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Thursday, January 15, 2009

Post Session Commentary - Jan 15 2009

The Indian market closed in red terrain after losing all its yesterday’s gains on huge selling observed across the board. Further plunge in inflation failed to lift the market due to the slow down in global equities and intensifying banking crisis in the United States. News that North America''s biggest telephone equipment maker Nortel has filed for Chapter 11 bankruptcy protection and US retails sales have reported worse than expected numbers triggered a sell-off in US markets. Drop in European markets after positive opening, also fueled the market sentiments.

The domestic market today opened significantly lower on the back of weak cues from the global markets. Further, market continued to trade with heavy losses on huge sell off led by the continuous downfalls into the Asian markets that reflected negative sentiment to the Indian market. Stocks extended their losses and ignored the fall in inflation for the week ended January 3 2009, to 5.24% from 5.91% in the previous week. Concerns for the slowing global economy along with decline in corporate earnings also contributed to huge sell off that led the market to close with heavy losses. From the sectoral front, all indices ended in red and Bank and Reality stocks under performed the other sectoral indices as ended with deep cut of more than 5% and 4% respectively. Apart from that, Metal, IT, Teck, Power, Oil & Gas and PSU stocks witnessed most of the selling from these baskets. Midcap and Smallcap stocks also remained weak.

Inflation for week ended 3rd Jan 2008, stood at 5.24% as against 5.91% of the previous week, triggered by cheaper non-administered fuel prices along with goods and food items. WPI for all commodities is down by 0.2% at 229 and primary articles are down 0.5% (WoW).

Among the Sensex pack 29 stocks ended in red territory and 1 in green. The market breadth remained weak as 1649 stocks closed in red while 698 stocks closed in green and 100 stocks remained unchanged in BSE.

The BSE Sensex closed lower by 323.75 points at 9,046.74 and NSE Nifty ended down by 98.60 points at 2,736.70. The BSE Mid Caps and Small Caps ended with losses of 52.67 points and 75.21 points at 3,010.81 and 3,410.48 respectively. The BSE Sensex touched intraday high of 9,123.78 and intraday low of 8,946.62.

Losers from the BSE Sensex pack are JP Associates (8.03%), Tata Steel (7.33%), ICICI Bank (7.31%), Reliance Communication Ltd (6.01%), HDFC Bank (5.41%), TCS Ltd (5.28%), Hindalco (4.64%), DLF Ltd (4.46%), SBI (4.42%), Infosys Tech (4.05%), Tata Power (3.80%) and Wipro Ltd (3.55%).

Only one gainer from the BSE Sensex pack is Grasim Indus (0.85%).

The BSE Bank index tumbled (5.69%) or 296.79 points to close at 4,918.88 as Kotak Bank (9.35%), Canara Bank (8.32%), ICICI Bank (7.31%), Sterlite Indus (7.10%), PNB (7.12%), Oriental Bank (6.69%) and HDFC Bank (5.41%) ended in negative territory.

The BSE Reality index closed down by (4.72%) or 87.47 points at 1,766.02. Major losers are Orbit Co (9.53%), Unitech Ltd (9.00%), Housing Dev (6.12%), Ansal Infra (5.85%), Mahindra Life (5.70%) and Indiabull Real (4.50%).

The BSE Metal index ended lower by (4.53%) or 228.87 points at 4,829.02. Main losers are Tata Steel (7.33%), Sterlite Indus (7.10%), Steel Authority (5.23%), Jai Corp Ltd (4.95%), Ispat Indus (4.71%) and Hindalco (4.64%).

The BSE IT index closed with decrease of (4.11%) or 92.72 points at 2,162.70. Scrips that lost are HCL Tech (7.45%), TCS Ltd (5.28%), NIIT Ltd (5.00%), Aptech Ltd (4.61%), Infosys Tech (4.00%) and Financ Tech (3.80%).

The BSE Teck index dropped by (43.77%) or 69.42 points to close at 1,770.20 as Tanla (8.11%), HCL Tech (7.45%), Tata Communications (6.14%), Reliance Communication Ltd (6.01%), Idea Cell (5.93%), TCS Ltd (5.28%) and NIIT Ltd (5.00%) ended in red.

The BSE Power index declined (2.98%) or 52.05 points at 1,694.69. Losers are Siemens Ltd (7.38%), GMR Infra (7.34%), Crompton Greaves (5.62%), Suzlon Energy (4.20%), Reliance Power (4.17%) and Reliance Infra (3.47%).

BSE Bulk Deals to Watch - Jan 15 2009

Deal Date Scrip Code Company Client Name Deal Type * Quantity Price **
15/1/2009 521244 CHITRA.SPIN. SRECKO INDHAN LIMITED B 44884 3.90
15/1/2009 521244 CHITRA.SPIN. RAMESH BABU P S 34079 3.90
15/1/2009 521244 CHITRA.SPIN. PRABHAKARA RAO PILLI S 27884 3.90
15/1/2009 531127 ENRICH INDUT KAUSHAL ASHWIN GANDHI B 38529 3.20
15/1/2009 505576 GOLDCRES FIN BHARAT SHAH S 130000 15.00
15/1/2009 500307 NIRLON LTD MATTERHORN VENTURES B 820000 24.50
15/1/2009 500307 NIRLON LTD KAMPPILYA INVESTMENTS PVT LTD B 743115 24.42
15/1/2009 500307 NIRLON LTD CLSA MAURITIUS LIMITED S 504115 24.50
15/1/2009 500376 SATYAM COMP LAZARD ASSET MANAGEMENT LLC S 11341553 21.71
15/1/2009 509930 SUPREM IND* SUPREME INDUSTRIES LTD B 380000 110.76
15/1/2009 531249 WELL PACK PA GANDHI MANISHA NAVNEETLAL B 37700 39.08
15/1/2009 531249 WELL PACK PA RAMESHBHAI V PARMAR B 32000 39.06
15/1/2009 531249 WELL PACK PA REKHA BHANDARI B 71572 39.20
15/1/2009 531249 WELL PACK PA GANDHI MANISHA NAVNEETLAL S 37700 39.20
15/1/2009 531249 WELL PACK PA RAMESHBHAI V PARMAR S 22500 39.20

NSE Bulk Deals to Watch - Jan 15 2009

Date,Symbol,Security Name,Client Name,Buy/Sell,Quantity Traded,Trade Price / Wght. Avg. Price,Remarks
15-JAN-2009,EVINIX,Evinix Accessories Limite,NCR BUILDTECH PRIVATE LIMITED,BUY,908000,2.70,-
15-JAN-2009,SATYAMCOMP,Satyam Computers Ltd,ADROIT FINANCIAL SERVICES PVT LTD,BUY,4652456,21.76,-
15-JAN-2009,SATYAMCOMP,Satyam Computers Ltd,TRANSGLOBAL SECURITIES LTD.,BUY,3410738,21.51,-
15-JAN-2009,SUPREMEIND,Supreme Industries Ltd,THE SUPREME INDUSTRIES LTD.,BUY,380000,110.07,-
15-JAN-2009,EVINIX,Evinix Accessories Limite,COROLATION BUILDERS PVT LTD,SELL,893000,2.70,-
15-JAN-2009,SASKEN,Sasken Commu Techno Ltd,SUNDARAM BNP PARIBAS SELECT MIDCAP,SELL,214328,45.20,-
15-JAN-2009,SATYAMCOMP,Satyam Computers Ltd,ADROIT FINANCIAL SERVICES PVT LTD,SELL,4685456,21.69,-
15-JAN-2009,SATYAMCOMP,Satyam Computers Ltd,TRANSGLOBAL SECURITIES LTD.,SELL,3433833,21.57,-

Sensex 324 down

Sensex ended the day with a loss of 324 points after crashing to a low of 8,947 during intra-day trades. The market crashed over 400 points in line with the other major global indices, as US recession fears played on investors’ sentiment. Despite gaining over 300 points in Wednesday's trades, Sensex resumed 272 points lower at 9,098. It tanked by another 151 points to touch the day's low of 8,947 on relentless selling in banking, realty, metal and technology stocks. Sensex managed to recover around 98 points in late trades, but still ended with a loss of 324 points at 9,047. Nifty shed 99 points to close at 2,737.

The market breadth was negative. Of the 2,447 stocks traded on BSE 1,649 stocks declined, whereas 698 stocks advanced. Hundred stocks ended unchanged. Among sectoral indices BSE Bankex tumbled 5.69%, BSE Realty slipped 4.72%, BSE Metal lost 4.53% and BSE IT was down 4.11%.

