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Equities: preparing for worse (Live mint.com 20th Feb 2008)Former US Federal Reserve chairman Alan Greenspan said recently that there’s a 50% chance the US economy will slip into a recession and the volatility in the equity markets worldwide reflects the high level of uncertainty among investors. The conservative attitude during such times is “to hope for the best, but prepare for the worst.” So, how bad can it get for Indian markets? The last time the US had a mild recession was seven years back when the Sensex fell around 50% from its peak. UBS has now come out with a report titled “How would India fare in a global recession?” that explores the comparison with 2000-02 in detail. The UBS note says that while there was a slowdown in the Indian economy during 2000-01, this was on account of a decline in agricultural production rather than because of the performance of sectors linked to the global economy. Moreover, investment demand was muted during the period and interest rates were m...

What ails the primary market? (The Economic Times 20th Feb 2008)Capital market, as a composite of primary and secondary markets, acts as the platform for channelising scarce economic resources to optimum utilities, fuelling the economic growth. The past few years have witnessed innumerable improvements by market forces and regulators, leading to healthy and efficient markets. Undoubtedly, India now boasts of one of the most efficient and transparent primary markets which has, in turn, helped in improving the depth and breadth of secondary markets. The recent sell-off in the global secondary markets have been a consequence of the subprime crisis, where global financial institutions suffered significant losses resulting in liquidity and capital adequacy problems. On the domestic front, the sustained rally in the last few years resulted in complacency across the market. This period has seen secondary market investors developing a habit of buying in small corrections (irrespective of valu...

Nifty slips into red; realty, IT drag (The Economic Times 18th Feb 2008)Stocks opened higher on Monday, but slipped into the red due to mixed global cues. Capital good and power shares led the advances, while real estate and technology dragged. At 10 am, the Bombay Stock Exchange’s Sensex was up 20 points at 18,134.45. The index touched a high of 18,256.82 and low of 18,121.03 in trade so far. The National Stock Exchange’s Nifty was down 3 points at 5299.45, making a high of 5348.60 and low of 5296.40. Biggest Nifty gainers were Tata Power (up 2.64%), Wipro (2.35%), Reliance Communications (2.08%), Reliance Petroleum (1.91%), Dr Reddy’s (1.88%) and Reliance Energy (1.81%). VSNL (down 2.27%), HCL Technologies (1.26%), Tata Motors (0.25%), ICICI Bank (0.08%) were the losers. Asian markets were mostly higher Monday, with Japanese shares pacing gains on Sony and Toshiba in the wake of reports they could end an expensive battle to determine the future of DVD-format technology. The Nikkei 22...

FIIs make net sales of Rs 13,036 cr in Jan (Business Standard 1st Feb 2008) Foreign institutional investors (FII) sold record net holdings of Rs 13,036 crore ($3.23 billion) in January, according to Sebi data. This is the highest net sales by FIIs in single month ever since they entered the Indian markets. In August 2007, FIIs sold Rs 7,771 crore ($1.92 billion) worth of equity shares. However, dwarfing the figure compiled by the Securities and Exchange Board of India (Sebi), the FII outflow in January 2008 was a mindboggling Rs 29,477 crore, according to provisional data provided by BSE and NSE. The Sebi data includes FII buying in primary and secondary markets, while the data from the exchanges is based on trading in the secondary market only. With FIIs pulling out of money, the benchmark indices, the Sensex and Nifty, have crashed. The BSE Sensex slumped 2,638.28 points this month, its largest ever fall in a month. The index has declined 13 per cent since December 31, 2007 (20,286....

Bank stocks take a beating (The Hindu Business Line 30th Jan 2008)Bank stocks took a beating on the bourses on Tuesday as the Reserve Bank of India’s Credit Policy belied the market expectation of a rate cut. The BSE-Bankex plunged 3.48 per cent after riding high on Monday on speculation of a possible interest rate cut. The BSE-Bankex had gone up by 1.24 per cent on Monday. NSE’s Bank Nifty too plunged 3.36 per cent on Tuesday. “Today’s was a temporary reaction to the Credit Policy in which the RBI has kept its key rates unchanged. A section of the market was expecting a rate cut by the RBI following the US Fed rate cut earlier,” said Mr Rajnish Rangari, Country Head, Investment Banking-CMG, Karvy Investor Services. The top losers of the day were HDFC Bank, which fell 3.36 per cent; SBI, which dipped 3.58 per cent; and ICICI Bank, which went down 4.19 per cent. However, the status quo on interest rates will not impact the performance of the banks in the long run, felt analysts. More R...

