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Thursday, December 18, 2008
Market may move up ..
The market may recover after Wednesday’s slide caused by concerns about the weakening economy and worries on concerns over corporate governance standards at Indian firms. Reports that the government is working on a second stimulus package to pump prime the economy may aid the recovery.
In the second stimulus package to boost growth, the government is likely to provide sops to the automobile, housing and steel sectors. As per reports, the committee of secretaries (CoS) on economic crisis is examining proposals like increasing the limit for low interest-rate housing loans from Rs 20 lakh to Rs 30 lakh, increasing the tax rebate on home loans, reducing car and two-wheeler loan rates by 2% (from the current 12-14%), increasing depreciation and ensuring faster disbursal of Central value added tax (Cenvat) credit for the steel sector.
The first stimulus package unveiled by the government on Sunday, 7 December 2008, involved Rs 20,000 crore in additional government expenditure, an across-the-board 4% excise duty cut amounting to Rs 8,700 crore and benefits worth Rs 2,000 crore for exporters.
The new package could also include monetary measures such as cuts in the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) by the Reserve Bank of India (RBI). CRR, down to 5.5% from 9% in August 2008, impounds cash with RBI while SLR mandates banks to keep a specified proportion of their deposits in government securities.
Asian stocks were mostly in the green after the US Federal Reserve on Tuesday, 16 December 2008, slashed rates to a target rate of zero to 0.25% from 1%. Key benchmark indices in Japan, Singapore, South Korea and Taiwan were up by between 0.04% to 0.56%.
US stocks fell on Wednesday, 17 December 2008, as the government's effort to stave off a deep economic recession raised worries about mounting public debt and blunted optimism following the Fed's sharp rate cut on Tuesday. The Dow Jones industrial average shed 99.80 points, or 1.12%, to 8,824.34. The Standard & Poor's 500 Index fell 8.76 points, or 0.96%, to 904.42. The Nasdaq Composite Index fell 10.58 point, or 0.67%, to 1,579.31.
Closer home, concerns about a lack of transparency and worries about absence of strict corporate governance practices at Indian firms pulled the market down on Wednesday, 17 December 2008, after India's fourth largest software firm in terms of sales, Satyam Computer Services' aborted attempt to buy two related companies. The BSE 30-share Sensex lost 261.69 points, or 2.62%.
Bright day for precious metals
Gold and silver prices firm up as dollar index slips another 2%
Bullion metal prices rose sharply higher on Wednesday, 17 December, 2008. Bullion metals rose due to the falling dollar. The dollar fell despite the Fed cut interest rates by 75 bps to 0.25% yesterday. 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 rose $25.8 (3.1%) to close at $868.5 an ounce on the New York Mercantile Exchange. Earlier in the day, it reached a high of $883.6. Last week, gold gained 9%. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (16.1%) since then.
For the month of November, gold prices ended higher by 14%. Prior to this, for the month of October, gold had ended lower by 18%. It was the biggest percentage loss for gold since February, 1983.
This year, gold prices have gained 3.6% till date. Futures have averaged $878 in 2008. The dollar index has gained 4% this year. For the third quarter ended September, 2008, gold prices ended lower by 5.1%. It was the first quarterly loss for the yellow metal since the second quarter in FY 2007. Prior to that, the yellow metal ended second quarter with a marginal gain of 0.7%. For first quarter prices gained 10.7%.
On Wednesday, Comex silver futures for March delivery rose 71.5 cents (6.5%) to $11.42 an ounce. Last week, silver gained 80 cents (9%). For the month of November, silver prices had gained 5%. Till date, silver has lost 23% this year.
For the month of October, silver had slipped by 20%. Silver had ended month and quarter of September 2008 with a loss of 10%. For the second quarter, it had gained a paltry 1.4%. Silver had gained 16% in Q1. The metal also had gained for seven straight years.
At the currency market on Wednesday, the dollar extended its losses after the Fed decision yesterday, adding more upward pressures on gold prices. The dollar index fell as much as 2.7% after dropping 2% yesterday.
