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Add comment October 17th, 2006
Archive for October, 2006
Sensex slips 44pts; Satyam surges 3%
Indian stocks fell Tuesday, with the BSE Sensex losing 44.35 points, or 0.34%, to close at 12,883.83.
Add comment October 17th, 2006
FIIs late to market boom, trying to play catch-up
MUMBAI, OCT 14: The Sensex has reached dizzy heights. And data reveals that foreign institutional investors (FIIs) are back and hunting. But are they slightly late for the party?
On the three days through October 13, when the Sensex hit an all-time high of 12,736 points, FIIs were net buyers on the bourses to the extent of a hefty Rs 1,439 crore. On a net basis, they bought equities worth Rs 803.4 crore on October 12 and Rs 539.3 crore on October 13. Since October, net FII inflows have been positive at Rs 1,152.3 crore.
After consistently being net sellers in the market since May 2006, the FIIs started with meagre purchases in August and net investments grew to Rs 5,424.7 crore in September. In fact, the September net inflows amount to 22.3% of the total FII inflow of $5 billion in the calendar year 2006.
The earlier slowdown in FII investments can be attributed to an investment call taken by fund managers to lower the weightage provided to India vis-a-vis other emerging markets. According to a report by Emerging Portfolio Fund Research (EPFR), an agency that tracks country and sector asset allocation for emerging markets, Global Emerging Market (GEM) Equity Funds reduced their India country weighting to its lowest in four years and, on a weighted average basis, to the lowest since late 1998.
The same report adds, “The underweight of the benchmark MSCI EM Index to the Indian market is also the largest since November 2001. The bet against India has not worked, however, as Indian equities have been one of the better performers among emerging markets in Q3 ’06”.
So, while some of the funds decided to pull out of India, there was enough support provided by mutual funds. Barring June and July, mutual funds have been net buyers in the market. In fact, a lot many funds were seen selling on October 12, when the FIIs were getting back their share of the India story.
At the moment, FII inflows in 2006 are around $5 billion. The total inflow for 2005 stood at around $10 billion. Does this mean that the overseas investors have now smelt blood on the Indian markets, especially after North Korea’s nuclear tests and strong domestic results in India? Or have they missed the bus? The movements of the next week and beyond — and the corporate numbers — hold the key to that question.
Source: http://www.financialexpress.com/fe_full_story.php?content_id=143505
Add comment October 15th, 2006
Sensex scales new peak during the week
By Rex Mathew
14 October 2006
Markets started on a marginally weak note as Asian markets declined and banking stocks sustained the downtrend. Reliance Industries and stocks of oil marketing companies also declined and affected the indices.
On Tuesday, the markets started on a positive note but gave up all their gains in afternoon trades. That trend continued on Wednesday as well even though technology stocks were firm, helped by strong results from Infosys.
Thursday started on a mixed note, but the indices initiated a major up move before noon and ended with significant gains. Technology stocks continued to rally and the Sensex ended at its second highest level ever.
Friday saw the Sensex surging to a new lifetime high, helped by Infosys, Reliance Industries and ONGC. Technology and capital goods stocks also gave considerable support for the up move.
The Sensex gained 363 points or 2.94 per cent during the week and the Nifty added 106 points or 2.97 per cent over the week.
Mid-caps and small-caps were subdued after out-performing the large caps for the 2 weeks. They started the week on a positive note but came under pressure during the middle of the week. They recovered on Thursday and ended with modest gains on Friday.
The CNX Mid-Cap 100 index closed the week with gains of just 1 point.
Domestic economic and regulatory action
As the RBI prepares for its interest rate policy review meeting scheduled for end of this month, the economic data, which would influence the central bank’s decision, indicate strong growth and rising inflationary pressures. Though industrial growth for the month of August has slowed down to 9.7 per cent, after the scorching growth of 12.4 per cent in July, the growth rate for the first five months of this year remains at a high 10.6 per cent. That is way above the 8.7-per cent growth achieved for the same period of previous year.
After growing 8.9 per cent for the first quarter, the economy looks all set to post similar growth for the second quarter as well. Higher infrastructure spending could push growth rates even higher in the last two quarters. Therefore, it is very likely that full year 2006-07 growth would be around 9 per cent.
After a gap of nearly a month, weekly inflation has moved above 5 per cent for the latest reporting week. Most of the price rise is seen in primary articles while prices of manufactured goods have been going up steadily. The finance minister has once again come out with his pet statement that higher inflation does not warrant a rate hike as liquidity is strong.
