Lack of efficiency

There can be economy only where there is efficiency. – Benjamin Disraeli.

The prospects for Indian economy are going from bad to worse. Nothing is going right at the moment. IIP was expected to show a contraction but the actual drop has turned out to be quite grim. The Government’s FY12 GDP growth forecast of 7.5% is under threat. In fact, things may remain downbeat even in FY13 given the policy inaction and a deteriorating external backdrop. Five states will reportedly go to polls in February. So, expectations of a fiscally prudent budget might not get fulfilled.



The opening is set to be weak. World markets have reversed the EU Summit inspired gains. Stocks in the US and Europe tumbled after Intel warned on Q4 revenue and top rating agencies expressed reservations on the EU pact.

Asian indices are mostly in the red this morning. The dollar has strengthened due to safe haven buying. Crude and gold too lost ground overnight. Keep an eye on the rupee, which has hit new record low.

The RBI review on Dec. 16 has assumed greater importance in the wake of the fast deterioration in economic conditions. The central bank’s commentary will be crucial to see if it softens its hawkish stance.

The higher opening on Monday failed to sustain beyond 4920 levels and the closing was convincing below the doji star low of 4840 levels. This move reinforces negative view on markets in the near term and raises the probability of Nifty retesting its 52-week low of 4638 shortly.

FIIs were net sellers of Rs 4.28bn (provisional) in the cash segment on Monday, according to NSE data. The domestic institutional institutions (DIIs) were net buyers of Rs 1.66bn on the same day.

The foreign funds were net sellers of Rs 15.80bn (provisional) in the F&O segment on Monday, NSE data shows.

FIIs were net sellers at Rs 2.92bn in the cash segment on Friday (Dec. 9), according to SEBI web site. Mutual funds were net sellers at Rs 2.01bn on the same day.

Global Data Watch: Australia housing starts, Bank of Japan Monthly Economic Survey, UK Retail Price Index (MoM) (Nov), UK Consumer Price Index (MoM) (Nov), Germany's ZEW Survey - Economic Sentiment (Dec), US retail sales, US business inventories and FOMC policy meeting.

Asian Markets on Tuesday:

Asian equity indices declined after a trio of top rating agencies warned of possible downside risks to the eurozone sovereign ratings citing what they termed as disappointing outcome of the EU Summit last week.

The MSCI Asia Pacific Index was down 1.5% at 113.91 as of 10:34 a.m. in Tokyo. The index was headed for its lowest close since Nov. 30. About nine shares fell for each that rose in the measure. It was down 2.2% last week.

The Nikkei in Japan was down 1.5% at 8,526. The Hang Seng in Hong Kong was down ~1.1% at 18,361 while the Shanghai Composite index in China was down 1.1% at 2,265.

The Kospi in South Korea dropped ~1.6% at 1,868 while the Taiex in Taiwan dropped 1% at 6,878. The Straits Times in Singapore was down ~0.6% at 2,684. The S&P/ASX 200 index in Australia was down 1.5% at 4,190 while the NZX 50 index in New Zealand was down ~0.2% at 3,293.

Moody’s Investor Service said that last week’s European summit didn’t produce decisive measures to end the crisis.

Standard & Poor's chief European economist, Jean Michel Six, said that time was running out for the European Union to take action to resolve its debt crisis, according to reports.

Fitch said that the EU summit did little to ease pressure on Europe’s sovereign ratings.

Financial stocks declined on concern that bank earnings may be hurt as Europe’s crisis spreads. An index of credit default swaps (CDS) tied to Greece, Italy, Spain and 12 other western European nations rose yesterday, approaching a record reached Nov. 25.

Asian manufacturers of semiconductors and chip-making equipment declined after Intel cut its sales forecast.

The Santa Clara, California- based company said that flooding in Thailand caused a shortage of hard-disk drives that is forcing computer makers to cut orders for other parts.

Raw material producers and energy companies dropped after commodities fell.

US Markets on Monday:

US equity indices plunged as the euphoria over the EU Summit quickly gave way to pessimism after debt rating firms said they were not happy with the outcome of the Brussels meet.

A warning by chipmaker Intel also hurt the sentiment on Wall Street, particularly for the technology space.

The Dow Jones Industrial Average dropped 162.87 points, or 1.3%, to 12,021.39. The Dow pared some losses in the last hour of trading after sinking 243 points.