Several index heavyweights came under selling pressure and ended in the red. JP Associates was the major loser and tumbled 8.03% at Rs64.70. Tata Steel at Rs197.80, ICICI Bank at Rs408.85, Sterlite Industries at Rs253.70, Reliance Communications at Rs174.25, HDFC Bank at Rs924.50 and Tata Consultancy Services at Rs510 slumped around 5-7% each. However Grasim Industries gained 0.85% at Rs1,294.40 and Maruti Suzuki India gained 0.54% at Rs599.08.

Over 5.60 crore shares of Satyam Consultancy Services changed hands on BSE followed by Reliance Industries (2.82 crore shares), Unitech (1.47 crore shares), JP Associates (70.87 lakh shares) and GVK Power & Infrastructure (65.33 lakh shares).

Sensex sheds 3.45% as US bank crisis deepens

Weak global equities and a deepening banking crisis in the United States pulled the domestic bourses lower in choppy trade. Nevertheless, the market cut sharp intraday losses as index heavyweight Reliance Industries (RIL) and IT pivotals recovered from lower level. The BSE 30-share Sensex lost 323.75 points, or 3.45%, off 100.12 points from the day's low. Data showing a fall in inflation to 11-month low which will provide room for the central bank to further cut interest rates, helped the market cut steep intraday losses.

Selling by foreign funds pulled the market down. Foreign funds sold shares worth a net Rs 484.33 crore, as per provisional data released by the stock exchanges after trading hours. Domestic funds bought shares worth a net Rs 175.12 crore, as per the provisional data.

After opening on a weak note, the market bounced back after the inflation data which hit the market at about 11:30 IST. But the recovery proved short-lived with the Sensex tumbling 4.52% in mid-afternoon trade. The market cut losses in late trade.

Inflation for the year through 3 January 2009 fell to a 11-month low of 5.24% from 5.91% in the previous week, government data released during market hours today, 15 January 2009 showed. The Reserve Bank of India (RBI) has eased monetary policy over the past few months to soften the impact of the global financial crisis and economic recession in key world economies on the Indian economy.

US stocks fell to six-week lows on Wednesday, 14 January 2009, on worries about steeper losses at banks worldwide and as US retail sales data pointed to a deepening recession. The Dow Jones industrial average lost 248.34 points, or 2.94%, to 8,200.22. The S&P 500 slid 29.12 points, or 3.34%, to 842.67 and the Nasdaq Composite shed 56.82 points, or 3.67%, to 1,489.64.

Citigroup shares tumbled as investors and analysts worried whether the bank can be profitable as it unravels its business model. It is expected to post a multibillion-dollar loss this week.

Fears about the banking sector were exacerbated after Morgan Stanley analysts forecast HSBC, Europe's biggest bank, is likely to halve its dividend and may need to raise up to $30 billion of capital, while Germany's Deutsche Bank said it lost more than $6 billion last quarter. Highlighting the strain banks are under, The Wall Street Journal reported that the US government is close to extending billions more aid to Bank of America Corp, sending the bank's stock lower after trading hours in the United States.

European shares fell for the seventh session in a row in volatile trade on escalating fears over the beleaguered banking sector. Key benchmark indices in UK, Germany and France were down by between 0.09% and 0.66%.

Asian markets tumbled today, 15 December 2009, on weak US retail sales and a record fall in Japanese machinery orders. Key benchmark indices in China, Hong Kong, Japan, Singapore, South Korea, and Taiwan fell by between 0.45% and 6.03%.

Data on Wednesday showed US retail sales dropped a steep 2.7% in December 2008 as the economic slowdown made consumers cut back on spending during retailers' crucial holiday selling period. Consumer spending accounts for about two-thirds of US economic activity, making it a key pillar of corporate profits.

Core Japanese machinery orders fell a record 16.2% in November 2008 to a two-decade low, in another sign that the global crisis has stalled capital investment, data on Thursday, 15 January 2009, showed.

The BSE 30-share Sensex lost 323.75 points or 3.45% at 9,046.74. The Sensex opened 369.87 points lower at 9,000.62. The Sensex lost 423.87 points at day's low of 8,946.62 in mid-afternoon trade. The Sensex fell 246.71 points at day's high of 9,123.78 in afternoon trade.

The S&P CNX Nifty lost 98.60 points or 3.48% at 2,736.70. Nifty January 2009 futures were at 2718.60, at a discount of 18.10 points as compared to the spot closing.

The market breadth, indicating the overall health of the market, was weak on BSE with 1633 shares declining as compared with 736 that rose. 95 shares remained unchanged.

The BSE Mid-Cap index slipped 1.72% at 3,010.81 and the BSE Small-Cap index fell 2.16% at 3,410.48. Both these indices outperformed the Sensex.

The total turnover on BSE amounted to Rs 2,896 crore as compared to Rs 2,818.60 crore on Wednesday, 14 January 2009. Turnover in NSE's futures & options (F&O) segment increased to Rs 40,218.44 crore, from Rs 36,766.76 crore on Wednesday, 14 January 2009.

All BSE sectoral indices posted losses. The BSE Metal index (down 4.53%), the BSE Teck index (down 3.77%), BSE IT index (down 4.11%), the BSE Bankex (down 5.69%), BSE Realty index (down 4.72%), underperformed the Sensex.

The BSE Oil & Gas index (down 2.82%), BSE HealthCare index (down 1.76%), the BSE PSU index (down 2.61%), the BSE Power index (down 2.98%), BSE Capital Goods index (down 1.68%), BSE Consumer Durables index (down 1.66%), the BSE FMCG index (down 1.31%), the BSE Auto index (down 0.92%), outperformed the Sensex.

Among the 30-member Sensex pack, 26 declined while the rest gained. Tata Steel (down 7.38%), Sterlite Industries (down 6.59%), and Reliance Communications (down 6.15%), edged lower from the Sensex pack.

Maruti Suzuki India (up 0.24%), Grasim (up 0.01%), Ranbaxy (up 0.09%) and Mahindra & Mahindra (up 0.02%), edged higher from the Sensex pack.

Banking stocks tumbled on fears of rising defaults in a slowing economy. India's largest private sector bank by net profit ICICI Bank slumped 7.27% to Rs 409.05 after its ADR lost 3.17% on Wednesday, 14 January 2009. The stock rebounded from early low of Rs 398.20.

India's second largest private sector bank by net profit HDFC Bank shed 5.95% to Rs 919.20 after its ADR slipped 5.39% on Wednesday, 14 January 2009. The stock had lost 1.14% yesterday, 14 January 2009, after the bank's gross net performing assets (NPA) rose 120.47% to Rs 1911.41 crore as at 31 December 2008 from Rs 866.97 crore as on 31 December 2007, the private sector bank said at the time of announcing Q3 results during trading hours

India's biggest bank in terms of total assets and branch network, State Bank of India fell 4.23% to Rs 1149, off day's low of Rs 1136.

India's largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) was down 2.47% to Rs 1149.10, off day's low of Rs 1109, on reports its unit Reliance Petroleum (RPL) will start fuel exports from its new refinery this month. RPL was down 3.18%. RPL, last month, commissioned its 5,80,000-barrels-per-day only for exports refinery at Jamnagar in Gujarat.

The RIL stock had slumped as much as 5.8% in early trade today, 15 January 2009, after a television report after trading hours on yesterday said RIL has denied rumours that it had reached an out-of-court settlement on a dispute on gas sales with Reliance Natural Resources (RNRL). The stock had surged 9.48% yesterday, 14 January 2009 on speculation of an out-of-court settlement of the dispute. RNRL slipped 4.98%.

The Bombay High Court's interim order in May 2007 had directed RIL not to create third party interest for the disputed volume of 40 million standard cubic metres per day (mscmd) of gas from the K-G basin.

RIL and Anil Dhirubhai Ambani group firm Reliance Natural Resources (RNRL) had agreed on a price of $2.34 per million British thermal units (mBtu) in July 2006, but RIL wanted to charge more after gas prices rose and costs climbed. The government in September 2007 set the price of gas from the K-G field for potential buyers at $4.2 per million mBtu. The price was linked to crude oil equal to or more than $60 a barrel.

