Corporate governance concerns pulls Satyam down

Concerns about a lack of transparency and worries about absence of strict corporate governance practices at Indian firms pulled the market sharply down after India's fourth largest software firm in terms of sales, Satyam Computer Services' aborted attempt to buy two related companies. The BSE 30-share Sensex lost 261.69 points, or 2.62%, shedding 357.81 points from the day's high in what was a choppy trading session.

A 15% fall in excise duty collections in November 2008 which is being attributed to a sharp decline in manufacturing sector also weighed on the market. The government released the indirect tax collection data for November 2008 on Tuesday, 16 December 2008. Fall in Lower European markets and lower US index futures also weighed on the domestic bourses which tumbled in late trade.

Satyam slumped 30.22% to Rs 158.05 on 3.33 crore shares. The stock hit a low of Rs 153.80, a 52 week low for the scrip. Bowing to investor pressure, Satyam called off a deal to buy Maytas Properties and Maytas Infra, the two firms promoted by the family of promoter and chairman Ramalinga Raju. The company made the announcement before trading hours today, 17 December 2008.

Satyam's shares, which closed down $6.85, or 55%, at $5.70 on the New York Stock Exchange, jumped 50% in after-hours trading to $8.89. Even after the evening rally they were still down 28% from Monday's (15 December 2008) close of $12.30. Investors slammed the move by Satyam to buy Maytas Properties for $1.3 billion and a 51% stake in Maytas Infrastructure for $300 a million, as the acquisition could have wiped out its entire nearly $1.2 billion cash pile. Satyam had announced the acquisition after trading hours on Tuesday, 16 December 2008.

The company's total disregard for corporate governance and shareholders was shocking - Satyam had no plan to take the proposal to minority shareholders.

Volatility was high as the market was caught between a steep rate by the US Federal Reserve and concerns over corporate governance standards at Indian firms and worries about the weakening economy. After an early surge triggered by the Fed decision, the market had weakened shortly as India's fourth largest software firm in terms of sales, Satyam Computer Services' aborted attempt to buy two related companies raised concerns about corporate governance standards at Indian firms.

A strong rebound saw the market moving into green in early afternoon trade. It later slipped into the red again. After moving between positive and negative zone, the market weakened in mid-afternoon trade. It extended losses in late trade.

European shares gave up early gains to turn negative on Wednesday, 17 December 2008, after France's biggest bank by market capitalisation BNP Paribas said its investment bank unit had a loss for the first 11 months of the year. The key benchmark indices in France, Germany and UK were down by between 0.07% to 0.85%.

US index futures were lower ahead of Morgan Stanley figures. Trading in US futures indicated the Dow could fall 109 points at the opening bell. Morgan Stanley is expected to report a loss per share of $0.24 compared with a loss of $3.61 last year

The US Federal Reserve on Tuesday, 16 December 2008, slashed its key interest rate to a target rate of zero to 0.25% from 1%, paving the way for other policymakers around the world to take more aggressive actions to support growth.

The Fed also said it would use unconventional means to revive the US economy from a deep recession, including buying long-dated Treasuries. In an all-out battle to protect the US economy from deflation, the Fed explicitly said it would take steps to make sure benchmark rates remain low for some time and to keep its balance sheet loaded with debt.

Asian stocks rose in volatile trade as the steep Fed rate cut raised expectations central banks in the region will follow suit. Key benchmark indices in China, Hong Kong, Singapore, Taiwan, Japan and South Korea were up by between 0.09% to 2.18%.

The BSE 30-share Sensex was down 261.69 points, or 2.62%, to 9,715.29. At the day's low of 9,682.91, the Sensex fell 294.07 points in late trade. The Sensex rose 96.12 points at the day's high of 10,073.10 hit in early trade.

The S&P CNX Nifty was down 87.40 points, or 2.87%, to 2,954.35.

The BSE Mid-Cap index fell 3.33% underperforming the Sensex while the BSE Small-Cap index slipped 2.6% marginally outperforming the Sensex.

The market breadth tuned negative during the course of the day from strong breadth earlier in the day. On BSE, 956 shares rose as compared with 1,569 that declined. 72 shares remained unchanged.

