It is easier to restrain wild donkeys than to raise a dead elephant.
Leave the donkeys and the elephants aside. The bulls are all set to make a strong comeback after two days of extreme turbulence and a lot of pain. The reason: a slew of overnight developments by both US and Indian central banks to douse the financial wildfire on Wall Street and restore investor confidence. The RBI has announced a set of measures to ease the tension in the domestic financial markets in the wake of the latest turbulence in the US.
lthough the Federal Reserve has decided against cutting rates or now,it has, in an unprecedented step, lent $85bn to the struggling insurance giant AIG to keep its nose above water
In a related development, British bank Barclays has agreed to buy Lehman Brothers' core US businesses for $1.75bn.
In addition, equity markets across the world have rallied. This, along with Tuesday's smart pull-back from lows in the Indian market, shows that the bulls could have a much better day in office today. Remember, the strains across global financial system remain very much in place, and there could be some more pain in the offing. There is always a case for our market to buck the global trend and put up a strong resilience. But take advantage of whatever gains come your way before the pains are back.
US stocks rebounded on Tuesday despite the Fed policymakers holding interest rates steady, as the Bush government decided to come to the rescue of the troubled insurance major AIG.
The Dow Jones Industrial Average gained 1.3%. The Dow had fallen to a fresh bear market trading low of 10,742.70 in the morning before bouncing back. The Standard & Poor's 500 index gained 1.8% and the Nasdaq Composite index added 1.3%.
Stocks were highly volatile throughout the session as investors considered the prospects for AIG. Media reports that the US Treasury could step in helped the key indices pare morning losses and gave the market a much-needed fillip.
The FOMC decided to hold the fed funds rate, a key short-term interest rate, steady at 2% and hinted that it could cut borrowing costs in future as inflation pressures were starting to recede. Stocks initially took a knee-jerk negative reaction to the Fed's move, before bouncing back.
Ahead of the meeting, the New York Federal Reserve said it would inject an additional $50bn into the banking system to keep the liquidity flowing on top of the already scheduled $20bn. The New York Fed enacts the central bank's market operation.
After the close, AIG shares tumbled around 50% on a report that the US government was considering conservatorship as a means of rescuing the troubled insurer. The government put Fannie Mae and Freddie Mac in conservatorships earlier this month.
Following the reports, AIG issued a statement saying that its life insurance, general insurance and retirement services businesses are operating normally. The insurer reiterated that it continues to look for means of raising capital to address what it says are short-term liquidity issues.
Shares of AIG slipped 20% in regular trading, after falling nearly 70% at the open and having recovered to trade higher in the afternoon. AIG has been under pressure as it has struggled to raise as much as $75bn to avoid collapse. Its shares had plunged 61% on Monday.
Also after the close, reports said that Barclay's has agreed to buy some of the investment banking and trading operations of Lehman Brothers, which declared bankruptcy on Monday after failing to find a buyer. Lehman shares gained 43% during the regular session.
Additionally, Morgan Stanley reported better-than-expected third-quarter sales and earnings after the close on Tuesday, one day ahead of schedule.
Goldman Sachs reported a steep 70% decline in its earnings that nonetheless topped forecasts on weaker revenue that missed estimates. Goldman shares slipped 1.8%, erasing bigger morning losses.
The Consumer Price Index (CPI) fell 0.1% in August after rising 0.8% in July, meeting forecasts. So-called core CPI, which strips out volatile food and energy prices, rose 0.2% in August, meeting forecasts and following a gain of 0.3% in the previous month.
Oil prices plunged as investors continued to bet on a global economic slowdown amid Wall Street's meltdown. Oil prices settled at a seven-month low of $91.15, down $4.56 a barrel. Retail gasoline prices were higher overnight.
Treasury prices tumbled, erasing earlier gains as the stock market reversed course after the Fed announcement. Bond prices fell, boosting the yield on the benchmark 10-year note to 3.49% from 3.39% late on Monday. Earlier, the 10-year had fallen as low as 3.25%, a more than five-year low. In currency trading, the dollar fell versus the euro and the yen. COMEX gold for December delivery fell $6.50 to settle at $780.50 an ounce.
All eyes on the Fed
Indian markets followed global meltdown as the benchmark Sensex started off with a huge negative gap at open. However, markets were on recovery mode on the back of renewed buying witnessed in the index heavyweights like Reliance Industries, SBI and HDFC Bank. Further on, short covering saw key indices even break into positive terrain. Finally, the BSE benchmark Sensex ended flat at 13,518 and the NSE Nifty index ended flat at 4,075.
Among the 30 components of the Sensex 20 stocks ended in the red and only 10 stocks. Index heavyweights like Reliance Industries, SBI and ITC were among the major gainers.
On the other hand, ICICI Bank, Satyam and Tata Steel were among the major laggards.
Shares of Tata Comm surged by over 7.5% to Rs424 after the company announced that it has partnered with Bharti Telesoft to launch Intelligent CAMEL eXchange. The scrip touched an intra-day high of Rs430 and a low of Rs377 and recorded volumes of over 46,00,000 shares on NSE.
Shares of Glodyne Technoserve rallied by over 6% to Rs653 after the company, through its subsidiary - Smaarftech Technologies Pvt Ltd, signed an agreement with Bihar State Electronics Development Corporation (BSEDC) - Govt. of Bihar for executing a turnkey Technology Project worth Rs2.84bn for implementing National Rural Employment Guarantee Scheme (NREGS) in the state of Bihar.
Smaarftech, the Lead Member of the Consortium consisting of other members i.e. Face Technologies - a South African Govt. owned, leading technology Company in identity management solutions, and Anil Printers Ltd, has won this order. The scrip touched an intra-day high of Rs664 and a low of Rs582 and recorded volumes of over 34,000 shares on NSE.
