The Nifty has to hold itself above Tuesday’s low and it should try to make a higher high, which would be the first feeble sign that a short-term bottom is in
Various measures announced by the Indian government and the Reserve Bank of India (RBI) failed to control the fall in the rupee. The rupee plunged to a new low in early trade today, reaching 64.13 against the US dollar while the indices opened in the negative. The indices soon hit their intra-day low. Sensex slipped below 17,000 level for the first time this year. Sensex and Nifty soon tried recovering from the day’s low and edged higher. However, both closed in the negative for the third consecutive trading session.
The Sensex opened at 18,143 and hit a low of 17,971. Later in the early noon session it hit an intraday high at 18,306, which was close to yesterday’s closing. The Sensex closed lower at 18,246 (down 61 points or 0.34%). The Nifty opened at 5,353 and hit an intra-day low of 5,306. It hit an intra-day high at 5,418, which was above its yesterday’s close. The Nifty too closed lower at 5,401 (down 13 points or 0.25%). The National Stock Exchange recorded the higher volume of 71.01 crore shares.
Among the major indices, five ended in the positive while the remaining five in the negative. India Vix (up 6.41%) was the top gainer while the CNX Nifty Junior was the top loser, down 0.98%.
Among other indices, Metal (up 3.55%); Realty (up 2.72%); PSU Bank (up 1.23%); CNX Commodities (up 0.88%) and Bank Nifty (up 0.81%) were the top five gainers, while CNX Auto (fell 2.16%); CNX Media (fell 1.64%); CNX IT (fell 1.28%); CNX Pharma (fell 1.23%) and CNX Consumption (fell 0.97%) were the top five losers.
Of the 50 stocks on the Nifty, 21 ended in the in the green. The major gainers were Sesa Goa (up 14.75%); Jaiprakash Associates (up 4.05%); BPCL (up 4.02%); Tata Steel (up 3.73%) and Cairn (up 3.44%). The main losers were Tata Motors (down 5.04%); ACC (down 4.38%); HCL Technologies (down 4.02%); BHEL (down 2.76%) and Sun Pharma (down 2.52%).
The yield on the 7.16% government bonds due May 2023 climbed seven basis points to 9.31%. The rate has surged 111 basis points this month and is at the highest level for a benchmark 10-year bond since July 2008.
International rating agency Moody's on Tuesday said the bleeding Indian rupee, the twin deficits and weaker growth are already factored in its current ‘Baa3’ sovereign rating on the country, and thus do not stress already weak fundamentals of the country.
The government, as a step to control the capital outflow and weakening economic situation, is trying to get an international perspective. In a meeting with India’s representatives at multilateral institutions on 21-22 August, Finance Minister P Chidambaram will reflect upon the current economic situation and get the outside view on it. Besides a discussion on the state of the Indian as well as the global economy, the conference will focus on stepping up infrastructure funding to India by these institutions.
The US indices fell on Monday after the yield on the 10-year Treasury bond hit fresh two-year highs, raising worries about what impact higher rates will have on the US economic recovery.
Except for NZSE 50 (up 0.11%), all the Asian indices closed in the red, with the Jakarta Composite falling the most, it fell 3.21%. European indices were trading in the red. Investors are looking forward for the release of minutes from the latest Federal Open Market Committee meeting on Wednesday. The US Futures were trading in the green while all major European indices were down 1-1.5%.
Venus Pharma GmbH, a subsidiary of Venus Remedies has got marketing authorisation (MA) approval from France for meropenem, a generic broad spectrum antibiotic injectable. It has also signed a non-exclusive marketing rights deal with generic drug maker Mylan to sell meropenem in France.
The company also has plans to capture the meropenem share in other lucrative markets as well, including Australia, Spain, Switzerland, South Africa, Malaysia and Gulf Central Committee (GCC) countries where the registration process is in advanced stages. Venus Remedies rose 4.98% to close at Rs179.30 on the NSE.
According to Morgan Stanley, some of the sentiment indicators appear to be reaching oversold territory and at some point in the next few Nifty points and few days, the market is likely to rally. However, many other indicators say that the real bottom is sometime away
The steep fall in the Nifty over the last two days from 5,700 on Friday morning to 5,311 today raises the question whether this is the time to buy stocks. Since the decline has happened on the back of accumulated sins of poor policies, policy makers may now take corrective time to time, which may raise the hopes for the bulls. The government can, for example, cut subsidies and hike diesel prices or may raise foreign capital, which will be welcomed by the bulls. The markets could also respond to better growth trends in China or stabilisation in emerging markets (EM), or a decline in the US bond yields. However, these are unlikely to create a new bull-run feels Morgan Stanley Research.
While it is true that share prices will always move ahead of the fundamental changes, valuation and sentiment indicators are the key for Indian markets. "No doubt, some of the sentiment indicators we track appear to be reaching oversold territory and at some point in the next few Nifty points and few days, the market is likely to rally. However, until the fundamental construct remains the way it is – we think this will be a rally to sell, not buy," says Morgan Stanley. Here is what its proprietary indicators are saying.
1. Market timing indicator: In buy zone
Morgan Stanley says its proprietary market-timing indicator has reached the December 2011 level, its second lowest point in history. The only occasion it has gone lower in the past 20 years was the 2008 crisis.
