If today’s low holds, the Nifty may go up to 5,000
Extending its losses for the fourth consecutive day, the market closed lower on worries of the debt crisis plaguing Europe and its impact on the world economy. The Nifty's intra-day low of 4,759 today went below its second support of 4,790. The index closed 32 points lower at 4,835. The index's volatile move was on a low volume of shares of 48.89 crore on the National Stock Exchange (NSE), which was the lowest in the past 16 trading days (including today). If the Nifty holds itself above today's low, we may see gains up to the level of 5,000.
The domestic market opened marginally in the positive but failed to maintain the lead and slipped lower soon after the opening bell. The Nifty opened 11 points up at 4,879 and the Sensex added 47 points at 16,209. While the opening figure of the Sensex was its intraday high, the Nifty rose to the day's high minutes later, with the index touching 4,880.
However, the decline in the Asian markets in morning trade on fears of a Greece default weighed on the domestic market, pushing it lower in initial trade. Offloading by institutional investors resulted in the markets taking a southward journey in subsequent trade.
The benchmarks touched the low point of the day in late-morning trade with the Nifty falling to 4,759 and the Sensex sliding to 15,801. Buying in IT and banking stocks helped the market bounce back and touch Friday's closing figure, but sellers became active once again to push the benchmarks down.
The market continued to drift lower and closed in the red for the fourth day in a row. At the end of trade, the Nifty was 32 points down at 4,835 and the Sensex settled at 16,051, a loss of 111 points.
The advance-decline ratio on the National Stock Exchange (NSE) was 369:1297.
The broader indices underperformed the Sensex today with the BSE Mid-cap index falling 1.47% and the BSE Small-cap index declining 1.67%.
BSE TECk (up 0.50%) and BSE IT (up 0.42%) were settled higher in the sectoral space. On the other hand, BSE Consumer Durables (down 4.95%), BSE Metal (down 2.87%), BSE PSU (down 1.77%), BSE Oil & Gas (down 1.56%) and BSE Capital Goods (down 1.39%) ended at the bottom of the index.
The top gainers on the Sensex were Jaiprakash Associates (up 2.37%), Bharti Airtel (up 1.48%), ICICI Bank (up 1.40%), DLF (up 1.21%) and Cipla (up 0.97%). The laggards were led by Coal India (down 5.46%), Sterlite Industries (down 4.40%), Hindalco Industries (down 3.80%), Hero MotoCorp (down 2.84%) and Jindal Steel (down 2.61%).
The top performers on the Nifty were DLF (up 3.52%), JP Associates (up 3.34%), Ranbaxy (up 2.18%), Ambuja Cement (up 1.80%) and Bharti Airtel (up 1.33%). The major losers on the index were Tata Power (down 5.82%), Sterlite Ind (down 4.57%), Sesa Goa (down 4.37%), Reliance Capital (down 4.20%) and Hindalco Ind (down 4.07%).
Markets in Asia settled in the negative as announcements from leaders of the Group of Twenty (G-20) nations fell short of expectations. German deputy finance minister Jorg Asmussen stated in Washington on Sunday that additional funding for Greece was unlikely to be granted at a 3rd October meeting.
The Shanghai Composite fell 1.64%; the Hang Seng declined 1.48%; the Jakarta Composite tumbled 3.22%; the KLSE Composite tanked 2.50%; the Nikkei 225 sank 2.17%; the Straits Times lost 1.65%; the Seoul Composite slipped 2.64% and the Taiwan Weighted closed 2.40% lower.
Back home, foreign institutional investors were net sellers of stocks worth Rs1,279.61 crore on Friday. On the other hand, domestic institutional investors were net buyers of stocks worth Rs765.38 crore.
PG Electroplast, which made its debut on the bourses today, closed trade on the NSE at Rs459.50, a huge gain of 118.60% against its issue price of Rs210. The stock opened at Rs 215 and traded in the range of Rs176-Rs84.40. The company's initial public offering (IPO), which was open between 7th and 12th September, was subscribed 1.34 times.
Real estate major Parsvnath Developers on Monday said it has received shareholders' approval to raise up to Rs2,000 crore through the issue of securities to qualified institutional buyers. The company is expected to use the proceeds to reduce its debts to Rs500-Rs700 crore by the end of the fiscal, from the level of Rs1,200 crore as on 30 June 2011. The stock declined 2.44% to end at Rs66 on the NSE.
