Wall Street ended lower for the second day on worries of disruption of crude supplies while Asian markets have showed some recovery with the markets in the region witnessing a mixed trend in early trade today
The Indian market is likely to see a tepid opening today. The surge in crude prices on account of the ongoing turmoil in Libya spooked markets worldwide. Wall Street ended lower for the second day on worries of disruption of crude supplies. However, fears of disruption in crude supplies have been receding in Asia as the markets have showed some recovery with the markets in the region witnessing a mixed trend in early trade today. The SGX Nifty was down 20 points at 5,421 from its previous close of 5,441.
On the domestic front, the government will announce the weekly food inflation numbers later today. Besides, the expiry of the February futures & options contract will keep the market volatile.
The market witnessed a flat opening on Wednesday, tracking weak trends in the global arena on concerns about rising crude prices due to the ongoing political unrest in West Asia. Besides, fluctuations ahead of the expiry of the February futures and options contract, due today, saw the key indices move in and out of the red quite a few times. Select buying in post-noon trade pushed the market to a higher trajectory, but the gain was temporary and the indices again slipped southwards in the late session, closing marginally off the day’s low and in the red for the second straight day. The Sensex fell 118 points to close at 18,178, while the Nifty fell 32 points at 5,437. The market may have still not found a direction and may see a fall soon.
The US markets closed in the red for second day in a row as the rise in crude prices on account of the continued violence in Libya, Africa’s top oil exporter Crude futures for April delivery settled at $98.10 a barrel after surging to 4.8% to $100 per barrel in New York. Brent oil for April delivery climbed 5.6 percent to $111.66 a barrel. Meanwhile, US Treasury Secretary Timothy F Geithner said the economic recovery has put the world on a better footing to withstand the increase in oil prices.
On the economy front, existing home sales in the US rose 2.7% to a 5.36 million annual rate in January to the highest level in eight months as investors used all-cash transactions to snap up distressed properties.
The Dow tumbled 107.01 points (0.88%) at 12,105.78. The S&P 500 shed 8.04 points (0.61%) to 1,307.40 and the Nasdaq fell by 33.43 points (1.21%) to 2,722.99.
The fears of disruption of crude supplies have been receding in the Asian region as markets in the region were mixed in early trade on Thursday. However, policy makers in Asia are expected to take harsher steps to rein in rising prices.
The Shanghai Composite gained 0.47%, the Hang Seng rose 0.45%, the Seoul Composite was up 0.42% and the Taiwan Weighted advanced 1.08%. On the other side, the Jakarta Composite was down 0.36%, the KLSE Composite shed 0.04%, the Nikkei 225 fell 0.42% and the Straits Times was down 0.05%.
Back home, India’s GM crop acreage in 2010, at 9.4 million hectares (mh), was next only to the US (66.8 mh), Brazil (25.4 mh) and Argentina (22.9 mh), while ahead of Canada (8.8 mh) and China (3.5 mh), according to the latest global status report of the International Service for the Acquisition of Agri-biotech Applications (ISAAA).
The 9.4 mh GM area in India consisted entirely of Bt cotton. This was unlike in the US, where the 66.8 mh acreage was distributed among maize (31.7 mh), soyabean (30 mh) and cotton (3.9 mh), besides canola, alfalfa, sugarbeet and potato.
The market could be setting itself up for another steep decline, though the indicators are not clear still
The market witnessed a flat opening, tracking weak trends in the global arena on concerns about rising crude prices due to the ongoing political unrest in West Asia. Analysts fear that the developments are likely to slow down the pace of the global recovery. Besides, fluctuations ahead of the expiry of the February futures and options contract, due tomorrow, saw the key indices move in and out of the red quite a few times. Select buying in post-noon trade pushed the market to a higher trajectory, but the gain was temporary and the indices again slipped southwards in the late session, closing marginally off the day’s low and in the red for the second straight day.
The market has still not been able to find a direction and as expected it fell today. The Sensex and Nifty opened with a negative gap of 18,234 and 5,452 and made a lower high compared to yesterday and a lower low. The Sensex touched an intra-day high of 18,377, while the Nifty reached 5,495. Till around 2pm the market was mostly trading marginally in the red.
