Markets on a downward spiral

Indian markets may continue to slump due to fears over possible monetary policy tightening by the central bank

Indian markets opened up higher on reports of better-than-expected December 2009 quarter results by Infosys Technologies, announced before trading started.

At 12.00 hrs IST, the Sensex was trading at 17,561, up 34 points and the Nifty was trading at 5,256, up seven points, on back of higher than expected November 2009 industrial production data.

Bharti Airtel acquired 70% in Bangladeshi telecom player, Warid Telecom. Bharti said that the company will invest a total of $1 billion in Warid. It will make a fresh investment of $300 million. The stock gained 1.3%.

However, towards the end of the day, Indian bourses felt selling pressure following strong industrial production data along with an expected surge in wholesale price inflation. This news strengthened market expectations that the central bank may tighten monetary policy.

At 14.00 hrs IST, the Sensex slumped 62 points from the previous day’s close at 17,464 while the Nifty was trading at 5,226, down 22 points.

Take Solutions zoomed 7%, after the company launched new software as a service designed to deliver online supplier management to medium and large enterprises.

At the end of the day, the Sensex declined 104 points from the previous day’s close at 17,423 while the Nifty closed at 5,210, down 39 points.

Infosys ended up 4%. In the December 2009 quarter, the company posted a negative operating profit and sales growth of 3% and 2% respectively over the corresponding quarter last year.

Murli Industries surged 20% and Atco Corporation was up 4%, on reports that the companies’ respective boards would meet later in the month to consider a stock-split.

Sterlite Technologies rose 3%, after the company said its board will meet on 18 January 2010 to consider issue of bonus shares and a stock-split.

Suven Life Sciences rose 7% after the company secured two product patents, one each in China and in Russia on new chemical entities for treating disorders associated with neurodegenerative diseases.

According to latest government data, industrial output surged at a faster-than-expected 11.7% in November 2009 from a year earlier, helped by stimulus measures that boosted domestic demand. This growth was the fastest since October 2007, when the industry grew an annual 12.2%. Manufacturing production rose 12.7% in November 2009 from a rise of 2.7% a year earlier. The final figure for October’s annual industrial growth rate was unchanged at 10.3%.

As per reports, Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, said that industrial output growth in the fiscal year to March 2010 will be higher than 2.6% recorded in 2008-09. He also said he hopes that inflation would come down, without specifying any time frame.

Meanwhile R Gopalan, secretary (financial services) from the finance ministry, said that the government will make all efforts to introduce the pension bill in the upcoming budget.

The next policy review by the Reserve Bank of India is on 29 January 2010.

During the day, Asia’s key benchmark indices in China, Indonesia, Japan, and South Korea were up by 0.27%-1.91%. However, indices in Hong Kong, Singapore and Taiwan fell by 0.17%-0.38%.

As per media reports, China’s central bank sold one-year bills at a higher yield for the first time since August 2009, fanning concerns that the government is moving to tighten liquidity. The People’s Bank of China raised the auction yield on one-year bills by a bigger-than-expected 8.29 basis points and drained a record 200 billion yuan ($29 billion) from the market, signalling a bias towards tightened monetary conditions.

On Monday, 11 January 2010, the Dow Jones Industrial Average and the S&P 500 were up 46 points and two points respectively while the Nasdaq Composite was down five points.

However, in premarket trading, the Dow was trading 71 points lower.

We expect the markets to slide downwards tomorrow.

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