Eveready Industries India is planning to sell around 60-70 acre of land in Delhi, Hyderabad and Bangalore to pay debt of about Rs200 crore. The company has approached well-known builders, but added that it was in no hurry to sell the land and is looking at clinching a deal in the next 12-15 months. The stock tumbled 4.13% to close at Rs36 on the NSE.
Unemployment rates have to drop, only then will aggregate demand go up, which will then boost economies across the globe
The crash of falling shares all over the globe has given rise again to fears of more recessions. Most commentators are focusing on European sovereign debt as the crisis de jour. However, one may point out that the problems with European sovereign debt have been going on for over a year. There are enormous potential problems due to misallocation of capital in emerging markets that haven't yet appeared on the radar. But the real problem that is bothering economies, at least for now in developed markets, is the lack of demand, and for 'demand', read jobs. Until the unemployment rate drops and more people become employed, aggregate demand will suffer.
In the US, the president and his Democratic party have put a Bill before Congress that is supposed to create jobs. The programme basically has two elements. It hopes to create jobs by spending money to build, or rebuild physical infrastructure. It also hopes to create jobs with classic Keynesian stimulus by cutting taxes. In short, it is attempting to cure the problems with money.
This is normally not such a bad idea if you were farsighted enough to understand the concept of a business cycle. It is a good idea to squirrel away some savings in good times to carry you over the bad. But politicians can't resist spending money, usually on their friends and families. Economists and promoters always assure us that business cycles are a thing of the past. So many governments, again in the developed world, didn't save for the inevitable rainy day and the cabinet is bare.
The US Opposition party, the Republicans, feel that just spending money is not a good idea, although they spent over eight years doing just that. Enthralled by newfound fiscal orthodoxy, they are worried that the money has to come from somewhere and that somewhere is the rich. These rich, we are told, are "job creators" and if you tax them they won't create jobs. If you look at the US economic history over the past 50 years, you will find that this thesis is simply not true. Strong economic growth and job creation did in fact occur when taxes for the wealthy were high. So reigning in the taxman is not the answer.
Many people today are looking at the Chinese model. China has been able to create millions of jobs and move those employed millions out of poverty. They were able to do this with industrial policies that limited household income in order to spur manufacturing growth and investment. This had the obvious secondary effect of speeding up employment and, with it, household income.
Seems like a good idea, until you consider that the programme was and is filled with unsustainable subsidies and imbalances. The Chinese economy is tilted in an unprecedented way towards investment and away from consumption. Its currency has been kept low artificially in order to move the excesses of this policy onto its trading partners. The subsidies are given disproportionally to friends of the state in the state-owned sector. The private sector, the main source for jobs, has been starved. The combination leaves China inordinately exposed to a global slowdown, trade restrictions, enormous bad debts, and eventually serious job losses.
The Chinese have another way to hinder job growth. They don't protect property rights. Since property rights can be denied at any time, the private sector's incentive to grow and hire more employees is severely restricted.
India and Brazil have sadly adopted labour codes from Europe. These laws weren't worried about creating jobs. They were worried about protecting workers. They have been exceptionally successful. They have worked so well that it is almost impossible for employers to fire even the most incompetent employee. In addition, there are myriad of taxes and regulations that make compliance difficult and require vast amounts of time to do so.
The Noble Laureate Ronald Coase proposed in his famous theorem that it did not matter what the initial allocation of property rights in the law was. As long as the transaction costs were low enough, the parties could bargain their way to an efficient outcome. And that is the rub.
Bureaucrats and politicians have raised transaction costs. They do so by failing to define property rights; failing to enforce property rights; creating barriers to realising property rights, and finally constantly changing the property rights. This is the last thing that employers need. Employers, to create jobs, must invest. Any investment is a bet on the future. If the laws are inconsistent, they cannot make this bet, because they don't know what the future holds.
To create jobs, governments need to do theirs. Their job is to create clear property rights and enforce them. But this is one job that none of them seem able to do.
(The writer is president of Emerging Market Strategies and can be contacted at firstname.lastname@example.org or email@example.com).
Nifty may see a small bounce-back after hitting 4,800 but more selling likely
The events of Wednesday still played on investors' minds resulting in the market closing lower for the third day in a row. The Nifty today closed 56 points down at 4,868, which is very close to the level of 4,800; it also crossed its first level of support at 4,900. We may expect a small bounce-back from here. The NSE fell on a volume of 64.32 crore shares which was above its 10-day moving average.