The Federal Reserve surprised market yesterday to save the U.S. economy slashing interest rates to just above zero and promising to try an array of new economic measures to stimulate spending. The central bank's Federal Open Market Committee established a target range for the federal funds rate of zero to 0.25%, effectively cutting its key rate for overnight lending to banks by between 0.75% and 1%.
Earlier this year, the weakening dollar and higher global demand for raw materials had led to records this year for commodities including gold. Gold reached a record in March as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. In the latest 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.
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 higher by Rs 238 (1.8%) at Rs 13,168 per 10 grams. Prices rose to a high of Rs 13,377 per 10 grams and fell to a low of Rs 12,934 per 10 grams during the day's trading.
At the MCX, silver prices for March delivery closed Rs 542 (3.1%) higher at Rs 18,097/Kg. Prices opened at Rs 17,643/kg and rose to a high of Rs 18,250/Kg during the day's trading.
Crude drops below $40
Crude drops below $40
Prices drops drastically despite weak dollar and production cut
Crude prices dropped substantially today, Wednesday, 17 December, 2008. Prices fell despite a weak dollar and also as OPEC announced another production cut. But prices fell as an impact of the weekly inventory report by the energy department.
On Wednesday, crude-oil futures for light sweet crude for January delivery closed at $40.06/barrel (lower by $3.54 or 2%) on the New York Mercantile Exchange. Earlier in the day, prices touched a low of $39.98. Prices reached a high of $147 on 11 July but have dropped almost 73% since then. On 5 Dec, 2008, prices touched a low of $40.5. Last week, prices ended higher by almost 13%. Prior to that, prices coughed up 25% in the week before that. That was the largest weekly loss for crude in past twenty five years. For this year in 2008, crude prices have dropped 51%.
For the month of November, crude prices ended lower by 19.7%. Before this, for the month of October, 2008, crude prices had ended lower by 32.6%, the biggest monthly drop since 1983.
After a meeting in Oran, Algeria, the Organization of the Petroleum Exporting Countries agreed to cut 4.2 million barrels a day from its actual September production level of 29.045 million barrels a day. The production cut is effective on 1 January, 2009. Excluding previously announced cuts, OPEC will actually cut its daily production by 2.2 million barrels from current levels. That constitutes its biggest production cut ever.
At the currency market on Wednesday, the dollar extended its losses after the Fed decision yesterday, adding more upward pressures on gold prices. The dollar index fell as much as 2.7% after dropping 2% yesterday.
The Fed slashed its key interest rate to a range of zero to 0.25% yesterday, effectively cutting its key rate for overnight lending to banks by between 0.75% and 1%. It said "the outlook for economic activity has weakened further," adding more worries over falling energy demand.
The Energy Information Administration reported today that that U.S. crude supplies rose by 500,000 barrels to stand at 321.3 million barrels during the week ended 12 December, 2008. At 321.3 million barrels, total U.S. crude inventories were 17.5 million barrels above the five-year average and 24.4 million barrels above year-ago levels. The EIA also reported an increase of 1.3 million barrels in gasoline stocks and a rise of 2.9 million barrels in distillate stocks last week.
For the third quarter of the year crude prices ended lower by 28%. This was the biggest quarterly drop since 1991. Before that, crude prices had gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. For the month of September, prices registered drop of 13%.
Against this background, January reformulated gasoline fell 3 cents to end at $1.01 a gallon and January heating oil dropped 2 cents to $1.44 a gallon.
January natural gas futures fell 13 cents to end at $5.62 per million British thermal units.
At the MCX, crude oil for January delivery closed at Rs 2,214/barrel, lower by Rs 97 (4.2%) against previous day's close. Natural gas for December delivery closed at Rs 263.3/mmbtu, lower by Rs 11.5/mmbtu (4.2%).
