Scare on the Street…relax!

A good scare is worth more to a man than good advice.

A global scare, triggered by a sharp fall in the Chinese market spread like wildfire. Time makes more converts than reason. So, use this opportunity to take position rather than exit. Don’t let the screaming headlines increase your fear. Instead, dare we say you could get a little greedy.

A weak report on consumer confidence in the US raised fresh doubts over the global economic recovery. Even news that Japan is out of recession failed to sooth frayed nerves. A correction was anyways overdue since the rally started in early part of March.

Asian markets, though better this morning, are swinging wildly. We expect a choppy opening. However, a positive close for the key indices is something which should not surprise.

There is a school of thought that believes that despite the drought India is still capable of clocking healthy growth. Big worries remain the inevitable return of high inflation and the ballooning fiscal deficit. Deep pocket funds have the cash and the intent to buy. Immediately sprucing up the main indices is surely not the priority for now.

FIIs were net sellers at Rs12.27bn in the cash segment on Monday on a provisional basis while the local funds pumped in Rs4.6bn, according to figures published on the NSE's web site. In the F&O segment, the foreign funds were net buyers at Rs2.56bn.

On Friday, the foreign funds were net buyers at Rs10.3bn in the cash segment. Their net purchases of Indian stocks have crossed $7.7bn year-to-date. Mutual Funds were net buyers of Rs2.58bn in the cash segment on Friday.

US stocks joined the slump in global equities on Monday after heavy overnight losses in China translated into sharp selling on Wall Street, dragging the benchmark S&P 500 index below 1,000. Confidence in an economic recovery was damped by weaker-than-expected consumer confidence in the US and Japan's second-quarter GDP data, both of which missed the average expectations. Oil prices fall and base metals slid.

The Dow Jones Industrial Average lost 186 points, or 2%, to 9,135.34 after having lost as much as 204 points earlier. The S&P 500 index fell 24 points, or 2.4%, to 979.73. Both the Dow and S&P 500 closed at three-week lows. The Nasdaq Composite index lost 55 points, or 2.8%, to 1,930.84 ending at a one-month low.

Stock declines were broad-based, with 28 of 30 Dow stocks sliding.

US stocks fell last week for the first time in five weeks.

A roughly five-month rally hit a roadblock last week after a worse-than-expected consumer sentiment report on Friday. Signs that the US economy is stabilizing have more or less lifted stocks since March, with the S&P 500 gaining 50%.

In the last month alone, the S&P 500 gained 15%. So, a pullback was imminent. But, it is unlikely to signal a bigger fall. US stock indices are still only down 2% or 3% from the highs. As of last Thursday, the Dow was at a nine-month high and the Nasdaq and S&P 500 were at 10-month highs. The market is likely to extend the recent advance but, the rise will not be without hiccups. It is going to be a lot more choppy.

The benchmark index for US stock options jumped the most in four months. The Chicago Board Options Exchange Volatility Index, also known as the VIX, spiked 15%, signaling a bigger stock pullback could be brewing. The VIX rose to 27.89, the highest since July 10.

The index, which measures the cost of using options as insurance against declines in the S&P 500, is down from a record 80.86 in November and above its average of 20 over its 19-year history.

Meanwhile, the London Interbank Offered Rate, or LIBOR, for three- month dollar loans rose for the first time in 17 days, climbing to 0.431% from 0.429% at the end of last week, according to the British Bankers’ Association.

There are some concerns that cautious American consumers could limit the pace of the economic recovery. While the housing and manufacturing sectors have started to stabilize, a weak labor market and higher oil and gas prices have kept consumers on the sidelines.

Underscoring the weakness in consumer spending, home improvement retailer Lowe's reported a worse-than-expected drop in second-quarter profit. Lowe's also issued a second-half outlook that is short of analysts' estimates. Shares plunged 10.3% and dragged on other retailers.

Home Depot and other retailers are due to report results later in the week.

