If the wind will not serve, take to the oars.
The winds of change continue to blow away from markets world over. The seven-day rout, which has knocked off about 20% from the key indices, is likely to continue, at least in the early part of today's session. And, no prices for guessing the reason behind our grim forecast! Market participants will continue to pay a price as stocks on Wall Street got pounded for a second day running, amid uncertainty over the fate of the American auto giants, continuing bad news on the economy and growing concerns over the health of Citigroup.
The Ambani brothers may have shook hands after four years. Don’t read too much into it. That’s more because they landed up at the same place, same time to discuss the same issue with the Opposition leader LK Advani. Again no prices for guessing what the issues are. Leading industrialists met Advani who promised to restore confidence in India's growth story if voted to office. Advani message to the gathering was that BJP was "willing and able" to tackle the economic challenge.
A recent survey ‘Mood of the Nation’ conducted by India Infoline’s institutional arm - IIFL states that ‘Nationally there is a swing against the incumbent UPA alliance. Inflation and terrorism are the most important issues for voters…..one of UPA’s biggest achievements, the Indo-US nuclear deal finds no resonance.”
Meanwhile, the economic and financial contagion is not restricted to the US alone. The news flow from across the globe remains downbeat and bleak. Every day one hears or reads about profit warnings, slew of job cuts and production rationalization by companies to cut costs and stay afloat. A large Indian corporate may also announce some downsizing later this year. We do not see any let up in this string of bad news in the foreseeable future, as the worldwide economic gloom deepens.
The solace one can derive is the steep fall in oil prices. But again, the slide in crude is mainly due to fear of demand destruction in the face of the savage economic downturn rather than any drastic change in fundamentals of demand and supply. For India though, lower crude prices could prove to be a boon, as it will lower inflation further, opening up the door for more rate cuts. But, the fact remains that the markets are refusing to respond to any regulatory action to reverse the tide. Investors remain highly pessimistic and skeptical about the effectiveness of any government initiatives (unilateral or global) on the rapidly deteriorating economic climate.
Coming to the Indian market today, the key indices would continue to follow patterns across global markets. Any improvement in external sentiment might provide a glimmer of hope to the bulls later in the day after a weak opening. We usually don’t recommend such moves. But if you have the guts and the money take a chance for some short term gains. Lower levels are here to stay for some time.
FIIs were net sellers of Rs7.63bn (provisional) in the cash segment on Thursday while the local institutions pumped in Rs4.27bn. In the F&O segment, the foreign funds were net sellers at Rs8.74bn. On Wednesday, FIIs were net sellers at Rs2.08bn in the cash segment. Mutual Funds net sold Indian shares worth Rs507mn on the same day.
The bloodletting refuses to ease in global equity markets, as US shares plummeted to new multi-year lows after the Congress failed to arrive at a consensus on a bailout for the Big Three automakers, and outlook on Citigroup worsened further.
The Standard & Poor's 500 index plunged to an 11-1/2 year low after jobless claims approached the highest level since 1982, the index of leading economic indicators fell for a third time in four months and manufacturing in the Philadelphia area shrank at the fastest pace in 18 years.
The S&P 500 index slid 6.7% to 752.44, under the low of 776.76 reached during the bear market in 2002. The broader market gauge closed at its lowest point since April 14, 1997. It is now down 49% in 2008, poised for the worst annual decline in its 80-year history.
Seventeen companies in the S&P 500 lost more than 20%, as all 10 of the index's main industry groups slid at least 3.5%.
The Dow Jones Industrial Average sank 444.99 points, or 5.6%, to 7,552.29. The Nasdaq Composite dived 5.1% to 1,316.12. Both the Dow and Nasdaq closed at their lowest points since March 12, 2003, which was just above the low of the last bear market.
The Dow has lost 872 points, or 10.4%, over the last two sessions.
Market breadth was negative. Twelve stocks retreated for each that rose on the New York Stock Exchange.
