Regulatory row breaks rally
Moneylife Digital Team 12 April 2010

The turf war between SEBI and IRDA over ULIPs spooked market sentiment

The market took a breather after a straight nine weeks of gains. The Sensex was down 80 points (0.45%) to 17,853 and the Nifty shed 22 points (0.41%) to end at 5,339. The sentiment in the market was subdued by the row between the regulators on the selling of unit-linked insurance plans (ULIPs). The Securities and Exchange Board of India (SEBI) has barred 14 insurance companies from issuing ULIPs with immediate effect. SEBI feels that ULIPs, being a combination of investment and insurance, can only be offered after taking permission from the market watchdog. The market started with a gain—however, it soon came down from the high. Trading was volatile with the indices recovering from the low of the morning session and then sliding down in the afternoon session to touch the intraday low. Foreign institutional investors were net buyers on Friday (Rs233 crore). Domestic institutional investors were net sellers at Rs66 crore.

The rupee was strong today as the euro rose to its highest in nearly a month against the dollar. Most Asian stocks rose on Monday on news that the European Union had agreed on Sunday to details of a rescue package, if the Greek government needs one. Key benchmark indices in Singapore, Japan, Indonesia and Taiwan rose by 0.07% to 1.06%. The key benchmark indices in China, Hong Kong and South Korea fell by 0.32% to 0.82%. US stocks rose on Friday with the Dow passing 11,000 for the first time in a year-and-a-half after Chevron’s upbeat outlook and wholesale inventories data reinforced bets on an improving economy. The Dow gained 70.28 points (0.64%) to end at 10,997.35. The S&P 500 rose 7.93 points (0.67%) to 1,194.37. The Nasdaq added 17.24 points (0.71%) to 2,454.05. The World Trade Organisation (WTO) director-general Pascal Lamy said that the recovery in the global job market may be delayed by 18 months.

Data showed that US wholesale inventories rose more than expected in February and sales at wholesalers reached their highest level in 16 months, brightening prospects for first-quarter financial and earnings growth. 

Closer home, industrial output in February grew at a slower rate than expected. Industrial output rose 15.1% in February from a year earlier, less than a rise of 16.7% in January, and a 16% rise expected by analysts. A top government adviser forecasted that March inflation will remain on the higher side. The RBI has allowed foreign institutional investors to use their government bond holdings and foreign sovereign securities with ‘AAA’ ratings as collateral for stock market transactions. Sesa Goa (down 2.7%) was suppressed as China has banned import of iron ore with less than 60% iron content. Alstom Engineering (down 0.12%) has received a contract from AST Company LLC, (Dubai) for the construction of fuel storage facilities at three locations on the outskirts of Abu Dhabi. The contract is to be completed within a period of six months. IntraSoft Technologies (up 9.9%) has started trading on the bourses today. The company priced its initial public offering (IPO) at the higher end of the Rs137-Rs145 price band. Tata Motors (down 3.5%) will sell part of its shareholding to Tata Cummins in a process to divest its non-core assets to reduce debt. The key shareholders of SpiceJet (down 1.6%) have refused an offer from the Reliance Anil Dhirubhai Ambani Group to pick up 51% stake in the airline for Rs 40-45 a share. Reliance Infrastructure (up 0.2%) expects the governments of Gujarat and Andhra Pradesh to invite bids to develop regional airports. Exxon Mobil is reported to be in the process of assessing the eastern offshore assets of ONGC (down 1.1%) for a possible tie-up. DB Corporation (up 1.95%) has set up a committee of directors to consider the demerging of its FM radio business and merging the Bhaskar Publication & Allied Industries with the company.

As we predicted on Friday (9th April), we seem to be headed for another correction, possibly a longer one this week.

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