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Sensex hits 1-1/2-year low- buy good stocks now

http://www.indiainfoline.com/Markets/News/Sensex-hits-1-12-year-low-below-16000/3911232171

Capital Market / 14:21 , Aug 26, 2011

Key benchmark indices extended losses to hit 1-1/2-year lows in
mid-afternoon trade as heavy selling by foreign funds this month
weighed on sentiment. Weak global shares also weighed on sentiment.
The barometer index BSE Sensex fell below the psychological 16,000
mark. Index heavyweights Reliance Industries dropped. The market
breadth was weak. The Sensex was down 149.23 points or 0.93%, off
about 260 points from the day's high and up close to 40 points from
the day's low.

NTPC and Jaiprakash Associates hit 52-week lows. Metal stocks declined
on worries the global economic slowdown may crimp demand. Steel giant
Tata Steel, JSW Steel and Sterlite Industries hit 52-week lows. Realty
stocks fell on worries higher interest rates could dent demand for
residential and commercial properties. Bank stocks extended recent
steep losses triggered by concerns that elevated interest rates may
restrict loan growth, with State Bank of India and ICICI Bank hitting
52-week lows. Anil Dhirubhai Ambani Group (ADAG) shares slumped.

The market edged lower amid initial volatility as most Asian stocks
fell. Volatility continued as the market trimmed gains after surging
to fresh intraday high in morning trade. The market slipped into the
red to hit fresh day's low in mid-morning trade. The market weakened
again after recovering from the day's low to turn positive for a brief
period in early afternoon trade. The market hit a fresh intraday low
in afternoon trade as European market opened lower. The market
extended losses in mid-afternoon trade.

At 14:20 IST, the BSE Sensex was down 149.23 points or 0.93% to
15,996.90. The index fell 187.33 points at the day's low of 15,959 in
mid-afternoon trade, its lowest level since 11 February 2010. The
Sensex jumped 110.05 points at the day's high of 16,256.38 in morning
trade.

The S&P CNX Nifty was down 47.65 points or 0.98% to 4,791.95. The
Nifty hit a low of 4,778.60 in intraday trade, its lowest level since
11 February 2010.

The market breadth, indicating the overall health of the market, was
weak. On BSE, 1,866 shares fell and 767 shares rose. A total of 121
shares remained unchanged.

Among the 30-share Sensex pack, 25 fell while the rest rose.

Index heavyweight Reliance Industries (RIL) was down 2.05% to Rs.
738.80. The stock hit a high of Rs. 755.70 and low of Rs. 735.50 so
far during the day. The stock had hit 52-week low of Rs. 721.60 in
intraday trade on 19 August 2011. RIL has received the government's
formal approval to sell a 30% stake in 21 oil and gas production
sharing contracts to BP PLC. The initial proposal was for RIL to sell
the stake in 23 blocks to BP for $7.2 billion plus another $1.8
billion linked to exploration success. However, the government cleared
only 21 blocks and RIL had said it would continue to seek approval for
the remaining two blocks.

Meanwhile, RIL has hired Navin Wadhwani, currently managing director
at NM Rothschild and Sons (India), to lead mergers and acquisitions at
the company. RIL, which has diversified from its textile origins into
oil and gas, retail and financial services, is looking to expand into
more areas and effectively utilize the $9 billion on its balance
sheet.

Anil Dhirubhai Ambani Group shares slumped. Reliance Communications,
Reliance Infrastructure, Reliance Capital, Reliance MediaWorks and
Reliance Power shed by between 5.24% to 9.91%.

Jaiprakash Associates declined 5.3% to Rs. 56.25. The stock hit 52
week low of Rs. 56.10 today.

NTPC fell 3.85% to Rs. 163.50. The stock hit 52 week low of Rs. 162.65 today.

Realty stocks fell on worries higher interest rates could dent demand
for residential and commercial properties. Purchases of both
residential and commercial property are largely driven by finance.
DLF, HDIL, Indiabulls Real Estate and Unitech shed by between 3.43% to
4.13%.

Metal stocks declined on worries the global economic slowdown may
crimp demand. Hindalco Industries, Hindustan Zinc, Sail, Welspun Corp,
Nalco Jindal Steel & Power, and Bhushan Steel fell by 0.23% to 3.32%.

India's largest steel maker by sales Tata Steel declined 2.76% to Rs.
431.05 on concerns the ongoing euro-zone debt worries will impact its
European operations adversely. The stock hit 52 week low of Rs. 431
today, 26 August 2011. Tata Steel derived 62% of its consolidated
revenues from European operations in Q1 June 2011.

Sterlite Industries declined 2.92% to Rs. 121.40. The stock hit 52
week low of Rs. 121.25 today.

JSW Steel declined 3.58% to Rs. 624.20. The stock hit 52 week low of
Rs. 620.40 today. JSW Steel's Chief Executive Vinod Nowal today, 26
August 2011, said that the company will invest Rs. 1000 crore in the
current financial year through March 2012 in a new 10 million metric
tonnes a year capacity steel plant at Salboni in West Bengal.

