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Indian stock market morning report by Keynote Capitals (November 7, 2008, Friday, 7.00 a.m. GMT)

Economic and Corporate Developments

- The rupee fell to 47.95/96 per USD this morning, from yesterday’s close of 47.66/69, in anticipation of a weak opening for stock markets today.

- The European Central Bank (ECB) lowered interest rates by 50 bps to 3.25% for the 2nd time in less than a month to counter the euro region’s worst economic slump in 15 years.

- Inflation rose marginally to 10.72% for the week ended October 25, from 10.68% a week ago, on account of higher prices of cereals and vegetables.

- As per a global survey by Goldman Sachs, IT budgets could further decline by 5% in 2009 compared with 2008. The drop is the largest decline since the collapse of the dotcom bubble, when tech spending had declined by 9% in the US in 2002.

- The proposed changes in FDI guidelines could impact a range of industries such as telecom, infrastructure, real estate and broadcasting. The changes include measures such as including investments by non-resident entities in sectoral limits, excluding FII investment from calculations of sectoral equity limits with caveats and withdrawing key norms in Press Notes 3 (1997) and 9 (1999) on 100% foreign holding companies and their downstream investments.

- FDI inflows touched $17.1bn between April and September this year, a 137% growth over the same period last year.

- Bucking the weak industry trend, JSW Steel has reported a 5% growth in Crude Steel Production in October 2008.

- Slowdown in the HCV/MCV segment has begun affecting manufacturers. With the slowdown in demand, key players like Tata Motors and Ashok Leyland have announced shutdowns at some plants. After announcing a brief shutdown at its Jamshedpur HCV plant, according to unconfirmed reports, Tata Motors is considering shutting down its Pune HCV plant too, for 6 days, between Nov.22-27. Ashok Leyland's manufacturing plants, will work 3 days a week, until December.

- Vishal Retail plans to delay its Rs200Cr fund raising plan via the equity route, on account of the poor market conditions.

US markets overnight

The US markets declined by 4.9% on economic concerns, weak earnings across a variety of sectors and abysmal retail sales. Sharply climbing jobless claims continue to reflect weak labor market and retailers reported weak monthly same-store sales data. Job markets remain loose as claims stand at recession-like levels. Weekly jobless claims for the week ended Nov. 1 totaled 481,000, down 4,000 from the prior week. Economists await the October unemployment rate due tomorrow morning. It is expected to show an up tick in unemployment up to 6.3%. Prospect of a very grim payrolls number fueled the sell off further. With job losses mounting, consumers are less willing to spend. In turn, retailers viz., Nordstrom, Gap, American Eagle all reported double-digit declines in October same-store sales. Wholesalers and discounters like Wal-Mart fared better, able to benefit by attracting cash-strapped shoppers to their stores and reported increased same-store sales for October. Challenging conditions continue weighing on actual earnings results and earnings expectations for financial companies like Goldman Sachs which may post its 1st quarterly loss since it went public a decade ago.

Views on markets today

Following the weakness in the US markets, Asian markets too are trading negative this morning. Increasing worries of the global economic slowdown have pushed global markets to record lows. The Nikkei is weak due to the strengthened Yen and lower earnings forecast from Toyota Motors. The Hang Seng too showed strength after recording a bottom close to 13200 levels and is trading at 13700 levels. The global slowdown is mirroring in the decline in crude prices which have reached $60/barrel levels. As expected, Bank of England and European Central Bank reduced interest rates by 150bps and 50bps respectively.

Indian markets have witnessed a sharp decline towards the close of yesterday's session, due to higher inflation number. However, economists and analysts expect the number to come down to a single digit over next two weeks. However, the deliverable volumes (as % of total volumes) for the top 10 stocks by turnover remain low on both exchanges (16.2% for NSE and 11.1% for BSE), indicating high speculative activity. The data shows the extent of intra-day trading. After buying over last two days, FIIs were net sellers of Rs966Cr in the Nifty futures yesterday. As per provisional data from both the stock exchanges, FIIs sold equities of Rs512Cr yesterday while domestic institutes bought equities of Rs351Cr.

For last two days, a few corporates have declared postponing expansion plans or reduction in production. Tata Motors would shut down its plant for 6 days while Ashok Leyland will operate its plant for 3 days a week. Videocon has postponed its DTH launch. To infuse the liquidity in the system PSU banks have started reducing their interest rates. However, private banks particularly ICICI Bank and HDFC Bank have yet to arrive at any decision on interest cuts. We may see a weak initial trading amidst huge volatility.