Sunday, January 16, 2011
Markets suffered a long-term damage this week with key indices breaking crucial support levels. High inflation, Infosys' disappointing Q3 nos and fears of rate hike weighed
Major headlines for the week
November IIP at 2.7%
Inflation rises to 8.43% in December
Infosys Q3 results lag estimates; stock falls
HDFC Q3 net profit jumps 33%
Duty-free sugar imports extended till March 31
Indian markets have come under a bear grip in the new year. Bears have descended at the ring and remained aggressive since the start of 2011. Domestic indices were in a huge pressure for the second straight week amid high volatility. The domestic market fell sharply during the week owing to weak Q3 results by Infosys technologies and also concerns over rising inflation. Inflation surged to 8.43% in December as compared to 7.48% seen in previous month. The rising inflation increased fears of interest rate hike by Reserve Bank of India (RBI ) in its upcoming Policy meet schedule on January 25, 2010. Rate hike fears, as a result, led to heavy sell-off in interest rate sensitive sectors such as banking, auto and realty stocks. Another reason that led to steep fall in the market was Index for Industrial Production (IIP) data, which came in at a 18 month low level of 2.7% in November.
During the week, Sensex and Nifty breached another significant levels of 19000 and 5700 respectively. Markets witnessed highly volatile session throughout the week, with the Sensex and Nifty swinging 908 and 268 points respectively. Finally, the Sensex ended the week lower by 831 points or 4.22% at 18860 and the Nifty by 250 points or 4.23% at 5655.
Among the global markets, US and European indices outperformed the Asian peers. During the week France’s CAC 40 index surged the most with gains of 2.83% while, DAX 100 and Nasdaq advanced over 1% each. On other hand, Sensex slid the most with a loss of 4.22%, followed by China’s Shanghai Index that fell 1.70%.
Sectoral and stock screening
In the second straight week of 2011, all the Sectoral indices ended the week in negative territory. BSE Capital Goods (CG), BSE Realty, BSE Bankex and BSE Oil & Gas tumbled over 5% each while rest of the sectors ended the week lower in the range of 1.55-4.09%.
Among ‘A’ group stocks, top three gainers of the week were Petronet LNG, which shot up by 3.4%, Grasim surged 3.29% and Ultratech Cement gained 3.04%. Top three losers of the week were pantaloon Retail which slid 13.05%, Zee Entertainment fell 12.85% and Jet Airways lost 12.3%.
The foreign institutional investors (FIIs) also participated in the sell-off and sold Indian equities worth a net of Rs3,387 crore in the week as compared to the net buy of Rs1,517.3 crore seen in the previous week. Selling by FIIs also dampened investor sentiment. The domestic institutional investors (DIIs) turned out to be the net buyers and bought Rs842.6 crore worth of Indian equities as compared to the net sell of Rs943.4 crore seen in the previous week.
The earning of top Indian firm in next week may dictate the future path of Indian markets. Earnings of Larsen & Toubro, Axis Bank, Tata Consultancy services, Gail India, Bajaj Auto, HCL Technologies, Reliance Industries, ITC, Bharat Heavy Electricals and Punjab National Bank are scheduled next week. FIIs’ activity and developments in the external environment may also have some impact on the Indian markets
Shares of Playboy Enterprises Inc. surged more than 17% on Monday after founder Hugh Hefner signed an agreement to take his publicly traded company private. Hefner, who already owns a substantial amount of the adult magazine publisher's shares, has signed an agreement with Icon Acquisition Holdings LP to pay US$6.15 per share for the portion of Playboy that he does not already own. The deal values Playboy at US$207mn. FriendFinder Networks, the owner of rival Penthouse magazine, had earlier offered a higher bid. FriendFinder offered US$6.25 per share, kicking off a bidding war for the company. FriendFinder's offer in July valued the company at US$210mn. Playboy has been publicly traded since 1971. Icon's offer is at a premium of about 18% to Friday's closing price. The tender offer will begin by Jan. 21 and will expire after 20 business days. More than 50% of the Class A and Class B shares outstanding - roughly 22 million - must be tendered and not withdrawn.
