Things have never been more like the way they are today in history.
History is set to repeat on the bourses, as Reliance has done it again. Most analysts expect the ratio to favour RIL, though there could be a positive surprise for RPL shareholders.
Though expected, we are surprised by the timing of the proposed merger of RPL with RIL. The swap ratio may be in a range between 16:1 and 24:1 (RPL:RIL). RPL shareholders could lose out if the ratio is unfavorable. But they will get an exposure to RIL’s high profile E&P assets, retail and SEZ businesses. So, we expect RIL to rally (later than sooner).
RIL’s weightage is high in the key indices but it may not be able to counter the persistent headwinds from the global markets. Even the macro-economic outlook is getting worse by the day, which is evident in the Q3 GDP data. The government’s fiscal situation also seems to be spiraling out of control.
On the overall bourses too, we see the same old story; a weak start and later globally clues directing the proceedings.
FIIs were net sellers in the cash segment on Friday at Rs4.63bn, while the local institutions pumped in Rs6.49bn. In the F&O segment, the foreign funds were net sellers at Rs3.16bn. On Thursday, FIIs were net sellers in the cash segment at Rs2.38bn.
US stocks ended lower on Friday, capping another terrible month on a sour note after the Obama administration increased its stake in the troubled Citigroup, and revised fourth-quarter GDP figure down.
The Dow Jones Industrial Average lost 119 points, or 1.7%, to 7,062.93. It was the lowest close for the blue chip barometer since May 1997. The S&P 500 index dropped 18 points, or 2.4%, to 735.09, closing at its lowest point since Dec. 18, 1996.
The Nasdaq Composite index shed 13.5 points, or 1%, to 1,377.84. The tech-laden index has held up better than the other major averages this year and remains above its lows from Nov. 21, 2008.
The S&P 500 closed below its November lows and also below the 740-750 range that some had hoped will hold up. For the week, the broader marker indicator was down 4.5%, giving it a monthly hit of 11%.
The Dow slid 4.5% in the week and 11.7% in the month. The Nasdaq shed 4.4% during the week and 6.7% in the month.
Financials led the declines, with Citigroup down 39% on news the US government was hiking its stake in the battered bank to as much as 36%. The deal converts preferred shares that the US Treasury already holds for common shares.
It gives the bank more capital, which ideally would lead to more lending. The government had earlier given Citi US$45bn in exchange for preferred shares. Citi shares have plunged around 90% over the last year as the company has struggled to stay solvent amid the housing sector collapse and the credit crisis.
Still, Wall Street worry that Citi will ultimately have to be taken over by the government, a move that would completely wipe out shareholders.
The US economy shrank at a much faster pace in the fourth quarter than initially thought. GDP contracted at the fastest pace in 26 years on sharp declines in consumer spending, investment and exports, the government said.
GDP fell at a 6.2% seasonally adjusted annualized pace in the final three months of 2008, revised from the initial estimate of a 3.8% drop, the Commerce Department reported. It was the worst decline in GDP since a 6.4% decrease in the first quarter of 1982.
Economists had expected a revision to a 5.5% decline, based on updated monthly data on inventories, exports and other key measures.
Economists don't expect any relief in the current quarter, which ends March 31. The current projection sees first-quarter GDP falling at a 4.8% annual rate. Since 1947, GDP has never fallen by more than 4% for two quarters in a row. Most economists don't expect GDP to grow until the second half of the year.
While the report was worse than expected, it also wasn't surprising to investors, following weak readings on manufacturing, employment and consumer spending. Hence, the stock market reaction Friday was negative, but not awfully bad.
The New York Stock Exchange said it is temporarily waving its minimum price for listed stocks, due to the unprecedented stock market environment. There are 50 stocks that have traded for less than a US$100 for at least 30 days, the NYSE said. Typically, those stocks would be put under review, which could eventually lead to a delisting. Last month, the NYSE changed its market cap for listed companies to US$15 million from US$25 million. Both changes are in effect through the end of June.