Shares of Corporation Bank gained by 1% to Rs262 after the board of directors of the bank approved the proposal for raising Tier I Bond / perpetual Bonds to the extent of Rs6bn and Upper Tier-II Bond to the extent of Rs10bn. The scrip touched an intra-day high of Rs264 and a low of Rs254 and recorded volumes of over 41,000 shares on NSE.
A sharp recovery was witnessed in shares of KSK Energy after declining by over 8.5%, the stock rallied by over 17% to close at Rs202. Reports stated that Lehman Brothers hold 28.4% stake in the company for a lock in period till July 2009. The liquidator cannot sell shares; it can do only in July 09, stated reports. The scrip has touched an intra-day high of Rs212 and a low of Rs153 and recorded volumes of over 5,00,000 shares on NSE.
Refinery stocks also gained the most as crude oil prices declined as much as 4%, the most in seven months reducing the losses for refining companies.
Shares of ACC slipped by 2% to Rs582 after the company announced that it has proposed to delist the Global Depositary shares of the company, which are presently listed in the London Stock Exchange.
The Company vide its letter dated September 01, 2008, have directed the depository (Citibank N. A., Newyork) to terminate the Deposit Agreement with effect from October 15, 2008. The scrip touched an intra-day high of Rs592 and a low of Rs570 and recorded volumes of over 86,00,000 shares on BSE.
ONGC is likely to strike oil in its Cauvery basin deepwater block. (ET)
Reliance Capital plans to set up a separate housing finance subsidiary and a non-banking finance company for the consumer finance business. (ET)
Wipro Technologies and Copal Partners have bid for the Indian back office business of Lehman Brothers Holdings. (BS)
The ADAG foray into steel, cement and shipping businesses is likely to be through Reliance Natural Resources. (BS)
ONGC to enter solar energy business. (BS)
Reliance Capital to invest Rs20bn in insurance businesses in the next three years. (BS)
NHPC and Oil India may rethink IPO timeline. (BS)
ICICI Bank to make an additional provision of US$28mn on its exposure to bonds issued by Lehman Brothers. (BS)
Tata Steel and Nippon Steel Hardfacing Company have signed an agreement, which entails the Indian steel major to use the Nippon’s welding technology. (BS)
Reliance Industries plans to set up a trading arm in the United States to sell fuel from its refineries at Jamnagar in Gujarat. (BS)
Liberia disqualifies Tata Steel from mining rebid. (BS)
Norway’s Rocksource to partner ONGC in Cauvery block. (BL)
Reliance Infrastructure has proposed investing Rs400bn to build a steel plant with a capacity of 12mn tons in the eastern state of Jharkhand. (ET)
NHPC plans to set up two hydro-power projects in Myanmar. (ET)
Emami revised upwards the price for the mandatory open offer for Zandu, from Rs7,315 a share to Rs15,000 a share. (BL)
Pan Atlantic LLC has invested an additional US$10mn to increase its stake by 30% to 70% in the SPV floated by Sobha Developers for its residential project in Bangalore. (BL)
TCS has won a contract to provide technology for Europe’s largest clearing house LCH.Clearnet’s derivatives clearing platform. (BL)
ACC has proposed to delist its GDRs from the London Stock Exchange. (ET)
BSNL has short listed Chinese firm, Haier Mobile to offer handsets with its CDMA services in the country’s east zone. (ET)
BSNL employees’ union has protested over the company’s decision to share its network with private operators. (ET)
A JVC formed by BHEL and NPCIL has invited bids for technology transfer for nuclear power projects with generation capacities of 700mw and 1600mw. (FE)
NMDC Ltd has proposed to acquire Hyderabad-based Sponge Iron India for ~Rs810mn and plans to invest ~Rs4-5bn to make SIIL an integrated steel producing unit. (ET)
Jindal Drilling is in talks with Norwegian offshore services group, Sevan Marine to form a US$700mn JV to construct a deepwater rig capable of operating in water depths of 1,000 feet and drilling down to 50,000 feet. (ET)
A consortium of investors, led by private equity player 3i, is in talks to pick up a 4-4.5% equity stake in Adani Power for Rs18bn. (ET)
Welspun India to de-merge its distribution & marketing and investment divisions into two separate companies. (ET)
Future Ventures India, the venture capital arm of Future Group is close to acquiring a substantial stake in Kolkata-based apparel maker Turtle. (ET)
Air India has submitted a proposal to the civil aviation ministry seeking financial assistance of Rs23.5bn to meet its working capital requirements. (ET)
Economy Front page
Reserve Bank of India has announced a series of measures aimed at increasing liquidity and attracting foreign currency. (BL)
Oil Minister Murli Deora said petrol and diesel prices would not be cut till crude oil prices fell to US$67 a barrel.(BS)
Rupee crashed by 90 paise to 46.90 against the US Dollar. (BL)
Mamata Banerjee softened her stand on ancillary units in Singur. (BL)
OPEC has cut its forecast for global growth in oil demand in 2008 for the sixth time this year. (ET)
The Government has asked oil companies to clear waitlist for domestic LPG connections by the month-end. (ET)
The State Government is considering a proposal to raise the FSI for the city from existing 1.33 to at least 2.2 across the real estate sector. (ET)
The Asian Development Bank has lowered India’s GDP forecast for FY09 to 7.4% from earlier projection of 8%. (ET)
State Governments have asked the 13th Finance Commission to increase their share in the divisible pool of central taxes to 50% from the existing 30.5%. (FE)
India’s tea exports are likely to surge by over 17% to 210mn kg in 2008 led by revival of Iraq trade. (FE)
Jewellery exports from India increased by 17% in the five months ended August. (FE)