Indian Markets Wednesday Wrap-Up: Commodity Stocks Crash

Panic set into the markets today as profit booking during the last hour of trade led the indices to fall deep into the red. The BSE-Sensex ended lower by around 430 points (2.9%), while the NSE-Nifty closed around 160 points (3.6%) down. Stocks from the mid-cap and small-cap spaces ended the day weak as well, recording losses of 4.5% and 4.3% respectively. Selling activity was witnessed in stocks across the board today. Realty, metals and oil and gas stocks were severely hit.

Other Asian markets ended the day in a sea of red as well. The European indices are currently trading weak. Rupee was trading at 47.99 against the US dollar at the time of writing.

Commodity stocks were amongst the biggest losers today, with the BSE-Metal Index and BSE-Oil and Gas Index ending lower by 6.1% and 4.4% respectively. In fact, commodity stocks across the world witnessed, or are witnessing, a negative trend given the fears that commodity prices have entered a bubble phase following China massive purchases, not for satisfying the current demand but for stock piling. Indirectly, this would suggest that once the country stops this buying binge, it would be difficult for commodities (like oil and metals) to sustain the recent advance. It may be noted that crude oil prices have already doubled in price since mid-February.

A leading business daily has reported that telecom major, Reliance Communications (RCom) is in talks with French telecom infrastructure provider Alcatel-Lucent (ALU) to sign a deal worth US$ 500 m (approx Rs 25 bn). This contract would include operations and maintenance of RCom’s GSM and optical fibre cable services. The deal, which is expected to be one of the largest outsourcing deals in the Indian telecom space, will be finalised in a few weeks. The contract is expected to be executed independently by Alcatel-Lucent or by the joint venture between Alcatel-Lucent and RCom, which was formed last year. This is a positive development for the company as it will allow it to enhance its network quality and reduce operational expenditure. It may be noted that RCom will be the latest addition to such kind of out sourcing model in the Indian telecom space. Other players such as Bharti Airtel, Idea Cellular and Vodafone (VOD) have signed similar contracts with various companies.

Engineering stocks ended the day on a weak note led by Bharat Electronics and Punj Lloyd. As per a leading business daily, the management of Suzlon Energy expects to end the current fiscal with a flat performance. It has attributed the same to the global meltdown. The company expects the growth to be affected as global economic slowdown has either impacted or deferred its clients’ plans. Further, the company also expects to be impacted by the fall in prices of non-renewal energy sources. The company’s current order book stands at around 1,900 MW. In addition to all this, Suzlon has been facing troubles internally on account of its huge debt to equity ratio, which is over one time. However, the company has been evaluating various options to reduce the same.

Comments

[Mad Hedge F...:]

Keep India on your short list. 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. Since 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 descent, 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 17 02:07 PM