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Indian stock market morning report by Keynote Capitals (October 7, 2008, Tuesday, 6.00 a.m. GMT)

Economic and Corporate Developments

- The rupee weakened further, dipping below the 48 per USD for the first time since January 2003. It was at 48.01/48.02 per USD. Oil prices too dipped to below $90, an 8-month low.

- The RBI has cut CRR by 50 basis points to 8.5% to ease liquidity. The move will be effective from October 11 and will inject Rs20000Cr into the system.

- In a move that can bring some relief to the harried markets, Sebi has removed restrictions on issuing participatory notes (P-notes) where the underlying asset is a derivative. Sebi also scrapped a rule as per which P-notes could only account for up to 40% of the assets held by a foreign fund.

- The economic slowdown is getting reflected in tax collections. Net direct tax collections grew 32.5% in the first six months of FY09, slower than the 40% growth in the same period last year, due to moderation in advance taxes paid by corporations and individuals.

- The 13% fall in SAP’s shares in the US can be a cause of concern for Indian IT companies like Infosys, Wipro and Satyam. SAP AG, the German software giant warned that its sales will likely suffer due to the current economic malaise.

- Crisil has lowered the outlook for three public sector banks, viz., Canara Bank, Corporation Bank and IDBI Bank, from stable to negative, since their resource profile has weakened further. This has been attributed to a substantial rise in borrowing costs and a decline in current and savings account (CASA) deposits.

- Infomedia India will consider merging I-Ven Interactive Ltd. with itself and spin off the printing division.

- Thermax has won a Rs450Cr order for setting up a 60MW captive power plant for a green field integrated steel complex in Andhra Pradesh, on a turnkey basis.

- Era Infra Engineering has been awarded a number of contracts worth Rs785Cr during the Q2FY09.

US markets overnight

The Dow Jones Industrial Average ended down 3.6%, closing below the 10000 mark for the first time in 4 years on fears that the credit crisis is spreading its tentacles across global markets. The Fed tried to ease the pain by making 28-day and 84-day cash loans available to banks. That makes total of $900bn in credit potentially outstanding over year end. But still US markets didn't find much respite from this. The fears of financial crisis spread to France which proposed an emergency G8 meeting which increased speculation that global central banks may make a coordinated inter-meeting rate cut. There were concerns that more bailouts of European financial institutions are needed after German government stepped in to prevent collapse of property lender Hypo Real Estate. Global growth concerns lead to a decline in crude oil price by 5% to $89.15/ barrel.

Views on markets today

Asian markets fell sharply this morning, after deep losses in the US markets. The Strengthened yen (JPY) pushed the Nikkei dropped below the 10,000 level for the first time since December 2003. The RBI and Sebi have announced few steps to reduce the liquidity crunch in India. While RBI reduced CRR by 50bps, Sebi eased norms on Participatory Notes (PNs). While we may expect a relief rally on account of these measures, we believe profit taking may happen at higher levels, leading to the indices ending lower than yesterday’s levels.

Technical view

Yesterday was yet another bear dominated day. After opening lower with a gap, the Sensex could not recover for the entire day and closed with a loss of 5.8%. Technical indicators, particularly medium-term indicators such as MACD indicates weakness may continue for the medium term. However, oversold short-term indicators viz., Stochastics and Williams %R indicate short recovery for next 2-3 days. We advise investors to avoid long positions and partially sell shares on every upside. Resistance at 12560 is very crucial while support near 11000-11300 is important.