As predicted, the Indian stock markets opened strong and maintained the momentum throughout to close significantly higher. The Sensex closed 549.62 points (5.62%) higher at 10,337.68 and Nifty closed 158.25 points (5.48%) higher at 3,043.85.
In the Asian markets, Hang Seng closed 2.69% higher, Singapore 5.99% higher, Korea 1.44% higher and Taiwan 2.55% higher. European markets are currently flat - FTSE is up 0.41% and DAX is up 0.55%.
The call rates have cooled down significantly. They are currently at 8%, which is significantly lesser than the 21% quotes that were there on 31/Oct.
On the interest rate front, some public sector banks had slashed the rate and ICICI Bank has said that it would review its interest rates in the coming days and adjust it based on market situation. But it is not very practical to expect significant rate cuts now. The confidence and demand needs to pick up and the rate cuts would anyway be preceeded by a drop in deposit rates.
The prime minister has made a statement that India will take all necessary actions (monetary or fiscal) to ensure economic growth. But he did say that the current crisis could be more prolonged and would have an impact on our growth rates.
November 3rd, 2008 | Category: Economy, Mkt Commentary, market commentary | Leave a comment
I wished in my last post that the RBI should act and act swiftly as the call rates had touched 21% on 31/Oct/08. And we did see some action from RBI on Saturday. They have cut the repo rate by 50bps to 7.50% (effective 3/Nov), cut the CRR by 100bps to 5.5% (in two stages, first stage effective 25/Oct and second stage effective 8/Nov) and they have also cut SLR by 100bps to 24% (effective 8/Nov). RBI has also allowed banks access to special refinance at 7.50% for 90 days by allowing them to borrow to the extent of 1% of net demand and time liabilities against govt securities held as SLR and the banks can onlend this to finance companies. Now what do these measures do?
Repo rate cut : This is the rate at which RBI lends to the banks. Banks who need to borrow from RBI would get benefit from this cut.
CRR reduction: The CRR cut would infuse Rs. 40,000 crores of liquidity (total) into the system (Rs. 20,000cr in each phase). Much needed, given the high call rates that prevailed.
Reduction in SLR: This means that the banks now need to keep only 24% of their net demand and time liabilities invested in SLR securities. So, the banks now have the option of selling off Rs. 40,000cr worth of government securities if they want to.
The stock markets would react positively to this news. But as far as the question on whether interest rates would come down or not, it would not happen quickly. Though IDBI Bank has cut home and education loan rates by 50bps, the other lenders may not follow suit so quickly. That would take a little while.
November 2nd, 2008 | Category: Economy, rbi | Comments (1)
The Indian stock markets opened after a holiday and have surged today as a catch-up to what the other markets did yesterday. The Sensex is now 623.78 points up (6.90%) at 9,668.29 and Nifty is 151.65 points up (5.62%) at 2,848.70. The Asian markets are mixed - Nikkei is 5.01% down, Hang Seng 4.12% down, Korea 2.61% up, Singapore 0.66% down. The US markets closed higher yesterday.
As mentioned in my previous post, Bank of Japan has cut interest rates to 0.3% from 0.5%. Lets see what the other central bankers do next week.
S&P today affirmed its ‘BBB-’ long-term and ‘A-3′ short-term sovereign credit ratings on India. The outlook on the long-term rating remains stable. The ratings on India reflect the country’s strong economic growth prospects and its deep government debt market, which helps accommodate its weak fiscal position.
Inflation came in at 10.68% as expected for the week ending 18/Oct, the first time it is below 11% since May/08. And there seems to be some strain on liquidity again as the overnight rates went up to 12% on 29/Oct. As of today, the call rate opened at 14%, hit an intraday high of 21% and a low of 10% - very high. Given a lowering inflation and pressures on liquidity again, we can only hope that RBI will take some action and take action soon.
October 31st, 2008 | Category: economy update, market commentary | Leave a comment
Indian stock markets are closed today but the Asian markets posted big gains today. Nikkei was up 9.96%, Hang Seng was up 12.82%, Singapore was up 7.82% and Korea was up 11.95%.
The Fed cut rates by 50bps to 1% yesterday (29/Oct) and has also announced USD swap lines with Brazil, Mexico, South Korea and singapore. This measure is essentially to help these central banks cope up with shortage of USD.
China, Taiwan, Hong Kong and Norway have already cut their rates and Japan is likely to reduce the rates tomorrow. And Eurozone/UK/Australia, in all likelihood, would cut rates next week.
But the damage to real economy in terms of growth slowdown has already been done by this financial crisis. Lets hope that these measures will aid in a quick recovery. But that may take a while to come.
