Sensex slumps 600pts in panic selling - Dewang K Mehta

The markets after a start took a sharp dip in mid-morning trades on panic selling on reports that tax treaty talks between India and Mauritius are likely to resume soon. The Sensex tumbled to a low of 17,314, and is now down nearly 300 points at 17,577.

In the doing so, the index almost revisted its February low of 17,295. The NSE Nifty has plunged 100 points at 5,272.

Stocks with investment in Mauritius have collapsed on reports that tax treaty talks between India and Mauritius are likely to resume soon. Over 40% FDI in India comes from Mauritius. KS Oils (down nearly 25%), Deccan Chronicle (down nearly 6%), Lanco Infra (down nearly 13%), Delta Corp (down nearly 12%), S Kumars (down nearly 7%), Cipla (down nearly 5%), Hindalco (down nearly 4%), JP Associates (down nearly 4%), Grasim (down nearly 5%), HCL Tech, DRL and Wipro (down nearly 4%), HDFC Bank (down nearly 3%), IDFC (down nearly 6%).

The Sensex had opened up 21 points at 17,891 and the Nifty, which slipped into red soon after opening, was up five points at 5,371.

IT and Power indices weighed on the benchmark indices in early trade. These indices are down between 1 and 1.5%, respectively. Wipro, Tech Mahindra, TCS, HCL Tech, Infosys are all down 2-4%. Reliance Infra dragged the Power index after being removed from the Sensex, the stock is down 5.5%. Suzlon, Reliance Power, GVK Power, GMR Infra are others down over 3% each. Reliance Power’s 4,000 MW UMPP hits a roadblock, teh company may seek government’s help.

Metal index is the biggest sectoral loser, down 0.7%, pulled down by Welspun Corp (down almost 5%), JSW Steel (down 2.5%) and Hindalco (down 2%). Auto is the other laggard on BSE, down nearly 1%. Tata Motors, M&M are down 3% each, Amtek Auto, Apollo Tyres are down nearly 4% each.

RIL (down nearly 3%) has pulled down Sensex by 55 points, followed by Infosys, TCS and HDFC Bank, which have lowered Sensex by almost 30 points each. The stock is seeing selling pressure since last week. Reliance Communication is another big loser on the back of being excluded from Sensex, the stock is down over 8% on the Sensex.

Sugar stocks are in focus after the government rules out additional exports before next harvest. Balrampur Chini is down 4%, Sakthi Sugars down 6%, Shree Renuka down 3.5%.

Market breadth is extremely negative. Only 362 stocks are advancing against 1,920 declining stocks.

Broader markets have crashed. CNX MIdcap is down 214 points and BSE Small Cap is lower by over 250 points.

Other stocks in news are GTL Infra, which touched a new low of Rs 16.90, down 43% on the back of its $300 million fund raising plan being scrapped. Bank of India is flat on its plans to enter mutual fund business with Bharti AXA. Bombay Dyeing is down over 5% after coming under the  CCI scanner for dictating prices and sale terms.


Thanks,
Dewang K Mehta
DENIP Consultants
Source: Business Standard

Indian Equities to Trail Emerging Markets

Indian stocks will continue to lag behind emerging-market equities as rising borrowing costs and inflation squeeze profits, Morgan Stanley said. Overseas investors may continue to remain net sellers of Indian equities this year, Jonathan Garner, the investment bank’s chief Asian and emerging-market equity strategist, told reporters in Mumbai yesterday. The strategist reduced his recommendation on Indian equities to “underweight” from “equal weight” in March.

The Bombay Stock Exchange Sensitive Index has fallen 10 percent this year as the Reserve Bank of India boosted interest rates to curb price increases. Stocks in the index trade at an average 14.8 times estimated profit. The MSCI Emerging Markets Index, which has risen 0.3 percent this year, trades for 11.1 times earnings, data compiled by Bloomberg show.

“The valuation relative is at a 35 percent premium to the rest of emerging markets,” Garner said. Valuations “have not moved lower in line with the deterioration in profitability.”

A 37 percent gain in oil in the past year and rising consumer prices have forced the Reserve Bank of India to raise interest rates nine times in 15 months. About 33 percent of the companies in the Sensex reported profits that missed analysts’ forecasts in the three months ended in March, compared with less than a quarter that did so a year earlier. India relies on imports to meet three-quarters of its annual energy needs.

“Compared with China, India has got more than twice the negative sensitivity to higher oil prices,” Garner said. “At the same time as it gets affected adversely by oil prices, India has one of the biggest deficits on its trade account.”

‘More Skeptical’

Garner’s comments came a day after Morgan Stanley’s India analysts led by Ridham Desai forecast the Sensex to increase to 22,100 this year. Profit growth is “nearing a trough” andinterest rates are “closer to the peak than before,” the analysts wrote in a report. The stock gauge fell 0.9 percent to 18,437.34 as of 9:23 a.m. Mumbai time.

“We need to see this improvement in profitability which Ridham is expecting to start to improve,” Garner said. “I am a bit more skeptical than that.”

Citigroup Inc. analysts led by Aditya Narain trimmed their year-end Sensex forecast to 21,500 from an earlier prediction of 22,000, according to a report dated yesterday. Still, low economic growth expectations, high risk perceptions and a resulting moderation in valuations are “reasons to buy,” the report said.

Overseas Investors

Foreigners pulled 66.14 billion rupees ($1.5 billion) last month, the most in a year, according to data from the market regulator. They invested a net 72.1 billion rupees in April and 69 billion rupees in March.

Inflows from abroad reached a record 1.33 trillion rupees in 2010, making the Sensex the best performer among the world’s 10 biggest markets last year. The largest-ever outflow in 2008 led to the biggest annual slump of 52 percent.

“The only investor class that is selling shares is foreign institutional investors,” the analysts led by Morgan Stanley’s Desai wrote in their report two days ago. Share buybacks by companies are at an “all-time high” and local institutional and individual investors have been net buyers for four months, the note said.

“We remain buyers of Indian equities with a 12- to 18- month view,” the report said.

Source: Bloomberg.com

Vivek Agrawal

Summer Intern-Fundamental Analysis

DENIP Consultants Private Limited.