India's largest state run oil exploration firm by market capitalisation Oil and Natural Gas Corporation (ONGC) slipped 3.10% to Rs 625 and India's largest private sector oil exploration firm by market capitalisation Cairn India lost 3.82% to Rs 149.90 on fall in crude oil price.

State run oil marketing companies were mixed and outperformed the Sensex on reports the cabinet committee on economic affairs is unlikely to take up the issue of reducing petrol, diesel and domestic LPG prices at a meeting scheduled today, 15 January 2009. HPCL (up 1.60%), and BPCL (up 1.17%), while IOC (down 1.59%), outperformed the Sensex. As per latest reports state-run oil companies are currently making Rs 9.70 a litre profit on sale of petrol, Rs 3.70 a litre on diesel, but are loosing Rs 31.70 per LPG cylinder and Rs 11.69 on every litre of kerosene.

There has been speculation that the government will announce a cut in petrol, diesel and LPG prices on Thursday, 15 January 2009

US light crude for February 2009 delivery fell by 71 cents to $36.57 a barrel today, 15 January 2009 on grim economic data from the world's major economies.

Outsourcing focussed IT firms fell as fears a weak global economy would cut the amount firms spent on technology offset a weaker rupee. India's largest software services exporter TCS lost 5.46% to Rs 509.25, after sliding to day's low of Rs 495.60. The company will declare its Q3 December 2008 results today, 15 January 2009.

But India's second largest software services exporter Infosys Technologies recovered from the day's low of Rs 1215.10 and ended 3.83% lower at Rs 1254.85 after its chief financial officer said during market hours today, 15 January 2009, that bankruptcy filing by its client Nortel Networks will have any material impact on the company's operations or financial condition. Nortel's contribution to revenues is less than half a percent of yearly revenues based on the current revenue run rate, Infosys said.

India's third largest software services exporter, Wipro, too, recovered from low of Rs 218.30 to settle with 2.07% loss to Rs 238.90 after Manish Dugar, chief financial officer of Wipro said during market hours today, 15 January 2008, a major portion of Nortel Networks business is expected to continue even after the telecom equipment maker filed for bankruptcy in the United States on Wednesday, 14 January 2009

Nortel, accounts for less than 1.5% of its information technology business revenue, Manish Dugar, chief financial officer of Wipro Technologies, said in a statement. Dugar said the outstanding amount from North America's biggest telephone equipment maker was $15 million, subject to arbitration.

India's fourth largest software services exporter Satyam Computer Services slumped 31.72% to Rs 20.45 after Economic Affairs Secretary Ashok Chawla today, 15 January 2009, said the government is not at the moment considering any financial bailout package for the fraud-hit firm.

Satyam's founder and former chairman B Ramalinga Raju during trading hours on Wednesday, 7 January 2009, admitted to a nearly Rs 7000-crore financial fraud. The market has been agog with speculation that the government will pump cash into the technology outsourcing company to ensure its survival.

Sasken Communication Technologies plunged 19.59% to Rs 43.50 after Nortel Networks Corp which holds a 9.5% stake in the Indian firm, filed for bankruptcy in the United States on Wednesday, 14 January 2009.

Indian rupee depreciated against the dollar today, 15 January 2009 as dollar demand increases amid weakening local stocks. The rupee was trading at 49.01/02 against the greenback over Wednesday's close of 48.82/84 a dollar. A weak rupee benefits IT firms as the sector earns most of its revenues from exports.

The mega accounting scandal at Satyam which was unearthed last week weighed on realty and infrastructure shares on market perception that a number of realty and infrastructure firms do not strictly follow good corporate governance practices.

India's largest dam builder Jaiprakash Associates tumbled 8.32% to Rs 64.50 and was the top loser from the Sensex pack.

Reliance Infrastructure (down 3.90%), IVRCL Infrastructure (down 2.07%)and GMR Infrastructure (down 8.25%) declined from the infrastructure pack.

Among realty firms, Housing Development & Infrastructure (down 6.26%), Indiabulls Real Estate (down 5.40%), edged lower.

India's largest real estate firm by market capitalisation DLF slumped 3.66% to Rs 204 on reports it is planning to turn down its special economic zone (SEZ) plans, battered by low demand for real estate. The company is planning to start five of its SEZs after 2010 when demand revives.

Unitech plunged 9.57% to Rs 31.65 after the global rating agency Fitch downgraded long-term debt rating of the realty firm to below investment grade.

Maytas Infra hit 5% lower circuit to Rs 123.15 on reports a section of the United Progressive Alliance government wants cancellation of the Hyderabad Metro Rail project awarded to the firm.

Metal stocks declined on fall in metal prices on the London Metal Exchange. India's largest copper maker by sales Sterlite Industries (India) slumped 6.59% to Rs 255.10 after its American depository receipt (ADR) lost 2.55% on Wednesday, 14 January 2009.

Tata Steel (down 7.38% to Rs 197.70), and Hindalco Industries (down 4.55% to Rs 48.30), slipped from the metal pack.

India's largest cellular services provider by sales Bharti Airtel fell 3.08% to Rs 605 after foreign brokerage firm JPMorgan Chase & Co. cut its rating on the stock to neutral from overweight.

Reliance Industries was the top traded counter on the BSE with turnover of Rs 257.35 crore followed by Reliance Natural Resources (144.90 crore), Reliance Capital (Rs 132.85 crore), Satyam Computer Services (Rs 122.30 crore) and ICICI Bank (Rs 119 crore).

Satyam Computer Services led the volume chart on BSE clocking volumes of 5.60 crore shares followed by Reliance Natural Resources (2.82 crore), Unitech (1.48 crore), Jaiprakash Associates (71 lakh) and GVK Power Infrastructure (65.35 lakh).

FMCG shares were mixed and outperformed the Sensex on defensive buying. Hindustan Unilever (down 1.99%), Colgate Palmolive India (down 1.63%), Nestle India (down 0.07%), United Spirits (up 1.98%), and Procter & Gamble (down 0.38% to Rs 802), and Nirma (down 0.95%), though down, outperformed the BSE Sensex.

Fertiliser shares gained on reports Reliance Industries is likely to start gas production from its Eastern Offshore KG-D6 block by the month-end. National Fertilisers (up 15.71%), RCF (up 3.52%), GSFC (up 1.84%), Nagarjuna Fertiliser (up 2.23%), and Chambal Fertilisers & Chemicals (up 0.78%), gained.

Dr Reddys Laboratories slumped 6.96% to Rs 444.10 on reports its consignment worth $500,000 has been seized in transit by Dutch customs officials on charges of patent infringement

SGX Plunges - Live Update - Jan 15 2009

SGX Nifty at 2,705.0 trading -116.0 pts

Pre Session Commentary - Jan 15 2009

Today the markets are likely to open with a negative gap. The US markets closed with heavy losses and therefore the Asian markets have also opened with blood bath. The sentiments across the globe are bearish and that will definitely affect the domestic sentiments as well. The inflation numbers would barely affect the markets’ movements. One could witness strong sell off in today’s trading session that would keep the markets at low levels in the southward direction.

On Wednesday, the markets traded closed in green. The positive gap opening in morning session was backed by remarkable recovery witnessed in Asian markets that further bolstered the domestic markets till the end. Stocks like Reliance and Infosys also helped maintain positive sentiments across broader markets. All the sectors managed to close in green and sectors like Oil & Gas, IT, Teck, Realty and Metal were the forerunners with gains of 5.85%, 5.02%, 4.57%, 4.38% and 4.18% respectively. Sensex and Nifty gained 3.30% and 3.29% respectively. Mid caps and Small caps also gained by 1.90% and 1.26% respectively. During the session we expect the markets to be trading in deep red.

The BSE Sensex closed higher by 299.13 points at 9,370.49 and NSE Nifty ended higher by 90.35 points at 2,835.30. The BSE Mid Caps and Small Caps ended with gains of 57.07 points and 43.34 points at 3,063.48 and 3,485.69 respectively. The BSE Sensex touched intraday high of 9,412.97 and intraday low of 9,202.57.

On Wednesday, the US markets closed in red. There was lack of buying in broader markets as the sentiments and expectations about the corporate profits are waning. Disappointing economic data also weighed on sentiment this session. Reports indicate that Deutsche Bank will post a fourth quarter loss further JPMorgan’s announcement also looms. On the other hand advance December retail sales dropped 2.7% month-over-month. Excluding autos, sales were down 3.1%. Crude oil futures for the month of February delivery fell by 50 cents to close at $37.28 per barrel on New York Mercantile Exchange. The crude futures touched as low as $35.54 per barrel. Crude prices came under pressure after the latest inventory data indicated a build of 1.14 billion barrels as compared to the expected 2.5 billion barrels. Though the build was less than expected, rising inventories continue pointing toward softer demand amid stiff economic headwinds.