Trading Calls - Dec 18 2008
Nifty (2954) Sup 2900 Res 3020
Buy Everron (253) SL 249
Target 261, 263
Buy Renuka Sugars (63) SL 61 Target 67, 68
Buy ICICI Bank (432) SL 427 Target 442, 444
Sell ACC (486) SL 491
Target 476, 474
Sell Tata Power (704) SL 711 Target 690, 685
Daily News Roundup - Dec 18 2008
Satyam calls off acquisition of Maytas Properties and Maytas Infra. (BS)
RIL to supply the second consignment of crude oil from its eastern offshore KG D6 block to Chennai Petroleum in January-end or early February instead of this month. (BS)
FIPB cleared a proposal by German plastic moulding major Ralf Schneider, setting aside objections raised by its former Indian partner L&T. (BS)
M&M’s ultra low-cost tractor is scheduled to be launched in June 2009. (BL)
Tata Power signed a JV agreement with IOC for establishing a coal-based power plant in Orissa. (BL)
Patel Engineering bagged the Pranahita-Chevella Lift Irrigation-package 6 for Rs38.6bn from the Andhra Pradesh Government in consortium with BHEL and Navyuga Construction. (BL)
Essar Power plans to double capacity of its upcoming power plant in the Jamnagar district of Gujarat from 1,200MW to 2,400MW. (BS)
Honda Siel Cars India to postpone the capacity enhancement and assembly operations at its new plant in Rajasthan. (BS)
NSE picked up 26% stake in Bangalore-based front-end technology provider Omnesys Technologies. (BS)
Wockhardt may resort to fresh borrowing overseas to repay holders of FCCB as its attempt to sell assets has failed to generate buyers. (BS)
Titan Industries to spinning off its precision engineering division into a JV. (BS)
Gujarat State Petroleum Corporation to set up a 200MW wind farm project for an estimated investment of Rs10bn-12bn. (BS)
Elecon Engineering Company won an order of Rs1.2bn from Mundra port and SEZ of the Adani Group. (BS)
IDBI has shortlisted seven buyers for its home loan subsidiary. (BS)
TCS to qhire over 3,500 employee's in China over the next four years. (TOI)
SpiceJet, IndiGo & GoAir are likely to cut fares by 10%.
Temptation Foods has increased its stake in Kohinoor Foods to 13% from 3.9% in June. (TOI)
BHEL will not dilute its stake in JV Company with NTPC. (ET)
Cadila buys remaining 30% in Zydus Pharmaceuticals from its partner. (ET)
Gail imposes service charge of Rs110 per thousand standard cubic metre on gas distribution. (ET)
Civil aviation ministry has proposed a Rs25bn bail out package for Air India, which is likely to be announced by January 09. (ET)
Oil companies want airlines to pay interest on outstanding bills. (ET)
Government is likely to announce further sops for real estate, auto and steel sector in its second stimulus package. (ET)
The Centre and the state governments have agreed not to unilaterally change the tax rate on goods and services, once the Goods and Services Tax (GST) is implemented from April 2010. (BS)
Small savings collections rise 5.85% yoy during the period April-October, 2008. (BL)
Government to consider a proposal to double the income tax exemption limit on housing loans to Rs0.3mn from the current level of Rs0.15mn. (BS)
The Orissa government has decided to reduce the land requirement of 10 mega steel projects by about 5,481 acres (16% lower). (BS)
The oil ministry in an attempt to control over-aggressive bids in the eighth round of the Nelp VIII, may make the government’s share of profits from oil and gas blocks a non-biddable item and capping it at between 70 and 80%. (BS)
Nabard has sanctioned Rs36.2bn from its Rural Infrastructure Development Fund to 22 State governments for implementing infrastructure projects in rural areas. (BL)
TRAI has asked communication ministry to come clean on the 3G licenses to be issued to the new entrants and the license fees. (ET)
Share of saving and current a/c deposits in banks falls in first half of the current fiscal. (ET)
Hotel room rates falls 25% with a fall of 35% in occupancies rate across the entire premium business hotel. (ET)
Handle with care
Mishaps are like knives, that either serve us or cut us, as we grasp them by the blade or the handle.