2. Composite sentiment indicator: Not yet there
A key component of this indicator, the composite sentiment indicator, still has room to travel south to match the levels seen in December 1998, September 2001, October 2008 and December 2011. Arguably, if this is a bear market, as it appears to be, more pessimism could set in before the market troughs. Then again, the template is 1998, when the market kept oscillating around depressed sentiment levels for an extended period, the note says.
3. Market breadth approaching oversold territory
According to Morgan Stanley, of the various elements of its sentiment indicator, the ones most in oversold region include breadth and foreign institutional investors (FIIs) positioning. Of course, even breadth also has some more downside if history is a guide.
4. FII positioning suggests market is now getting well hedged
FII positioning is hitting an inflexion point for the market. Hedging is approaching levels, which augurs well for market performance, says the research note.
5. Market only 5.5% below its 200 DMA, usually it bottoms at 20% below its 200 DMA
Morgan Stanley says the momentum indicators suggest the market needs to fall a lot more, before we can conclude that it has capitulated. The 200 daily moving average (DMA) indicator, for example, suggests a further 15% downside.
6. Six months’ Trailing performance: Market down just 5%
Another example is the 6M trailing performance. Capitulation coincides with about a 25% fall in six months, whereas the trailing six-month fall is just 5%, which will rise to 8% in three months if the market does not fall from here, the note says.
7. The golden cross has broken down
Morgan Stanley said, likewise, the golden cross has been breached, but usually the
gap between the 200 DMA and 50 DMA hits 10% before market troughs except in 2008, when it went a significantly higher. The current gap is 1%.
8. FII outflows need to accelerate further
FII Flows have slowed from their May 2013 peak. Flows had peaked at $31 billion, or 2.6% of market cap – usually a level that is bad for the market. It is now down to 2.1%. "Flows need to be at least at 0% on a 12M trailing month basis for markets to bottom. If this has to happen by December 2013, it implies an outflow of $12.5 billion, the research note says.
9. Another $1-1.5 billion FII outflows in the coming 30 odd days could suggest capitulation
Morgan Stanley said, on a 3M trailing basis, flows are receding fast. FII outflows need to sum up to $1-1.5 billion over the next 35 trading days for flows to suggest capitulation.
10. Volatility is too benign
Volatility has not risen enough if history is a guide. The trailing 52-week volatility of Sensex weekly returns is currently 2.2%. A level of at least 3% is in the offing before the market bottoms.
11. The 1998 template for valuations: Modified earnings yield gap is the
Morgan Stanley said its tail risk indicator, the 99% per one-month value at risk (VaR), still points too little tail risk priced in. For tail risks to be priced in, the Sensex needs to fall to 16900 in a month from now a further 7.7% fall. For tail risks to be priced in, the quantum and pace of fall are both important.
12. Downward earnings revisions: The floor upon us
Analysts’ downward earnings revisions are usually a good fundamental leading indicator for market performance. The current level of 48% is almost as low as this indicator gets (only exception being 2008). It means the market should be up in the coming six months.
13. Valuation template: Modified earnings yield gap – equities not inexpensive
Morgan Stanley says its valuation template does not indicate the market is cheap enough. The short-term yield is at 11.4%. The earnings yield is 6.9%. The yields need either to fall 300 bps, or the earnings yield needs to rise by a similar amount – that is a near 25% fall in the index in the coming six months. This is “certainly not our base case or even our bear case, but something to bear in mind for investors who think equities have become inexpensive.”
14. P/B 5% from its bottom decile
The ever-reliable price-to-book ratio (P/B) may not work in the current environment of high short-term rates. Nevertheless, the market is about 5% from its bottom decile of P/B – a level from where losing money on a one-year forward basis is a rarity. In 1998, 2001 and 2008, the market bounced back from these levels. In 1998, the market spent about 16 months in the bottom decile; in 2001, it was 24 months; and in 2008, it was just four months. Our view is we are in the 1998 situation, so a prolonged period of cheap valuations should not be ruled out, the research note said.
The four marines, were on-board Italian vessel ‘Enrica Lexie’ and present at the spot when their colleagues Massimiliano Latorre and Salvatore Girone allegedly shot dead two Indian fishermen
Four marines from Italy, who were witness to the killing of fishermen off Kerala coast allegedly by two of their colleagues, have refused to come to India for deposing as witness. This will further delay the case.
The four marines, who were summoned by the National Investigation Agency (NIA), were onboard Italian vessel ‘Enrica Lexie’ and were present at the spot when their colleagues Massimiliano Latorre and Salvatore Girone allegedly shot dead two fishermen on 15 February 2012.
The four witnesses conveyed that they were not ready to come to India for deposition as witness following summons from the NIA, which is probing the case, official sources said.
The witnesses said that either they were ready for appearance through video conferencing, or a team of NIA should visit Italy for questioning them or the investigators can send them written questions, which they would reply.
However, none of the proposals was acceptable to the NIA investigators as Italy was bound to cooperate with India as per an agreement between Rome and New Delhi.
Faced with the four witnesses’ refusal to come to India, the Home Ministry has sought opinion of the Law Ministry on the future course of action.
The refusal of the Italian witnesses to come to India is bound to delay the trial against the two Italian marines, who have been at the Italian Embassy since their arrival following a diplomatic dustup.
Italy had initially gone back on its promise to return the marines so that they can stand trial in India but later relented.
The two have been slapped with murder charges for gunning down two fishermen, Ajesh Binki and Jelestine.