The S&P 500 Index shed 18.72 points, or 1.5%, to 1,236.47. Energy companies and financial firms were the worst performers of its 10 industry groups, all of which closed lower.

The Nasdaq Composite index was down 34.59 points, or 1.3%, to 2,612.26.

For every stock rising four fell on the New York Stock Exchange, where 777 million shares traded hands, or just 86% of the last month’s volume. NYSE composite volume was 3.6 billion.

Gold futures fell $48.60 to $1,668.20 an ounce on the New York Mercantile Exchange.

Crude oil futures declined $1.64 to $97.77 a barrel.

The dollar and Treasurys rallied on safe-haven demand.

The dollar gained strength against the euro, the British pound and the Japanese yen.

The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.01% from 2.05% late on Friday.

Major US stock indexes had rallied on Friday following a European Union summit and accord to implement closer fiscal ties among the countries that use the euro. The plan is expected to be finalized by March.

Moody’s Investors Service said that the EU agreement was insufficient to reduce the odds of sovereign ratings downgrades in the euro region in the short to midterm.

Moody's renewed call to review European sovereign debt added pressure on the markets.

The credit ratings agency said that Friday's plan offered few new measures and pledged to review the credit ratings of all EU members at the beginning of the new year.

"Moody's believes that the system remains prone to further shocks, which would likely lead to selective rating changes," wrote Moody's analysts.

Fitch Ratings said that the inability by EU leaders to devise a comprehensive fix to the region’s debt crisis had intensified pressure on debt ratings of euro-area nations.

Italian borrowing costs rose, with the yield on the 10-year note up 30 basis points to 6.53%, close to the 7% level that could push Italy’s government into default if sustained.

Intel Corp. shares sank 4% after the semiconductor maker cut projected revenue for the fourth quarter, saying that supply shortages for hard drives had computer makers cutting back on orders for other parts.

Netflix's stock spiked 6% on reports that the company could be acquired by Verizon. Netflix's spokesman said that the company doesn't comment on rumors or speculation.

European Markets on Monday:

European equity benchmarks slid on Monday amid doubts that the measures agreed at last week’s European Union summit would not be enough to check the eurozone’s sovereign-debt crisis.

The Stoxx Europe 600 index dropped 1.9% to end at 236.05. It had rallied 1.2% on Friday, the biggest percentage gain since Nov. 30.

The German DAX 30 index fell 3.4% to 5,785.43 while the French CAC 40 index was down 2.6% to 3,089.59. The FTSE 100 index fell 1.8% to 5,427.86.

Moody’s Investors Service said that policy makers offered few new measures at their summit last week. Moody’s will still review the ratings of all European Union countries during the first quarter of next year.

In a statement, Moody’s said that the debt crisis remains in a critical and volatile stage, with sovereign and bank debt markets prone to acute dislocation which policy makers will find increasingly hard to contain.

At a summit in Brussels, eurozone leaders committed to an inter-governmental accord on tougher fiscal rules that will likely be adopted by 26 European Union nations.

Britain was the only member refusing to join the agreement.

UK Prime Minister David Cameron said that the measures were not in Britain’s best interest. He wanted to protect London from financial-services regulations.

Italian stocks were among the worst performers, with the FTSE MIB index down 3.8% to 14,896.73.

The Treasury sold 7 billion euros ($9.4 billion) of 12-month bills and the average yield fell to 5.95% from 6.09% at a previous sale. Notably, the benchmark 10-year Italian bond yield rose 30 basis points to 6.53% in late Monday trade, according to reports.

Greece kicked off a new round of talks with inspectors from the International Monetary Fund (IMF), European Union (EU) and the European Central Bank (ECB) on details of a new bailout plan to help it repay debt.

The Greek ASE Composite Index fell 2.1% to 661.77.

In London, shares of Royal Bank of Scotland Group Plc (RBS) fell 6.5% after the UK Financial Services Authority said that a multitude of factors led to the bank’s near collapse during the financial crisis, such as poor management decisions and weakness in its capital position.

Shares of ING Groep NV down 8.1%. The bank offered to buy back and exchange €5.8 billion of subordinated debt to boost capital.

Semiconductor maker Intel Corp. lowered its sales outlook pressuring some related stocks in Europe. Shares of ASML Holding NV dropped 2.2%, and those of ASM International NV.