After a market mishap, Satyam management is still contemplating various ways of pacifying an aggrieved investor community. The stock may see some rebound today but don’t mistake it as restoration of confidence. Similar is the scene with the broader market. After a day's correction, the main indices could resume their uptrend after a cautious opening. The undertone could receive some fillip from news that the Government is considering a new set of stimulus measures to revive a sluggish Indian economy.
Real Estate, Auto and Steel sectors are likely to benefit from the proposed second round of fiscal-cum-monetary steps. Among the other positives include the recent resurgence in foreign portfolio investments, strength in the rupee and falling interest rates. Add to it a healthy global markets and the bulls may just be able to hold off the might of the bears for some more time.
Having said that, the advance is unlikely to sustain unless the headwinds - both global as well as local - gradually start dissipating. As a result, we would continue to maintain the view that every rally should be used to lock in gains though long-term investors can continue to dabble in quality stocks at lower levels. Remember quality stocks. Catch them only if you can get a grip on the handle.
We expect the market to regain its winning ways at start but may remain choppy in the face of continuing uncertainty over the fate of the global economy. Inflation will be out today and is likely to fall further. But, that anyway has been factored in by most players.
FIIs were net sellers of Rs1.88bn (provisional) in the cash segment on Wednesday while the local institutions pulled out Rs978.2mn. In the F&O segment, the foreign funds were net buyers at Rs5.05bn. On Tuesday, FIIs were net buyers of Rs275mn in the cash segment.
US stocks retreated on Wednesday at the end of a volatile session, with the Standard & Poor's 500 index slipping from a one-month peak, led by financials after Morgan Stanley reported a bigger-than-expected loss.
After a triple-digit slide and brief stab at turning positive, the Dow Jones Industrial Average finished at 8,824.34, down 99.8 points, or 1.1%. Twenty-five of the Dow's 30 components posted declines, with Citigroup proving to be the heaviest weight, its shares falling 4.9%.
After hitting a five-week high on Tuesday, the S&P 500 Index fell 8.76 points to 904.42, with utilities and financials leading sector losses among the index's 10 groups. The technology-laden Nasdaq Composite Index fell 10.58 points to 1,579.31.
Market breadth was positive. Advancers beat out decliners 3-to-2 on the New York Stock Exchange on volume of 1.34 billion shares. And advancers just beat decliners on the Nasdaq, with a volume of 2.16 billion shares.
US stocks started the session sharply lower and battled back to positive territory briefly, but in the final hour of the session, the key indices gave back all of their earlier gains.
Stocks rallied on Tuesday after the Federal Reserve slashed its target rate for overnight loans between banks to between zero and 0.25%, and said that it would buy more debt and mortgage-backed securities.
Crude oil futures declined, with the contract for January delivery off US$3.54 to end at US$40.06 a barrel as traders paid little heed to a widely expected production cut of 2.2 million barrels in current oil output by the Organization of Petroleum Exporting Countries.
The dollar remained under pressure, hitting a more-than two-month low against the euro and a fresh 13-year low against the Japanese yen.
Treasury prices were mixed, with shorter-dated securities falling and longer-term notes gaining. The benchmark 10-year note gained nearly 0.2%, pushing its yield down to 2.2%.
Before markets opened, Morgan Stanley posted a staggering US$2.3bn loss for the fourth quarter, which was far greater than the US$298mn loss that analysts were expecting. The loss was yet another indication that every part of the financial sector has been battered by stock-market volatility and credit-market weakness. The announcement from Morgan Stanley came the day after rival Goldman Sachs posted a US$2.1bn loss - the company's first since it went public in 1999.
Lending rates continued to decline. The overnight Libor rate declined to 0.13% from 0.16% on Tuesday, while the 3-month Libor rate dropped to 1.58% from 1.85%. Libor, or the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in London. The improvements in Libor rates are one indicator of credit-market pressures easing.
European shares fell on Wednesday. The pan-European Dow Jones Stoxx 600 index fell 0.8% to 197.51, after trading as high as 200.79 earlier. The index has closed lower in four out of the last five sessions. Germany's DAX 30 index declined 0.5% to 4,708.38 and the French CAC-40 index fell 0.3% to 3,241.92. The UK's FTSE 100 index closed up 0.4% at 4,324.19 after a volatile session, helped by strong gains for oil producers.
