Markets to head further down

Weak global cues coupled with disappointing December quarter results from major companies pulled markets down

Indian markets continued their downward fall, following weak global cues even as bullish economic data from China further raised concerns of policy tightening. Disappointing December 2009 quarter results from L&T also pulled Indian indices down further.

The Sensex declined a massive 423 points from the previous day’s close ending the day at 17,051, while the Nifty closed at 5,094, down 127 points.

Last week we had said: “The market’s trading band has narrowed down to an extreme. This usually presages a major move. We can’t say at this moment whether the market will end higher or lower but a big move is certainly coming.” (see here)

 Today’s move has been the big move which we were talking about.

On Wednesday, 20 January 2009, the Dow Jones Industrial Average lost 122 points while the S&P 500 and the Nasdaq Composite fell 12 points and 29 points. In premarket trading, the Dow was trading 2 points lower.

During the day, Asia’s key benchmark indices in Hong Kong, Singapore, and Taiwan were down by between 1.03%-1.39% while those in Japan, South Korea and China were up 1.22%, 0.45% and 0.22% respectively.

Chinese data released today showed that fiscal and monetary policy tightening could be forthcoming. According to official data, China’s gross domestic product expanded at a rapid rate of 10.7% in the fourth quarter of 2009 from the year-earlier period, pushing the full-year economic growth rate to a better-than-expected 8.7%.

At 11:00 hrs IST, the Sensex was trading 124 points lower from the previous day’s close at 17,350, while the Nifty was trading at 5,192, down 30 points.
By 14:00 hrs IST, the Sensex was trading at 17,212, down 262 points, and the Nifty was trading 94 points down at 5,127.

During trading hours, L&T posted a 6% decline in sales growth and 29% rise in operating profit growth for the December 2009 quarter against the December 2008 quarter. At the end of the day, the stock tanked 7%.

Bharat Heavy Electricals Limited (BHEL) posted 18% growth in sales and 36% growth in operating profit for the December 2009 quarter over the December 2008 quarter. However, the stock declined by 4%.

Cairn India fell 3% on reports that the Comptroller and Auditor General of India, the country's statutory auditor, had sought government intervention to access financial records of the company's Rajasthan oil fields.

Jindal Poly Films rose 3% after the company’s board approved buyback of up to 22 lakh equity shares at a ceiling price of Rs450 per share. The announcement was made after market hours on Wednesday, 20 January 2010.

Dredging Corporation plunged 11% after the shipping secretary said that there were no plans to divest stake in the company. Mercator Lines shed 2% despite the company bagging a $225-million contract.{break}

During trading hours, the Indian government said that the food price index rose 16.81% in the 12 months to 9 January 2010, while the fuel index was up 6.34%. The rise in food price index was lower than an annual rise of 17.28% in the previous week.

Yesterday, Sharad Pawar, Union food and agriculture minister, said that the prices of milk and related products were set to rise because of the demand-supply mismatch.

The performance of India Inc on the earnings front has been robust with aggregate results of 324 companies showing a 90.2% surge in net profit and 13.8% rise in sales in the December 2009 quarter over the December 2008 quarter.

As per reports, excise duty collections between April to December 2009 were down by 13% at close to Rs70,000 crore, whereas revenues via customs duty were also down by a whopping 28% at around Rs59,000 crore. Service tax collection was also down over 6% with the government collecting slightly over Rs36,000 crore. Ergo, the total collection of indirect taxes in the first nine months is about Rs1,66,000 crore, down by 18% as compared to the last fiscal. The government has set itself a target of around Rs2,70,000 crore by the end of the fiscal year ending March 2010.

Meanwhile, the government has reportedly proposed to ease the norms for foreign direct investment (FDI) approval. Currently, projects worth more than Rs600 crore require the final approval of the Cabinet Committee on Economic Affairs (CCEA). As per reports, the department of industrial policy and promotion (DIPP) has proposed that this ceiling be raised to anywhere between Rs1,000 crore and Rs1,500 crore. The new norms are likely to be notified after the introduction of a consolidated FDI policy framework on 1 April 2010.

FDI inflows increased to $27 billion in 2008-09 from $3.20 billion in 2004-05. During this period, April-September 2009-10, FDI inflows reached $15 billion. The government has set an annual FDI target of $50 billion by 2012 and $100 billion by 2017.

As per reports, the World Bank raised its forecast for global growth in 2010 but warned that the recovery may lose momentum in the second half of the year as government stimulus programs wind down and unemployment persists. The bank said that growth may reach 3.2% in 2011 and the world economy will expand 2.7% this year, compared with an estimate in June of a 2% expansion. The bank also said that the growth in emerging nations is expected to reach 5.2% this year, compared with a June estimate of 4.4% while China will expand 9% this year and India at 7.5%. The World Bank also raised its forecast for US growth in 2010 to 2.5%, after predicting a figure of 1.8% in June. Japan’s gross domestic product will expand 1.3% this year, the institution said, more than the 1% predicted in June. The euro area’s economy is forecasted to grow 1%, compared with the earlier estimate of 0.5% expansion, the bank said.

Tomorrow the market may bounce back a bit, but may go down again over the next few days.

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