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Tuesday, July 07, 2009

Scope for hope!


Hope is tomorrow's veneer over today's disappointment.

The market thumbs down need not disappoint you much. We had warned that having too high expectations from the budget was foolhardy. That’s exactly what has happened. Stocks, bonds and the rupee made evident their displeasure.

Markets are rarely in agreement with the political class, especially when short term steroids are not articulated. Reforms for markets may mean something different than what they mean for the Government. The bottomline is this: don’t despair as the huge dollops of stimulus unleashed could actually stand India in good stead (in the longer term).

Authors of the budget defend the lack of announcements saying it is not necessary to include the same in the budget. So, there is still hope that disinvestment, PSU IPOs and other reforms may be announced in the coming quarters.

It remains to be seen whether the markets regain their composure after the Monday mayhem? Some sort of a comeback is a given after such a big selloff. The global picture is not too encouraging. One will also have to contend with corporate earnings. Be stock specific and stick to quality stuff. The FIIs’ stance, whether you like it or not, will play a major role too.

FIIs were net sellers in the cash segment on Monday at Rs14.83bn while the local institutions poured in Rs8.16bn. In the F&O segment, the foreign funds were net buyers at Rs17.45bn. On Friday, the foreign funds were net buyers at Rs5.68bn in the cash segment. Mutual Funds also pumped in Rs3.04bn on the same day.

US blue chip stocks erased some of the early losses to end marginally higher on Monday, though the technology space did see some selloff.

Stocks slipped through the early afternoon, in line with falling oil prices. A better-than-expected report on the services sector of the US economy did have a bearing on improving the sentiment. But a late pick-up in biotechnology and consumer stocks helped the Dow turn positive.

The Dow Jones Industrial Average gained 44 points, or 0.5%, to 8,324.87. The S&P 500 index rose 2 points, or 0.3% to close at 898.72 and the Nasdaq Composite index fell 9 points, or 0.5%, to finish at 1,787.40.

US market had slipped on Thursday after a weaker-than-expected jobs report fueled worries about the health of the world's largest economy. All financial markets were shut on Friday for the Independence Day weekend. Monday's trading was partly a continued response to the job report.

People want hard evidence that the global recession will end later this year or early next year. The jobs report was an indication that the recovery will take longer than previously anticipated.

US stocks rallied for three months, with the S&P 500 gaining 40%, on optimism that the worst of the recession is over. But stocks have been struggling in the past few weeks on concerns that the stock rally went too far, too fast.

General Motors' (GM) restructuring plan has been approved by a federal judge, clearing the way for the troubled automaker to emerge from bankruptcy. The automaker will be allowed to sell most of its assets to a new company, which should clear the way for it to exit bankruptcy. The judge's ruling came after a three-day hearing ended on Thursday. The company has received $50 billion in taxpayer funds. In exchange, the US government will get a majority stake in the new GM. Other owners include the Canadian government and the United Auto Workers union. GM shares fell 14.4%.

Pepsi and Pepsi Bottling Group will invest an additional $1 billion in Russia over the next three years in an effort to counter weak domestic sales by boosting profits in emerging markets. The two companies have now invested more than $4 billion in Russia.

Rio Tinto sold a division of its Alcan unit for $1.2 billion as it seeks to cut debt after the 2007 purchase of the Canadian aluminum company. The sale of Alcan's packaged food division to US-based Bemis is a cash-and-stock deal.

The Institute for Supply Management's (ISM) services index rose to 47 in June from 44 in May, which still indicated a contracting sector. Economists had forecast a rise to 46.

Energy prices tumbled, with US light crude oil for August delivery falling $2.68 to settle at $64.05 a barrel on the New York Mercantile Exchange.

Treasury prices rose, lowering the benchmark 10-year note yield to 3.51% from 3.49% late on Thursday. Bond markets were closed on Friday.

In currency trading, the dollar gained versus the euro and the yen.

COMEX gold for August delivery settled down $6.70 at $924.30 an ounce.

European stocks extended last week's downward trend with miners and automakers bearing the brunt of the selling. After closing lower for three consecutive weeks, the pan-European Dow Jones Stoxx 600 index finished in the red again, down 1.1% to 201.92.

