Market headed for weak start

Local equities are set to extend losses for the third straight day today, 15 July 2008 amid weak global cues over concerns about the fallout from the credit crisis. Political uncertainty along with the continued redemption pressure from funds may continue to weigh on the sentiment in the near term.

The Manmohan Singh government suffered another setback on Monday, 15 July 2008, on reports that at least two important leaders it was counting on for support in the trust vote seemed to be backing off. The two leaders are the Telengana Rashtra Samiti (TRS) chief Chandrashekhar Rao, and the other is DMK’s Dayanidhi Maran. The government is holding a two-day special session of parliament on 21 July 2008 and 22 July 2008 to seek vote of confidence after it was reduced to minority following withdrawal of support by Left parties on 8 July 2008. The government hopes to retain power due to backing from Samajwadi Party, a regional party in Uttar Pradesh.

India-dedicated funds saw $944 million outflows in the month to 9 July 2008, the highest redemption faced by any country-specific funds group in the period, according to EPFR Global data. Redemptions have continued for five weeks in a row leading the Indian benchmark indices to their lowest levels in 15 months. In the week ended 9 July 2008, India-dedicated funds saw an outflow of $215 million, again the highest by any country fund category. A fall in local currency erodes foreign investors earnings, if any, and accentuates losses. The Indian rupee has depreciated over 10% since the first week of May 2008.

Indian markets also reportedly bore the brunt of redemptions from Asia regional funds, which have considerable allocations to Indian markets.

August crude settled up 10 cents at $145.18 a barrel yesterday, 15 July 2008 on the New York Mercantile Exchange.

Asian markets were trading lower today, 15 July 2008, as the worsening situation of credit markets took a toll on financial shares. China's Composite dropped 0.52% or 14.89 points at 2,863.36, Japan's Nikkei plunged 1.48% or 193.20 points at 12,816.96, Hong Kong's Hang Seng declined 2.58% or 567.57 points at 21,446.89, Taiwan Weighted slipped 3.34% or 238.78 points at 6,918.18, Singapore's Straits Times was down 1.54% or 44.58 points at 2,859.54 and South Korea's Seoul Composite fell 2.38% or 37.17 points at 1,521.45

US stocks tripped yesterday, 14 July 2008, as concerns on the health of the US banking sector mounted after the collapse of IndyMac eclipsed the earlier optimism over the government's plan to stabilise mortgage lenders Fannie Mae and Freddie Mac. The Dow Jones industrial average slipped 45.35 points, or 0.41%, to 11,055.19. The Standard & Poor's 500 index declined 11.19 points, or 0.90%, to 1,228.30, and the Nasdaq Composite index lost 26.21 points, or 1.17%, to 2,212.87.

Back home, stocks ended volatile session with losses for the second straight day yesterday, 15 July 2008, on sustained selling in IT and select blue-chip stocks. The 30-share BSE Sensex was down 139.34 points or 1.03% at 13,330.51 and the S&P CNX Nifty fell 9.03 points or 0.23% to 4039.70, on that day.

The BSE Sensex is down 6956.48 points or 34.29% in the calendar year 2008 so far from its close of 20,286.99 on 31 December 2007. It is 7876.26 points or 37.14% away from its all-time high of 21,206.77 struck on 10 January 2008.

As per provisional data, foreign funds sold shares worth a net Rs 436.52 crore while domestic funds bought shares worth a net Rs 63.25 crore yesterday, 14 July 2008.

Foreign institutional investors (FIIs) were net sellers of Rs 605.98 crore in the futures & options segment on 15 July 2008. They were net sellers of index futures to the tune of Rs 103.13 crore and sold index options worth Rs 178.69 crore. They were net sellers of stock futures to the tune of Rs 327.61 crore and purchased stock options worth Rs 3.46 crore.

Meanwhile, the Centre’s excise duty collections grew 2.8% to Rs 25,882 crore in Q1 June 2008 over in Q1 June 2007. For 2008-09, the Centre has pegged the excise duty budget estimate at Rs 1,37,874 crore, which represented an increase of 5.9% over the budget estimate of Rs 1,30,220 crore for 2007-08.