Treasury prices rallied as investors sought the comparative safety of government debt. The dollar was mixed versus other major currencies.
Oil prices plunged below US$50 per barrel, falling to a three-year low on concern that the slumping economy will crush demand.
US stocks slipped through the early afternoon following miserable readings on the labor market and manufacturing. The major gauges briefly bounced after hitting fresh 5-1/2 year lows. But the recovery attempt fizzled out as Congress haggled over the fate of the automakers and selling in Citi shares accelerated.
JPMorgan Chase lost 18% and Citigroup dropped 26% as concern that the recession will trigger more bankruptcies pushed the cost of insurance against corporate defaults to an all-time high.
The Senate called off a vote on a proposed US$25bn bailout package for the auto industry due to lack of bipartisan support. Democratic leaders have said that the Senate will return in December to discuss a package.
GM shares bounced in the afternoon after hitting the lowest level since the Great Depression. Ford Motor shares also bounced after hitting lows. GM's finance arm GMAC said it has filed to become a bank holding company, in a bid to tap into the US$700bn bank bailout.
GM was the only Dow component to advance in Thursday's session.
Citi's largest shareholder, Saudi Prince Alwaleed Bin Talal, said he is increasing his stake in the troubled bank back to 5% from 4%, even as shares continue to plummet. Citi shares plunged 26.4%.
Separately, The Wall Street Journal (WSJ) said that Citi executives began weighing the possibility of auctioning off pieces of the financial giant or even selling the New York bank outright, according to people familiar with the matter.
In other corporate news, General Electric (GE) denied it is looking for money from sovereign wealth funds or other funds. Shares fell 11%.
The number of Americans filing new claims for unemployment jumped last week to 542,000, the highest level in 16 years, the government reported. The number of people continuing to collect unemployment benefits neared a 26-year high.
The index of leading economic indicators (LEI), fell by 0.8% in October, after gaining a revised 0.1% in September. Economists thought the Conference Board report would fall by 0.6%.
The November Philadelphia Fed index, a regional read on manufacturing, fell to negative 39.3 from negative 37.5 in October. Economists expected a reading of negative 35.
Speaking in the afternoon, Treasury Secretary Henry Paulson said that the current financial crisis is something only seen once or twice in a century. However, he also cautioned against imposing too-strict rules to prevent it from happening again.
US light crude oil for December delivery fell US$4.77 to settle at US$49.62 a barrel on the New York Mercantile Exchange.
Gasoline prices dipped another 2.7 cents to a national average of US$2.02 a gallon. Prices have been declining for more than two months. During that time, prices have dropped by US$1.84 a gallon, or over 52%.
The dollar fell versus the euro and gained against the yen. COMEX gold for December delivery rose US$12.70 to settle at US$748.70 an ounce.
Treasury prices rallied, lowering the yield on the benchmark 10-year note to a five-year low of 3.14%, down from 3.33% late on Wednesday. The yield on the 2-year fell to a record low below 1%.
The yield on the 3-month Treasury bill briefly fell to 0.00%, a nearly 68-year low, before bouncing back to 0.015%. The 3-month - seen as the safest place to put money in the short term - last hit these levels in September as investor panic peaked. The low yield means nervous investors would rather preserve their money despite little or no interest rather than risk the stock market.
Borrowing rates were slightly improved. The 3-month Libor rate fell to 2.15% from 2.17% Wednesday, while overnight Libor was unchanged at 0.44%. Libor is a key bank lending rate.
European stocks saw a fresh round of selling on Thursday. The pan-European Dow Jones Stoxx 600 index dropped 3.6% to 186.75, closing at its lowest level since April 2003.
The losses were paced by the firms most exposed to the economy like miners and by those geared to broader stock markets, like insurers.