The UK's FTSE 100 index fell 1% to 4,194.91, while Germany's DAX index was down 1.2% at 4,651.82 and the French CAC 40 index shed 1.2% to 3,082.16.

Indian markets ended with a deeper dent on Monday as the Union Budget failed to meet market expectations. The Sensex posted its worst performance on a Budget day in over a decade as benchmark government bond yield crossed 7% after the finance minister announced much higher fiscal deficit target for the year.

Budget which was expected to be a dream budget turned into a nightmare for traders and investors on Dalal Street. It was unabated selling as the key indices plummeted post the presentation of the Union Budget in the parliament on the back of huge volumes. Total market turnover crossed Rs1 lakh crore.

Commenting on the stock market’s negative reaction to the Union Budget, Finance Minister Pranab Mukherjee has said the market may have expected too much from the country’s annual financial document. The stock markets slipped sharply just as the finance minister progressed into his budget speech in Parliament on Monday and was at one point 5% down, mainly due to the lack of any major announcements.

"I had at the start of my speech said ‘One budget speech won’t address all the problems [that the economy faces]," Mukherjee said in an interview to Lok Sabha TV, adding that the budget was not the only instrument to address the economy’s issues.

The finance minister added that it was not possible to set a divestment target.

On the fiscal deficit (raised to 6.8% from 6.2% earlier), the FM said it was possible to improve the fiscal deficit target in the next budget.

"I had at the start of my speech said ‘One budget speech won’t address all the problems [that the economy faces]," Mukherjee said

The BSE Sensex plunged 870 points or 5.8% at 14,043 after touching a high of 15,098 and a low of 13,959. The index had opened at 14,962 against the previous close of 14,913.

The NSE Nifty plummeted 258 points or 5.8% to shut shop at 4,166.

Asian markets ended in the red; the Nikkei index in Japan slipped 1.4% at 9,680, Australia's S&P/ASX ended down 1.1% at 3,783. Hang Seng index fell 1.2% at 17,979.

Elsewhere in the Europe, stocks were trading in the red. The FTSE index was down 1.3% at 4,183. The DAX index was down 1.6% at 4,629. CAC 40 index was down 1.6% at 3,068.

Coming back to India, among the BSE Sectoral indices BSE Bankex index was the top loser losing 8.1%, followed by the BSE Realty index down 7.2%, BSE Capital Goods index fell 7% and BSE Metal index declined 6.5%.

The BSE Mid-Cap index ended in the red down 5.10.8% and BSE Small-Cap index fell 4.5%.

In the Sensex, the major losers were Reliance Infra, ICICI Bank, JP Associates, Tata Steel, HDFC, L&T, SBI and DLF.

On the other hand, ITC and Hindustan Unilever were among the top gainers.

Among the big losers in the broader market were Educomp, Areva, Central Bank, IFCI, MTNL, RCF, APIL and IDBI Bank.

Outside the frontline indices, the top gainers included Titan and Asian Paints.

Shares of ITC advanced by 3% to Rs199 after the after the government left taxes on cigarettes unchanged for the year ending March 31. The scrip touched an intra-day high of Rs202 and a low of Rs187 and recorded volumes of over 2.2mn shares on BSE.

Shares of Reliance Industries slipped by over 6.5% to Rs1893. The scrip touched an intra-day high of Rs2051 and a low of Rs1865 and recorded volumes of over 2.01mn shares on BSE.

The stock came under pressure after the Finance Minister Pranab Mukherjee said that the Government proposes to raise the minimum alternate tax (MAT) to 15% of book profit. He also said that the tax credit on MAT will be carried forward to 10 years.

The announcements on MAT were made by Mukherjee while presenting the Union Budget for the fiscal year 2009-10.

Shares of Titan Industries surged by over 4% to Rs1237 after the Finance Minister announced that branded jewellery would be fully exempted from excise duty. The scrip touched an intra-day high of Rs1297 and a low of Rs1195 and has recorded volumes of over 35,000 shares on BSE.

Looking at the heavy selling on Dalal Street post Budget presentation, the Nifty seems to be in an oversold position. Markets might stage a comeback on Tuesday provided firm cues from the global markets. However, one cannot rule out further selling.