Expert players in options faced huge losses in market meltdown (The Economic Times 29th Jan 2008)The recent market meltdown has extracted a heavy price of retail and high net worth investors who had been rashly dabbling in stock and index futures without much thought to risk. But they could draw some comfort from the fact that many of the ‘expert’ players in the options segment — the more sophisticated side of the derivatives market — have been guilty of a similar sin, and have ended up blowing a huge hole in their pockets. The proprietary trading desks at a few domestic leading brokerage houses, who specialise in the F&O (futures and options) segment, recklessly wrote out put contracts on the Nifty for strike prices between 5800 and 6200 just before the market began its slide during the mid of this month. These investors had quietly accumulated these options betting on a reversal of the bullish trend. Writing a put option for these prices means that the writer of the put option w...

Banking stocks shine ahead of Credit Policy (The Hindu Businessline 29th Jan 2008)Banking sector stocks were flying high on the hope of a cut in credit rates in tomorrow’s credit policy review. The buzz in the market is that the central bank might cut a key interest rate by 25-50 bps. On the BSE, only the auto and bankex sector ended the day in the green. The BSE-Bankex outperformed the Benchmark index to end the day up 1.24 per cent more than its previous day’s close. Only four stocks declined in the sector and 14 stocks advanced. The country’s largest private sector bank, ICICI Bank, was among the top gainers of the day on the BSE today. It was up 1.15 per cent to close the day at Rs 1273.70. Other stocks that performed well today in the banking sector include Axis Bank, which surged ahead 3.66 per cent, Bank of India, which raced ahead 3.78 per cent, Canara Bank, which saw an increase in its prices by 5.11 per cent, and Yes Bank, which went up a whopping 5.05 per cent. “If the RBI c...

Week Ahead: Long term trend under pressure (Business Standard 28th Jan 2008) A massive downtrend was triggered by around $4 billion worth of FII sales and margin calls. There was a marginal recovery in the last two sessions but the long-term bull market may have reversed. The Nifty hit a low of 4448 before pulling back to 5383 with a week-on-week loss of 5.81 per cent. The Sensex bottomed at 15332 before closing at 18361 for a weekly loss of 3.42 per cent. The Defty was down 5.81 per cent as the rupee reacted to massive outflows. The Bank Nifty was the only index that gained, if marginally. Breadth was poor and the volumes on the recovery were much lower than on the sell-off. The Nifty Junior was down 6.95 per cent. The mid-caps suffered most and lost 9.25 per cent. More Markets likely to remain choppy (The Economic Times 28th Jan 2008)Global news flow will play a key role in determining the direction of the equity market this week. Events, like the Reserve Bank of India (RBI) meet on ...

Fed's treatment regime of high dose of interest cut for the falling markets has desired effect. Asian markets today reacted positively. Most of the markets have a great day after a week or more of panic. In Hong Kong, the Hang Seng index led the region, soaring 10.72 percent to close at 24,090.17 wiping out an 8.7 percent loss Tuesday. The Shanghai composite index ended up 4.65 percent. The Japanese Nikkei average closed 2 percent higher while the Topix index was up 2.5 percent. The Australian S&P/ ASX 200 index finished with a 4.4 percent gain, down from an initial 7 percent jump, but breaking a 12-day losing streak. The Indian Sensex , one of the biggest losers in the past two days, has a biggest interday gain today. Finally Sensex closed more than 800 points up at 17541.88 and almost wiped out yesterdays loss. Some analysts are not that optimistic . Washinton Post reports Fed's emergency action was seen by some as a sign of American authorities admission that the...

Taking a bold step Fed has cut a key interest rate by three-quarters of a percentage point to stop panic stricken free fall of the world market. It is expected that European Central Banks would follow suit. Fed rate cut is unprecedented in magnitude and in timing. Fed has taken this decision about 10 days ahead of the schedule meeting. The cut is even bigger than the step taken after 2001 terrorist attacks. The rate cut has a great impact on the Asian Market but the US market reacted more cautiously. Although Dow Jones industrial average closed 128 points down at 11,972 and the NASDAQ dropped 48 points to 2,292, down fall is much less dramatic than the Asian pears on the same day. Asian market today reacted very positive to the fed rate cut. At the time of writing the Hang Seng has rallied 1,452 points (6.8%) to 23,209. The Nikkei has surged 421 points (3.3%) to 12,994.The Straits Times index has advanced 79 points (2.8%) to 2,946, and the Seoul Composite index has added 22 points (1.3...