See Sensex heading to 12K levels: Vibhav Kapoor

Vibhav Kapoor of IL&FS said macro fundamentals are really negative at this point of time. He expects the Sensex to go down to 11,500 to 12,000 levels. "That's preventing any meaning full rally to happen. Technically, one might see some stabilization for sometime and maybe some rangebound movement. Fundamentals and news are so bad that ultimately one is going to see a downside breadth, maybe immediately or after two weeks."



According to Kapoor, the markets may head higher if there is some really positive fundamental news like oil prices going down in a big way, global situation improving, or some extra ordinary good corporate results in the next few weeks.


Excerpts from CNBC-TV18’s exclusive interview with Vibhav Kapoor:



Q: We spent most of the day trapped in a range. Is that the way forward? Do you see a decisive break in July in either direction?



A: The way the markets behaved today was not at all encouraging. There were quite a few weeks of fall. After that, the market has been trying to stabilize in a range. But the behaviour was all not encouraging.



Every time it tried to go up a little bit, a lot of selling pressure came in. Infosys was down by Rs 300 down the pre-result prices once the results were announced. Although, Axis Bank came out with very good results the stock was down Rs 30 to Rs 40. That is not an encouraging scenario.



The macro fundamentals are negative at this point in time, and that is preventing any meaningfull rally from happening. Technically, there might be some stabilization for some time and there may be some rangebound movement. There could also be some expectation of the confidence vote passing in the Parliament and some reforms happening a little bit after that which could perk up the sentiment for some time.



But the fundamentals are so bad and the news is so bad that ultimately there is going to be a downside breadth either immediately or after two weeks. But we are looking at the index going down to something like the 11,500 to 12,000 levels.



Q: If we do get that rally that you are talking about, depending on how political events shape up, how much would you give it and what could be the extent of that upmove?



A: We are looking at 4,250 or 4,300 or 4,325 on the Nifty. That is probably the maximum the rally can carry unless there is some really positive fundamental news like oil prices going down in a big way or some global situation improving or some extraordinarily good corporate results in the next few weeks. Apart from any of those things happening, 4,300 or 4,325 would probably be the outset of the rally.



Q: What is going on with participation? Once again volumes have started dipping a bit. Do you think people would generally be staying away? Do you sense a lot of HNIs trying to accumulate stocks with 3,850-3,900 as a bottom on the Nifty?



A: Even now, the medium-term investors are still sitting out. We have not seen much participation from them. It is probably the trading community or people who look at slightly shorter-terms and want to take advantage of a 200-300 point rally in the Nifty who are looking at that 3,850-3,900 and trying to accumulate some stocks.



But I am sure that unless the fundamental conditions change, you would see the same guys coming back say at around 4,300. So, these are basically the traders rather than the long-term investors.



Q: How do you approach this sector now? Infosys has taken quite a knock in the last couple of days. The stock is down almost 15%. Do you buy it now or do you think this sector will now not outperform like it has since the start of this year?



A: In the last quarter, it really outperformed and the sector had become overweight in a lot of mutual fund portfolios. The results, while they were reasonably good, did not really sort of outperform the market expectations except in the rupee guidance, which the market took anyway for granted.



So, a lot of those positive factors like rupee depreciation were already built into the price and that is why we have seen such a big fall. The issue here is that the sector is facing two or three very strong headwinds. One is the US situation, in particular the BFSI segment. So, there is a fear that that could worsen going forward over the next 12-15 months.



Secondly, Infosys has already taken guidance at Rs 43.04. So, if there is an appreciation in the rupee from here then that guidance could get affected adversely because they are only hedged for one quarter and not the remaining three quarters.



Thirdly, going forward, the absolute growth rate in dollar terms are obviously not going to be more than 20%. It may be between 17-20%. Then there is a tax issue going forward in 2010-11, which means that over the next two years you are not going to see more than 15-17% CAGR and increase in profits. That is why valuations are going to come down and probably a company like Infosys is going to get only 17 or 18 times forward valuations. At this price it is right now at about 16 times.