The Sensex is down 10,571.70 points or 52.11% in the calendar year 2008 so far from its close of 20,286.99 on 31 December 2007. It is 11,491.48 points or 54.18% below its all-time high of 21,206.77 struck on 10 January 2008.

The BSE clocked a turnover of Rs 4,882 crore, higher than Rs 4,149.73 crore on Tuesday 16 December 2008.

Nifty December 2008 futures were at 2941.70, at a discount of 12.65 points as compared to the spot closing of 2954.35. Turnover in NSE's futures & options (F&O) segment surged to Rs 49,360.05 crore, from Rs 39,172.96 crore on Tuesday, 16 December 2008.

The BSE Realty index (down 7.36%), the BSE Teck index (down 5.02%), the BSE Power index (down 4.44%), the BSE Metal index (down 4.36%), the BSE IT index (down 4.04%), the BSE Capital Goods index (down 3.86%), the BSE Oil & Gas index (down 2.9%) underperformed the Sensex.

The BSE Bankex (down 0.15%), the BSE PSU index (down 0.79%), the BSE Auto index (down 0.81%), the BSE FMCG index (down 0.83%), the BSE HealthCare index (down 1.64%) outperformed the Sensex.

The BSE Consumer Durables index fell 2.62% to the same extent at which the Sensex fell

Tata Power Company, Jaiprakash Associates, Sterlite Industries and Tata Steel fell by between 4.45% to 12.91%.

While Satyam tumbled, other IT stocks rose boosted by the steep Fed rate cut and as funds reshuffled portfolio. India's second largest IT exporter by sales Infosys rose 1.51% to Rs 1,139.80. India's fourth largest IT exporter by sales Wipro rose 1.5% to Rs 243. India's largest IT exporter by sales Tata Consultancy Services fell 0.76% to Rs 477.10 off the day's high of Rs 494.

Investors dumped Satyam and used the funds to buy other IT pivotals in a bid to stick to their exposure to the Indian IT sector. ]

Accentia Technologies rose 2.14% after it secured an order worth $ 22 million to service a chain of hospitals in the US.

The aggressive Fed cut also helped IT stocks shrug off a firmer rupee. Indian IT firms derive a lion's share of revenue from exports to the US. The Indian rupee traded close to one-month highs in afternoon trade on Wednesday, buoyed by the Fed rate cut and broad weakness in the dollar against other major currencies overseas. The partially convertible rupee was at 47.32/35 per dollar, stronger than its previous close of 47.92/93. It touched a high of 47.22, the highest since 10 November 2008.A stronger rupee affects IT firms negatively as they earn most of their revenues from exports.

India's largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) fell 2.64% to Rs 1,350.15 on profit taking after a recent solid surge. From the recent low of Rs 1,118.60 on 5 December 2008 the stock had jumped 10.68% to Rs 1,238.15 on 16 December 2008.

India's largest oil exploration firm by revenue ONGC rose 0.39% as crude oil prices advanced on expectations the oil cartel the Organisation of Petroleum Exporting Countries (OPEC), will cut supplies further at an official meeting in Algeria today, 17 December 2008.

Oil prices rose for the first time in four days on Wednesday, 17 December 2008, as a global stock rally continued after the US Federal Reserve cut its benchmark interest rate to a record low and pledged to do more to revive the world's biggest economy. Crude oil for January 2009 delivery climbed as much as 90 cents to $44.50 a barrel.

PSU OMC stocks rose on recent reports the government is considering a proposal to de-regulate the pricing of petrol and diesel. Hindustan Petroleum Corporation rose 3.8% on reports it is in talks with two overseas oil firms for joint participation in the $10 billion refinery-cum-petrochemical project at Vizag in Andhra Pradesh. BPCL jumped 0.52%. But Indian Oil Corporation slipped 0.34%.

The proposed deregulation of fuel prices, will provide full freedom to oil companies to set petrol and diesel prices.

Some FMCG stocks rose on defensive buying. Nestle India, Hindustan Unilever, Marico, United Breweries rose by between 0.55% to 1.27%. But India's largest cigarette maker by sales ITC fell 2.3%.