Omaxe, eClerx Services, Kolte-Patil Developers ,BGR Energy, Edelweiss Capital, BGR Energy Systems, Transformers & Rectifiers are below or near their IPO offer price, which gives an opportunity to the long term investors for an entry. Recently listed stocks plunge below offer price (The Hindu Business Line 23th Jan 2008) For investors who weren’t lucky enough to be allotted shares in recent IPOs (initial public offerings), Tuesday presented a fresh entry point to these stocks at bargain prices. The wave of selling forced several of these recently listed stocks below or within sniffing distance of their IPO issue price, offering a fresh opportunity to buy into them in the secondary markets. Stocks that plunged below their issue prices during the day included fancied stocks – some of which witnessed runaway response during their IPO and some that listed at a huge premium. Edelweiss Capital, BGR Energy Systems and Transformers & Rectifiers were a few stocks that were available at...

1,323 stocks hit lower circuit (The Hindu Business Line 22th Jan 2008) The upheaval at the bourses had a major impact on small- & mid-cap stocks. Probably the lone indicator that was positive so far paints a grim picture now, with 1,323 stocks hitting lower circuit filter against just 51 stocks that hit the upper circuit on the BSE on Monday. If a stock hits upper circuit filter, it means there are no sellers and only buyers; vice-versa if it hits a lower circuit filter. Till now, when small- & mid-cap stocks were in vogue, circuit summary and advance/decline ratio painted rosy picture for the market. However, both these indicators turned weak since the first weak of January. Today’s sharp fall changed the circuit filter scenario altogether. Every second stock that was traded on the BSE saw its share price ending at lower circuit filter. This, according to observers, indicates that the selling, which was largely confined to large-cap stocks in the recent past, is slowly percola...

'Global outlook more uncertain now’ (The Hindu Business Line 22th Jan 2008) The US sub-prime crisis and global financial uncertainties seem to list high on the RBI Governor, Dr Y.V. Reddy’s list of concerns, a week before the quarterly review of the monetary policy on January 29. Speaking to presspersons on the sidelines of the 5th convocation of the Indira Gandhi Institute of Development Research and on the day of the meltdown in the Indian stock market, Dr Reddy said, “The global financial uncertainties were not entirely unanticipated but the intensity was not predicted nor was the duration expected. The outlook seems to be far more uncertain now for the global situation than before… There will be considerable attention paid to this in the monetary policy”. More Capital market growth is priority concern: PM (The Hindu Business Line 22th Jan 2008)Reacting to the stock market crash, the Prime Minister, Dr Manmohan Singh, today said that corrections do happen in the market and the o...

Technically, not much downward potential now (Live mint.com 21th Jan 2008)Sentiments took a U-turn on the bourses—both domestic and global—in the wake of negative news and data that raised fears that the US economy is finally heading into recession. The impact of fears was such that Asian markets, especially India, witnessed a sell-off. Since the beginning of the year, Indian stocks have shown a lot of resilience and remained firm despite a fall on US and other global bourses. However, since the beginning of last week, things have changed, with the situation turning from bad to worse by the time the week ended. By that time, the situation could have been best described by using words such as “gloom” and “despair”. Last week’s losses were no surprise. Last week’s column said that the markets were showing signs of tiredness and that a fall was inevitable. Thus, the markets fell on expected lines, but Friday’s huge sell-off was certainly well beyond expectations and sent shivers down the ...

Bulls may play catch-up game (The Hindu Business Line 21th Jan 2008)After last week’s sharp fall, as anticipated in this column, Dalal Street would strive this week to bounce back, but may find it difficult in the process. Nevertheless, bull operators are likely to make a valiant attempt to boost the sentiment on the first day of the week. According to market sources, margin calls, which surfaced last Friday towards the closing session, did have a negative effect on the market, particularly on the liquidity. A spill over effect of that is still expected on Monday. LIC and domestic mutual funds are likely to fresh investments in the blue chips and select fundamentally strong counters, but fight shy of taking up the market driver’s seat. FIIs, who have turned distinctly risk-averse, may also slowly to get their acts together in the coming days. More Bear clutch spares none (The Hindu Business Line 21th Jan 2008) It was one of the worst weeks in recent times for the global markets. Acco...