Bank stocks extended recent steep losses triggered by concerns that
elevated interest rates may restrict loan growth. India's largest
private sector bank by net profit ICICI Bank fell 0.81% to Rs. 827.85.
The stock hit 52-week low of Rs. 824 today. India's second largest
private sector bank by net profit HDFC Bank shed 0.46%.

India's largest bank by branch network and net profit State Bank of
India (SBI) dropped 3.21% to Rs. 1902.25, after sliding to a 52-week
low of Rs. 1897.10. SBI Chairman Pratip Chaudhuri on Tuesday, 23
August 2011, said the bank expects to launch a rights issue in the
second half of this financial year. He said the government is
considering infusing additional capital into the lender. SBI is
looking to bolster its capital base to keep up with its fast-growing
loan portfolio and expects the government to invest Rs. 5000 crore-Rs
9000 crore in the rights issue. Chaudhuri said the bank is
well-capitalized for loan growth of 16%-19% in the current fiscal year
ending March 2012.

SBI's plan to raise about Rs. 20000 crore in fresh capital was
submitted to the Indian government--its biggest stakeholder--in 2010,
but it is yet to receive a decision.

Rating agency Fitch Ratings on Tuesday, 23 August 2011, said that
Indian banks are better prepared to face asset quality challenges
arising from the economic slowdown compared to 2008. In a study, Fitch
said that banks have higher tier-1 capital and improved loan-loss
reserves at the end of June 2011 against 2008. The government's
injection of capital in state-owned banks in 2010 has helped most
banks raise core tier-1 capital ratio above 8%. The report said that
though banks' operating margins are likely to decline in the year
ending March 2012 (FY 2012), the margins are likely to remain
sufficiently robust to absorb credit costs for most banks.

Foreign institutional investors (FIIs) have pressed heavy sales this
month amid the ongoing credit crisis in the euro zone. The sustained
selling by foreign funds is a cause for concern for India Inc. Foreign
portfolio inflow acts as a catalyst to private corporate capital
expenditure in India. Foreign institutional investors (FIIs) sold
shares worth net Rs.1440.55 crore on Thursday, 25 August 2011, as per
provisional data from the stock exchanges. FII outflow in August 2011
totaled Rs. 12167.19 crore, till 25 August 2011, as per data from the
stock exchanges.

FIIs have sold shares worth a net Rs. 17206.42 crore in calendar year
2011 so far, till 25 August 2011, as per data from the stock
exchanges. Domestic institutional investors have bought shares worth a
net Rs. 22424.36 crore this year so far.

As per a recent survey by a prominent investment bank, Corporate India
will raise capital spending by tepid 10% in the year to March 2012 (FY
2012). Capital expenditure (capex) in FY 2012 will be concentrated on
improving productivity rather than adding greenfield capacity, the
investment bank said.

The Reserve Bank of India (RBI) on Thursday, 25 August 2011, said that
there is a need to rebalance demand from consumption to investment by
stepping up savings in the economy. In order to achieve a 9% growth in
Twelfth Five Year Plan (2012-17), the investment rate of 40.5% would
be required if incremental capital output ratio (ICOR) remains
unchanged from 4.5% during the Eleventh Plan. This requires augmenting
saving as well as bringing about technological and institutional
improvements to lower ICOR.

In its annual report for 2010-2011 released on Thursday, 25 August
2011, RBI said that there is a need to step up savings in the economy.
The current account deficit (CAD) that finances the saving-investment
gap has averaged less than 1% of GDP over past two decades. Even
assuming a higher a CAD/GDP ratio of 2%, gross domestic saving (GDS)
rate need to be raised by about 5 percentage points from 33.7% in
2009-10, RBI said. This underscores, the importance of augmenting
saving as well as bringing about technological and institutional
improvements to realize higher growth through higher investments and
lower ICOR.

Overall investment requirements and the need for continued
sustainability on current account, thus underscore the need for
attaining the highs of private corporate and public sector savings
reached in the recent past and exploring the possibility of invoking
an upward shift in household savings which have remained stable for
many years, RBI said.

RBI said there could be some pressure on CAD if the global economy
weakens significantly and affects exports. With adequate foreign
exchange reserves, India remains capable of handling any pressures
emanating from the external sector in the near term. However, from a
medium to long term perspective, it is important to improve resilience
of external account by pursuing policies that shift the composition of
capital flows so as to reduce dependence on its volatile components,
RBI said. Augmenting foreign direct investment (FDI) further could
bring about a better balance between different components of capital
flows and reduce the possibility of volatile currency movements and
any pressure on reserves in the face of contagion risks, RBI said.

RBI said tackling food inflation also needs a strategy to break the
inertial element arising from rising real wages leading to increases
in the Minimum Support Price (MSP), which in turn lead to higher food
inflation that feeds back to higher wages with an element of
indexation. Rural wage programmes need to be linked with productivity,
RBI said. If productivity improves, real wages can rise without
putting pressure on prices. The inclusion agenda can then be pursued
on a sustainable basis without drag on inflation and the fiscal
position.