Real estate stocks slipped on reports recent rate cuts on housing loan and extra spending announced by the government on 7 December 2008 are not enough to spur demand. DLF, Indiabulls Real Estate and Unitech fell by between 8.64% to 11.13%. State-run banks on 15 December 2008, announced lower interest rates on small home loans.

Banking shares gained on hopes lower interest rates will boost lending growth. India's second largest private sector bank by net profit HDFC Bank rose 1.83% as its American depository receipt (ADR) gained 11.63% on Tuesday 16 December 2008. Its advance tax payment fell 10.7% to Rs 250 crore in Q3 December 2008 over Q3 December 2007. India's largest private sector bank by net profit ICICI Bank rose 2.43% as its ADR rose 11.07% on Tuesday. Its advance tax payment declined 6% to Rs 470 crore in Q3 December 2008 over Q3 December 2007.

India's largest commercial bank State Bank of India (SBI) fell 2.98% to Rs 1201.25 off day's high of Rs 1,256 even as its advance tax payment rose 56% at Rs 1,700 crore in Q3 December 2008 over Q3 December 2007.

The Reserve Bank of India (RBI) on 6 December 2008, announced a 100-basis point cut in the repo rate and the reverse repo rate each. Repo rate is the rate at which RBI lends to commercial banks and reverse repo rate is the rate at which RBI accepts deposits from banks.

Auto stocks were mixed on hopes recent price cuts and lower interest rates would boost demand for vehicles which is mainly driven by finance. Mahindra & Mahindra and Maruti Suzuki India rose by between 0.27% to 1.25%. Hero Honda Motors and Tata Motors fell by between 0.95% to 1.73%.

Bharat Forge rose 0.59% on reports the company and European power equipment giant Alstom have finalized the site for setting up a manufacturing facility for power equipments.

Kesoram Industries declined 7.29% on shutting its tyre manufacturing unit in Orissa for 14 days to avoid inventory pile up and debtors due to the shutdown of operations by auto majors.

Capital goods stocks fell on worries a slowing economy will crimp orders. Larsen & Toubro and Bharat Heavy Electricals fell by between 3.32% to 4.37%.

Metal stocks declined on worries a weakening domestic and global economy will hit demand. Tata Steel, Hindalco Industries, Sterlite Industries, Steel Authority of India, National Aluminum Company fell by between 2.63% to 8.77%.

India's largest cement maker by sales ACC fell 9.21% on shutting one of its kilns at Gagal in Himachal Pradesh.

Anil Dhrubai Ambani group shares Reliance Communications, Reliance Infrastructure, Reliance Capital and Reliance Natural Resources fell by between 11.53% to 16.01% on reports the government is seeking details of an alleged misuse of accounts of Reliance Infrastructure and Reliance Natural Resources by some former UBS employees.

Gremach Infrastructure Equipments & Projects was locked at upper limit of 5% to Rs 25.90 on BSE, extending gains for the third day in a row, ahead of a board meeting to consider right issue.

Gammon Infrastructure Projects rose 1.43% on achieving financial closure of its offshore container terminal project in Mumbai.

ABG Shipyard fell 7.58% on reports the firm is likely to see cancellation of orders worth around Rs 1000 crore due to one of its prospective buyers facing a financial crunch.

Country Club India rose 3.33% ahead of its board meeting on 19 December 2008 to consider rights issue of equity shares.

Satyam Computer Services clocked the highest volume of 3.34 crore shares on BSE. Reliance Natural Resources (2.27 crore shares), Housing Development & Infrastructure (1.99 crore shares), Suzlon Energy (1.62 crore shares) and Unitech (1.3 crore shares) were the other volume toppers in that order.

Satyam Computer Services clocked the highest turnover of Rs 551.74 crore on BSE. Reliance Industries (Rs 347.29 crore), Housing Development & Infrastructure (Rs 305.36 crore), Reliance Infrastructure (Rs 165.44 crore) and Educomp Solutions (Rs 160.42 crore) were the other turnover toppers in that order.