The Dow Jones Industrial Average (DJIA) closed lower by 248.42 points at 8,200.14 NASDAQ index fell by 26.82 points at 1,489.64 and the S&P 500 (SPX) also closed lower by 29.17 points at 842.62.

Indian ADRs ended in red. In technology sector, Infosys went low by 3.54% and Wipro lost 7.14%. Further Patni Computers ended with a loss of 4.84% while Satyam closed down by 6.82%. In banking sector ICICI lost 3.17% along with HDFC Bank ended down by 5.39%. In telecommunication sector, Tata Communication lost 1.90%, and MTNL tumbled 2.27%. Sterlite Industries fell by 2.55%.

Today the major stock markets in Asia have opened with heavy blood bath. The Shanghai Composite is trading low by 22.20 points at 1,906.67 while Hang Seng is low by 743.60 points at 12,961.01. Further Japan''s Nikkei is trading low by 335.68 points at 8,102.77. South Korea’s Seoul Composite is low by 59.69 points at 1,122.99 and Singapore’s Strait Times is also low by 61.55 points at 1,703.17.

The FIIs on Wednesday stood as net sellers in equity and debt. Gross equity purchased stood at Rs 1640.00 Crore and gross debt purchased stood at Rs 193.40 Crore, while the gross equity sold stood at Rs 1974.40 Crore and gross debt sold stood at Rs 276.40 Crore. Therefore, the net investment of equity and debt reported were Rs (334.40) Crore and Rs (83.00) Crore respectively.

On Wednesday, Indian Rupee closed at 48.85/86 per dollar, 0.5% stronger than Tuesday’s close of 49.11/12. The rupee gained strength on the back of rebound in stock markets.

On BSE, total number of shares traded were 24.27 Crore and total turnover stood at Rs 2,818.60 Crore. On NSE, total number of shares traded were 57.56 Crore and total turnover was Rs 8,277.39 Crore.

Top traded volumes on NSE Nifty – Unitech with 49788796 shares, Suzlon Energy with 20390272 shares, Reliance Comm with total volume traded 17102249 shares, SAIL with 10955314 shares followed by Reliance Power with 9092972 shares.

On NSE Future and Options, total number of contracts traded in index futures was 907863 with a total turnover of Rs 11,801.64 Crore. Along with this total number of contracts traded in stock futures were 921382 with a total turnover of Rs 9,198.28 Crore. Total numbers of contracts for index options were 1028406 with a total turnover of Rs 14869.91 Crore and total numbers of contracts for stock options were 72152 and notional turnover was Rs 896.93 Crore.

Today, Nifty would have a support at 2,705 and resistance at 2,803 and BSE Sensex has support at 8,988 and resistance at 9,280.

Market seen opening weak on global cues; inflation data eyed

Key benchmark indices are likely to slump in opening trade weighed by weak global cues. Inflation data in the year to 3 January 2009 scheduled to be announced during the day and TCS Q3 December 2008 earnings will be closely watched.

India's largest software services exporter TCS will declare its Q3 December 2008 results today, 15 January 2009. Aggregate results for 54 companies showed 33.40% rise in net profit on a 44.80% increase in net sales in Q3 December 2008 over Q3 December 2007.

Asian markets were trading weak today, 15 December 2009, after Japanese machinery orders and US retail sales dropped. China's Shanghai Composite was down 0.53% or 10.13 points at 1,918.74, Hong Kong's Hang Seng plunged 4.24% or 580.72 points at 13,123.89, Japan's Nikkei tumbled 3.98% or 335.68 points at 8,102.77, Singapore's Straits Times declined 2.83% or 49.93 points at 1,714.79, South Korea's Seoul Composite fell 4.63% or 54.7 points at 1,127.98 and Taiwan's Taiwan Weighted slipped 4.01% or 181.13 points at 4,340.34.

North America's biggest telephone equipment maker, Nortel Networks Corporation, yesterday, 14 January 2009 filed for bankruptcy, hoping to save a once highflying business whose decade-long decline has accelerated with the global economic crisis. The filing marks a crucial stage in the slow deterioration of one of Canada's most prominent companies.

US markets plunged to six-week lows on Wednesday, 14 January 2009 on worries about deeper losses at banks worldwide and as US retail sales data pointed to a deepening recession. US retail sales dropped for a sixth month with a 2.7% slump in December 2008, the Commerce Department said. The Dow Jones industrial average lost 248.34 points, or 2.94%, to 8,200.22; while the S&P 500 slid 29.12 points, or 3.34%, to 842.67 and the Nasdaq Composite shed 56.82 points, or 3.67%, to 1,489.64.

Back home, key benchmark indices snapped four-day declining trend on Wednesday, 14 January 2009 on frenzied buying in index heavyweight Reliance Industries (RIL) and IT pivotals. The BSE 30-share Sensex surged 299.13 points or 3.30% at 9370.49 and the S&P CNX Nifty gained 90.35 points or 3.29% at 2835.30.

Foreign institutional investors (FIIs) were net buyers worth Rs 91.44 crore while mutual funds bought shares worth Rs 10.98 crore on Wednesday, 14 January 2009, according to provisional data on NSE.

Market may open low on weak global cues

The Indian stock market may open lower today tracking the pale Asian and US markets. Action today is likely to be stock-specific. The Asian indices like Nikkei 225, Hang Seng index, Kospi index and Straits Times index are down nearly 3-5% each in the ongoing trades. Among the local indices, the Nifty could test 2880 on the upside and may slip to 2800 on the downside. The Sensex has a likely support at 9240 and may face resistance at 9450.

US markets closed negative on Wednesday as a bleak retail sales report and more dour news from the banking sector amplified fears of a prolonged recession. With the Dow Jones registering its loss of 248 points at 8200, while the Nasdaq declining by 57 points to close at 1490.

Indian floats too followed the suit and ended weak on US bourses. Wipro tumbled 7.14% while Satyam, Tata Motors, HDFC Bank and Patni Computer fell 4-6% each. Infosys, ICICI Bank, MTNL, VSNL and Rediff lost over 1-3% each. Dr Reddy, however, gained 3.54%.

International crude oil prices moved down marginally, with the Nymex light crude oil for February delivery lost by 65 cents to close at $36.63 per barrel. In the commodity space, the Comex gold for February series declined $11.90 to settle at $808.80 a troy ounce.

Currency Forecast - Jan 15 2009

Currency Forecast - Jan 15 2009

Technical Trends - Jan 15 2009

Technical Trends - Jan 15 2009

Morning Note - Jan 15 2009

Morning Note - Jan 15 2009

Daily News Roundup - Jan 15 2009

Price Waterhouse has said its audit report for Satyam should not be relied upon. (BS)

Fitch has downgraded Unitech’s Rs44bn long-term debt to ‘B’ from ‘BBB’ earlier, and Rs12bn short-term debt and bank loans to ‘F4’ from ‘F3’. (BS)

Omaxe is in talks with five banks for rescheduling about Rs2bn debt which is to be repaid by March 2009. (BS)

Reliance Industries told that the company had not signed an MoU with RNRL for gas supply but with Reliance Energy and for the Dadri power project. (BS)

Unitech is in talks with banks to raise an estimated Rs9bn loan over the next few days. (FE)

Qatar will consider picking up 10% stake in Petronet LNG. (BS)

HDFC to cut rate on new deposits by around 0.5 percentage points. (ET)

DS Kulkarni Developers Ltd's proposed multi-service SEZ at Phursungi has received approval from the Board of Approvals of the Ministry of Commerce and Industry. (BS)

Reliance Capital has got the regulatory approval to set up a housing finance company and a non-banking finance company. (BS)

TCS, Wipro, Infosys, Sasken may feel the heat as Nortel files for bankruptcy protection. (BS)

Maytas Infra may sell assets to raise funds. (ET)

Siemens has announced that its wholly-owned subsidiary, Siemens Information Systems will be transferred to the parent, Siemens AG in a deal worth Rs4.49bn. (ET)

Domestic steel majors Ispat, Essar and JSW Steel have resumed full-scale production to meet rising demand. (ET)

FMP’s have invested a mammoth Rs15bn in Unitech. (ET)

Pantaloon Retail sales dropped by 4% in December, its first fall in four years. (BS)

JSW Group not to cancel Rs1bn order given to Maytas Infra. (FE)

Raiffeisen selects Infosys banking software Finacle for standardizing and consolidating the technology platform of Raiffeisen International. (FE)

Coal India Limited expects to open tenders for development of its underground mines by early February. (BS)

Raymond set to open 100 outlets under its new chain Neckties & More. (ET)

The government has allowed 100% FDI in facsimile editions of foreign newspapers. (BS)

Planning Commission is likely to unveil new incentivised schemes for the real estate sector to provide affordable housing. (ET)

Trai says that companies offering VAS can continue to operate without license. (ET)

Uttar Pradesh is planning to privatize or completely sell off 33 state-owned sugar mills. (FE)

Dial R for rumour!

