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Indian stock market morning report by Keynote Capitals (October 15, 2008, Wednesday, 7.00 a.m. GMT)

Economic and Corporate Developments

- The rupee fell sharply this morning to 48.40 per USD, from yesterday’s close of 48.04/06, due to the fall in Asian markets, which is likely to depress local markets today.

- In order to enable companies to raise funds easily from overseas markets, India is likely to further relax pricing rules for ADRs and GDRs. The government is also considering further relaxation in the overseas borrowing rules for companies, as part of efforts to improve the liquidity crunch in the domestic market.

- Tata Motors’s UK subsidiary, Tata Motors European Technical Centre Plc, has bought a 50.3% stake in Norwegian electric vehicle firm Miljoe Grenland/Innovasjon for Rs9.4Cr ($2mn). The Norwegian firm will produce electric vehicles based on Tata Motors's products. The first product to be launched is the Indica EV in Europe during 2009.

- Spot prices of steel shot up by Rs 1,500 per tonne in Punjab’s Gobindgarh mandi, India’s largest ferrous metalsselling market yard, in the last two days on news of global production cuts and a sudden spurt in construction sector demand. However, JSW Steel is likely to cut product prices by the end of the month, but has no plans to cut production.

- The Rs1100Cr buyback programme of DLF, which was supposed to open today, is being rescheduled to comply with some regulatory requirements

- Hindustan Construction Company (HCC) has claimed equity valuation of its subsidiary Lavasa Corporation (Lavasa) at Rs10000 Cr, based on Bank of India’s investment of Rs150Cr in Lavasa in the form of Convertible Debentures.

- Promoters of Nagarjuna Constructions have raised their stake to 24.16% by acquiring close to 1.2mn shares.

- Reliance Capital has acquired a 15% stake in Hong Kong Mercantile Exchange.

Results to be announced today

L&T, HCL Tech, CMC, Container Corporation of India, ICSA India, Kavveri Telecom, Kingfisher Airlines

US markets overnight

The US markets ended down 0.8% after the government's latest financial relief efforts were offset over fears that the economy still faces challenges. The US treasury announced $250bn will be spent from $US700bn rescue package to buy shares in banks and financial firms. To participate in the program, financial institutions will have to agree to executive compensation limits, including elimination of golden parachutes. Participation is voluntary, though it appears that firms will be taking the Treasury up on its offer. To begin with nine of the largest financial institutions in the world will receive $125bn, including Bank of America, Citigroup, Goldman Sachs, Merrill Lynch, State Street, JP Morgan Chase, Morgan Stanley, Wells Fargo and Bank of New York Mellon. With this relief plan, the financial sector gained 6.4%. In addition, FDIC will guarantee newly issued unsecured debt from banks through June 30, 2012. Credit markets showed signs of improvement, although they remained tight. Dollar Libor, the rate banks charge each other for short-term loans fell. TED Spread fell by 21bps to 4.36%. Earnings were mixed as Johnson & Johnson posted 3Q earnings growth while PepsiCo reported lower-than-expected EPS growth.

Views on markets today

Following cues from the US markets, Asian markets opened weak today. Fresh worries of a slowing global economy have impacted stocks of shipping companies and exporters in Asian markets. While the Nikkei is volatile, the Hang Seng recorded a sharp drop early in the session. Back home, bear dominance is seen rising again. Yesterday the market rally could not sustain, and the Sensex ended up losing a large part of the gains. Increasing recessionary pressures and the liquidity crisis are becoming major issues for the RBI and government. In a major development, RBI has introduced a special liquidity window of Rs20,000Cr to tide over the unprecedented liquidity crisis. It has relaxed the borrowing norms for some funds that have seen huge redemptions in the past few days. It is estimated that recent redemptions from liquid and liquid plus schemes amount to Rs30,000Cr. We may see weakness in the markets today following global cues.