Reason has always existed, but not always in a reasonable form.
It’s not the season to give reasons. A rare positive opening in recent times ended in a whimper for the bulls on Wednesday. Blame it on fresh weakness in European markets. The Sensex and the Nifty lost 1.8% each after gaining as much as 3% in the morning, as worries mounted over the impact of a chronic global recession on India.
The accelerated selling in US stocks overnight had something to do with the fate of the auto industry besides reports of fresh troubles for Citigroup. US stocks hit five-year lows amid mounting worries over the rapidly sliding fortunes of the world's biggest economy. Grim readings on consumer price inflation and the battered housing sector coupled with a bleak forecast by the Federal Reserve added to the misery.
The mayhem was no less severe in Europe, where key indices fell by 4-5%. This morning's scene across Asia is anything but promising. The major indices (barring China) are down 3-5%. At the risk of sounding repetitive, we expect another weak opening for Indian stocks due to the global rout and the worsening macro-economic picture. The deepening financial and economic malaise across the globe will continue to pinch India and India Inc, notwithstanding the repeated assurances of the Finance Minister about the healthy state of affairs.
It goes without saying that one should not be adventurous in such a tough and volatile environment. Though the bulls might make an attempt to rebound after six successive days of losses, they may not meet with much success. Inflation numbers are expected to be flat. Even if they do manage a pull-back from the lows, the gains may prove to be short lived. So, remain on high alert, and gear up for another potentially bad day in office.
FIIs were net sellers at Rs2.65bn (provisional) in the cash segment on Tuesday while the local institutions pumped in Rs1.95bn. In the F&O segment, foreign funds were net buyers of Rs2bn. On Tuesday, FIIs were net sellers at Rs3.6bn in the cash segment, taking their total outflows in the year 2008 to more than US$13bn. Mutual Funds offloaded shares worth Rs450mn on the same day.
US stocks slumped on Wednesday, accelerating the recent slide, with all the three key stock indices touching five-year lows, as the nation's Big Three automakers continued their attempts to win government approval for a bailout plan.
Shares of banking giant Citigroup suffered its greatest ever one-day percentage drop as fears intensified about its fate. The grim economic outlook painted by the Federal Reserve in its minutes of the last policy meeting also added to the gloom.
After climbing in and out of positive and negative territory in the early trades, the major US stock indexes were down decisively in afternoon trades, with the losses intensifying in the final hour.
The Dow Jones Industrial Average closed below 8,000 for the first time since March 2003. The blue chip bellwether tumbled 427.47 points, or 5.1%, to 7,997.28, its lowest close since March 31, 2003. All of the Dow's 30 of its components finishing lower.
Citi weighed the most on Dow, falling 23.4% to end at USUS$6.40, its largest one-session decline since the market collapse on Oct. 19, 1987. The bank took on more than US$17bn in assets from structured investment vehicles (SIVs) and shut another hedge fund, raising concerns about its ability to raise money.
Shares of General Motors (GM) ended down 9.7% while that of Ford plummeted 25%. CEOs of GM, Ford and Chrysler returned to Capitol Hill for a second day to press for a government rescue package for the ailing auto industry.
Economists and automakers' CEOs have warned that a possible bankruptcy in the automotive industry could have dire consequences for the broader US economy. It would add to already rising unemployment, making it harder for the economy to recover.
US stocks were under pressure through much of Wednesday after the biggest-ever drop in consumer prices and another gloomy housing report. They continued the slide after the release of the FOMC minutes, which predicts that the US recession will last for as much as a year.
The S&P 500 Index fell 52.54 points, or 6.1%, to 806.58, a level last seen on March 12, 2003, when it closed at 804.19. The technology-laden Nasdaq Composite Index dropped 96.85 points, or 6.5%, to 1,386.42, its lowest closing level in more than five years.
Thirty stocks fell for each that rose on the New York Stock Exchange, where 1.6bn shares changed hands, up 8.6% over the three-month average.
In the day's economic news, US consumer prices fell in October by 1%, the largest drop in the history of the survey, raising the specter of deflation. The figure outpaced the 0.8% decline a consensus of economists had projected.
The closely watched core CPI, which removes volatile food and energy prices, fell 0.1%. Economists had expected a 0.1% rise after a 0.1% jump in September.
Separately, the Commerce Department reported that housing starts reached an annual rate of 791,000 in October, the lowest level on record. The rate was down 4.5% from the revised reading of 828,000 in September.
Building permits fell 12% to an annual rate of 708,000 in the month, breaking the previous low of 709,000 in March 1975. The annual rate for September was a revised 805,000. Building permits were expected to fall to an annual rate of 772,000 in October.
