Short bounce-back still on the cards around 16000 on the Sensex

Selling looks overdone, but don’t expect a resumption of a rally

The market was down today, after news filtered in on strict financial regulations being planned by the eurozone. The Sensex ended the day at 16,408, lower by 467 points (2.7%) while the Nifty closed at 4,919, lower by 146 points (2.8%). The bourses started the day with deep cuts, taking cues from weak Asian markets. The market traded range-bound till early afternoon, after when it slid sharply, tracking European markets. The market was down for the rest of the trading session.

Asia shares were down in volatile trade on the euro's plunge to a fresh multi-year low against the US dollar and proposed moves by German financial regulators to ban some types of short selling of eurozone securities. Key benchmark indices in China, Hong Kong, Japan, Indonesia, South Korea, Singapore and Taiwan fell by 0.27% to 3.33%.

US stocks were down on Tuesday with banking stocks leading the plunge on the strengthening of financial regulations from New York to Frankfurt. The Dow was down 115 points (1.08%) to 10,511. The S&P 500 lost 16.1 points (down 1.4%) to 1,121. The Nasdaq shed 37 points (down 1.5%) to 2,317.2.

Germany has banned naked short-selling on euro-denominated government bonds, credit default swaps based on those bonds, and shares in Germany's 10 leading financial institutions. Berlin said that eurozone nations must control their fiscal deficit to bring confidence back to the financial market. European finance ministers on Tuesday approved new regulations for hedge funds. The European Union (EU) also plans to limit the amount of debt, or leverage, that foreign-based funds can use to increase their trades and profits.

The euro was down to a four-year low on the ban of naked short-selling of some of the financial instruments and also on the remark of the German chancellor that the euro is in danger.

Back home, April imports have risen an annual 43% to $27.3 billion. Foreign Institutional Investors (FIIs) were net sellers yesterday of Rs439 crore. Domestic Institutional Investors (DIIs) were net buyers of Rs326 crore. The rupee was down as investors covered short dollar positions, tracking the euro's drop and the rising risk aversion globally that pushed down local shares.

Bank of Rajasthan (BoR) (up 20%) has decided to merge with ICICI Bank. The boards of directors of both banks have given their in-principle nod for the merger. ICICI Bank has started a due-diligence exercise on BoR from Tuesday. The swap ratio for the merger is set at 25 shares of ICICI Bank for every 118 shares held in BoR. Chennai Petroleum Corporation (up 0.4%), a unit of IOC, will invest Rs10,000 crore this fiscal to expand its refinery's annual production capacity by 1 million tonnes and revamp its fuel production facility.

ONGC (down 2%) is inviting global bids worth $1 billion to upgrade offshore infrastructure of its existing fields off the eastern and western coasts of India and set up new infrastructure at recent finds. Indian Oil Corporation (IOC) (down 1.1%) will reportedly pursue setting up of a Rs10,000-crore liquefied natural gas (LNG) terminal project through a joint venture with Tamil Nadu Industrial Development Corporation at Ennore.

Ram Informatics (down 3.4%), in consortium with a technology company in Hyderabad, has received an e-governance order for software services from the Navi Mumbai Municipal Corporation.


BRIC countries’ stocks wilt; all indices precariously poised

The equity markets of the four fancied emerging nations have dipped below their 200-day moving averages. Are they signalling a fresh bout of global pessimism?

In what could be a telling signal, the major indices in the BRIC countries (Brazil, Russia, India and China) have now sank below their respective 200-day moving average (200 DMA). A lot of market players, including institutional investors, see the 200 DMA as the lakshman rekha which separates the bear market and the bull market. If the indices are unable to get above the 200 DMA, it could mean a period of disappointing growth since stock prices precede economic and corporate performance by months.

For the past year or more, stock markets in emerging nations have ridden piggyback on the optimism and ‘feel-good’ factor after having come out of the recession faster and stronger than the troubled Western nations. Decoupling theories had found a stronger voice after the stellar performance of developing markets relative to their struggling counterparts in the West.

However, recent developments in the Europe debt saga could have affected sentiments more deeply than one would imagine. The stock markets in the four leading emerging nations of Brazil, Russia, India and China (popularly known as BRIC) seem to have been torpedoed by the real impact of the $1-trillion bailout package put together by the European Union (EU).

The Shanghai Composite was the first BRIC country index to have started on a long steady decline, falling below its 200 DMA as early as January this year. China, which has been the epitome of emerging market growth, has continued to stumble badly in the past few weeks. While the Chinese government is proudly exhibiting a near 10% GDP (gross domestic product) growth, investors in Chinese markets are not participating in the euphoria. The Shanghai Composite’s sharp decline is in sharp contrast to the growth being advertised. This should bust any myths about stock markets moving in tandem with GDP growth of a country.
Echoing the Chinese markets, the Brazilian stock markets also dipped below their 200 DMA earlier this month. And today the Bombay Stock Exchange (BSE) Sensex fell 3% to 16,408. The Russian RTSI, which sank 4% today, had also moved below its 200 DMA a few days ago.

It is clear from the developments that the so-called BRIC markets are now treading a rocky terrain. Even a slight shock to global recovery at this stage would be enough to affect the balance and send the markets hurtling southward, panicking institutional investors. The only issue is whether this means that poor economic performance is bound to follow—something that nobody seems to fear.
In fact, consensus estimates say that analysts expect around 25% growth in revenues for India Inc in the coming year. GDP growth is expected to touch around 8.5% for the year 2010-11. But what nobody may have budgeted for is the fact that companies and economists may be far behind the curve. The stock markets may have already discovered the growth trajectory to follow—which doesn’t bode well for the economy.


SEBI caps fund of fund expenses at 2.5%

These funds will have to charge expenses under the prescribed guidelines or up to 2.5% of the net assets under management—including management fees, other expenses and charges

Market watchdog Securities and Exchange Board of India (SEBI) today in its board meeting has decided to cap annual expenses in fund of fund (FoF) schemes at 2.50%.

FoF schemes will have to charge expenses either under the provisions mentioned under the SEBI Mutual Fund Regulation 52(6), 1996, or up to 2.50% of the average net assets including management fees (not exceeding 0.75% of the average of net assets), other expenses and charges levied by the schemes.

An FoF scheme invests in other mutual funds unlike an equity or debt fund which typically invests in stocks of companies. This practise only increases the expense of an FoF scheme since the fund in which the FoF invests also carries recurring expenses like management fee, marketing and distribution costs and custodial fees. 

“The offer documents of companies raising capital shall contain disclosures from directors if they were directors of any company when the shares of the said company were suspended from trading by Stock Exchange(s) for more than 3 months during (the) last 5 years or delisted,” stated the SEBI circular.


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