The market continued its downtrend today on weak global cues on fresh worries that the global slowdown would lead to another recession. The Nifty opened 50 points lower at 4,874 and the Sensex started the day at 16,222, down 139 points from its previous close. All sectoral gauges, led by metal, realty and banking, were in the red. Choppiness persisted in the entire session with the indices fluctuating in the negative terrain.
The market fell to the day's lows in late-morning trade with the Nifty dipping to 4,929 and the Sensex going back to 16,052. However, bargain hunting lured investors to lap up stocks at lower levels, thus pushing the indices higher.
The market ventured into the green for a brief moment, which also marked the intraday highs for the benchmarks. At the highs, the Nifty touched 4,929 and the Sensex rose to 16,368. But choppiness capped the gains leading the indices back into the red.
A positive opening of the European bourses after the recent bashing also soothed investors' nerves back here. But with the European markets paring early gains, the domestic indices closed down, lower for the third day in a row. Finally, the Nifty fell by 56 points to settle at 4,868 and the Sensex closed at 16,162, a cut of 199 points.
The advance-decline ratio on the National Stock Exchange (NSE) was a negative 503:1186.
Among the broader markets, the BSE Mid-cap index fell 0.84% and the BSE Small-cap index declined 1.13%.
Barring the BSE Fast Moving Consumer Goods index (up 0.15%), all other sectoral gauges settled lower. The top losers were BSE Metal (down 2.28%), BSE Capital Goods (down 1.84%), BSE Auto (down1.59%), BSE Consumer Durables (down 1.44%) and BSE Bankex (down 1.35%).
The key gainers on the Sensex were Cipla (up 2.09%), Tata Power (up 1.37%), State Bank of India (up 1.03%), Bharti Airtel (up 0.77%) and Jaiprakash Associates (up 0.67%). The laggards were led by Tata Motors (down 4.81%), Hindalco Industries (down 3.77%), HDFC Bank (down 3.10%), HDFC (down 2.82%) and Larsen & Toubro (down 2.70%).
The Nifty leaders were Reliance Power (up 3.37%), Cipla (up 2.09%), Grasim (up 2.02%), Reliance Capital (up 1.61%) and Tata Power (up 1.47%). Tata Motors (down 5.37%), Hindalco Ind (down 4.02%), SAIL (down 3.48%), HDFC Bank (down 3.45%) and Cairn India (down 3.42%) settled at the bottom of the index.
Recent negative developments in the US and the ongoing debt crisis in Europe pulled down the markets in Asia again today. Comments from finance ministers and central bankers from the Group of Twenty (G-20) nations that they would take steps to stabilise the global financial system did not help matters, either.
The Shanghai Composite declined 2.78%, the Hang Seng slipped 1.36%, the KLSE Composite contracted by 1.58%, the Straits Times fell 0.80%, the Seoul Composite tumbled 5.73% and the Taiwan Weighted settled 3.55% lower. Bucking the trend, the Jakarta Composite gained 1.70%. Markets in Japan were closed for a local holiday.
Back home, foreign institutional investors pulled out a huge Rs1,305.55 crore from the equities segment on Thursday. On the other hand, domestic institutional investors were net buyers of shares worth Rs743.47 crore.
Farm equipment major Mahindra & Mahindra (M&M) on Thursday said it would raise tractor prices by 1.5% soon in the wake of spiralling input costs. Asserting that the company has not been passing on the full impact of rising cost by absorbing major portion of rise in cost, M&M chief executive, Tractor and Farm Mechanization Business, Bishwambhar Mishra said that there was now need to pass on some portion of cost to consumers by raising rates of tractors. The stock settled at Rs777.70, down 0.75% on the NSE.
Diversified PSU Balmer Lawrie & Co today said it will make a foray into the Rs1,800 crore construction chemical business and plans to use Chinese technology for this purpose. The company has invested Rs3 crore on establishing construction chemicals capacities at its Chennai facility and trial production has begun. The stock declined 1.22% to close at Rs618.10 on the NSE.
Hindustan Petroleum Corporation has earmarked capital expenditure of Rs 45,000 crore over the next six years. Of this, Rs32,000 crore will go towards setting up new refineries and expanding existing ones. The balance will be spent on exploration & production, gas distribution, tankages, pipelines and retail infrastructure. The stock was down 0.84% to Rs370.20 on the NSE.