Market Trains Guns On Results, Global Cues

MUMBAI: Growing concerns over a slowdown in economic growth coupled with rising inflation could see investor sentiment remaining jittery. While the higher-than-expected industrial production figures may have soothed bruised sentiments temporarily, cracks are appearing on the foundation of India’s five-year equity bull run, say experts.

Going forward, investors are expected to gauge the impact of the government and RBI’s measures, to moderate inflation on corporate earnings growth before taking a call on the market. The January-March quarter earnings announcements, spread over the next few weeks, will enable investors to realign their share valuation expectations with a likely slowdown in corporate profits.

“We believe that consensus growth expectation is likely to be revised down owing to the impact of moderation in domestic and global growth, and the possible margin pressures,” said JP Morgan, in its recent strategy note.

Some key earnings announcements this week include that of software majors — Infosys Technologies, Wipro, HCL Technologies other than Indian Hotels, Zee Entertainment and Zee News. In the case of software companies, investors are more interested in their earnings guidance for 2008-09 in the wake of the weakening US economy.

Quarterly earnings of US financial heavyweights Citigroup and Merrill Lynch, this week, will also be watched by the investor community globally. While their earnings are expected to be sharply lower, as the credit market crisis has eaten into values of mortgage-backed securities, analysts are looking at any negative or positive surprises in the results for further cues. On Friday, US markets ended 2-3% lower.

Back home, indices ended the week on a positive note, with investors taking heart from the higher-than-expected industrial production figures, the best in four months, while ignoring the inflation rate, which rose to a three year high. Fund managers said Friday’s positive close in an indication that the market is comfortable with inflation, as long as economic growth is healthy.

India's industrial production in February grew at 8.6%, faster than 5.8% in January, but slower than 11.2% in the same month last year. Inflation jumped to 7.41% in the week to March 29, which is expected to prompt the central bank to suck out more money from the banking system through a hike in cash reserve ratio (CRR — the amount banks are expected to hold with RBI in cash).

Limited money supply with banks is expected to see banks’ lending rates at higher levels. Investors fear higher lending rates will continue to hamper consumer spending and also impact investment activities of corporates at a time when equity is not the preferred route to raise money.

“With inflation accelerating and growth moderating, the macro environment continues to worsen. We expect the Reserve Bank of India to tighten 50 bp in April due to the preponderance of inflationary concerns,” said Goldman Sachs in a recent note.

Future Capital IPO Oversubscribed 132 Times

MUMBAI: Continuing to hold investors’ interest, the IPO of Future Capital Holdings (FCH) was subscribed over 132 times on the last day of its issue, while the local bourses suffered losses. According to latest data available on the bourses, the IPO of the Kishore Biyani-led Future group’s financial services arm received bids for 84.84 crore equity shares against the 64.22 lakh shares on offer.

FCH is expecting to raise up to Rs 490 crore through the issue, the price band for which has been fixed between Rs 700-765. The issue, which opened on January 11 closed with the working hours on Wednes-day. The BSE benchmark Sensex, on Wednesday fell by 383 points as investors liquidated their holdings in the secondary markets to invest in mega issue of Reliance Power, which opened on Tuesday. Post IPO, the equity shares are proposed to be listed on the Bombay Stock Exchange and the National Stock Exchange.

The issue proceeds would be deployed against its consumer credit business Future Money, that was launched in June 2007. . Kotak Mahindra Capital, Enam Securities, JM Financial Consultants and UBS Se-curities India are the book- running lead manager to the issue.

US Stocks Fall Sharply On Economic Worries

NEW YORK: A growing conviction that the US is headed toward recession sent Wall Street plunging Tuesday, with weak retail sales figures and a disappointing quarterly report from Citigroup Inc exacerbating investors' pessimistic mood. The Dow Jones industrials fell nearly 280 points.