Worldwide PC shipments totaled 93.5 million units in the fourth quarter of 2010, up 3.1% from the fourth quarter of 2009, according to preliminary results by Gartner Inc. These figures were below Gartner’s earlier forecast of 4.8% growth for the fourth quarter of 2010. "Overall, holiday PC sales were weak in many key regions due to the intensifying competition in consumer spending. Media tablets, such as the iPad, as well as other consumer electronic (CE) devices, such as game consoles, all competed against PCs," said Mikako Kitagawa, principal analyst at Gartner. "The bright side of the PC market during the fourth quarter of 2010 was a steady growth in the professional market driven by replacement purchases. For all 2010, the results indicate the PC market recovered from the recession, as it returned to double-digit growth, compared to low single-digit growth in 2009."
HP maintained the No. 1 position in worldwide PC shipments in the fourth quarter of 2010, but its shipment growth was below the worldwide average. Acer faced challenges in the fourth quarter of 2010 due to a slowdown in the overall consumer mobile PC market. Dell benefited from professional PC refreshes across key regions. For the year, worldwide PC shipments totaled 350.9 million units in 2010, a 13.8% increase from 2009. This growth rate was an improvement from 2009 when PC shipments increased 5.5%. Among top five PC vendors, Lenovo’s shipment growth well exceeded the worldwide average. Lenovo’s growth was driven by strong professional growth as well as expansion into consumer space outside of China.
China's trade surplus fell sharply in December and was also way short of consensus estimates, as leaders in Beijing prepare for the upcoming bilateral meeting with the US later this month. The trade surplus last month totaled US$13.1bn, the customs bureau said on its website today. That compared with US$20.8bn median estimate of economists and November’s figure of US$22.9bn. Exports rose 17.9% to US$154.2bn from a year earlier and imports climbed 25.6% to US$141.1bn, the customs bureau said. December surplus was the smallest since April. The increase in exports was less than economists’ 23.3% median estimate and compares with a 35% gain in November. Import growth compared with a forecast of 24.9% and the 38% increase in the previous month. A higher comparative base a year earlier may have had an impact on the December numbers, according to some economists. China's full-year trade surplus narrowed 6% to US$183.1bn even as trade bounced back from the worst financial crisis in decades with both exports and imports rising to records in December. In 2009, China’s trade surplus stood at US$196.06bn. Currency will be on the agenda when the US President Barack Obama meets his Chinese counterpart Hu Jintao on Jan. 19. In December, China had a US$14bn trade surplus with the US, today’s data showed.
The euro advanced above its 200-day moving average (DMA) versus the dollar after the currency extended a rebound as traders found solace in Portugal’s ability to sell 10-year bonds at reduced borrowing costs. Portugal issued debt in the first bond sale of the year from a 'peripheral’ eurozone economy, taking some of the pressure off the indebted country, but investors warned bail-out is still likely. The International Monetary Fund said that Europe has yet to allay investor skepticism about the sustainability of the region’s debt. Also, Spain and Italy joined Portugal in completing successful bond auctions, helping ease worries about the fiscal position of the eurozone and prompting benchmark 10-year bond yields to fall across its periphery. The euro rose to a one-month high against the Swiss franc amid speculation that eurozone leaders are preparing robust measures to alleviate the fiscal crisis in the region.
The European Central Bank (ECB) ratcheted up its rhetoric on inflation concerns in the euro zone. The ECB kept interest rates on hold at a record low of 1% but warned that the euro zone faces short-term price pressures - taken by some in financial markets as a sign it could raise rates earlier than previously thought. Citigroup said it had brought forward its expectation of an interest rate increase from the ECB into this year, following the latest hawkish-sounding remarks from ECB President Jean-Claude Trichet. Trichet sounded a warning on euro-zone inflation. He said inflation risks - although currently "broadly balanced" -could pick up going forward, noting that the ECB won't hesitate to hike rates if those risks materialize and, in turn, drive up prices and wages across the board. Meanwhile, rising fuel prices helped push annual eurozone inflation up to 2.2% in December, from 1.9% in November, according to official figures. Consumer prices in countries using the euro climbed 0.6% on a monthly basis, Eurostat added. The ECB has a target of 2% for eurozone inflation. A year ago it stood at 0.9%.
Moody's Investors Service said in a report that the US will need to reverse the expansion of its debt if it hopes to keep its "AAA" rating. "We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the US, the likelihood of a negative outlook over the next two years will increase," Sarah Carlson, senior analyst at Moody's, said. Separately, Carol Sirou, head of Standard & Poor's France, said that the firm couldn't rule out lowering the outlook for the US rating in the future. "The view of markets is that the U.S. will continue to benefit from the exorbitant privilege linked to the US dollar" to fund its deficits, Sirou said. "But that may change." Sirou has an administrative role and has no say in sovereign ratings. The US currently has the highest possible credit rating and a stable outlook, but credit rating agencies have warned repeatedly in recent years that the government's long-term budget issues must be addressed.