A groundless rumour often covers a lot of ground.

The R-related rally witnessed on Wednesday is set to fizzle out today. One reason is that RIL has already denied rumours of an out-of-court-settlement with RNRL on the raging gas row. A raft of bad news from across the globe will also serve as a grim reminder that the worst may still not be over. The macro-economic picture too remains murky. Though inflation is expected to fall further, it is more due to demand destruction in a slowing economy.

So, one should not rejoice if the RBI lowers key policy rates or the Government takes fresh steps to pump-prime the economy. Recent history has shown that these measures only perk up the sentiment for a while. The mood turns glum after a brief relief rally as the headwinds confronting the market remain very much in place.

Worries about the financial health of top global banks like Citigroup, Deutsche Bank, HSBC, Bank of America and JP Morgan have increased. There is no dearth of news on job cuts by corporates. The Fed’s Beige Book survey shows persistent weakness in the US.

Telecom equipment vendor Nortel Networks has filed for bankruptcy. Nortel is a client for Wipro, Infosys and TCS. While earnings risk remain, the impact will be limited as Nortel is known to be under pressure for sometime and growth expectations were anyways muted.

Deutsche Bank has warned of a massive Q4 loss. Citi is merging its broking arm with Morgan Stanley and may break itself up further. Reports say that Bank of America and HSBC are in dire need of more funds. JP Morgan is likely to report a loss as well.

Motorola is cutting 4,000 more jobs. Even Google, which usually is seen as a strong outfit, is cutting jobs to fight off the challenging times.

Sales at US retailers fell more than twice as much as forecast in December. Today, the European Central Bank is likely to cut interest rates by a further 50 basis points to 2%.

We expect the market to fall today in the face of weak global sentiment and nervousness about corporate earnings. US stocks were down 3-4% overnight, while the main European indices fell even more sharply, by 4.5-5%. This morning, the major Asian markets are down 4-4.5%.

Key Results Today: Bajaj Finserve, Bongaigaon Refinery, GTL, Hind Oil Exploration, Infotech Enterprise, JK Lakshmi Cement, IndusInd Bank, PFC, Rallis India and TCS.

US stocks slumped on Wednesday, as a disappointing retail sales data and a string of bad news on the banking sector heightened concerns over a deep and protracted global recession.

The depth of the recession could be seen in recent economic data as well. This week's reports on trade balance, retail sales and import prices makes one realize how deeply mired the US economy is in a recession.

US stocks have slipped through much of the first two weeks of the year as worse-than-expected economic and corporate news has caused investors to question the year-end rally.

Investors were reacting on Wednesday to the latest weakness in the global banking sector. Deutsche Bank reported a huge quarterly loss, HSBC and Bank of America may need to raise billions in new capital and JPMorgan Chase could report weak results.

Investors also took a sour view of news that Citigroup is selling a majority stake in its brokerage unit to Morgan Stanley, a move that would seem to indicate the beginning of the break-up of the troubled banking firm.

The CBOE Volatility index, or the VIX, has been rising over the last few sessions, suggesting investors are getting more jittery. The VIX jumped 13% to 49.14 in Wednesday trading. However, the VIX remains well below historic highs near 90, which it hit in November when the stock market bottomed.

Retail sales slumped 2.7% in December, the Commerce Department reported Wednesday morning. That was more than twice what economists were forecasting, as the recession took its toll on consumer spending in the critical holiday sales period. Sales fell 2.1% in the previous month. Sales, excluding volatile autos fell 3.1% versus forecasts for a drop of 1.4%. Sales excluding autos fell 2.5% in November.

Meanwhile, the retail industry's leading trade group said 2008 holiday sales fell 2.8% versus a year earlier, due to the recession and fewer shopping days. That surpassed the initial forecast for a drop of 2.2% in the combined November-December period.

In other retail sector news, regional department store chain Gottschalks has filed for bankruptcy protection. Clothing chain Goody's said it will liquidate its remaining 282 stores.

Investors got another dose of bad news with the afternoon release of the Federal Reserve's Beige Book reading on the economy. The Beige Book showed erosion over the last six weeks in nearly all of the nation's 12 districts.

Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.20% from 2.29% on Tuesday. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.

Lending rates improved. The 3-month Libor rate fell to 1.08% from 1.09% Tuesday, according to the British Banker's Association, marking a 5-1/2 year low. Overnight Libor held steady at 0.10%, a record low. Libor is a key bank lending rate.

US light crude oil for February delivery fell 50 cents to settle at $37.28 a barrel on the New York Mercantile Exchange, erasing earlier losses following the release of the government's weekly oil inventories report.

The dollar gained versus the euro and fell against the yen. COMEX gold for February delivery fell $11.90 to settle at $808.80 an ounce.

Gasoline prices rose two-tenths of a cent to a national average of $1.792 a gallon.

Motorola is also likely to be active on Thursday. The telecom said after the close that it will cut 4,000 jobs on top of the 3,000 job cuts it already announced in late 2008.

Germany's Deutsche Bank said it would post a steep fourth-quarter loss Wednesday of $6.4 billion. Morgan Stanley said that HSBC, Europe's largest bank, will probably need to cut its dividend in half and may need to raise up to $30 billion in capital.

In other company news, Nortel Networks, North America's largest telecom gear maker, filed for bankruptcy protection.

After the close, Apple CEO Steve Jobs said he is taking a medical leave through the end of the second quarter because his health-related issues are more complex than he thought. Shares tumbled 10% in after-hours trading after having been halted for the first hour of the extended session.

Thursday brings the weekly jobless claims report, two regional manufacturing reports and the producer price index (PPI) - a measure of wholesale inflation. JP Morgan Chase will report its results on Thursday. In an interview with the Financial Times, the company's chief executive Jamie Dimon said the US economy and the financial sector will worsen this year.

European shares fell back to levels last seen in 2008 on Wednesday. The pan-European Dow Jones Stoxx 600 index lost 4.4% to 192.87, the biggest one-day drop for the index this year. With this latest pullback, tentative gains made in the first sessions of 2009 have been wiped out.

The UK's FTSE 100 index closed down 5% at 4,180.64, while Germany's DAX 30 index dropped 4.4% to 4,422.35 and the French CAC-40 index skidded 4.6% to 3,052.00.

Markets bounced back on Wednesday snapping a four day losing streak. Buying was witnessed all over with the oil & gas, telecom and IT stocks among the major gainers. Index heavyweight Reliance Industries and the other ADAG stocks joined in the rally towards the end lifting the NSE Nifty index to close above the 2,800 mark.

Finally, the BSE benchmark Sensex ended at 9,370 surging 299 points and the NSE Nifty index advanced 90 points to close at 2,835.

All the BSE Sectoral indices ended in the positive terrain. BSE Oil & Gas index (up 7%), BSE IT index (up 5.1%), BSE Teck index (up 5%), BSE Metal index (up 4.5%), BSE Power index (up 4%) and BSE Pharma index (up 2.3%)

Even BSE Mid-cap index advanced 2.1% and BSE Small-Cap index gained 1.4%.

Market breath was positive, 1,398 stocks advanced against 984 declines, while, 100 stocks remained unchanged.

Shares of Reliance Industries rallied by over 9% to Rs1178 after the company’s promoters hiked their stake to over 49% as of the December quarter this financial year.

The promoters purchased 120mn shares or over 4% stake in the company during the period between September and December 2008. The promoters of Reliance Industries hold 49.03% stake in the company against a 44.80% stake.

Shares of Jet Airways and kingfisher Airlines surged after reports stated that government is considering a proposal to allow overseas airlines to own stakes in local carriers.