In other economic news, the Chicago PMI, a regional reading on manufacturing, rose to 34.2 in February from 33.3 in January. Economists had predicted a drop in the index to 33. Any figure below 50 signals weakness in the sector.
The University of Michigan said its consumer sentiment index rose to 56.3 in February from an initially reported 56.2. Economists thought it would dip to 56.
Dell reported weaker quarterly sales and earnings late on Thursday that missed analysts' forecasts. The company also said it plans to cut an additional US$1 billion a year from its annual expenses within two years, picking up the pace on an existing cost-cutting plan. This seemed to reassure investors and shares rose almost 4%.
General Electric (GE) said that it will cut its quarterly dividend by 68% to 10 cents per share from 31 cents per share, a move the company says will save it about US$9 billion a year. GE shares lost 6.5%.
Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.01% from 2.99% on Thursday.
In currency trading, the dollar gained versus the euro and fell against the yen. COMEX gold for April delivery fell 10 cents to US$942.50 an ounce.
US light crude oil for April delivery fell 46 cents to settle at US$44.76 a barrel on the New York Mercantile Exchange.
The S&P's finish was its worst since the 731.54 hit at the close of Dec. 18, 1996, with its percentage decline in February proving to be the second-worst on record following the 18.4% hit that came in 1933.
After the worst January performance in its 113-year history, the Dow tallied the index's worst February point decline, and its second-worst percentage drop since 1933, when it lost 15.6%.
The Nasdaq decline proved its worst percentage drop since 2001, when it discarded 22.67% of its value.
Another choppy day ended on in the red on Friday. Weak global cues coupled with selling pressure dragged the Indian bourses at open. After trading in a narrow range, key indices managed to stage a smart pull back in the second half finally ending the day with marginal losses. Sensex slipped 63 points to close at 8,891 and the NSE Nifty was down 22 at 2,763.
The BSE benchmark Sensex recovered nearly 170 and the NSE nifty recovered almost 60 points from their day’s low.
Shares of SREI Infra gained by 1% to Rs30 after 4.1% of equity shares of the company were traded in a single transaction. The scrip touched an intra-day high of Rs34.8 and a low of Rs29.2 and recorded volumes of over 6mn shares on NSE.
Shares of United Spirits gained by 3.3% to Rs621 after reports stated that United Spirits and Diageo Plc are still in discussions about a possible stake-sale agreement. The scrip touched an intra-day high of Rs628 and a low of Rs595 and recorded volumes of over 2.1mn shares on BSE.
Shares of Shoppers Stop have declined by a percent to Rs86 after the company announced that it closed three crossword book stores. The scrip touched an intra-day high of Rs86 and a low of Rs83 and recorded volumes of over 8,000 shares on BSE.
Shares of ONGC declined by over 3.5% to Rs690 after reports stated that the company shut a platform in the Bombay High offshore field reducing gas output by 40%. The scrip touched an intra-day high of Rs720 and a low of Rs621 and recorded volumes of over 3.2mn on BSE.
Shares of HDFC surged by 5% to Rs1271 after 1.12mn equity shares changed hands in two trades. The scrip touched an intra-day high of Rs1275 and a low of Rs1200 and recorded volumes of over 1.9mn shares on BSE.
Shares of Mphasis erased early gains and slipped by 1.6% to Rs168. The group revenues increased by 58.1% to Rs9.8bn for the quarter ended January 31 from Rs6.1bn for the corresponding quarter I the previous year.
Operating profit during the quarter ended January 31 was Rs2.1bn a growth of 246.6% as compared to operating of Rs608mn in the same period a year ago. The scrip touched an intra-day high of Rs177and a low of Rs158nd recorded volumes of over 0.5mn shares on BSE.
The markets have fresh news to ponder and speculate on. Reliance Industries has done it again and finally announced a board meeting to mull merger with Reliance Petroleum. With Fortune 500 companies coming down in value, mergers will like may well create the balance sheet size that Indian conglomerates desire. All said and done, bulls and bears may hardly March anywhere this F&O series.