World markets crash post Fed statement

Sat, 24 Sep RoundUp

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The world markets experienced heavy sell off this week on the US Fed's statement about a gloomy US economy and chances of a slowdown in China. In a recent Federal Open Market Committee (FOMC) meet, yet another stimulus package was announced called "Operation Twist" citing the economic troubles in the economy. But there is a significant difference this time. Instead of increasing the money supply like in previous plans, the focus is now on lowering long term borrowing costs and reviving the housing market. This, FED plans to achieve through a bond-buying program. It would replace short term treasury bonds worth US$ 400 bn with longer dated debt.

Indian stock markets were affected by both the gloomy outlook of the US economy as well as the depreciating rupee. The markets were down by 4.6% this week. The week also witnessed the highest one day dip (down by 704 points) in Sensex after July 6, 2009. Fed's announcement resulted in the other world markets crashing this week. The worst sufferer was Hong Kong (down by 9.2%) followed by France (down by 7.3%) and Brazil (down by 7%).

Source: Yahoo Finance

Among the sectoral indices, Consumer Durables was the only one that managed some gains (up by 0.5%). All other indices were down this week led by Capital Goods (down by 7.3%) and Metals (down by 6%) on concerns about the world economy slowing down as a result of financial problems in the US, Europe and may be even China.

Source: BSE

Now, let's take a look at key economic developments during the week. According to the Deputy Governor of Reserve bank of India (RBI), the interest rate cycle in India is nearing its peak. And he opines that we can in fact expect it to start reversing by the end of the year. This statement came right after the interest rates being hiked yet again last week. We may recollect here that interest rates have risen 12 times in the last 18 months to deal with high levels of inflation in the country. However, as a result of the base effect and the cumulative effect of all rate hikes, the RBI believes that the inflation situation is likely to be under control going forward.

India's power company National Thermal Power Corporation (NTPC) is planning to make an investment of Rs 410 bn towards setting up thermal power plants. The company is planning to start these projects in Madhya Pradesh and Chhattisgarh. In Madhya Pradesh, it would set up three projects at Barethi having a capacity of producing 1,980 megawatt (MW) each, one at Khargone with a capacity of 1,320 MW and another at Gadarwara with a 2,640 MW capacity. A 2,400 MW project will also be set up at Lara in Chhattisgarh. NTPC has already completed preliminary agreements for all these projects with their respective state governments.

Among engineering companies, BGR Energy is set for a deal with a Germany based firm, Flagsol for entering into the solar energy space. Flagsol is a subsidiary of Solar Millenium. The deal will be a joint venture in which BGR will have a 60% stake. It is to set up a 50 MW concentrated solar plant in Rajasthan. It would involve an investment of Rs 6.5 bn. Also, BGR was recently awarded a tender by NTPC for the supply of 9 units of 800 MW steam turbines and generator units for Rs 35 bn.

Now let's take a look at key corporate events during the week. IT company Wipro is likely to exit its water purification operations. Voltas is already in talks with Wipro for this takeover. Voltas expects to expand its water treatment business through this acquisition. This is being considered as a part of Wipro's strategy to exit small businesses that exist in a highly competitive environment. Wipro had earlier tried to divest stake in its baby diapers business and Vanaspati oil business. However, this deal if it goes through will be its first successful divestment.

In news from the steel industry, Steel Authority of India Ltd (SAIL) is planning to venture into the business of mining manganese ore. This is a step towards backward integration by the steel company for its ferro-alloys manufacturing facility in Rajasthan. The extracted manganese would be supplied to the SAIL Chandarpur ferro-alloys unit. The ore will be used for conversion in to ferro-alloys. As per the management, it will sign a Memorandum of understanding (MOU) with the Rajasthan government for lease of a manganese reserve in the state of Rajasthan.

Movers and shakers during the week

Company	16-Sep-11	23-Sep-11	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Financial Tech	783	842	7.4%	1398/690
Grasim Industries	2,260	2,350	4.0%	2589/2045
Oracle Fin. Services	1,860	1,921	3.3%	2510/1760
Union Bank	236	244	3.2%	420/231
Mahindra Finance	642	660	2.9%	845/590
Top losers during the week (BSE-A Group)
Jai Corp	98	82	-15.7%	267/73
IVRCL Ltd	43	37	-14.9%	174/33
ABB	868	754	-13.2%	929/615
Fortis Healthcare	152	132	-12.9%	175/129
Pantaloon	262	229	-12.7%	521/233

Source: Equitymaster
A regulator for the realty sector is likely to be introduced in India soon. A regulator for the sector has become a necessity especially in the wake of recent housing loan scams and the government is preparing a comprehensive bill for the same. This announcement came from Ms Kumari Selija, Minister for housing and Urban Property Alleviation in a recently held global conference by Federation of Indian Chambers of Commerce and Industry. The bill might get tabled before the winter session in the Parliament. It would propose setting up a regulator at the central level and in states as also an appellate body.