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Indian stock market morning report by Keynote Capitals (October 23, 2008, Thursday, 7.00 a.m. GMT)

Economic and Corporate Developments

- The rupee dropped to a record low of 49.68/69 per USD this morning, following the sharp decline in Asian markets.

- Crude oil prices fell more than 5% to $66.89 per barrel.

- In another effort to ease liquidity crunch by Indian companies, the RBI has eased ECB norms, allowing companies to borrow up to $500mn for rupee expenditure under the automatic route for permissible end uses. It has removed the minimum average maturity period of 7 years for loans of over $100mn for rupee expenditure by infrastructure firms.

- The government will inject fresh capital up to Rs3000Cr in 7 PSBs to improve CAR of banks by over 12%. According to RBI data, banks which have low CAR at the end of March 2008 were UCO Bank (10.09%), Andhra Bank (11.61%), Central Bank of India (10.42%), Bank of Maharashtra (10.26%), Dena Bank (11.09%), Vijaya Bank (11.22%) and Indian Overseas Bank (11.96%). The finance minster also stated that the central government may fail to meet Budget targets for the fiscal and revenue deficit for the current fiscal year 2008-09.

- Moody's has downgraded outlook on Tata Steel from stable to negative, due to pressure on cash flow generation of Tata Steel's UK subsidiary which could impact the company's consolidated performance. However, the rating for the company remains the same and only the outlook has changed to negative.

- According to the CEO of TCS, the company is pursuing about 20 large deals despite the global economic turmoil and has a healthy deal pipeline.

- Reliance Infrastructure plans to borrow Rs17000-18000Cr ($3.4 - 3.65 bn) over the next five to six years for funding ongoing projects.

- Is PE returning to RE? Orient Global, a Singapore-based PE fund, has invested Rs120Cr to buy stakes in HDIL and Indiabulls Real Estate (IRE) via the open market. The fund acquired 32.5 lakh shares & 56.5 lakh shares of HDIL and IRE respectively.

Results to be announced today

ACC, Bajaj Auto, Binani Cement, Birla Power, Cummins, Dabur Pharma, Dr Reddy’s Labs, Deepak Fert, Everest Kanto, Exide Inds, GAIL, Garware Offshore, Gateway Distriparks, Grasim, Jagran Prakashan, Jyothy Labs, KEC Int, Nirma, Praj Inds, Punj Llyod, Sterlite Inds

US markets overnight

The US market had its 7th largest drop in history, ending down 5.7%. The fall was on account of weak corporate results, gloomy outlook and fall in commodity prices. Improvement in lending rates failed to bring relief. Most (56%) of the companies reported better-than-expected earnings for the latest quarter but outlook remains negative. On the corporate front, McDonald's was a bright spot after reporting strong quarterly earnings due to robust global sales growth. The fast food chain expects sales to remain strong as consumers seek cheaper food options during economic downturn. Wachovia reported 3Q loss of $23.9bn on real estate write-downs. Merck plans to cut 7,200 jobs (13% of its total workforce) and Yahoo plans to lay off 1,500 employees (10% of its workforce). Libor in dollars fell 16bps to 1.12%, the lowest level since June 2004. Crude continues to slide settling around $67/barrel.

Views on markets today

Asian markets plummeted this morning on fears of a global recession. A major sell off in the exporter stocks pulled the Nikkei down to its lowest level in over five years. The Hang Seng is trading below its sentimentally crucial support level of 14,000. Back home, Indian markets are seen following global cues. Yesterday, the Sensex dropped 5% from its high of 10455. TCS reported 8.5% growth in topline and 1.5% in bottomline in Q2, which was far below expectations. TCS is cautious about FY09 due global financial turmoil. We may see momentum in large cap IT sector counters. A few major results will keep market volatile today. Results of cement majors ACC, Grasim and Madras Cement would be keenly awaited by traders. However, markets would be more interested in Reliance Industries results, also to be announced today. The counter has witnessed a sharp drop of 31% over the last one month. Last but not least, the announcement of WPI based inflation data which may continue its slide for this week as well. Overall, we may see huge volatility persist in the markets today with a weakness due to weak global cues.