It looks as if there is going to be rangebound movement. The stocks do not look expensive. But the way we have seen selling happening in the last two or three days at very heavy volumes on Friday particularly, you are not going to see too much upside either.



Q: What do you make of the market's reaction to Axis Bank numbers? The numbers looked fine on the face of it. But the stock got hammered after the numbers. What is it telling you about the market and about the sector?



A: Firstly, most of their growth in this quarter has actually come from increases in other income, which is going up. In the last 3-4 quarters, it has been going up at the rate of 50-60%. So, obviously, there is a limit to that growth.



The NIIs (net investing income) have been growing pretty well. But obviously with headwinds that the banking sector is facing, it is going to slowdown. Provisioning is going up because interest rates are going up and so corporate bond portfolio are getting hit.



The market says that, going forward, at some point in time growth will slowdown even in Axis Bank. At 2.4 times or 3 times adjusted book value the stock is not pretty cheap.



While there is not much downside to it, today's performance of the stock shows that there are a lot of companies where good results are expected. The market has already factored them in.



All the good news has been factored in manufacturing companies where there are valuations in terms of PEs ranging between 20-25 or 30. If there is a little bit of a disappointment, then one can see these stock prices coming down.

Market may remain weak

The market might extend Friday (11 July 2008)'s sharp fall on gloomy domestic and global scene. Higher crude oil prices, rising inflation, weak industrial production numbers, fears of further rise in interest rates, fluid domestic political situation and tension in Middle East will weight on the investor sentiment.

Infosys kickstarted the Q1 June result season on 11 July 2008 on a positive note. Infosys has revised upwards earnings and revenue guidance for the year ending March 2009 (FY 2009). Infosys has forecast 24.4% to 26.6% growth in earnings per share as per Indian GAAP at between Rs 98.79 to Rs 100.51 in FY 2009 over the year ended March 2008 (FY 2008). It has forecast a between 27.5% to 29.5% growth in revenue at between Rs 21278 crore and Rs. 21622 crore in FY 2009 over FY 2008.

The overall earnings of the corporate sector are seen rising about 15% in Q1 June 2008 over Q1 June 2007. That would be well below the 20-25% growth seen over the past few years.

Political uncertainty will continue to haunt the bourses. Prime Minister Manmohan Singh is likely to seek a vote of confidence in parliament shortly following Left’s withdrawal of support to the government over the India-US civil nuclear agreement. There was speculation that the government may choose a date around 22 July 2008 to call a special Lok Sabha session for the vote.

With Left parties withdrawing support to the United Progressive Alliance (UPA) government, India Inc. hopes the slow-moving economic reforms program will now be put on the fast track. Over the last four years, Left parities had stalled privatisation of state-run firms, pension reforms, higher foreign limits in insurance and more liberal norms for foreign bank.

Capping inflation has been a major priority for India’s central bank. Inflation based on the wholesale price index rose 11.89% in 12 months to 28 June 2008, above the previous week's annual rise of 11.63%, government data released on 11 July 2008, afternoon showed. It was at highest level in more than 13 years.

Reserve Bank of India on 24 June had hiked both repo rates and cash reserve ratio by 50 basis points each to tame rising inflation. There are expectations of further monetary tightening in quarterly monetary policy review of RBI scheduled on 29 July 2008 as inflation is showing no signs of abatement.

Industrial production rose 3.8% in May 2008, much lower than revised 6.2% growth in April 2008, the government data released on Friday, 11 July 2008, showed. Industrial production growth for April 2008 revised downwards to 6.2% from earlier 7%.

Crude oil has created a major havoc on global bourses. Crude oil for August delivery rose as much as $1.54, or 1.5%, to $143.19 a barrel on Friday 11 July 2008 on the New York Mercantile Exchange as Brazilian oil workers threatened a strike and on concern that Middle East and Nigerian supplies may be disrupted.