Meanwhile, the Fed policymakers significantly lowered its outlook for economic activity this year and next. It now expects the US economy to contract for as much as a year, with the risk that the slowdown could persist for even longer, according to edited minutes of the last FOMC meeting.
The dollar regained ground against the euro but fell against the pound and the yen. COMEX gold for December delivery rose US$3.30 to settle at US$736 an ounce.
US light crude oil for December delivery fell 77 cents to settle at a 21-month low of US$53.62 a barrel on the New York Mercantile Exchange. It was the lowest closing price since January 22, 2007 when oil settled at US$51.13 a barrel.
Gasoline prices dipped another 2.1 cents overnight to a national average of US$2.047 a gallon. The decline marks the 63nd consecutive day that prices have decreased. Prices have now dropped by more than half since the record high was set in July.
Treasury prices gained, lowering the yield on the benchmark 10-year note to 3.44% from 3.52% late on Tuesday.
The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, rose to 0.11% from 0.13% on Tuesday, with investors preferring to take a piddling return on their money than risk the stock market. In September, the 3-month yield reached a 68-year low around 0% as investor panic peaked.
Borrowing rates were little changed from the previous day, with the credit market continuing to stall after a month long improvement. The 3-month Libor rate fell to 2.17% from 2.22% Tuesday, while overnight Libor rose to 0.44% from 0.4%. Libor is a key bank lending rate.
Separately, risk premiums on commercial mortgage-backed securities have spiked in the past week, making this corner of the debt market the latest to show signs of mounting distress.
European stocks dropped sharply Wednesday, with banks getting pounded for the third straight session. The pan-European Dow Jones Stoxx 600 index fell 4% to 193.77, with the index shedding nearly 10% over the past month of trade.
UK's FTSE 100 closed down 4.8% at 4,005.68, while Germany's DAX 30 dropped 4.9% to 4,354.09 and the French CAC 40 lost 4% to 3,087.89.
Shares of BASF slumped 13.7% as the world's biggest chemicals firm warned that adjusted earnings won't grow this year and said it would temporarily shut down 80 plants and reduce production at 100 plants.
In yet another volatile trading session, Indian equities continued their southward journey on Wednesday for sixth consecutive trading day. Recently, it has become a sort of habit for the market participants to overlook any positive trigger. May it be a sharp decline in inflation or in-line IIP numbers. Not even, assurance by the FM that the Indian economy will bounce back next year to a 9% GDP growth has helped in reviving the sentiments on Dalal Street.
Today, Indian equities closed well off their intra-day peak, unable to continue early gains in the afternoon trades. Earlier, in the day, Indian markets had engineered a smart rally after being in the red for last five trading sessions. However, selling pressure at higher levels brought the indices lower. Moreover, negative cues coming in from the major European indices also pulled the markets lower from day’s high. DAX Index was down by 1.2%, FTSE Index was down by 2% and CAC Index was down by 1.5%.
Within the Sensex, the top losers included L&T, HDFC, HDFC Bank, Bharti Airtel, ICICI Bank, SBI and RCOM. Selling pressure was also seen in capital goods stocks with L&T down by over 4% to Rs730, Siemens is down by 3% to Rs265 and BHEL down by 3% to Rs1231.
Finally, the BSE Sensex closed lower by 163 points at 8,774 and NSE Nifty lost 48 points points at 2,635, after touching a day's high of 2,772 and a low of 2,618.
Among the BSE sectoral indices, the top losers were capital goods (3.5%), banking (2.9%), Metal (1.8%), IT (1.5%) and pharma (1%).
The market breadth was negative on the BSE, with 1,718 shares declining and 778 shares advancing.
IT stocks continue to be among the worst performers, dragging the key indices into negative territory. The turmoil in the US financial markets and its adverse fallout on the sector's future prospects are hurting IT stocks. Infosys, Wipro and Satyam Computers were among the major losers.
The cut in import duty on iron, steel and soya oil, coupled with the Government's promise to do more may also perk up the mood. However, heavy selling in afternoon trades brought the metal stocks lower. With major steel companies considering a cut in output as also prices, to counter slowing demand and falling international prices is hurting the performance of metal stocks. Tata Steel was down by 2% to Rs162, Nalco was down by 5% to Rs152 and SAIL lost 4% to Rs59.
Sugar stocks continue to trade lower after Allahabad HC refused to pass any interim order staying the sugarcane SAP. Renuka Sugars was down by 6% to Rs50, Bajaj Hind was down by 4% to Rs46 and Balrampur Chini lost 2% to Rs39.
Jet Airlways fell by over 2% to Rs166 despite reports that the government is likely to classify ATF as 'declared goods'.