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.
In 2009, an IRDA Committee had recommended opening up bancassurance to two insurers. But IRDA chairman J Hari Narayan does not seem convinced. IRDA may also allow brokers to offer consultancy services, even for insurance products that they have not sold themselves
The Insurance Regulatory and Development Authority (IRDA) had set up a committee in 2009 to examine whether banks could be allowed to sell policies of more than one life and one general insurer. The report of the committee suggested allowing two life and two general insurers to tie up with a bank. But at the recent ASSOCHAM global insurance summit, IRDA chairman J Hari Narayan told Moneylife that he was not convinced if the solution to the problems identified by the 2009 study lie in opening up bancassurance to two insurers.
Mr Narayan told Moneylife, "We need to enable insurance outreach by increase in number of bank branches to sell insurance products. As of today, a small percentage of bank branches are pursuing the same. If the number of branches selling insurance does not increase, there is less value with the same branch selling two insurers' policies. IRDA has not finalised its decision."He suggested the possibility of looking at state-wise or segment-wise regulatory changes to open up bancassurance.
Media reports have quoted the IRDA chairman as saying, "Banks have a problem in understanding insurance products. There are issues to deal with before banks can sell insurance correctly with proper advice to customers." Some insurance company heads seem to be in agreement. (See: Bancassurance: The more the merrier?).
But the subject is still open for debate. We found varying replies from the insurance industry, based on the insurance companies' dependency on bancassurance. Insurers who have little business from bancassurance have less to lose and, hence, don't mind allowing banks to sell products from more than one life and one general insurance company. On the other hand, some insurance companies with significant support from bancassurance even refused to talk about the issue.
The jury is still out on this important debate. We have to wait to see what IRDA finally comes up with.
IRDA is also considering permitting broking consultancy. It will allow brokers to provide consultancy services for claims processing for anyone, and not just when the policy is sold by them. Obviously, there is keen interest from the broking community as it will allow brokers to expand and offer additional services without an increase in infrastructure and they can piggyback on the contacts developed in the industry for further business.
A recent McKinsey study states that an agency force is "all pervasive", but least productive. Having a persistency ratio of less than 75% is unhealthy for the industry. There are few insurers with greater than 75% persistency ratio and an equal number with less than 50% persistency ratio. The IRDA chairman touched upon the possibility of improving persistency ratio with a proper business model and an effective communication channel. He told Moneylife that 75% persistency ratio was too a high number to ask for.
According to an IRDA circular, "The average agent persistency rate is uniformly set as 50% which is to be reckoned only on number of policies. The persistency rate requirements will be effective for all agency renewals that are due from 1st July, 2014." In February, IRDA had pegged the persistency ratio at 50% with a rider that it should go up to 75% by 2015-16. Now the watchdog has relaxed these persistency norms for insurance agents, by removing the rider that the ratio should go beyond 50%.
Since last year, RIL has witnessed a drastic drop in reservoir pressure and water ingress in its gas producing wells, leading to a drop in output from 61 mmscmd to less than 44 mmscmd, instead of rising as planned to over 70 mmscmd
New Delhi; Reliance Industries (RIL) has drilled two new wells in its KG-D6 gas block, but both have turned out to be almost dry, with very little hydrocarbon presence, vindicating the company's stand that indiscriminate drilling will not help solve the problem of falling gas output, reports PTI.
"The wells were disappointing, showing presence of very little gas. It is simply not economical to produce gas from those wells," a source privy to the development said.
In July, RIL completed drilling of two wells to take the number of producer or development wells in the Dhirubhai 1 and 3 (D1 and D3) gas fields of the eastern offshore KG-D6 block to 20. It, however, decided not to make a further investment to connect them to production facilities and transport the gas by pipeline to its onshore plant.
"The two wells will not even yield 1 million standard cubic metres per day," the source said.
Since last year, RIL has witnessed a drastic drop in reservoir pressure and water ingress in its gas producing wells, leading to a drop in output from 61 million metric standard cubic metres per day (mmscmd) to less than 44 mmscmd, instead of rising as planned to over 70 mmscmd.
The company wants to carry out more geological and reservoir studies and induct better technology before drilling more wells, but the oil ministry, on the advice of its technical arm, the Directorate General of Hydrocarbons (DGH), has ordered RIL to drill 11 wells by March next year.
RIL's opposition to indiscriminate drilling has led to the oil ministry contemplating the disallowance of cost-recovery of a third of the $5.69 billion investment that the company has already incurred on field development.
Sources said RIL drilled one of the two wells over the main reservoir/channel of D1 and D3 and the other outside, but both gave disappointing results.
The D1 and D3 gas fields currently produce 37.1 mmscmd of gas and another 7.4 mmscmd comes from the MA oil field in the same block.
Of the 18 wells drilled, completed and connected to the production system in the KG-DWN-98/3 (or KG-D6) block, only 16 are currently producing, as RIL had to shutdown two because of high water ingress, they said.
Sources said the ministry and DGH are upset with RIL because the billionaire Mukesh Ambani-led firm has not adhered to its commitment to drill 22 wells by April, 2011, as laid out in the 2006 field development plan for D1 and D3.
They feel the main reason for the fall in output is this unmet drilling commitment, whereas RIL has been trying since early this year to explain that more wells will not lead to any significant increase in production.
Output, according to the company, will rise only when new pools or reservoirs of gas are brought into production. This can happen only when geology is studied afresh with deep-sea exploration specialist BP Plc, which has taken a 30 per cent stake in KG-D6.
RIL has so far spent $5.694 billion on the two fields and has recovered $5.258 billion from the sale of gas produced.
However, the oil ministry wants to limit cost recovery in the block in proportion to the slippage in output with reference to the stipulated timeline, reducing RIL's entitlement to $3.405 billion.
RIL, however, feels such a move would be illegal, as the Production Sharing Contract (PSC) does not have any such provision and the $1.85 billion already recovered by RIL cannot be reversed.
"If the PSC were indeed to be re-written to link cost recovery to levels of production, it would also have to include provisions for allowing the contractor (RIL) to recover costs in excess of his investment in case he were to achieve a rate of production higher than that estimated at the time of capex approval," RIL senior vice-president (commercial) B Ganguly wrote to the ministry on 16th September.
RIL said as per the PSC, all costs and production numbers provided in the field development plan (like the one approved for KG-D6 in 2006) are only estimates based on the understanding of the reservoir and the market prices at any given point of time and "such estimates cannot be construed as constituting a commitment under the PSC."
"There is no provision under the PSC that can limit cost-recovery to either production levels achieved by a contractor or to the extent that facilities are utilised under a development plan at any given point of time," RIL wrote.