In the light of above worries, foreign institutional investors (FIIs) sold shares worth Rs 1,012.20 crore in the month of July 2008 so far, till 9 July 2008. FIIs sold shares worth Rs 26,477.50 crore in the calendar year 2008. Mutual funds have bought shares worth Rs 712.30 crore in the month of July so far.

Market posts marginal gains

The market shrugged off decision of Left parties to withdraw their support to the Congress-led United Progressive Alliance government on the hopes this would give government an opportunity to kickstart stalled economic reforms which Left had opposed for four years. However, a surge in crude oil prices, disappointing industrial production data and inflation climbing to more than 13-year high at the end of week played the spoilsport paring earlier gains of the week with the market ending with marginal gains in the week. BSE Sensex fell in 3 out of 5 trading sessions.

The barometer index rose 15.85 points or 0.12% to 13,469.86 in the week ended Friday, 11 July 2008. The S&P CNX Nifty edged up 33 points or 0.82% to 4,049 in the week.

The BSE Mid-Cap index added 87.10 points or 1.65% to 5,365.34. The BSE Small-Cap index rose 263.99 points or 4.09% to 6,713.66.

Foreign institutional investors (FIIs) sold shares worth Rs 1,012.20 crore in the month of July 2008, till 9 July 2008. FIIs sold shares worth Rs 26,477.50 crore in the calendar year 2008. Mutual funds have bought shares worth Rs 712.30 crore in the month of July 2008 so far.

The 30-share BSE Sensex rose 71.99 points or 0.54% at 13,525.99 on Monday 7 July 2008. The market lost most of its gains in late trade ending marginally higher after reports filtered in that India's Defence Attache Brigadier R D Mehta and three other Indians among forty-one people were killed in a suicide attack on the Indian Embassy in Kabul. The market had remained firm in most part of the day on firm global cues.

Sensex lost 176.34 points or 1.3% at 13,349.65 on Tuesday, 8 July 2008. The market failed to sustain previous day's small gains as global markets played a spoilsport. Nevertheless, the market came off lower level after an initial sharp fall, shrugging off decision of Left parties to withdraw their support to the Congress-led United Progressive Alliance (UPA) government.

Sensex surged 614.61 points or 4.6% at 13,964.26 on Wednesday, 9 July 2008. A mix of positive domestic and global news helped bulls conquer the bourses. The market was also boosted on hopes the government may push through some of the economic reforms which Left parties had stalled over the past four years.

The 30-share BSE Sensex lost 38.02 points or 0.27% at 13,926.24 on Thursday, 10 July 2008. The market ended little changed after witnessing a bout of volatility in the day. Investors refrained building large positions ahead of the weekly inflation data and Index of Industrial Production (IIP) data for May 2008 to be released by the government on, 11 July 2008.

The 30 share BSE Sensex slumped 456.39 points or 3.28% to 13,469.85 on Friday, 11 July 2008. Dismal economic data and strengthening crude oil prices forced investors to dump shares across the board. IT stocks tumbled after IT bellwether Infosys said at the time of announcing Q1 June 2008 results that the business environment was tough. All the sectoral indices on BSE were in red.

India’s second largest IT exporter by sales Infosys slumped 4.5% to Rs 1676.45 in the week. Infosys’ consolidated net profit as per Indian GAAP rose 4.2% to Rs 1302 crore on 6.8% growth in revenue to Rs 4854 crore in Q1 June 2008 over Q4 March 2008. Infosys has forecast 24.4% to 26.6% growth in earnings per share as per Indian GAAP at between Rs 98.79 to Rs 100.51 in FY 2009 over the year ended March 2008 (FY 2008). It has forecast a between 27.5% to 29.5% growth in revenue at between Rs 21278 crore and Rs. 21622 crore in FY 2009 over FY 2008.

India’s largest electric equipment maker by sales Bharat Heavy Electricals rose 1.4% to Rs 1,521.25 in the week. The company said on 11 July 2008 it has bagged a contract worth Rs 2175 crore for setting up a 600 megawatt thermal power plant in Tamil Nadu.

India’s largest telecom services provider by sales Bharti Airtel rose 4.01% to Rs 745 on 11 July 2008. As per reports the company added 2.5 million new subscribers in June 2008, the highest ever monthly customer addition by any operator in India.