October 30th, 2008 | Category: market commentary | Leave a comment
The Indian stock markets ended flat but not before some amount of volatility. F&O settlement added to the volatility as well. The Sensex ended at 9,044.51, a gain of 36.43 points (0.4%) and Nifty ended at 2,697.05, a gain of 12.45 points (0.46%).
The rally that we have seen in the markets in the last two days I think is typical of what is expected in the coming months - sporadic rallies in a general phase of consolidation. This is a good time to buy if you are looking at a 2-3 yr horizon as mentioned in my earlier post.
The finance minister (P Chidambaram), RBI governor (D Subbarao), RBI deputy governor (Rakesh Mohan), SEBI chairman (C B Bhave), two ex RBI governors (Mr. Rangarajan and Mr. Bimal Jalan) and the planning commission deputy chairman (Montek Singh Ahluwalia) met today. I believe that the purpose is to discuss the stand that needs to be taken by India in the upcoming G20 meeting.
Assocham has made a statement that companies are likely to lay off around 25% of their workforce in various industries like steel, cement, financial services, etc. The 25% figure sounds too high as far as sectors like cement, steel are concerned but I think reduction in workforce in financial services have surely crossed the 25% figure already. Banks/NBFCs are not hiring any new employees (not even replacements) and are reviewing the performance of their existing employees and the non performers have been asked to go.
As far as US/Eurozone/Japan is concerned, the US is expected to cut rates later in the day today and I think other countries like Japan and countries in Eurozone are going to follow US in cutting rates to stimulate their economies. Again they are trying to signal to the world that we are acting in unison and that everything should be okay now. But look at the TED spreads, they may not be at the 4.5% levels that was seen earlier, but they are still high (2.71) and till such time they are high, it shows the pathetic confidence levels amongst banks to lend to each other. I guess we will need to wait for some more time for them to fall and stabilise.
October 29th, 2008 | Category: market commentary, rbi | Leave a comment
The Sensex hit a rock bottom of 7,697.39 and the Nifty hit a rock bottom of 2,252.75 before staging a remarkable recovery. This recovery was I guess due to some opportunistic buying, some short covering and investments by insurance companies.
At the end of trade, Sensex closed 191.51 points down (2.20%) at 8,509.56 and Nifty closed 59.80 points down (2.31%) at 2,524.20.
Asian markets closed lower (Hang Seng was down 12.70%, Nikkei was down 6.36% ) and Europe is trading lower (FTSE down 4.13%, DAX down 3.52%).
The rupee hit an all time low of 50.275 against the USD but recovered after RBI intervention.
SBI posted a 40% increase in profits in Q2 but the market slammed the stock down by 15.66% to Rs. 1,050.00. The bank has set Rs. 610cr as provisions for bad loans, a significant increase as compared to provisions in the previous year.
Unitech, which dropped significantly in the last trading session, closed at Rs. 42.65, an increase of 37.58%. The company is apparently filing a complaint with SEBI and has said that the fall in the last trading session was due to some malicious rumours by speculators.
But one thing is for sure, wait for a few more days and I think we will see the bottom of the market. If you have a 2-3 yr horizon, just start investing now.
October 27th, 2008 | Category: market commentary | Comments (1)
This is a Friday (24/Oct) that the world would want to forget. Almost all the stock markets across the world collapsed. The table below gives an indication of how the world markets performed on Friday.
World Stock Markets
As it can be seen, nothing was spared. As far as Indian markets are concerned, this was one of the highest falls ever. Strangely, there was no circuit that kicked in because of some issue with calculations. Sensex hit a new low of 8,566.82 and Nifty hit a new low of 2,525. The advance decline ratio was 1:14, one of the worst ever.
Almost all the sectors were beaten down today, but realty was the worst hit and the realty index fell 24.39%. Unitech lost 51.29% on a single day due to rumours of defaulting payments to Noida authorities. DLF was down 24%, Puravankara Projects was down 44%.
RBI had a monetary policy announcement and the markets expected a positive signal by way of CRR or rate cut but RBI has left the rates unchanged. This further pushed the markets down. RBI has lowered GDP growth estimate from 8% to 7.5%-8%. And the rupee continued its slide and touched an all time low of 50.165 against USD. The forex reserves are down to USD274 billion (from a record USD316 billion in May).
Given that the US and the Eurozone have gone into recession (UK reported negative GDP growth), the other economies in Asia are also slowing down. China has already cut rates and South Korea is busy trying to ward off a total collapse. Lets see how India copes up with all this.