Jet Airways surged by over 7% to Rs153 and Kingfisher Airlines advanced by 6% to Rs35.4.

Shares of Infosys further surged by over 6% to Rs1304 after the company announced that it is currently negotiating about 10 contracts worth more than US$50mn each.

The company has announced its quarterly results on January 13, 2009 it reported a consolidated net profit of Rs16.41bn for the quarter ended December 31, 2008, versus Rs14.32bn in the previous quarter. This translates into a sequential growth of 14.59%.

The net profit for Q3 FY09 and Q3 FY08 includes a net tax reversal pertaining to earlier periods amounting to Rs620mn and Rs500mn, respectively. The year-on-year growth in net profit is at 33.3%. The scrip touched an intra-day high of Rs1313 and a low of Rs1230 and recorded volumes of over 8,00,000 shares on BSE.

Shares of NTPC gained by 2% to Rs171 after the company announced that it approved plans to spend Rs60bn on building thermal power plants. The scrip touched an intra-day high of Rs175 and a low of Rs166 and recorded volumes of over 9,00,000 shares on BSE.

GTL Infrastructure advanced by half a percent. The company announced its quarterly results. The company posted a net loss of Rs14.033mn for the quarter ended December 31, 2008 as compared to net loss of Rs160.082mn for the quarter ended December 31, 2007.

Total Income has increased from Rs450.844mn for the quarter ended December 31, 2007 to Rs754.737mn for the quarter ended December 31, 2008.

Cairn India

We recommend a sell in Cairn India stock from short-term trading perspective. It is clearly visible from the charts of Cairn India that it has been on a long-term downtrend from its May 2008 high of Rs 342 (its 52-week high).

However, the stock bounced back, after finding support at Rs 88 in late October. The stock was on a corrective medium-term up move till it encountered twin resistance around Rs 180 (a significant resistance level and the long-term down trendline).

Recently, the counter began to decline, resuming its long-term downtrend. On January 13, the stock tumbled by 7 per cent decisively penetrating its corrective medium-term up trendline. The daily relative strength index is falling in the neutral region towards the bearish zone. Moreover, the daily moving average convergence and divergence is signalling a sell.

Our short-term forecast for the stock is bearish. We expect the stock to decline further until it hits our price target of Rs 137. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 161.

via BL

Wall Street crashes

US stocks took a severe beating in the morning trade with concerns over the financial health of Citigroup and sour retail data pushing Dow Jones Industrial Average deep into the red.

The two other benchmark indices -- Nasdaq Composite and S&P 500 -- plunged as much as three per cent.

Shares of ailing Citi plummeted a whopping 18 per cent after the company said it would sell the majority stake in its brokerage unit to Morgan Stanley. The move has sparked fears about the health of the banking behemoth which has already received two lifelines from the Federal government.

After two hours into trading, Dow was down 239.42 points or 2.83 per cent at 8,209.14 points.

Further, Nasdaq Composite tumbled 2.83 per cent to 1,502.62 points.

S&P 500 too slipped into the negative territory shedding 3.13 per cent to 844.60 points.

The scrip of Citi declined 18 per cent to touch the intra-day low of 4.82 dollars.

On the other hand, gloomy retail data has raised fears about the country's economy which has already entered into a recession.

According to the latest statistics from the Commerce Department, the nation's retail sales dropped 2.7 per cent in December, which is much worse than an expected fall of 1.2 per cent.

Meanwhile, European banking major Deutsche Bank today said that it expects to post a fourth quarter loss of 4.8 billion euro.

Bullion metals end substantially lower

Strong dollar and sliding crude price impact prices

Bullion metals ended substantially lower on Wednesday, 14 January, 2009 as the dollar strengthened and also due to the weak crude oil price and sliding US stocks. Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa.

On Wednesday, Comex Gold for February delivery fell $11.9 (1.4%) to close at $808.8 an ounce on the New York Mercantile Exchange. Earlier, prices fell to a low of $807. Last week, gold prices ended down by 2.8%. This year gold has lost 9.1% till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (21%) since then.

On Wednesday, Comex silver futures for March delivery fell by 20 cents (1.9%) to $10.475 an ounce. Last week, silver has gained 13 cents. For 2008, silver had lost 24%.

At the currency market on Wednesday, the dollar was up against most major counterparts. The U.S. dollar rose against the euro on expectations that the European Central Bank will cut its key interest rate later this week. The ECB's key lending rate stands at 2.5%. The dolar index gained 0.5% today.

In the crude market on Wednesday, crude-oil futures fell after government data showed U.S. heating-oil inventories rose more than expected and crude stockpiles at a key delivery point hit a new record high. Crude prices ended lower by 1.3% at $37.28/barrel.

In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.

Last year, the weakening dollar and higher global demand for raw materials had led to records for commodities including gold. Gold reached a record in March 2008 as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. In the last move, the Federal Reserve has cuts its target bank lending rate to 0.25% from 5.25% in September, 2007. The Fed did it in nine steps.

Prior to 2008, gold had witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Silver had climbed 16% in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.

At the MCX, gold prices for February delivery closed lower by Rs 122 (0.94%) at Rs 12,852 per 10 grams. Prices rose to a high of Rs 13,015 per 10 grams and fell to a low of Rs 12,778 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 229 (1.3%) lower at Rs 17,595/Kg. Prices opened at Rs 17,893/kg and fell to a low of Rs 17,444/Kg during the day's trading.

Crude drops again

Weekly inventory report takes prices lower

Crude oil prices once again dropped on Wednesday, 14 January, 2009. Prices fell due to the weekly inventory report that was reported by the Energy Department today.

On Wednesday, crude-oil futures for light sweet crude for February delivery closed at $37.28/barrel (lower by $0.50 or 1.3%) on the New York Mercantile Exchange. Earlier during the day, prices fell to a low of $35.52. Last week, crude prices shed 12%.

Prices reached a high of $147 on 11 July but have dropped almost 65% since then. Year to date, in 2009, crude prices are lower by 16.2%.

The Energy Information Administration today reported that at 326.6 million barrels, U.S. crude inventories reached their highest level since August 2007. Total products supplied in the U.S., including gasoline and heating oil, averaged 19.7 million barrels a day over the past four weeks, down 4% compared with the same period last year. U.S. refineries operated at 85.2% of their operable capacity last week, up from the previous week's 84.6%.

The report also detailed that gasoline inventories rose 2.1 million barrels and crude-oil stockpiles gained 1.2 million barrels last week. Distillate fuel inventories, including heating oil and diesel, jumped 6.4 million barrels in the week ended 9 January, 2009.

In the monthly report, the Energy Information Administration said yesterday that global oil consumption is projected to fall by 800,000 barrels per day in 2009. That's 400,000 barrels more than the previous month's forecast. Half of the consumption reduction in 2009 will come from the U.S., the world's largest oil consumer,

Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.

OPEC has been trying to cut production consistently in order to step up prices from their current low levels.

Saudi Oil Minister Ali al-Naimi said yesterday that February production will be “lower than the target” set at a 17 December, 2008 OPEC meeting. The country is currently producing 8 million barrels a day, about level with its 8.051 million-barrel-a-day allocation.

Oil ministers from the Organization of Petroleum Exporting Countries agreed in Oran, Algeria, to cut supply by 9% w.e.f 1January, 2009 to 24.845 million barrels a day.

Against this background, February reformulated gasoline fell 1.6% to $1.1677 a gallon and February heating oil dropped 3.4% to $1.4631 a gallon.

February natural-gas futures fell 4.1% to $4.97 per million British thermal units.

At the MCX, crude oil for January delivery closed at Rs 1,787/barrel, lower by Rs 63 (3.4%) against previous day's close. Natural gas for January delivery closed at Rs 246.7/mmbtu, lower by Rs 12.4/mmbtu (4.8%).

Satyam - Scandal

When terrorists attacked Mumbai last November, the media called it "India's 9/11." That tragedy has been succeeded by another that has been dubbed "India's Enron." In one of the the biggest frauds in India's corporate history, B. Ramalinga Raju, founder and CEO of Satyam Computers, India's fourth-largest IT services firm, announced on January 7 that his company had been falsifying its accounts for years, overstating revenues and inflating profits by $1 billion. Ironically, Satyam means "truth" in Sanskrit, but Raju's admission -- accompanied by his resignation -- shows the company had been feeding investors, shareholders, clients and employees a steady diet of asatyam (or untruth), at least regarding its financial performance. (Editor's note: Satyam is a corporate sponsor of India Knolwedge@Wharton.)