Crude oil prices have fallen more than $20 per barrel from record peak, but it is unlikely that the government would decide to cut retail fuel prices anytime soon or at least till it is reasonably sure that oil prices would remain low for a while. Surprisingly, the left parties – who were very agitated when retail fuel prices were hiked – have so far not made any demands for a rate reduction. Have they not noticed the fall in crude prices?
The decline in credit growth for the latest reporting month is only modest and is very likely to be an aberration rather than trend. Bankers continue to insist that credit demand is very strong and may rise further in coming quarters as industry moves further into investment mode.
All these demand a moderate rate hike of 25 basis points this month end, at least as a cautionary step to keep inflation expectations under check. Given its conservative mindset, the RBI would prefer to err on the side of caution rather than take a lenient stand now and regret later. It remains to be seen if the government would browbeat the RBI into keeping interest rates steady.
Wholesale price inflation for the week ended 30 September increased considerably to 5.16 per cent from 4.77 per cent reported for the previous week. The rise in inflation was on account of costlier primary food articles and manufactured goods.
Industry Developments
The International Iron and Steel Institute (IISI) estimates global steel consumption to rise 8.9 per cent in 2006 to 1.12 billion tonnes from 1.03 billion tonnes last year. Much of this consumption growth is fuelled by China, which should see total steel demand rising 14.4 per cent to 374 million tonnes this year. India is forecast to consume 41.9 million tonnes this year – a growth of 10 per cent over last year.
For 2007, total global demand would rise 5.2 per cent to 1.18 billion tonnes. Demand growth in both China and India would slow down to 10.4 per cent and 9.1 per cent respectively. North America and Europe would see marginal declines in consumption next year.
Chinese demand is expected to rise at an average of 8.4 per cent per year to touch 489 million by 2010. During the same period, demand in India would grow at an annual pace of 7 per cent to 54 million tonnes by 2010. For the 2010-2015 period, annual Indian demand growth at 7.7 per cent would outpace Chinese demand growth which the IISI estimates would slow down to 6.2 per cent.
Even by 2015, India would consume only 78 million tonnes of steel annually or just 12 per cent of projected Chinese consumption at 660 million tonnes! It is clear that domestic demand would be much lower than supply if all the mega steel projects announced recently are implemented. Then why are the steel companies so confident about their expansion plans?
Their hopes are in increased exports to meet the expected steady growth in global demand. Going by the IISI forecast, by 2015 global steel demand would touch 1.62 billion tonnes annually. If these forecasts turn out to be accurate, aggregate global demand would grow by 500 million tonnes annually from current levels. Much of the new capacity to feed this demand growth would have to come in iron ore rich locations like South America, Russia and India.
With its reserves of iron ore, established manufacturing capabilities and strategic location, India has already emerged as one of the lowest cost steel manufacturing locations. Even if all the proposed projects are completed by then, aggregate Indian capacity would be less than 8 per cent of global demand by 2015.
Assuming that Indian capacity would rise by 75 million tonnes per annum by 2015, it would be only 15 per cent of the 500 million tonne increase in annual global demand. Given the Indian steel sector’s competitive advantages, it should not be difficult to capture 15 per cent of incremental growth in global demand.
US markets, global economy and oil
US markets sustained the up trend this week as well and the Dow index continued to scale new lifetime highs. The S&P 500 index also sought new highs for more than five years. The NASDAQ index is close to the highs for the current year touched early this year.
Strong corporate results helped sustain the positive sentiment throughout the week. Good results from some of the frontline companies have helped ease concerns about a slowdown in consumer spending which would affect corporate performance. Lower oil prices may help keep inflation low, though minutes of the last meeting of the US Fed did not give any indications of a interest rate cut.
Crude oil prices declined to their lows for 2006 during the week as traders continued to build short positions. (See: Oil hits year’s low at $57.24 a barrel)
The OPEC finally announced a production cut of 1-million barrels per day from 01 November to stem the decline in prices. OPEC members Venezuela and Nigeria had earlier announced a voluntary cut of 170,000 barrels a day, which failed to make any impact on prices. (See:OPEC members Nigeria, Venezuela to cut output)
However, a section of the markets believe that withdrawing 1-million barrels from the market would not have much of an impact, unless there are other developments which would threaten supplies. Non-OPEC members like Russia would continue to pump oil at current levels.
Source: http://www.domain-b.com/investments/markets/rex_mathew/20061014_scales.htm
Add comment October 15th, 2006
