Indian Markets Monday Wrap-Up: Commodity Stocks Lead the Crash

Even though the Indian indices recouped part of their losses during the final minutes of trading today, they ended the day well below Friday’s closing levels. The BSE-Sensex ended lower by around 360 points, while the NSE-Nifty closed lower by about 100 points. The overall decline to advance ratio was poised at 2.5 to 1 on the BSE. Barring select stocks from the FMCG space, selling activity was witnessed in stocks across sectors with the pack led by oil and gas, metal and capital goods spaces.

Most of the other Asian markets ended the day on a negative note today. The European indices are currently trading in the red. Rupee was trading at 47.99 against the US dollar at the time of writing.

Telecom stocks ended the day on a weak note led by Spice Communications, Reliance Communications, MTNL and Bharti Airtel. Taking the advice of the Ministry of Finance, the Department of Telecommunications has announced that it has hiked the reserve price for the 3G spectrum for A-category circles (including Mumbai and Delhi) to about Rs 35.4 bn. It can be assumed that this is being done to address the reservations of the finance ministry that Rs 20 bn was too low a price. While this move is likely to set the ball rolling for the much-awaited 3G spectrum allotment process, it should be noted that it also runs a risk of getting caught in another feud between the telecom operators and the government over the reserve prices.

Energy stocks ended the day on a mixed note with RNRL, HPCL and BPCL ending the day on a firm note, while RIL, RPL and Gujarat Gas ended the day on a weak note. The gas supply dispute between RNRL and RIL has finally come to an end as the Bombay High court has ruled the decision in favour of the former. As per the ruling, RIL will have to supply 28 mmscmd (million cubic metres a day) of gas to RNRL for US$ 2.34 mmBtu (million metric British thermal unit) for the term of 17 years. This move will largely benefit RNRL as it would receive an assured supply of gas at a price which is much lower than current prevailing market price of the gas. The stock of RNRL ended the day on a strong note today recording gains in excess of 20%. On the other hand, the gas supply at a lower price accounts for around 70% of the initial output of RIL’s KG D6 block, which will lead to lower realisations for RIL. It may be noted that the court has ordered the dispute to be resolved within a month through a fresh ‘suitable arrangement’ between both the companies.

As per a leading business daily, foreign direct investment (FDI) in China has dropped by about 18% YoY during May 2009 when compared on a year on year basis. It may be noted that this has been the nation’s eighth consecutive monthly fall in FDI. During the month, the country attracted a total of US$ 6.4 bn. Foreign direct investment in the first five months was down about 20% to US$ 34 bn. It may be noted that during FY09, India attracted about US$ 27.3 bn, higher by about 11% YoY (in US$ terms).

Comments

[uurum:]

There is a need to continually disaggregate consuming demand from speculative demand. I suspect the doubling of crude from 35 to 70 has much more to do with speculators back in the market. Regulators can dampen wide swings in speculative demand by simply raising margin requirements to hold barrell of crude.

Jun 16 02:14 PM

[Mad Hedge F...:]

Buy on the dip. I couldn’t help but laugh when I saw my old colleague from Morgan Stanley, Stephen Roche, on CNBC today. The current chairman of Morgan Stanley Asia (MS) is bearish on the economy and sees no chance of a “V” shaped recovery, just a very weak one at best. There are no “green shoots”, they’re still underground. “The consumer is toast”, he averred, and he expects consumer spending to plummet from a record 72% of GDP to 67% in five years. Because a massive external deficit has to be funded by foreigners, the outlook for the dollar is “down, down, down.” There won’t be a crash, just a gradual decent, as we have seen for the last 38 years. China isn’t going to bail us out. The US has only 4.5% of the global population, but accounts for $10 trillion of consumer spending. China and India together have 40% of the population, but only spend $2 trillion. This disparity is 50:1. Steve was an early BRIC fan, like me, and since China is so overbought short term, India is his first pick. You want to buy countries that have to build infrastructure and a middle class, and China has already done that. India’s recent election of a more pro business government is the trigger. I aggressively pushed India at the beginning of the year (www.madhedgefundtrader...), and it has doubled since then. The humorous thing about all of this is that Steve has been spouting the same perma bear line for the US for 15 years. The in-house joke at MS was that he was sent to China because his bearish sentiments were scaring the firm’s conservative US institutional investors. Given the performance of the BRIC’s since then, it is Steve having the last laugh.

Jun 16 06:52 PM