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Indian stock market morning report by Keynote Capitals (October 21, 2008, Tuesday, 7.00 a.m. GMT)
21 October 2008
Source: www.keynoteindia.net

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Economic and Corporate Developments

- The rupee opened close to the 49 per USD mark this morning.

- Crude oil prices moved up to $74.78/barrel.

- The prime minister, who is also a former finance minister, has cautioned that India's economic growth may decelerate to 7.5% in FY09. due to the ripple effects of the global financial crisis and liquidity crunch.

- RBI cuts repo rate by 100bps to ease liquidity. On back of the repo rate cut, the government also cancelled its Rs 10,000-crore bond auction as after deciding to bring down the cost of borrowings for banks, it does not make sense for the government to borrow at a higher rate.

- Idea Cellular will spin off its cellular phone service licences in two operating service areas to comply with the telecom M&A guidelines. Idea earlier this year acquired Spice Communications which provides services in the Punjab and Karnataka service areas. While Idea also has its own licences in these service areas, as per regulations, one company cannot own more than 10% in two competing licences within a service area.

- IFCI suffers Rs120Cr loss on Hindalco & Tata Motors rights issues. It had sub-underwritten about Rs400Cr for the rights issues of Hindalco & Tata Motors and is now saddled with these shares that have a current market value of less than Rs280Cr.

- The Indian aviation industry continues to witness a slump with domestic air traffic in September decreasing by almost 20% (y-o-y) In August, traffic had decreased by 16%(y-o-y)

- Daiichi Sankyo has acquired 8.19crore shares (52.5%) from Ranbaxy promoters. Ranbaxy now becomes a subsidiary of Daiichi Sankyo. The promoter stake has been transferred as an off-market transaction & it will pay tax on transaction as per the applicable rate.

- Corus has announced plans to cut production in Europe by up to 1mn tonnes over the next 3 months due to slowing demand. On back of the slowing demand has China’s leading steelmaker Baosteel has decreased its ex-works prices for December contracts by between $59-154/ per tonne.

- Thermal plants face coal shortage as more than 60% of India’s coal-based power plants are running with less than a week’s consumption of coal, threatening to affect power availability at a time when India’s peak deficit is hovering at around 15%.

Results to be announced today

Hero Honda, Crompton Greaves, Tech Mahindra, Hindustan Zinc, Indiabulls Financial Services, Zee Entertainment, Wockhardt, United Spirits, Power Finance Corp, Jaiprakash Associates and Ashok Leyland.

US markets overnight

The US markets ended up 4.7% as investors welcomed positive developments in credit markets and Fed Chairman Bernanke supporting the idea of a 2nd fiscal stimulus package. Bernanke feels that 2nd fiscal package should be targeted to boost overall spending and economic activity, aimed at improving credit for consumers, home buyers, business and other buyers and limit long-term effects on the government's budget deficit. All the 10 sectors posted a gain with financials ending up 2.8%; however, thin volumes were traded. Credit markets showed improvements as LIBOR declined across all terms. The difference between what banks pay each other for three-month loans and what the government pays, known as TED Spread, declined 65 bps to 2.96%. Leading economic indicators were up by 0.3% in September, first gain since April.

Views on markets today

Following the strong overnight close of the US markets, the Asian markets have followed suit this morning. The market’s reaction to the repo rate cut by RBI is largely positive. However, the prime minister has warned of slower economic growth during the current year. We believe stocks have been oversold over the last week in particular, and the relief rally seen yesterday may continue in the early part of the session today. However, possibility of some profit taking towards the close of the session cannot be ruled out.






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