When defeat is inevitable, it is wisest to yield.
Well, the much-awaited Washington events are finally out of the way. The new bank bailout plan and the passing of the stimulus bill in the Senate were not received too well by Wall Street. US indices slumped over 4% each with the S&P 500 bearing the brunt of the sell-off. European shares ended 2-3% down. Asian markets, barring the Hang Seng, are relatively better off this morning.
We expect a steep fall in opening trades as bulls yield to the global trend. A pull-back to positive zone seems less likely.
Any hope could come on expectations that the Government may announce further stimulus measures in Monday’s interim budget. Top government officials are hinting at sector-centric sops in the vote-on-account. And if media reports are anything to go by, Real Estate, Auto and IT sectors are likely to be major beneficiaries.
Meanwhile, the IIP data for December is likely to be better than the past couple of months. Inflation may also soften a bit further. We see the key indices losing recent momentum and turn sideways again, even if the Government announces more stimulus measures.
FIIs were net buyers of Rs3.69bn (provisional) in the cash segment on Tuesday, while the local institutions pulled out Rs1.17bn. In the F&O segment, the foreign funds were net buyers at Rs1.18bn. On Monday, FIIs were net buyers at Rs2.89bn in the cash segment while Mutual Funds pumped in Rs629mn on the same day.
US stocks plunged on Tuesday, with the S&P 500 index suffering its biggest fall since Barack Obama's inauguration as the new President. Bond prices rallied on skepticism about the revamped bank bailout plan. The dollar and gold rose.
The Dow Jones Industrial Average ended at a 3-month low, as the government's bank rescue plan failed to reassure investors hit by the 14-month old recession. The Dow average lost 382 points, or 4.6%, to end at 7,888.88, closing at its lowest point since Nov. 20. The Dow had lost as much as 422 points in the afternoon.
The S&P 500 dropped 43 points or 4.9%, to 827.16, the most since Jan. 20, to 827.16. The Nasdaq Composite index lost 66 points, or 4.2%, to close at 1,524.73.
US stocks slipped leading into Treasury Secretary Timothy Geithner's late-morning speech and accelerated after he finished outlining the plan. He is providing more details this afternoon in a congressional hearing.
Geithner discussed some of the causes of the current financial meltdown and outlined some of the basics of the new plan, which revamps the Treasury's Troubled Asset Relief Program (TARP).
However, he did not put a price tag on the new plan, which is expected to exceed the remaining half of the original US$700bn TARP. He also said the Treasury will not ask Congress for more money right now.
The Treasury will "stress test" the big banks to get a sense of whether they can handle a further economic slowdown, and will provide additional funds as needed.
Banks receiving money will have to provide details about their intended uses for the money. The plan will also make more credit available to consumers and businesses by expanding an existing Federal Reserve program.
The plan also addresses the housing crisis by making money available to reduce mortgage payments and create loan-modification guidelines. The Treasury also said it will create a combined public and private investment fund that would take the bad assets off bank balance sheets.
Separately, the Senate passed its US$838bn economic stimulus bill by 61 to 37. Now leaders will need to negotiate a final bill with the House, which already approved an US$819bn version of the plan two weeks ago.
Investors also considered Fed chairman Ben Bernanke's prepared testimony before a House committee. Bernanke said that the central bank's efforts to increase liquidity are "no panacea" to the credit crunch. Yet he also said that the Fed's actions are easing the strain.
General Motors (GM) said it was cutting 10,000 workers, or 14% of its salaried jobs, around the world. One-third of those jobs will be in the US. The automaker also said it will cut the pay for its remaining salaried workers. Shares fell 4.6%.
Wal-Mart Stores said it is cutting as many as 800 jobs at its headquarters as a means of cutting costs.
UBS reported a US$7bn quarterly loss in the last three months of 2008, worse than expected, and also said it was cutting 2,000 jobs. Shares gained 1.5%.
Treasury prices surged, lowering the yield on the benchmark 10-year note to 2.81% from 2.99% on Monday.
Lending rates were modestly lower. The 3-month Libor rate slipped slightly to 1.22% from 1.23% on Monday. The overnight Libor rate slipped to 0.30% from 0.31% Monday. Libor is a bank lending rate.
US light crude oil for March delivery dropped US$2.01 to US$37.55 a barrel on the New York Mercantile Exchange. Gasoline prices rose four-tenths of a cent to a national average of US$1.928 a gallon.
The dollar fell against the euro and yen. COMEX gold for April delivery rose US$21.40 to settle at US$914.20 an ounce.
European shares fell for the first time in six sessions on Tuesday, with oil producers and mineral extractors under pressure, as investors shrugged off the US government's plans to shore up the country's financial system and the economy.
The pan-European Stoxx 600 index fell 2.8% to 193.82, ending a five-session run of gains. The sell-off accelerated at the end of trade as the new U.S. administration said it will set aside up to US$2 trillion to stem the financial crisis.
The UK's FTSE 100 index declined 2.2% to 4,213.08, while Germany's DAX 30 index fell 3.5% to 4,505.54 and the French CAC-40 index lost 3.6% to 3,020.75.
It was the third straight trading session where markets ended with positive gains. Key indices gained momentum after a flat start with the Nifty crossing the 2,950 mark in intra-day. However, markets turned highly volatile and slipped sharply on the back of weak cues from the European markets.
As the day progressed, bulls yet again staged s smart come back towards the end with the BSE Sensex finally adding 49 points to close at 9,633 and the Nifty advanced 76 points to close at 2,934.
Among the 30-components of Sensex, 17 ended in the positive terrain and 13 stock ended in the red. The major gainers in the Sensex were DLF, BHEL, L&T, M&M, HDFC Bank and Reliance Communication.
Shares of Reliance Industries edged higher by 1% to Rs1401 after reports stated that the company is planning to start selling fuel from its new refinery in April. The scrip touched an intra-day high of Rs1414 and a low of Rs1373 and recorded volumes of over 24,00,000 shares on BSE.
Shares of BHEL further surged by over 4% to Rs1451 after the company yesterday announced that it has secured four orders worth Rs70bn. The scrip touched an intra-day high of Rs1461 and a low of Rs1391 and has recorded volumes of over 3,00,000 shares on BSE.
Shares of BEML surged by over 5% to Rs392 after reports stated that the BEML was looking for a slice of the global high speed train parts market. The scrip touched an intra-day high of Rs405 and a low of Rs376 and recorded volumes of over 1,00,000 shares on BSE.
Maytas Infrastructure continued its downward trend. The stock was locked at 5% lower circuit to Rs51.55 after reports stated that the Rs121bn Hyderabad Metro Rail Project awarded to the company may be taken back if it is unable to achieve financial closure. The scrip touched an intra-day high of Rs51.8 and a low of Rs51.8 and recorded volumes of over 10,000 shares on BSE.
Shares of Bajaj Auto advanced by 1.5% to Rs466 after reports stated that the company would hike its stake in KTM Power Sports, Europe, to 30% from 25% currently. The scrip touched an intra-day high of Rs475 and a low of Rs463 and recorded volumes of over 8,000 shares on BSE.
A lot would depend upon the Obama administration’s stimulus package. Also being eagerly awaited is the unveiling of a revamped bank rescue plan. Both the key events would take place later today in the US. So, the global cues would be playing an important role in dictating the trend atleast in the opening trades.