However, after hitting the day’s high, the indices started falling steeply to hit the day’s low, led by banking stocks, especially SBI. The Sensex hit an intra-day low of 18,150, while the Nifty’s intra-day low was 5,428. The market ended at an eight-day closing low. The Sensex fell 118 points to close at 18,178, while the Nifty fell 32 points at 5,437. The market may have still not found a direction and may see a fall soon. The advance-decline ratio on the National Stock Exchange was 610:1060.
The market breadth on the key indices continued to be negative. The Sensex closed with 19 stocks in the red, 10 in the green while one stock remained unchanged. The 50-share Nifty had 30 declining stocks and 20 gainers. Among the broader markets, the BSE Mid-cap index declined 0.67% and the BSE Small-cap index fell by 0.31%.
The BSE Oil & Gas index (up 0.53%) and BSE Auto (up 0.47%) were the gainers in the sectoral space. The BSE Bankex (down 1.75%), BSE IT (down 1.50%), BSE Realty, BSE TECk (down 1.27% each) and BSE Consumer Durables (down 1.25%) were the major losers.
The top Sensex gainers were Reliance Infrastructure (up 12.24%), Hero Honda (up 5.45%), Reliance Communications (up 1.47%), Reliance Industries (up 1.15%) and HDFC (up 0.94%). State Bank of India (down 3.84%), DLF (down 3.29%), Tata Power (down 2.78%), Jaiprakash Associates (down 2.04%) and Infosys Technologies (down 1.94%) were the laggards on the index.
Chairman of the Standing Committee on Finance Yashwant Sinha today suggested raising the income tax (I-T) exemption limit to Rs2 lakh in the budget, to provide relief to the common man, suffering the impact of high inflation.
Presently, income up to Rs1.6 lakh per annum is exempt from tax for individuals. For women and senior citizens, the limit is Rs1.9 lakh and Rs2.4 lakh, respectively. However, under the DTC Bill, which was introduced in Parliament last year, the I-T exemption limit is proposed at Rs2 lakh.
Markets in Asia limited their losses today with the indexes in China and Jakarta closing in the green. However, rising crude prices amid the crisis in West Asia renewed inflationary pressures. While oil exploration companies rose on higher crude prices, aviation companies were pushed lower due to higher jet fuel costs.
Among Asian markets, the Hang Seng declined 0.36%, KLSE Composite fell 0.17%, the Nikkei 225 tumbled 0.80%, the Straits Times lost 0.57%, the Seoul Composite was down by 0.42% and the Taiwan Weighted tanked 1.67%. On the other hand, the Shanghai Composite rose 0.25% and the Jakarta Composite gained 0.67%.
Back home, foreign institutional investors were net sellers of stocks worth Rs386.26 crore on Tuesday, while domestic institutional investors were net buyers of equities worth Rs413.99 crore.
The Hinduja group’s newly formed company, Ashok Leyland Defence Systems (ALDS), in which Ashok Leyland (down 3.55%) holds a 26% stake, has joined hands with Germany-based Krauss-Maffei Wegmann GmbH & Co KG, to co-operate in the development of advanced defence systems for the Indian defence sector as well as other defence forces worldwide. The scope of the co-operation will initially include the development of armoured vehicles, recovery vehicles, artillery and combat systems, bridge-laying systems and other similar products.
Madhucon Projects (up 3.52%) has bagged a letter of award from the National Highways Authority of India (NHAI) for four-laning of the Barsasat- Krishnagar section in West Bengal under the National Highways Development Programme (NHDP-III) on design, build, finance, operate and transfer basis (DBFOT) for a semi-annual annuity of Rs73.98 crore. The concession period is 17 years, including construction period of 910 days.
Rohit Ferro-Tech (down 1.50%) has started commercial production from the third and fourth furnace of its 100% export-oriented unit at Haldia. Production from other two furnaces is also expected to start in a couple of months. The company will make manganese alloys from this unit which is mainly targeted for exports. The company had commenced commercial production from the second furnace on 10 August 2010 at the 100% EoU at Haldia.
