MyValueResearch

Dawn of 7th July 09

FM implies sovereign yield curve not to be used for pricing credit , Market Greets the budget with a free fall in INR , Bonds & Stocks.

Sentiment Survey in Europe and China , pessimism returns : Oil falls 4% , cu falls 3% , Yen & $ rally on safe haven.

Companies look to start producing petrol trucks.

 

INR
INR @ 48.31 it fell 1.4 % on Monday, its biggest one-day drop in 3M, after the Gov. budget projected a higher-than-expected fiscal deficit target and sent shares sliding nearly 6 %.    The partially convertible INR closed at 48.56/59 per $, its lowest close in more than one week and well off Friday’s 47.89/91. The unit fell as far as 48.57 during trade, its lowest since June 25.    The loss was the biggest since it shed 1.5 % on March 2, a day before it hit an all-time low of 52.2. FM said on Monday its fiscal deficit would blow out to the biggest level in 16 years as it boosts spending to support the slowing economy, disappointing investors who dumped stocks and bonds.   

 

BONDS
Bond yields rose the most in three months as investors grew wary of large market borrowing to bridge the shortfall in funds to spend on rural and infrastructure programs, which are expected to result in higher supplies and depress appetite for bonds. The yield on the benchmark 10-year bond ended at 7.03 %, after touching 7.04 %, its highest since April 6. It had ended at 6.83 % on Friday. The Gov. set the gross borrowing target for 2009/10 at 4.51 trillion INRs ($93.4 above 3.95 trillion forecast in a Reuters poll last week.

  

STOCK
Indian shares fell 5.8 % on Monday in their biggest drop in six months after the annual budget disappointed investors and raised concerns about the Gov.’s finances. Banks were among the big losers as a higher fiscal deficit and borrowing plan sent bond yields sharply higher, which could hurt treasury income for lenders. The budget fell short of expectation on infrastructure spending, ignored financial sector reform, raised a minimum alternate tax for companies and set a paltry stake sale target unnerving investors, traders said. SNESEX ended 5.83 % lower at 14,043.40, its sharpest fall since Jan. 7

 

CALL
Indian overnight call rates were little moved on Monday with huge cash surpluses in the system helping banks meet their reserve needs easily. Banks parked 1.28 trillion I with the RBI in its reverse repo auction on Monday, showing the extent of cash surpluses with them.

 

GLOBAL MARKET

DJIA   8,324.87  +44.13  Nikkei  9,659.93  -20.94 FTSE  4,194.91  -41.37 Hang S 18,094.25  +114.84 US10Y  3.510    EUR 1.3961  Yen 95.34    Gold 924.50   Crude   64.08

·         The Dow industrials rose and the S&P 500 rebounded in late trading on Monday as investors’ concerns about the strength of an economic recovery triggered a move into defensive stocks.

·         European shares fell for the third straight session on Monday on renewed worries about the sustainability of economic recovery foreseen in recent sentiment surveys on both sides of the Atlantic and in China.

·         Nikkei average dipped 0.2 % on Tuesday, giving back earlier gains on persisting concerns about an economic recovery, with exporters dragged lower by worries over a strengthening yen.

·         Yen gained broadly on Monday and the $ also edged up as investors nervous about the global economic outlook shunned risk and took shelter in currencies perceived to be safest in times of subpar growth.

·         Gold slid more than 1 % on Monday as a stronger $ dented interest in the metal as an alternative asset, with investors buying the currency as a safe store of value amid fears over the economic outlook.

·         Copper fell more than 3 % to near two-week lows on Monday as the $ strengthened and investors fretted over how long it would take major economies to overcome recession, allowing demand to recover.

·         Oil settled 4 % lower on Monday as doubts over a potential rebound in the global economy spurred investor risk aversion.

 

BUDGET REACTIONS

·         SULAJJA  FIRODIA MOTWANI, MD, KINETIC MOTOR CO :     “Overall the various measures that the Gov. has been taking will have a positive effect on the economy, the liquidity situation is being eased, the banking system is being strengthened. It is not this move alone but the various steps taken together that will help sustain economic growth.” 

·         SHOBIT GUPTA, VP-FIXED INCOME, ING INVESTMENTS.:     “This would lead to a 15-20 basis rally in the Gov. bond yields as an initial reaction. Though growth concerns very much remain and have been heightened by weak IIP and trade numbers but Fiscal gap continues to be a reality, we could see a sell-off, later, as market prepares for the huge Gov. bond supply for the remaining fiscal as well as the borrowing calendar for the first half of the next fiscal.”

·         ASHISH NIGAM, HEAD-FIXED INCOME, RELIGARE MUTUAL FUND     “RBI’s rate cut decision…is on expected lines. It will be positive for the markets. The short end of the yield curve is expected to move down sharply.      Rally is expected in long end gilts also but may be short-lived as some of the market participants may look to off load gilt positions.”

·         UMESH CHOWDHURY, MANAGING DIRECTOR, TITAGARH WAGONS LTD     “Benefits will not be widespread because the real problem is availability of liquidity.”

·         VINOD SHETYE, CFO, SHRENUJ & CO     “I don’t think it will help immediately. Banks are still cautious on lending because their basis of lending is on the real economy, economic activity and growth.”

·         ANIL JAIN, CFO, MAHARASHTRA SEAMLESS LTD     “In my opinion, the rates should come down. Banks are still not releasing the required credit. They’ve been absolutely fussy and conservative.     “Cost of funds they will pass on but I don’t think, in today’s scenario, looking at their economic situation, they would change their stand in terms of credit delivery.”

·         ARVIND PARAKH, DIRECTOR, JINDAL STAINLESS    “Reserve Bank of India is sending the right signal. The only thing is how much it percolates down to actual reduction in interest rates.     “Credit situation is easing slightly but it is still not at a level where we’d like it to be.”