Investors backed away from stocks amid growing concerns that consumer spending will wane this year and contribute to an economic downturn. The latest evidence that consumers are retrenching came from the Commerce Department, which said retail sales fell in December and which also revised its November figures lower. Spending by consumers, which accounts for more than two-thirds of US economic activity, has been key to staving off economic slowdowns in recent years.

There is also a growing fear that the Federal Reserve hasn't done enough to keep the economy going — especially as investors continue to see the fallout from the summer's subprime mortgage crisis. Citigroup, the nation's biggest bank, announced on Tuesday a hefty $18.1 billion write-down for bad mortgage assets and slashed its dividend.

Brian Gendreau, investment strategist for ING Investment Management, said the market is now seeing "a decisive shift" toward a recession.

"The sectors that are outperforming are defensive plays, like consumer staples," he said. "People don't buy them unless you're worried about sustained weakness."

Investors have sold stocks lower so far this year on increasing worries about the economy. According to preliminary calculations, the Dow fell 277.04, or 2.17 per cent, to 12,501.11.

Broader stock indicators also lost ground. The Standard & Poor's 500 index dropped 35.30, or 2.49 per cent, to 1,380.95, and the Nasadaq composite index lost 60.71, or 2.45 per cent, closing at 2,417.59.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 1.53 billion shares.

Bond price rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.69 per cent, close to its lowest point since March 2004 and down from 3.77 percent late Monday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude fell $2.30 to settle at $91.90 per barrel on the New York Mercantile Exchange.

Tuesday's trading, which more than wiped out Monday's triple-digit gain in the Dow, showed the depths of the market's pessimism amid increasing signs that the economy is weakening. Many investors, heeding warnings of some economists, fear the country is headed toward recession, and a stream of disappointing economic data like Tuesday's retail sales data is reinforcing those fears.

In just the 10 trading days of 2008, the Dow has fallen 5.76 per cent, while the S&P 500 is down 5.95 per cent and the Nasdaq has lost 8.85 per cent.

"When consumers are beaten over the head about how bad things are, pretty soon they believe it and that affects their spending habits," said Scott Wren, equity strategist for A G Edwards & Sons. "And when there's a lot of uncertainty out there, the Fed needs to be a little more aggressive — I think they need to cut more than just at this next meeting."

Still, hopes for a rate cut weren't enough to calm Wall Street.

He said the worrisome fall in retail sales, which also pressures the dollar, builds a case that the cut will be at least 0.50 per centage point. It also increases the likelihood of further cuts after the central bank's Jan. 29-30 meeting.

Adding to investors' concerns, the New York Federal Reserve's Empire State survey of regional manufacturing showed a drop to 9.03 this month from 9.80 in December.

But there was some relief about inflation. Producer prices fell 0.1 per cent, according to the Labor Department. The result was smaller than the 0.2 per cent drop expected by economists, but all declines in price pressure are generally good news. Excluding food and energy, producer prices gained 0.2 per cent, matching expectations.

Financial services stocks were among the biggest influences on investors during Tuesday's session. Citigroup's drastic efforts to shore up its balance sheet had been widely expected, but it still was a forceful reminder of the serious problems that bad lending practices have created for financial services firms.

Citigroup, which lost $9.83 billion in the fourth quarter, also announced a massive $12.5 billion capital injection. Hope that struggling financial firms will bolster their finances also was stirred by news that Merrill Lynch & Co Inc agreed that three foreign investment funds will invest $6.6 billion in the Wall Street firm.

Citi fell $2.21, or 7.6 per cent, to $26.85. Merrill — which reports results on Thursday — fell $2.96, or 5.3 per cent, to $53.01.

The Russell 2000 index of smaller companies fell 15.05, or 2.11 per cent, to 697.43.

Overseas, Japan's Nikkei stock average fell 0.98 per cent. Britain's FTSE 100 closed down 3.06 percent, Germany's DAX index fell 2.14 per cent, and France's CAC-40 lost 2.83 per cent.