US investors also reacted to a plunge in global stock markets. In Asia, Japan's Nikkei index plunged 3.1% after a report showed the economy emerged from recession in the second quarter, but analysts said the outlook was uncertain. China's main index slumped almost 6% on worries about a stock market bubble.

The hard-hit manufacturing sector in the US continues to show signs of improvement. The Empire State Manufacturing survey, a measure of activity in the New York area, rose to 12.1 in August versus a reading of negative 0.6 in July, according to the Federal Reserve Bank of New York. Any reading that is positive shows expansion in the sector.

The week brings a slew of economic news in the US. On Tuesday, the government reports on July housing starts and building permits, and July producer prices, a measure of wholesale inflation. Later in the week, reports are due on leading economic indicators, jobless claims, state-by-state unemployment and existing home sales.

Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.47% from 3.56% on Friday.

US light crude oil for September delivery fell 76 cents to settle at $66.75 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $12.90 to settle at $935.80 an ounce.

In currency trading, the dollar gained versus the euro and fell against the Japanese yen.

European shares fell sharply, paced by banks and miners. The pan-European Dow Jones Stoxx 600 index declined 2% to 224.21, down for the second session in four and trading back at levels not seen since the end of July.

The UK's FTSE 100 index dropped 1.5% to 4,645.01, while Germany's DAX index fell 2% to 5,201.61 and the French CAC-40 index skidded 2.2% to 3,419.69.

It was a heart breaking start to the week as the Indian markets extended losing streak to the second straight trading session on Monday. The BSE Sensex lost over 700 points in the last couple of trading days.

The 6% plunge in the Chinese markets was the major sentiment dampener on Monday as the Shanghai Composite index in China witnessed the biggest down fall for the first time since November. Cues from the rest of the world was also not that encouraging. Sell off was seen in the equity marets across Asia, Europe and also the US Futures markets.

Coming back to India, it was all round selling on the Indian bourses led by the BSE Realty index which was the top loser, down over 7% followed by BSE Metal and BSE Oil & Gas index which fell over 6% and 4.5% respectively.

Even the Mid-Cap and the Small-indices ended in deep red. The BSE Mid-Cap index fell 3.7% and the Small-Cap index declined 3%.

Indian markets may witness a decline as of much as 15% on concern of lower monsoon which would cut farm output and slash consumer spending, according to Bank of America Merrill Lynch.

Merrill Lynch forecasts earnings downgrades for automobile and consumer companies in India, a report said.

The BSE Sensex slipped by 626 points at 14,785. The index opened at 15,284 it hit an intra-day high of 15,284 and a low of 14,740. On the other hand, the NSE Nifty lost 192 points at 4,388.

All the 30-components of Sensex ended in the red. The major laggards were Reliance Industries, ICICI Bank, L&T, ITC, Infosys and SBI.

Market breath was negative, 1,929 stocks declined against 674 advances, while, 73 stocks remained unchanged.

In the broader market, major losers included, IFCI, United Phosphorous, LITL, Videocon Industries and Jet Airways.

Bucking the negative trend in the broader indices were, Marico, Bajaj Holdings, Jain Fortis Healthcare and Nestle.

Shares of Allied Digital rallied by over 5% to Rs446 after the CMD Nitin Shah was quoted as saying that the company bagged a US$100mn deal with a US-based original equipment manufacturer company. "Our part is to aid value-added services to them in terms of doing remote management of the desktop notebook and servers."

The stock opened at Rs419 and has hit an intra-day high of Rs496 and a low of Rs415 recording volumes of over 1.1mn shares on the BSE.

Aurobindo Pharma board approved the proposal to acquire 100% stake of Trident Life Sciences Ltd., subject to suitable agreements being executed between the parties for the same and conditions customary to dosing of the transaction. TLSL was incorporated in 2004 and has well established Clinical Research Organizations. It is in the process of implementing a liquid injectables facility in the Medak district near Hyderabad.

The stock ended lower by 2.6% to Rs645. The stock opened at Rs663 and has hit an intra-day high of Rs678 and a low of Rs636 recording volumes of over 49,000 shares on the BSE.