It was the worst weekly decline for the Nasdaq in seven years and fifth worst ever. But the weekly point drop of 236 points fell outside the ten worst in history.
Wall Street rallied ahead of the early afternoon vote - with the Dow up as much as 313 points - as investors bet the House would pass the modified version of the bill after defeating a similar measure on Monday. But once the House voted 263-171 to pass the bill, stocks gave up gains. News that President Bush had signed it into a law failed to stop the downtrend.
Market may have concurred that even with the new bailout law, the world's biggest economy remains under stress. Some Wall Street economists reckon that the US economy is already in a recession now and will remain in one until at least this time next year. Banks are still wary of lending to each other or consumers. The absence of ready capital has stalled the financial system, hurt companies as well as consumers.
Market breadth was negative. More than three stocks decreased for each that rose on the New York Stock Exchange. Trading volume topped 1.4bn shares on NYSE. More than 1bn shares traded on the Nasdaq, where decliners passed advancers 5 to 2.
Before the opening bell, the government said the US economy lost 159,000 jobs in September, the worst decline in five years. The number far exceeded economists' forecasts for 105,000 job losses.
It was the ninth-straight month the economy has lost jobs, bringing the 2008 tally up to 760,000 jobs lost. The unemployment rate, generated by a separate survey, stayed at 6.1%, unchanged from August and in-line with Wall Street forecasts.
In other economic news, the Institute for Supply Management's reading on the services sector of the economy fell to 50.2 in September from 50.6 in August. That topped forecasts for a drop to 50, which is the measure for expansion in the index.
Shares of American International Group (AIG) fell 3.5% after the insurance giant announced that it would refocus on property and casualty insurance, and would sell some of its business to pay back the USUS$85bn in federal government loans.
Oil prices were lower, with US light crude oil for November delivery settling down 9 cents to US$93.88 a barrel on the New York Mercantile Exchange. Gasoline prices fell for the 16th day in a row, according to a nationwide survey of credit card activity.
COMEX gold for December delivery fell US$11.10 to US$833.20 an ounce. In currency trading, the dollar gained against the euro and fell versus the yen. The benchmark 10-year Treasury note rose, sending the corresponding yield down to 3.6% from 3.62% late on Thursday.
Indicators on the credit market showed some signs of improvement, although conditions remained extremely strained. The lack of improvement in the credit markets is making it difficult for equity investors to regain confidence.
European shares registered solid gains on Friday, with a grim U.S. jobs report largely ignored by the market as optimism grew that the House of Representatives would approve a revamped $700bn bailout package. The pan-European Dow Jones Stoxx 600 index gained 2.8% to 261.43. Germany's DAX 30 rose 2.4% to 5,797.03, while the French CAC-40 added 3% to 4,080.75 and the UK's FTSE 100 closed up 2.3% at 4,980.25.
In the emerging markets, the Bovespa in Brazil slid 3.5% to 44,517 while the IPC index in Mexico slumped 4.3% to 22,989. The RTS index in Russia plummeted 7% to 1070 and the ISE National-30 index in Turkey tumbled 4.5% to 43,425.
US vote, SEBI meet to decide direction
Markets ended with sharp losses on Friday on the back of overnight crash on Wall Street and weakness in other Asian markets. Equity markets not only in India but across the globe continued to be under pressure on concerns as to whether the Bush government's much-hyped measure will be able to avert a recession.
Heavy offloading was seen in the frontline stocks like Reliance industries, ICICI Bank and IT bellwether Infosys. The metal stocks were under pressure following reports that major steel companies are considering a cut in their output to counter slowing demand and falling international prices.
Finally, The BSE benchmark Sensex plunged 529 points to close at 13,526 and the NSE Nifty index declined 132 points to close at 3,818.
Index heavyweight Reliance Industries plunged by over 7% to Rs1760. The stock was the top laggard among the 30-components of Sensex. The scrip touched an intra-day high of Rs1897 and a low of Rs1745 and recorded volumes of over 36,00,000 shares on BSE.
Shares of Gremach Infra were locked at 10% at upper circuit at 60.25 after reports stated that the company is in talks to sell 5-10% of its equity stake in a Mozambique coal JV, where it owns about 75% stake. The scrip touched an intra-day high of Rs60.25 and a low of Rs55 and recorded volumes of over 39,000 shares on BSE.
Shares of HCL Tech gained by 0.3% to Rs206 after reports stated that Axon Group Plc, announced that it would recommend US$779.2mn takeover bid by the company. HCL’s offer surpasses an earlier offer by Infosys. The scrip touched an intra-day high of Rs212 and a low of Rs202 and recorded volumes of over 1,00,000 shares on BSE.
Shares of Ranbaxy Labs surged by over 5% to Rs263 after reports stated that the U.S. Justice Department might withdraw a motion against the company next week in a local court in the US. The scrip touched an intra-day high of Rs274 and a low of Rs254 and recorded volumes of over 32,00,000 shares on BSE.
Shares of Zandu Pharma surged by over 4.5% at Rs14,960 after Emami announced that it has revised the offer price in respect of the Public Offer made by it for acquisition of equity shares of Zandu Pharma from Rs15,000/- per equity shares to Rs16,500/- per equity share. The scrip touched an intra-day high of Rs16,016 and a low of Rs15,421 and recorded volumes of over 1,000 shares on BSE.
Shares of Hindustan Zinc dropped by 7% to Rs404 after the company announced that it cut zinc prices by 3% to Rs88,500 per ton and also cut lead prices by 3.8% to Rs99,300 per ton. The scrip touched an intra-day high of Rs434 and a low of Rs401 and recorded volumes of over 71,000 shares on BSE.
One factor could swing the pendulum in favour of the bulls is the dip in inflation, which has fallen below 12% after a long time. Whether the same prompts the RBI to ease the monetary policy remains to be seen though. Market regulator SEBI will hold its board meeting on Monday to take a review of investment regime for the FIIs. Market players will also take a cue from the US where the house of representatives is schedule to vote on the US$700bn bailout package. Next week will also be a truncated one as Thursday will be a holiday on account of Dasera. Infosys will come out with its earnings on Friday.