Dawn of 25th Feb 08
S&P changes outlook to –ve from stable, hits INR, banks, Govt. cuts excise (10% to 8%) & ST (12% to 10%) , Stocks rise but fears of more borrowing, estimated 300 bln. INR tax loss, Cash surplus 77,000 Cr+, Auctions in line give some relief.
Fed Speak: No nationalization committed to banking sector, markets recover partially on Fed Statement
DRL , exits China , Reality of Realty
Rupee
INR weakened on Tuesday following losses in other Asian currencies and a downgrade in India’s investment grade outlook by S&P. INR weakened pretty fast after the S&P outlook cut was announced. It should have a negative impact in the short term and may force RBI to cut rates. to boost growth . S&P’s cut its outlook on India’s long-term sovereign rating to negative from stable, citing worsening government finances, which could raise firms’ overseas borrowing costs and weaken the INR. INR closed at 49.87/88
off a high of 49.79 and 0.3 % weaker than its Friday’s close of 49.72/74. USD sales by exporters and state-run banks and a partial recovery in the stock market also helped limit losses in the INR. “There was some selling coming in around 49.95 levels from exporters and also from state-run banks,” a senior dealer at a foreign bank said.
Bonds
Yields came off 2.5M month highs on Tuesday after the results of bond auctions came largely in line with market expectations, but supply concerns remained. 8.24 % 2018 closed at 6.54 %, off 6.68 % hit during trade which was the highest since Dec. 8. It had ended at 6.42 % on Thursday. Dealers said bond yields fell after the government’s bond auction results showed no devolvement in the shorter paper while
the yield cut-offs in the other two were broadly in line with market expectations. Yields rose earlier on fears of additional borrowing by the government after it cut factory gate duties and service taxes and said the move would result in a revenue loss of about 300 billion in the next fiscal year.
Recouped most of their losses from a near 3M low hit early on Tuesday, after the government announced cuts in factory gate duties and service taxes lifting sentiment. Financials and outsourcers fell on the back of a global rout and ratings downgrade by S&P, but cement and auto makers led a rebound as the duty cuts triggered short covering ahead of monthly derivatives expiry on Thursday. The government cut factory gate duties across the board to 8 % from 10 % and lowered service tax rates by 2 %age points as it moved to protect the economy from the impact of the global economic crisis.
Call
Rates were mostly steady near the RBI’s main borrowing rate of 4 % on Tuesday as most banks had already shored up funds for their fortnightly reserve needs. Call closed at 4.05/15 %, barely changed from Thursday’s close of 4.00/15 %. Banks parked 774.55 billion INRs with the RBI at its MM operations on Tuesday, borrow any funds..
Global
DJIA 7,350.94 +236.16 Nikkei 7,383.91 +115.35 FTSE 3,816.44 -34.29 H Seng 13,133.76 +335.24
US10Y 2.797 +0.038 EUR 1.2856 Yen 96.51 Gold 984.25 Crude 39.89
Ø U.S. stocks rose more than 3 % on Tuesday to snap back from 12-year lows, after Federal Reserve Chairman Ben Bernanke delivered a dose of relief when he signaled that nationalization of big banks was not at hand.
Ø FTSE ended down 0.9 % on Tuesday, retreating for the third straight session, as heavyweight Vodafone and insurers fell, but Thomson Reuters gained after quarterly results.
Ø Nikkei average gained 1.6 % on Wednesday, after nearing a 26YL low the previous day, buoyed by exporters on a softer yen and after a media report that the Japanese government may buy shares from the market.
Ø USD touched a three-month peak against the yen on Tuesday on mounting risk aversion after U.S. Federal Reserve Chairman Ben Bernanke warned that unless government efforts succeed in restoring financial stability, the nation’s recession may not end in 2009 and could drag into 2010.
Ø Gold ended more than 2 % lower Tuesday on a combination of options-related selling and profit taking triggered by comments by U.S. Federal Reserve Chairman Ben Bernanke that inflation was ebbing. Spot gold <XAU=> was at $968.20 an ounce at 2:29 p.m. EST
Ø Aluminium bounced from a seven-year low and copper rose as Wall Street clawed its way back from the previous day’s slump, but grim U.S. economic data kept sentiment sour.
Ø Oil prices rose 4 % on Tuesday, tracking a bounce on Wall Street, after U.S. Federal Reserve Chairman Ben Bernanke said he was committed to protecting the troubled banking sector.
India Front Page
Ø Dr Reddy’s Laboratories is scaling back its non-US global operations and will shut down operations in China due to a global economic meltdown.
Ø Sun Pharmaceuticals is learnt to have decided to offer $9.5 a share, 22 % higher than the existing offer, to acquire Israel-based Taro Pharmaceuticals.
Ø JV between realtor DLF Ltd and UK-based construction firm Laing O’Rourke is falling apart as the latter wants to bid aggressively for infrastructure and construction projects but DLF is apprehensive about investing money.
Ø Parsvnath Developers Ltd has postponed its luxury mall-cum-office complex in Delhi as it has not received government clearances for the project including environment clearance.
Ø Delhi-based Monnet Ispat has joined the race to acquire Orissa Sponge Iron and Steel and has bought a 27 % stake in the company. The Bhushan group is also in the fray to acquire control over the company.
Ø Unitech Ltd has sold its 200-room budget hotel, Courtyard by Marriott, in Gurgaon to Delhi-based Roop Madan, a high networth individual, for 2.3 billion rupees. The firm has also withdrawn its proposal to raise 50 billion rupees through issues in overseas markets.
Ø Swedish car maker Volvo AB’s Indian arm, Volvo Car India Pvt Ltd, which sells the S80 and XC90 models in the country, has sold 100 cars in 2008, far short of its target of 500.
Ø Shipping Corp of India has scrapped a tender to buy four dry-bulk carriers as demand for ships has declined.