Transmission of inflation from abroad has also been an important
element in keeping inflation high in the recent years, RBI said.
International commodity prices remain a potential threat as global
liquidity is still far too large due to monetary policy accommodation
by advanced countries, RBI said. Fuel and food security would need to
be given particular attention. There is a need for environmentally
sustainable solutions to manage energy security. Free pricing of
petroleum products can help, as a large population cannot be
subsidised in an import dependent item, RBI said.

The central bank also said that pricing power in the manufacturing
sector has macro as well as micro angles. A competition policy has
been put in place and industrial organisation structures could be
studied along with price information to stamp out anti-competitive
practices and collusive behavior. Such behavior also adds to
inflationary pressures and needs to be curbed, RBI said.

RBI said inflation is likely to remain high and moderate only towards
the latter part of the year to about 7% by March 2012. The recent
decline in global commodity prices has not been very significant, RBI
said. If the global recovery weakens ahead, commodity prices may
decline further, which should have a salutary impact on domestic
inflation, RBI said. The pass-through of the rise in global commodity
prices so far has been incomplete, especially in the minerals and oil
space. As such, the benefit of a moderate fall in global commodity
prices on domestic price level would also be limited, RBI said.

If global oil prices stay at current level, further increase in prices
of administered oil products will become necessary to contain
subsidies. Fertiliser and electricity prices will also require an
upward revision in view of sharp rise in input costs, RBI said. The
high and persistent inflation over the last two years has brought to
the fore the limitation in arresting inflation in absence of adequate
supply response. However, monetary policy still has an important role
to play in curbing the second round effects of supply-led inflation,
RBI said. In face of nominal rigidities and price stickiness, there
are dangers of accepting elevated inflation level as the new normal,
the central bank said.

The food price index rose 9.8% and the fuel price index climbed 13.13%
in the year to 13 August 2011, government data on Thursday, 25 August
2011, showed. In the previous week, annual food and fuel inflation
stood at 9.03% and 13.13% respectively. The primary articles index was
up 12.4%, compared with an annual rise of 11.64% a week earlier.

The near-term prospects for agricultural sector remain good. The
rainfall deficit in the country had widened to 5% of the long-term
average in July 2011, but a pickup in August helped narrow the deficit
to 1% by 24 August 2011. Good rains could help boost rural income and
may help bring down food inflation.

Meanwhile, Indian firms relying on European and US markets are worried
about a likely economic slowdown in the US and Europe. Bilateral trade
between India and the US stood at $36.5 billion in 2010.

Commerce Minister Anand Sharma, last week, said India's discussions
with the European Union (EU) and Canada to form free-trade agreements
are in advance stages. India aims to boost bilateral trade with Canada
to C$15 billion (US$15.3 billion) a year by 2015 from about C$4.2
billion in 2010. With the 27-member EU, India had initiated
discussions on the free-trade pact in 2007. The two sides originally
hoped to conclude a wide-ranging deal by 2010 to boost trade to $237
billion annually by 2015. Their bilateral trade is currently worth
about $92 billion.

Amid hectic efforts to break the deadlock on Lokpal issue, Anna Hazare
today, 26 August 2011, shot off a letter to Prime Minister Manmohan
Singh saying he would break his fast if Parliament agrees to his three
key demands but will continue his protest till the legislation is
passed. Mr. Hazare's letter to Singh also contains his Team's version
of a resolution to be moved in Parliament which details his three
demands -- all civil servants should be brought under Lokpal, a
Citizen Charter should be displayed at all government offices and all
States should have Lokayukta. Hazare has been fasting since 16 August
2011, demanding passing of Jan Lokpal Bill in the Parliament.

European shares dropped on Friday, 26 August 2011, as investors
remained cautious ahead of a key speech by US Federal Reserve Chairman
Ben Bernanke and a revision of US second-quarter growth estimates. The
key benchmark indices in UK, France and Germany were down by 0.45% to
1.7%.

Shares of French lenders rose after the French regulator on Thursday,
25 August 2011, extended a ban on short selling.

Asian shares were mixed on Friday, 26 August 2011, ahead of a US
Federal Reserve conference in Jackson Hole, Wyoming. The key benchmark
indices in Japan, South Korea and Taiwan rose by between 0.29% to
0.81%. The key benchmark indices in Singapore, Hong Kong, Indonesia
and China were down by between 0.12% to 1.25%.

Trading in US index futures indicated that the Dow could gain 23
points at the opening bell on Friday, 26 August 2011. Investors are
looking ahead to Federal Reserve Chairman Ben Bernanke's scheduled
speech later in the global day today, 26 August 2011, in Jackson Hole,
Wyo., and whether he will announce another round of quantitative
easing or QE3 to prop up the US economy. The Fed chairman used the
same forum in 2010 to hint at the launch of a QE2, which sparked a
rush into risky assets and away from dollar.

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