India’s largest realty major by sales DLF surged 9.23% to Rs 452.80. The company’s board of directors on 10 July 2008 approved a proposal of buyback of equity shares at a price not exceeding Rs 600 per share.

The world’s sixth largest steel producer Tata Steel rose 4.07% to Rs 666.15 in the week. As per reports on 10 July 2008 the company plans to list a holding firm for steel and raw material assets outside India, on the London Stock Exchange to raise funds for acquiring iron ore and coal mines.

India’s largest private sector firm by market capitalisation and oil refiner Reliance Industries fell 3.94% to Rs 2,016.40. It has reportedly signed an agreement with Peru's Perupetro to jointly explore for oil and gas in the Andean country.

India’s second largest telecom services provider by sales Reliance Communications fell 0.07% to Rs 437.90. South African mobile phone operator MTN Group has agreed to extend its exclusive talks with the Indian cellular services provider for a possible combination of their businesses, until 21 July 2008.

India’s largest engineering and construction firm by sales Larsen & Toubro fell 0.95% to Rs 2,357.20. The company said on Tuesday, 8 July 2008, it has bagged an order worth Rs 1047 crore from Indian Railways for setting up a cast steel wheel manufacturing plant at Saran in Bihar.

India’s third largest IT exporter by sales Satyam Computer Services fell 3.83% to Rs 444.45. It formed an alliance with Taiwan based Tyfone to provide mobile financial services to its customers.

Tata Consultancy Services (down 5.28% to Rs 799.20) and ONGC (down 3.09% to Rs 849.25) edged lower in the week.

Prime Minister Manmohan Singh is likely to seek a vote of confidence in parliament shortly following Left’s withdrawal of support to the government over the India-US civil nuclear agreement. There was speculation that the government may choose a date around 22 July 2008 to call a special Lok Sabha session for the vote.

With Left parties withdrawing support to the United Progressive Alliance (UPA) government, India Inc. hopes the slow-moving economic reforms program will now be put on the fast track. Over the last four years, Left parities had stalled privatisation of state-run firms, pension reforms, higher foreign limits in insurance and more liberal norms for foreign bank.

Inflation based on the wholesale price index rose 11.89% in 12 months to 28 June 2008, above the previous week's annual rise of 11.63%, government data released on 11 July 2008, afternoon showed. It was at highest level in more than 13 years.

Industrial production rose 3.8% in May 2008, much lower than revised 6.2% growth in April 2008, the government data released on Friday, 11 July 2008, showed. Industrial production growth for April 2008 revised downwards to 6.2% from earlier 7%.

Sales of passenger cars rose 6.1% to 99,738 units in June 2008 over June 2007, the Society of Indian Automobile Manufacturers said. Sales of commercial vehicles rose 13.5% to 40,324 units in June 2008 over June 2007.

Infrastructure sector output rose 3.5% in May 2008 from a year earlier, holding steady near April's 3.6% annual growth, government data released today, 9 July 2008, showed. The infrastructure sector accounts for 26.68% of industrial output.

Local equities seen opening lower

Key local benchmarks are likely to drift lower today, 10 July 2008 following weak global cues. Crude oil prices ended little changed yesterday, 9 July 2008. The focus would shift to earnings season with IT bellwether Infosys Technologies' quarterly results scheduled on Friday, 11 July 2008.

Crude oil futures ended little changed yesterday, 9 July 2008 as government data showed that a large drawdown in crude supplies last week was concentrated on the West Coast, which has little impact on futures prices. On the New York Mercantile Exchange, August crude settled up 1 cent at $136.05 a barrel.