Three months ago, the rating agency gave the highest rating for the IPO of the monopoly coal producer based on 'strong fundamentals'. Today, it says new thermal power projects will suffer due to a demand-supply gap that is widening. Did it ignore the risks?
Barely three months after the rating and research firm ICRA assigned the highest grade for Coal India's (CIL) initial public offering on the back of 'strong' fundamentals, it has started talking about a shortfall of coal production for new coal-based thermal projects.
ICRA, an associate of Moody's Investors Service of US, in its latest report, says, "The spurt in demand has led to a significant rise in import levels, given the failure of domestic coal production to keep pace with the increasing demand because of structural bottlenecks that prevent quick commissioning of mining projects." The domestic production of course predominantly comes from CIL.
The same rating agency, three months ago, gave the highest grade, '5/5', for the CIL IPO citing strong business fundamentals as well as financial strength. It had said that CIL is the largest coal producer in the world and owns vast reserves, a highly favourable demand-supply situation in the domestic coal industry, and that this monopoly in the coal industry is expected to result in strong growth prospects for the company.
CIL accounts for around 80% of India's coal production and provides around 70% fuel for the country's thermal power plants. The Coal India IPO, which was oversubscribed 15.3 times, raised Rs15,000 crore from the market.
The question is, what fundamentals were taken into account while assigning the grade-coal reserves, the monopoly of the company or its financial figures? It seems that credit agencies and industry experts do not bother to pay attention to risks in the nature of business of state-owned companies in which the government has tight control.
In its recent report, ICRA says, "The demand-supply gap in the domestic industry is likely to widen significantly over the medium to long term as many large-size, coal-based power projects are expected to commission over this period. Many of these projects were conceived on the premise that domestic coal would be available to them in the required volumes."
"While such projects have been able to secure letters of assurance (LoAs) from the Coal India group, such contracts actually guarantee coal availability of 50% of their annual requirements from domestic mines," the report says.
Since environment minister Jairam Ramesh slapped the Comprehensive Environmental Pollution Index (CEPI) on many of its coal blocks, CIL has lowered its production target for this financial year by 3.5% to 444.50 million tonnes, and for FY12 the company has reduced the production target by 8% to 447.50 million tonnes.
Lower supply of coal in the domestic market will force power companies to import coal. Coal prices are higher and volatile in the international markets and this would eat into power companies' margins. The report says that higher coal prices for new thermal projects will impact returns and undermine the debt service capabilities of the project promoters.
According to the report, domestic demand for coal witnessed a compounded annual growth rate (CAGR) of over 8% between FY2006 and FY2010, while production CAGR was under 7% during the same period, due to several issues like environment clearance, land acquisition and political unrest in coal-producing regions.
Source: Outcome Budget of 2010-11, Ministry of Coal and ICRA research
The graph (Coal demand-supply position) shows that though the state-owned company sits on largest reserves, or produces the highest amount of coal in the world, India has been largely dependant on imports.
ICRA estimates that the demand-supply gap will increase further as many thermal projects are being commissioned. It says that the installed capacity of coal-based thermal power plants increased from 71GW in FY2007 to 90GW at the end of November 2010. By the end of FY2012, ICRA expects the thermal power capacity would be 113GW.
Demand from other industries, including steel, aluminium and cement is likely to be very high in the next five to seven years, although a number of thermal power plants are likely to be based on imported coal.
ICRA expects coal production in the country to grow at the historical rate of around 7% per annum. This could see the demand- supply gap increase to more than three times over the next five to seven years from the current gap of 67 million tonnes, a clear indication that the power sector will largely depend on import of coal.
Interestingly, ICRA also says that the Ministry of Coal from its Mid-Term Appraisal report for the 11th Plan period has reported that to bridge the gap the country would require to import 83 million tonnes in FY12. CIL, in its red herring prospectus, had said that it would face a deficit of 110 million tonnes and 235 million tonnes in FY11 and FY12 respectively, if all thermal power plants with LoAs from CIL are commissioned on time.