The initial public offering (IPO) of MidValley Entertainment has been subscribed 4.03 times. The issue got total bids for over 37,776,655 shares as against 9,375,000 shares on offer, as per the data available with the National Stock Exchange. The IPO began on Jan 10 and closed on Jan 12. The book running lead managers to the issue is Aryaman Financial Services Ltd. The QIB portion was subscribed 0.35 times, while HNI was subscribed 4.68 times and Retail portion was subscribed 9.01 times. The company plans to raise Rs 600mn through an IPO and the proceed from the issue would to used for production of three south Indian movies; for distribution of south Indian, Bollywood and Hollywood movies; for acquisition of cinema theatres on lease and up gradation of cinema halls with digital equipments and other assets. "We plan to spend ~Rs 250mn for modernisation and renovation of cinema infrastructure with digital equipment and other related assets for select 100 screens in south India; Rs 120mn is planned for acquisition of similar business activities and ~Rs 150mn for screening agreements with 300 cinema theatres in Tamil Nadu, Andhra Pradesh and Karnataka," said Datuk K. Ketheeswaran.
Biocon said that the tests conducted for its experimental oral insulin, IN-105, have not met their primary end point. The company may continue its development with a global partner. Initial data analysis of the test showed that IN-105 did not meet its primary end point of lowering HbA1c levels by 0.7%, compared to a placebo. HbA1c is a test that measures the amount of glycated haemoglobin in the blood. Glycated haemoglobin levels indicate the effectiveness of a drug to control blood sugar levels.
Natural gas production from Reliance Industries Ltd.'s (RIL) D6 block in the Krishna Godavari basin would again touch 60 million metric standard cubic metres per day (mmscmd) by April, head of upstream regulator said. RIL has seen natural gas output from its eastern offshore KG-D6 fields fall to 50-52 mmscmd during the recent times from over 60 mmscmd achieved in mid-2010 due to reservoir complexities. RIL currently produces 52-52 mmscmd natural gas from KG-D6 block, S.K. Srivastava, Director General at the Directorate General of Hydrocarbons (DGH) told reporters in New Delhi.
In a major milestone for power plant manufacture in India, a joint venture of Larsen & Toubro and Mitsubishi Heavy Industries inaugurated the country’s first private sector facilities for the manufacture of supercritical boilers and turbine generators at Hazira, Surat. The inaugural function for the supercritical boiler facility was attended by Vilasrao Deshmukh, Union Minister of Heavy Industry & Public Enterprises, Sushil Kumar Shinde, Union Minister of Power and Bharatsinh Solanki, Minister of State for Power. Later in the day, the Chief Minister of Gujarat, . Narendra Modi attended the inaugural function of the facility for supercritical turbine generators. Both facilities were formally dedicated to the nation at the inaugural functions. Supercritical technology for coal-fired power plants is globally recognized as one of the most eco-friendly solutions to power generation. The technology ensures higher fuel efficiency leading to higher plant efficiency. Carbon emissions are reduced by as much as 5%. The L&T-MHI facilities are among the largest of their kind in the world, with a present annual capacity of manufacturing 5,000 MW of equipment, to be expanded to 6,000 MW by 2012.
The Supreme Court took cognizance of a public interest litigation (PIL) to cancel 2G licences that were issued in 2008 and served notices to the Department of Telecommunications (DoT), the TRAI and 11 telecom companies. The companies, TRAI and the Union Government have to respond to the apex court before 1st February, which is when the court will next hear the matter. The PIL was filed by lawyer Prashant Bhushan on behalf of the Centre for Public Interest Litigation (CPIL) and others. The petitioners demanded that licences of those companies who failed to comply with their roll out obligations within set time frames by the licences be cancelled. The bench comprising Justices G.S Singhvi and Ashok Kumar Ganguly demanded that TRAI be made party to the proceedings. The court took up the matter based on a letter dated 18th November 2010 from TRAI to DoT Secretary, which asked the Government to cancel the licences of companies who had failed to comply with their licence obligations. DoT has already collected Rs 930mn as fines and penalty for delaying roll out obligations. These fines are consequence of show cause notices sent by DoT early December 2010 to the companies. However, the DoT is yet to cancel any licences. On issue of cancellations, the companies have time till mid-February to respond.