Is India a high valuation market? (Live mint.com 14th Jan 2008)Everybody knows that India is an expensive market. But just how pricey is it compared to other markets? The S&P/Citigroup Global Equity indices show that, according to IBES (a global database of analysts’ forecasts), the Indian market was valued at a one-year forward price-earnings multiple of 25.62 as on 31 December 2007. That’s the third highest valuation for all the markets covered by the group of indices. The highest valuation among emerging markets is for Morocco, which shows a one-year forward multiple of 30.11. China is third at a multiple of 23.46. (That’s assuming Nigeria’s multiple of 185.71 is a statistical quirk). Among the developed markets, Slovenia, at a multiple of 31.79, stands out in solitary splendour. Of course, the high valuation is also a reflection of a high return on equity (RoE). India’s RoE is 19.77, according to the S&P/Citigroup numbers, well above China’s 15.31. But then, several other c...

ICICI Bank jumps 17% week-on-week (The Hindu Business Line 14th Jan 2008)With almost all the US economic data painting a rather dull picture, the US stocks slumped last week. Besides, forecasts from AT&T Inc and American Express Co and Tiffany & Co also bolstered speculation that the US economy is entering recession. The Standard & Poor’s 500 Index fell 0.8 per cent last week while the Dow Jones Industrial Average declined 1.5 per cent and the tech-focussed Nasdaq slumped 2.6 per cent.India: Mixed trend On the other hand, the domestic markets displayed fatigue in its bull momentum. While the BSE Sensex gained 0.68 per cent, the NSE’s S&P CNX Nifty tumbled 1.18 per cent. The fall was even steeper in the case of BSE Mid-cap, BSE Small-Cap and Junior Nifty indices, capturing the broader weakness of the market. More Markets to face strong resistance from now on (Live mint.com 14th Jan 2008) Producer prices and retail sales data are due on Tuesday, while consumer price data...

Midcaps, smallcaps shave off nearly 40% from recent highs (CNBV-TV18, Moneycontrol.com 11th Jan 2008)You can count the numbers, and well, they will be disappointing to put forward. But as mentioned earlier, midcaps and smallcaps had seen a steep increase and have already outperformed all the major or the largecap stocks, if one sees before this correction. However, this correction has been much steeper than the rise which, even the midcap and smallcap industries have seen. To put numbers into perspective, the midcap index, which has gained nearly 25% since December beginning, before the correction, has lost nearly 8% this week in merely five trading sessions. The smallcap index had ginaed nearly 33% since December before the correction started. However, it has lost nearly 10% in the last five days. Most of these stocks, which are momentum stocks or which are the trading stocks, have lost nearly anywhere between 25% and 40%. You can pick any stock, or in a major way the momentum stocks...

Mid-cap segment offers huge returns (The Economic Times 7th Jan 2008)If you have been reading business papers or watching TV channels, you would not have missed hearing the words ‘mid or small’ cap. Before defining what a mid or small cap is, here’s a primer, the word ‘cap’ or market capitalisation as it is known is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size as opposed to sales or total asset figures, says Investopedia. Accordingly, the number of small/mid-caps are far in excess of the large cap stocks. Large caps are the ones which form part of either the BSE Sensex-30 or the NSE CNX Nifty-50. More

Small-cap shares most pricey (Live mint.com 4th Jan 2008)Is the amazing rise in small-cap stocks in line with the “fundamentals”? As it turns out, small-cap shares are the most expensive based on price-earnings to growth (PEG) ratio, which is simply the price-earnings (P-E) multiple divided by earnings growth. Earnings of shares that comprise the Bombay Stock Exchange (BSE) small-cap index grew 19.6% in the September quarter, but their trailing 12-month P-E multiple was as high as 24.9, resulting in a PEG ratio of 1.3. Large-cap shares represented by the BSE 100 index had a PEG ratio of 1.1 and grew earnings by 23.8% (the P-E multiples mentioned above will differ slightly from those published by BSE because it excludes stocks on which year-on-year earnings growth data isn’t available). The top performers were mid-cap shares, which grew earnings by as much as 37.1% and trade at a PEG ratio of just 0.7 times. Their fast-paced growth in earnings last quarter was no flash in the pan—in th...