October 25th, 2008 | Category: economy update, market commentary, rbi | Leave a comment
The Indian stock markets are down as is the case with other global markets. The Sensex is down 442 points at 10,241 and Nifty is down 152 points at 3,082.
Asian markets hit 4 year lows today on the same old concerns - slowdown in economy, poor corporate earnings, falling commodity prices, worries of recession…
I may sound cynical, but these are the standard reasons given everytime the stock markets fall by every channel/website. But I also understand their problem - what else to do? What else can they say? The day to day swings in the market till such time positive economic news starts flowing in will only be attributed to above. If there is a fall, then the reasons are as mentioned above and if there is a rise, then a brief rally is on account of hopes that the recession may not last as long as it is believed to last.
Anyway, coming back to the markets/economy, the only postive bit of news is that Norway’s sovereign fund has plans to invest upto USD 2 million in Indian stock markets in the coming months. Good, they will get attractive valuations.
As far as negative news is concerned, the government’s fiscal deficit in this fiscal year may exceed the target of 2.5% as announced by the FM. And as far as the rupee is concerned, it is now at Rs. 49.50 per USD and expectations are that it will breach the Rs. 50 per USD mark. The currency has declined by more than 20% in 2008. And with repo rate cuts, it is expected to fall further. RBI, in an effort to boost liquidity, has cut the repo rate and may cut it further. The only factor is that if the currency depreciates too much, then it adds significantly to the import bill and hence RBI may intervene in the markets and halt the decline of the rupee. They may be more inclined to do so now as whenever an intervention is done by way of RBI purchasing USD, they inject more INR into the system that may fuel inflation. But now that inflation is on a downward trajectory, they would surely look at halting the rupee slide.
October 22nd, 2008 | Category: Economy, economy update, rbi | Leave a comment
RBI has cut repo rate to 8% with immediate effect. This is the first time in the last 4 years that a repo rate cut has taken place.
The magnitude of rate cut has surely been a surprise, and in terms of the timing, again it is a little surprising given that the next meeting is scheduled for 24/Oct. Does this mean that there will be another announcement on 24/Oct during the policy meet - maybe pertaining to reverse repo rate? We will need to wait and see. The declining trend of inflation and the fact that real economy is slowing down is forcing RBI to start cutting rates and a step in this direction is required to revive the economy.
Also, no bank would be in a hurry to reduce interest rates on lending based on this (the deposit rates may come down a bit). The markets (not stock, but money markets) are still volatile and the banks would take a call after considering all the factors and that may not be immediate.
October 20th, 2008 | Category: rbi | Leave a comment
Over the last 2 weeks, all the central banks across the world have been busy trying to revive the financial markets from the coma that it had gone to. We have had a lot of measures announced and though the stock markets put up a brief rally, they are now back to decline as everyone realises that we are staring at a recession and this is not going to go away anytime soon.
The total amount of aid pledged around the world is around US$3 trillion!!! This is in the form of buying out troubled assets, taking equity stakes in banks and other measures. The central banks and governments have injected a lot of liquidity and have tried hard to build trust for the banks to start participating in the interbank markets which had completely frozen. But in US and Europe, the interbank market is still frozen and banks place money with the central bank rather than lend to each other. The basic trust has gone out of the market and it is a very difficult job to regain that. No amount of measures like these would help.
Coming back to Indian markets, obviously the stock market has taken a toll and has come down from 20,000 to 10,000 in double quick time. And some of the big drops that we saw on some days was due to the vicious circle of fall in prices triggering margin calls which then force brokers/banks to sell shares and the prices come down further. There are a lot of companies whose stock prices have come down so low that it is very attractive to buy them now if you intend to keep the investment for 2/3 years.
As far as the economy is concerned, the Indian financial markets faced severe liquidity crisis 2 weeks back and the RBI has cut down the CRR by 2.5% and has taken additional measures to inject liquidity in the system. The call rates, that were in the region of 20% some days back, are now down to 8-10% but there still is a liquidity issue. The RBI governor Mr. Subba Rao has announced today that they are monitoring the liquidity conditions on a continuous basis and it is very early for him to say if any further action is needed. But he would have to do something soon in the direction of a rate cut as now this financial market crunch would deepen the already slow economy and grind it to a halt.
I hope that the RBI looks at a rate cut in the coming monetary policy announcement on 24/Oct. Not that it would do wonders to the economy. This move is essential for the economy to stay afloat. As far as the stock markets (and the financial system) are concerned, it would take a long while for recovery. There may be intermediate rallies, but I don’t see any recovery in sight for the next 6 months.
October 16th, 2008 | Category: Uncategorized | Leave a comment