Raju's departure was followed by the resignation of Srinivas Vadlamani, Satyam's chief financial officer, and the appointment of Ram Mynampati as the interim CEO. In a press conference held in Hyderabad on January 8, Mynampati told reporters that the company's cash position was "not encouraging" and that "our only aim at this time is to ensure that the business continues." A day later, media reports noted that Raju and his brother Rama (also a Satyam co-founder) had been arrested -- and the government of India disbanded Satyam's board. Though control of the company will pass into the hands of a new board, the government stopped short of a bailout -- it has not offered Satyam any funds. Meanwhile, a team of auditors from the Securities and Exchange Board of India (SEBI), which regulates Indian public companies, has begun an investigation into the fraud. Since Satyam's stocks or American Depository Receipts (ADRs) are listed on the Bombay Stock Exchange as well as the New York Stock Exchange, international regulators could swing into action if they believe U.S. laws have been broken. At least two U.S. law firms have filed class-action lawsuits against Satyam, but given the company's precarious finances, it is unclear how much money investors will be able to recover.

According to experts from Wharton and elsewhere, the Satyam debacle will have an enormous impact on India's business scene over the coming months. The possible disappearance of a top IT services and outsourcing giant will reshape India's IT landscape. Satyam could possibly be sold -- in fact, it had engaged Merrill Lynch to explore "strategic options," but the investment bank has withdrawn following the disclosure about the fraud. It is widely believed that rivals such as HCL, Wipro and TCS could cherry pick the best clients and employees, effectively hollowing out Satyam. Another possible impact could be on the trend of outsourcing to India, since India's IT firms handle sensitive financial information for some of the world's largest enterprises. The most significant questions, however, will be asked about corporate governance in India, and whether other companies could follow Satyam's Raju in revealing skeletons in their own closets.

'Riding a Tiger'

Raju was compelled to admit to the fraud following an aborted attempt to have Satyam invest $1.6 billion in Maytas Properties and Maytas Infrastructure ("Maytas" is Satyam spelled backwards) -- two firms promoted and controlled by his family members. On December 16, Satyam's board cleared the investment, sparking a negative reaction by investors, who pummeled its stock on the New York Stock Exchange and Nasdaq. The board hurriedly reconvened the same day and called off the proposed investment.

The matter didn't die there, as Raju may have hoped. In the next 48 hours, resignations streamed in from Satyam's non-executive director and Harvard professor of business administration Krishna Palepu and three independent directors -- Mangalam Srinivasan, a management consultant and advisor to Harvard's Kennedy School of Government; Vinod Dham, called the "father of the Pentium chip" and now executive managing director of NEA Indo-US Ventures in Santa Clara, Calif.; and M. Rammohan Rao, the dean of the Indian School of Business in Hyderabad (ISB). Rao had chaired both December 16 board meetings. On January 8, he resigned his position as the ISB dean. In a letter to the ISB community, he explained: "Unfortunately, yesterday's shocking revelations, of which I had absolutely no prior knowledge, mean that we are far from seeing the end of the controversy surrounding Satyam Computers. My continued concern and preoccupation with the evolving situation are impacting my role as dean of ISB at a critical time for the school. Given that my term with ISB anyway ends in a few months, I think that this is an appropriate time for me to step down."

Resigning as Satyam's chairman and CEO, Raju said in a letter addressed to his board, the stock exchanges and the market regulator Securities & Exchange Board of India (SEBI) that Satyam's profits were inflated over several years to "unmanageable proportions" and that it was forced to carry more assets and resources than its real operations justified. He took sole responsibility for those acts. "It was like riding a tiger, not knowing how to get off without being eaten," he said. "The aborted Maytas acquisition was the last attempt to fill the fictitious assets with real ones."

Specifically, Raju acknowledged that Satyam's balance sheet included Rs. 7,136 crore (nearly $1.5 billion) in non-existent cash and bank balances, accrued interest and misstatements. It had also inflated its 2008 second quarter revenues by Rs. 588 crore ($122 million) to Rs. 2,700 crore ($563 million), and actual operating margins were less than a tenth of the stated Rs. 649 crore ($135 million).

Satyam's auditor PricewaterhouseCoopers issued a terse statement: "Over the last two days, there have been media reports with regard to alleged irregularities in the accounts of Satyam.... Price Waterhouse are the statutory auditors of Satyam. The audits were conducted by Price Waterhouse in accordance with applicable auditing standards and were supported by appropriate audit evidence. Given our obligations for client confidentiality, it is not possible for us to comment upon the alleged irregularities. Price Waterhouse will fully meet its obligations to cooperate with the regulators and others."

Impact on 'Brand India'

The outrage over Raju's admission of systematic accounting fraud has broadened to wider concern about the potential damage to India's appeal for foreign investors and the IT services industry in particular. Immediately following Raju's confession, Satyam's shareholders took a direct hit as the company's share price crashed 77% to Rs. 30 (approximately 60 cents), a far cry from its 52-week high of Rs. 544 ($11.35) last May.

"If there were one or two more such accounting scandals in the next six months, it would make international investors more wary," says Wharton management professor Michael Useem. "One example would put people on guard; several examples would be enough to tell big investment money managers that they have to be especially careful working in that environment."

Jitendra Singh, a Wharton management professor who is currently dean of the Nanyang Business School in Singapore, believes Satyam is an "outlier" and that there is no reason to think that "problems of this kind may be much more extensive than one company or a handful of companies." However, he adds, "foreign investors will look a little more askance at accounting data from India. And that may not be a bad thing."

Useem also warns against overreacting. "Don't assume other firms are guilty," he says. But he considers the situation to be an "alerting call" for investors to check where their money is, and for auditors and independent directors in all major firms to take a look at the books.

Corporate India has tried to contain the damage so far. Rajeev Chandrasekhar, president of the Federation of Indian Chambers of Commerce and Industry, called upon regulators "to move quickly to demonstrate that this is an exceptional case among corporations, and that investors need not worry about Indian corporate governance and accounting standards." Suresh Surana, founder of RSM Astute Consulting Group, said in a statement that the Satyam development is "a major eye opener and will bring into renewed and critical focus the role of independent directors, auditors, company management, [the] CFO and other key persons involved."

"When you have companies that are ostensibly growing their top lines at 30%, 40% or 50%, it is possible to paper over things," Singh says. "Satyam was doing it by boosting sales and profits; Bernie Madoff was doing it by boosting rates of return. When growth rates slow down, you are unable to hide the financial reality of how much cash you actually have. It is possible that during this slowdown period, more scandals will come to light." (U.S. financier Madoff last month admitted to running a $50 billion Ponzi scheme to keep his hedge fund afloat.)

Singh adds that companies with "the bluest of blue-chip reputations [such as] Infosys and TCS" could actually gain in the current environment, because of a potential "flight to quality" among client companies. "The third-tier and weaker companies will probably undergo a lot more scrutiny," he says.

According to Ravi Aron, senior fellow at the Mack Center for Technological Innovation at Wharton, the Satyam fallout could affect India's IT offshoring and outsourcing firms in several ways. An immediate impact could be skepticism on the part of clients about whether Indian IT firms can be entrusted with sensitive financial information. "Clients could begin to ask, 'How much do I know about this IT company and its governance?'" says Aron. "Is the IT service provider doing anything that could jeopardize the client's compliance with FASB, Sarbanes Oxley, Basel II or other financial regulations?"

Aron recommends that before other IT companies get blackballed because of Satyam's problems, "they should act swiftly to demonstrate that their own operations are squeaky clean." Indian IT companies have always had exceptionally high standards of accounting, and they should ensure that they do not face any spillover effect, he adds. This has already begun to happen. On the day that Raju came clean, N. R. Narayana Murthy, chief mentor at Infosys, was on Indian television -- distancing Infosys and the rest of the IT industry from Satyam's practices. Similarly, Vineet Nayar, CEO of HCL, e-mailed a personal letter to the company's clients and associates. Describing Satyam's disclosures as "unfortunate," the letter added that Nayar would "reaffirm our commitment that we [will] focus on creating value for our customers with the same passion that we have demonstrated in the past while maintaining the highest ethical and governance standards."