Banks exerted the most pressure, with BNP Paribas shares down 17.2%. The French bank late on Tuesday warned its investment banking arm had posted a loss for the first 11 months of the year and said it could shed around 800 workers in the division. BNP said that, as a whole, it was "largely profitable" over the 11-month period.
Market snapped two day winning streak on Wednesday erasing almost all previous day’s gains. The realty, power and telecom stocks were among the major laggards. Also the mid-cap and the small-cap stocks were heavily offloaded.
Market sentiments also dampened tracking a sharp slide in the equity markets across Europe. Finally, the BSE benchmark Sensex ended at 9,708 losing 268 points and the NSE Nifty index ended at 2,954 losing 87 points.
All the BSE Sectoral indices ended in the red with the realty, Teck, Power and auto stocks were under pressure.
Market breath was negative, 1,568 stocks declined against 957 advances, while, 71 stocks remained unchanged.
Among the 30-components of Sensex, 21 stocks ended in the red and 9 stocks ended in the positive terrain, the big gainers were ICICI Bank (2.5%), HDFC Bank (2%), Infosys (1.5%) and Wipro (1.5%).
On the other hand, major losers were Satyam (30%), Reliance Infrastructure (13.7%), RCom (13.3%), JP Associates (12.1%) and ACC (9%).
V Guard Industries is planning either a technology agreement or an acquisition to enter the online power backup business in 2009, said reports. The company said that it has earmarked upto Rs300mn for the foray.
The stock rose by 1% to Rs46.8 hitting an intra-day high of Rs53 and a low of Rs46 recording volumes of over 26,000 shares on the BSE.
Shares of HDIL rallied by over 1.54% to Rs146 after reports stated that the company was planning to enter the sub Rs2mn home category. The scrip touched an intra-day high of Rs161 and a low of Rs144 and recorded volumes of over 3,00,00,000 shares on NSE.
Shares of Bharat Forge gained by half a percent to Rs85 after reports stated that both Bharat Forge and Alstom would set up manufacturing facility with an annual capacity of 5,000mw at Mundra port. The scrip touched an intra-day high of Rs96 and a low of Rs84 and recorded volumes of over 25,00,000 shares on NSE.
Shares of Accentia Technologies surged by over 2.5% to Rs128 after the company announced that it secured an order in the HRCM arena amounting to US$22mn to service a chain of hospitals in the USA. The scrip has touched an intra-day high of Rs132.15 and a low of Rs122 and recorded volumes of over 28,000 shares on BSE.
Shares of ACC have declined by 9% to Rs485 after the company announced that it would shut one of its kilns in the state of Himachal Pradesh and Punjab because of poor demand.
The 15-day closure of the kiln at Gagal in Himachal Pradesh started yesterday. The scrip touched an intra-day high of Rs544 and a low of Rs477 and recorded volumes of over 7,00,000 shares on NSE.
Markets might continue to remain sluggish ahead of inflation data to be released tomorrow. Also in the US, Morgan Stanley would announce its Q4 results. It is advisable to stay cautious.
Asian Markets open positive
Asian stocks gained, led by financial and transportation companies, after UBS AG recommended investors buy Mitsubishi UFJ Financial Group and a slump in oil prices signaled lower fuel costs.
Mitsubishi UFJ gained almost 2% in Tokyo as UBS said the lender is likely to see increased loan volumes.
Japanese benchmark index Nikkei advanced 74.52 points, or 0.87%, to trade at 8,687.04.
Hong Kong`s Hang Seng index fell 50.06 points, or 0.32%, to trade at 15,410.46.
China`s Shanghai Composite declined 4.83 points, or 0.24%, to trade at 1,971.99.
Taiwan`s Taiex index climbed 16.14 points, or 0.35%, to trade at 4,664.16.
South Korea`s Kospi index increased 14.50 points, or 1.24%, to trade at 1,184.25.
Singapore`s Straits Times went up 6.24 points, or 0.35%, to trade at 1,785.53.
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