Asian markets were trading lower today, 10 July 2008. Shanghai Composite fell 0.07% or 2.09 points at 2,918.45, Japan's Nikkei declined 0.10% or 12.64 points at 13,039.49, Hang Seng tumbled 1.21% or 264.55 points at 21,541.26, Taiwan's Taiwan Weighted lost 0.68% or 48.24 points at 7,000.01, Singapore's Straits Times fell 1.32% or 38.57 points at 2,879.05 and South Korea's Seoul Composite was down 0.52% or 7.90 points at 1,511.48

US stocks plunged yesterday, 9 July 2008 with financial stocks taking the biggest hit as concerns over the credit crisis took the spotlight again, sending cautious investors to the sidelines. The Dow Jones industrial average plunged 236.77 points, or 2.08%, to 11,147.44. The Standard & Poor's 500 index lost 29.01 points, or 2.28%, to 1,244.69, while the Nasdaq Composite index declined 59.55 points, or 2.60%, to 2,234.89.

Back home, the 30-share BSE Sensex surged 614.61 points or 4.6% at 13,964.26 and the broader based S&P CNX Nifty was up 168.55 points or 4.23% at 4,157.10, yesterday, 9 July 2008, following strong global cues and sharp fall in crude oil prices.

From a record high of 21,206.77 hit on 10 January 2008, Sensex has now lost 7,242.51 points or 34.15%. It is down 6,322.73 points or 31.16% in calendar year 2008 so far.

According to provisional data on NSE, foreign institutional investors offloaded equity worth Rs 435.54 crore while domestic institutional investors were net buyers of equity worth Rs 139.22 crore, yesterday, 9 July 2008.

Foreign institutional investors (FIIs) were net buyers of Rs 719.66 crore in the futures & options segment on 9 July 2008. They were net buyers of index futures to the tune of Rs 383.26 crore and bought index options worth Rs 136.49 crore. They were net buyers of stock futures to the tune of Rs 177.73 crore and purchased stock options worth Rs 22.18 crore

The government is expected to face a vote of confidence in parliament in the coming weeks. Samajwadi Party (SP) on 8 July 2008, said it will vote with the government in support of the nuclear deal with the United States.

Prime Minister Manmohan Singh on 7 July 2008 said that the government will go through the remaining formalities of the Indo-US nuclear deal. He also expressed confidence that UPA government will survive the trust vote and avoid early elections.

Meanwhile, deceleration in production of petroleum refinery products, electricity and cement pulled down the growth in six core infrastructure industries to 3.5% in May 2008 compared to 7.8% in May 2007, as per data released yesterday, 9 July 2008.

Mundra Port & Special Economic Zone may see action

The Adani Group reportedly gets nod to go ahead with construction work in multi-product Mundra Port & Special Economic Zone with the Supreme Court vacating its earlier interim stay on further construction activities in the project.

Tata Steel reportedly plans to list Tata Steel Global Resources, the holding company for its steel and raw material assets outside India, on the London Stock Exchange to raise funds to buy iron ore and coal mines, and pay back part of the debt it took to buy Corus Plc.

Oil and Natural Gas Corporation (ONGC) is likely to conclude an acquisition deal in two months, suggest reports. The acquisition could be a company or a discovered oil and natural gas asset.

Parsvnath Developers may reportedly buy 30% - 38% in the Nano City project in Haryana of Sabeer Bhatia, who developed Hotmail.

Shipping Corporation of India has reportedly been able to place orders for only half its planned order for ships estimated for the 11th five-year plan, as shipyards globally are overbooked and have a long waiting list.

Negotiations between K Raheja Universal group and Lupin for part of the latter's land in the Thane district has reportedly flopped because of the prevailing uncertainty in the real estate market.

WNS Holdings, controlled by Warburg Pincus, has reportedly bought the BPOs of UK-based insurance company Aviva in India and Sri Lanka for $230 million.

The Supreme Court has reportedly appointed a three-member arbitration panel to sort out the tussle between the Tatas and the AV Birla group over Idea Cellular.

The board of Abbott India at the meeting held on 9 July 2008 approved a buy back of 7.97 lakh shares through open offer at Rs 630 a share.

The board Era Financial Services India at the meeting held on 9 July 2008 has approved the merger of Era Landmarks (India), a real estate firm, with the company.

Bajaj Auto, Bajaj Holdings and Sintex Industries will declare their June ended Q1 results today.