Mauro Guillen, a Wharton management professor who has studied corporate governance in emerging economies, believes that Indian business has an advantage in arguing that the problem is limited to Satyam and is not systemic. "India is not perceived like Russia -- it is neither everyone's darling nor the plague," he says. "This works to the country's advantage because it deflects the blame of such occurrences to the way governance works in emerging economies rather than to India. What regulators in India need to do in response to Satyam is to find out quickly if other companies have been doing similar things. The proper response is to deal with and defuse the problem as soon as possible."

Guillen notes that what makes Satyam's case unusual is that it had listed its ADRs on the NYSE. "Companies in emerging economies have trouble raising capital at low costs. The literature shows that is the reason they want to list in the U.S., where they accept a higher level of governance in order to raise capital at a lower cost. The fact that Satyam listed its ADRs in the U.S. but still had such serious governance problems makes this case particularly disturbing."

Guillen adds, though, that India has several well-regarded IT companies. "If one or two of them don't make the grade, it should not shake investor confidence. It shows that investing in emerging markets is risky. Investors always balance risks and rewards. If the IT sector in India continues to remain competitive, the Satyam episode will just be a footnote in India's business story. If the sector becomes uncompetitive, then that would create a serious problem."

Saikat Chaudhuri, a management professor at Wharton, believes the Satyam episode reveals that the pressure on companies to maintain their financial performance is immense. "Satyam always wanted to keep up with the Big Three of Indian IT companies -- TCS, Infosys and Wipro," he notes. "At a time when the IT industry was booming and companies were growing rapidly, it was easy for Satyam to argue that the company was doing well and that it had good governance." The involvement of the board, Chaudhuri adds, was at the "strategic level; in companies like Satyam, it is the owner/promoter/founder who runs the show. It has to do with the ownership structure." In Chaudhuri's view, auditors such as PricewaterhouseCoopers, who signed off on the bogus accounts at Satyam, have a lot more to answer for than the board of directors. "This is a serious lapse on their part. They should have probed."

Chaudhuri's advice to other Indian IT firms is to distance themselves from the Satyam fallout through prompt action. "Honesty and transparency will alleviate investor concerns," he says. "I don't believe the sector will come crashing down. Perhaps Indian IT companies will face more scrutiny in the coming months; they may have to answer a few more questions, but India Inc. will pull through." NASSCOM, the National Association of Software and Services Companies, could play a role in helping communicate that "the Satyam episode, though it shocked everyone, is an isolated instance," he adds.

WorldCom and Tyco, Again

Useem says that if one were to take an inference from recent high-profile scandals outside of India, "there would be a redoubled effort [in India] on the part of investors and independent directors at other companies to ensure that nothing like what happened at Satyam happens under their noses."

Useem draws a parallel between what occurred at Satyam with the scandals at WorldCom and Tyco, rather than at Enron. "At WorldCom, the CFO and the CEO were knowingly misstating the accounting and financials of the firm; at Tyco, the CEO and the CFO were knowingly taking money from the company for personal purposes," he says. "Satyam's disaster has a parallel to these acts of malfeasance."

Useem recalls the CEO and promoter of a Chinese solar panel company who "wanted his company to be extremely well governed" and therefore listed it on the New York Stock Exchange. "He wanted a great board of directors and thus listed the company fully on the NYSE -- not as an ADR -- for the sole purpose ... of forcing himself to be disciplined in the governance policies his company pursues."

If it survives, Satyam may be able to redeem itself with new management and governance codes, Useem says. He recalls working as a consultant a couple of years ago with Tyco, where the company's new CEO Ed Breen systematically went about cleaning up after the departure of disgraced CEO Dennis Kozlowski, instituting strong corporate governance practices. Tyco is one of the best examples of a corporate governance turnaround, Useem notes.

Singh adds that the Satyam scandal doesn't necessarily warrant more regulation. "There is no need to strengthen corporate governance regulations [in India]," he says. "The issue is really more one of leadership at the board level. The tone gets set by the chairman of the board; it's much more a matter of culture within the board room, of the group dynamics within the board."

Truth in Numbers

Notwithstanding Raju's confession, the Satyam episode has brought into sharp relief the role and efficacy of independent directors. SEBI requires Indian publicly held companies to ensure that independent directors make up at least half their board strength.

The knowledge available to independent directors and even audit committee members is inherently limited to prevent willful withholding of crucial information, Singh notes. "The reality is, at the end of the day, even as an audit committee member or as an independent director, I would have to rely on what the management was presenting to me," he says, drawing upon his experience as an independent director and audit committee member at Fedders, a publicly held company in the U.S. that filed for bankruptcy last year. "It is the auditors' job to see if the numbers presented are accurate."

Singh says he drew "a level of confidence" from the accounting rigor and governance mechanisms at Infosys, where he was an independent director from 2000 to 2003. He recalls how T.V. Mohandas Pai, the company's then-chief financial officer (now a director overseeing human resources) "would take so much time going into accounting details."

Even if outside directors were unaware of the true state of Satyam's finances, some red flags should have been obvious. According to Aron, Satyam is one of the world's largest implementers of SAP systems. In an effort to compete against Satyam, HCL recently acquired Axon, an SAP consulting firm, at a cost of $800 million. Aron notes that any Satyam director should have been puzzled that the company was proposing to invest $1.6 billion in real estate at a time when a competitor as formidable as HCL was gunning for one of its most lucrative markets. "IT is a highly capital-intensive business, especially in India," says Aron. "What on earth would compel Satyam to invest $1.6 billion in real estate at a time when competition with HCL was about to grow more intense? That is what the directors should have been asking." Instead, he adds, like the dog that didn't bark in the Sherlock Holmes story, the matter was allowed to slide.

How effective independent directors can be is mainly a factor of the "dynamics inside the board room once the doors are closed," according to Singh. "There is an attitude in some Indian companies that the board members actually work for the people who have brought them onto the board. This is a completely misguided attitude. It looks like this may have been a problem at Satyam.... The real strength of a healthy board is when a consensus gets overturned by a dissenting view."

Even if the proposed investment in the two Maytas firms appeared to be ethical on first sight, Singh notes that he would have expected the independent directors to be extra careful. "Given the fact that there is a family connection involved, as an independent board member I would be looking very hard at whether this is the right decision for the company," he says. "Also, quite aside from issues of governance, everything we know about unrelated diversification [deals] from management literature is that, as a general matter, they are not a good idea; they don't seem to make strategic sense."

Independent Defectors

Useem wonders if the Satyam directors who resigned actually did the right thing. "The leadership dictum is that you need to stay the course, stay in the game, face the problem and solve the problem," he says. "Did the four directors who resigned have an option of banding together, staying on the board and changing governance?" Useem adds that "it is often very hard to stay the course. I am empathetic with people who have difficulty [making that decision]."

Media reports quoted former independent director Srinivasan as saying she accepted "moral responsibility" for failing to cast a dissenting vote on the Maytas proposal. Some of the other directors who resigned have cited difficulties in attending frequent board meetings. Useem says it can indeed prove challenging for independent directors to go through reams of documents and attend frequent board meetings that companies in distress typically have.

In a written response to Knowledge@Wharton, Palepu, Satyam's former non-executive director, stated that he was not present at the board meetings where the Maytas investment proposals were discussed. "As a result, under Indian law, I was not eligible to vote on the proposals," he said. Palepu earned nearly Rs. 1 crore (about $200,000) from Satyam in 2007, according to regulatory filings, most of it for rendering "professional services." He declined comment, but those services were essentially leadership development and consulting for Satyam's top management, according to Archana Muthappa, the company's head of media relations.

SEBI and India's registrar of companies have launched an investigation into Satyam. Citing the Indian Securities Contract Regulation Act of 1956, a report in The Economic Times says SEBI is empowered to award penalties of up to Rs. 25 crore and imprisonment of up to 10 years to directors and management executives "for violating the listing agreement by making false and inaccurate disclosures in the company's quarterly and annual results."

Singh says it is important to remember who the ultimate victims are in cases like Satyam. "This is a real tragedy; the people who will be left holding the bag will be the shareholders."

Even as Raju is widely blamed for unleashing "India's Enron," Chaudhuri points to a major difference between Enron and Satyam. "At Enron, the CEO stonewalled, while whistle-blowers came out with the truth," he says. "At Satyam, there were no whistle-blowers. The CEO blew the whistle on himself." In that sense, Raju did -- ultimately -- tell the truth and perhaps live up to the "Satyam" name. Unfortunately for him, the company, and India's IT industry, by then it was much too late.

via India Knowledge at Wharton

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