UK's FTSE 100 fell back below the 4,000 mark for the first time since late October. It closed down 3.3% to 3,874.99. The German DAX 30 shed 3.1% to 4,220.20 and the French CAC 40 slid below 3,000, losing 3.8% to 2,980.42Indian shares ended lower for the seventh consecutive day, as investors ignored better than expected inflation data and focused on the global factors, where equity markets in Asia and Europe slid anew on mounting worries over the state of the global economy.
Global stocks extended their run of losses, hitting five-and-a-half-year lows, after the Federal Reserve cut its outlook for US economic growth, and several global companies announced job cuts in the face of grim outlook for consumer demand.
Weak economic reports in the US, coupled with concerns over the health of American auto industry and latest troubles for Citigroup also added to the gloom in Asian and European markets.
After a small and brief recovery post the announcement of the inflation numbers, the market once again turned weaker with about half an hour to go for the close. This led to the seventh consecutive day of losses for the Indian market and pushed the BSE Sensex to a three-year low.
Earlier, a lower than expected inflation lifted the key stock indices from the day's lows, as investors bet that falling prices will give more head room to the Reserve Bank of India (RBI) to cut interest rates and spur growth.
The annual point-to-point inflation, based on the wholesale price index (WPI), stood at 8.90% in the week ended November 8 as against the previous week's figure of 8.98%, the Commerce & Industry Ministry said today in New Delhi.
Inflation was expected to remain nearly unchanged. It had touched a 16-year high of 12.91% in the week ended Aug. 2. The annual inflation rate was 3.2% during the corresponding week of the previous year.
The BSE Sensex ended at 8,451, down 323 points or 3.7%. It had earlier touched a day's low of 8,316 and a day's high of 8,540 after opening at 8,400. The index was down 1.8% yesterday. The NSE Nifty fell 3.1% at 2,553 after being as low as 2,502 and as high as 2,634.
The BSE Small-Cap and Mid-Cap indices declined 3% and 3.4%, respectively.
All BSE sectoral indices closed in the red. Real Estate bore the brunt of the sell-off amid a worsening outlook for the industry, as buyers defer purchases in a slowing economy and developers defer projects due to cash crunch.
The BSE Realty index plunged 8.3%, with DLF, Unitech, Indiabulls Realty, HDIL, Orbit Corp. and Ansal Infra leading the fall.
Consumer Durable, Oil & Gas, Banking, Metals and Auto were the other big losers, falling by 4-5%. Capital Goods, IT Power and Pharma indices lost 2-3%. The BSE FMCG index was down just 0.5%.
DLF, RCOM, Sterlite, ICICI Bank, HDFC Bank, Reliance Infra, Jaiprakash Associates, Reliance Industries, Maruti, Tata Motors, Tata Power and HDFC were the biggest losers within the Sensex, losing 5.5% to 8.5%.
ACC, NTPC, SBI, Ranbaxy and Hindustan Unilever bucked the negative trend, rising by 0.3% to 1.6%.
Back home, the rupee tumbled to a record low against the dollar as a rout in global equities added to speculation that foreign investors will increase sales of riskier emerging-market assets amid a deepening global economic slump.
The yield on India's benchmark 10-year government bond slid to the lowest in two and a half years on speculation that the RBI will cut interest rates for a third time in a month to support the nation's slowing economy.
Outside the main indices, the notable losers were HDIL, Deccan Chronicle, Bombay Dyeing, Indiabulls Realty, Aditya Birla Nuvo, Century Textiles, Educomp, Max India, Rolta, MMTC, Yes Bank, Gujarat NRE Coke, Bharat Forge, Chambal Fertilizers and Adani Enterprises.
The market breadth continued to be negative, as 594 shares advanced on the BSE and 1,899 shares fell, while 68 scrips remained unchanged.
Total turnover in the BSE cash segment was down sharply at Rs28.99bn as against Wednesday's Rs35.46bn. Traded volume too fell to 221.7mn from 240.7mn shares.
On the NSE, the cash segment turnover was Rs77.94bn versus Wednesday's Rs92.86bn. Traded volume stood at 483.6mn shares compared to 514mn shares yesterday.