India’s exports have registered a growth of 36.4% during December 2010, at US$22.5bn. Stating this at a press interaction, Rahul Khullar, Commerce Secretary, informed that during the period April-December 2010, exports have reached a level of US$164.7bn at a growth of 29.5% while the imports were US$247.1bn with a growth of 19% and a trade deficit of US$82.4bn. During the interaction, Khullar informed that India’s imports in December 2010 were US$25.1bn, down by 11.1%. He further clarified these figures were the quick estimates and the final figure may change. Balance of trade for December stood at (-)$2.6bn, which is the lowest in last three years. During April-December 2010-11, sectors like engineering, gems & jewellery, petroleum & petroleum products, leather & leather products, carpet, plastics & linoleum, cotton yarn and chemicals did well. Khuller added that these export monthly numbers were the highest in last 33 months and the import figures were the lowest in the last 14 months.
The Government of India is all set to sign comprehensive trade agreements with Japan, Malaysia and the entire ASEAN bloc in the next 2-3 months. Comprehensive pacts for elimination of duties and removal of obstacles will be signed with Japan and Malaysia in February, the Commerce and Industry Minister Anand Sharma, said. "We have concluded negotiations for a Comprehensive Economic Partnership Agreement (CEPA) with Japan as well as a Comprehensive Economic Cooperation Agreement (CECA) with Malaysia. We will be signing them in the next few weeks, definitely in February," Sharma said. Besides, over and above an existing Free Trade Agreement (FTA) with the 10-member ASEAN, a fresh pact for opening trade in services is expected to be finalised by March. Trade FTA with ASEAN was operationalised from January 2010. The agreement with Malaysia would be ‘ASEAN plus’, as it is one of the 10 members of the trading bloc. The bilateral trade in goods and services with Malaysia would be more open than the bloc as a whole. A bilateral pact with Indonesia would also be initiated. According to reports, Sharma is expected to visit Tokyo and Kuala Lumpur by mid-February for signing CEPA and CECA.
Gujarat Chief Minister Narendra Modi reportedly said that about 7,936 memorandums of understanding (MoUs) were signed for Rs. 20,83,000 crore at Vibrant Gujarat Summit 2011. Reports stated that the whopping investment would also result in about 5.2 million additional jobs. The previous edition of the summit in 2009 had resulted in about 4,000 MoUs being signed for investments worth Rs 12,00,000 crore (about US$243bn). The reports stated that on the first day of the 2011 edition MoUs worth about 15 lakh crores were signed between industrialists and the State Government. Gautam Adani said he would invest over Rs 800bn in ports, power and infrastructure projects. Reports said that industry leaders such as Anil Ambani, Mukesh Ambani, Ratan Tata, Adi Godrej, A.M. Naik, GVK Reddy, Ajit Gulabchand and Anand Mahindra also announced their plans.
India's industrial output growth eased sharply in November compared to the previous month, as a high base of last year and a series of interest rate increases adversely affected the performance of Manufacturing, Mining and Electricity. The industrial output, as measured by the index of industrial production (IIP), stood at 2.7% in November versus an upwardly revised 11.3% in October, the Union Commerce & Industry Ministry said. October's IIP reading was revised up from a provisional estimate of 10.8%. The November's IIP reading surpassed consensus expectations of a 6-6.5% growth. India's industrial production had expanded by 11.3% in November 2009. Year-to-date (April-November 2010-11), India's industrial production stood at 9.5% versus 7.4% in the corresponding period of the previous financial year.
All hopes of a comeback were dented by the downbeat IIP and December inflation reports. Infosys' subdued results and muted guidance didn't help matters either. A lot of results are still due in the next few weeks. Hopefully, they will provide the market something to cheer about after two back to back weeks of steep fall.
As widely anticipated, India's annual inflation accelerated in December from the previous month, adding to the pressure on the Government and the RBI to rein in spiraling prices of essential commodities in a rapidly growing economy. The point-to-point annual rate of inflation, as measured by the wholesale price index (WPI), stood at 8.43% in December 2010 as against 7.48% in November 2010. The WPI for All Commodities group rose 1.3% to 144.1 from 142.3 for the previous month. October's inflation rate has been revised to 9.12% as against the provisional estimate of 8.58%, the Government said.