Oil moves up, while Sensex bleeds 3%

After opening on a weak note, the Indian later indices moved completely under the water. Heavy selling pressure caused investors to book profits due to concerns on the rising prices of crude oil which have once again hit the US$ 100 plus levels. Inflationary fears, closing derivative positions and jitters ahead of the Union budget all led to significant selling pressure. These pushed the indices well into the negative zone. While the BSE-Sensex closed lower by around 546 points (down 3%), the NSE-Nifty closed lower by around 175 points (down 3.2%). The BSE Midcap and the BSE Small cap were also subject to similar treatment and were also down close to 3%. Losses were largely seen in banking, consumer durables, and engineering stocks. Oil and gas and auto stocks were the only ones to close in positive territory. However, none of the indices could escape a coat of red.

As regards major global markets, all Asian indices all closed negative on the back of weak global sentiments. China however bucked the trend. European indices also opened in the red. The rupee was trading at Rs 45.49 to the dollar at the time of writing.

India's food inflation accelerated in February to 11.49% in the week ending February 12, this comes in higher than the 11.05% rate clocked in the previous week. This was due to rising prices of milk and fruits. Food inflation in the country has stayed high despite a good monsoon, due to supply constraints and inadequate food storage facilities. These are long term concerns which cannot be solved immediately. Now adding to the common man's woes are higher global oil prices. These have now hit a 2.5 year peak on the back of political unrest in the Middle East and North African region. High fuel prices lead to higher fuel inflation, and may also cause food prices to increase based on transportation costs. The fuel price index climbed 12.14% in the year to February 12, higher than 11.92% previously according to government data.

Tech Mahindra won a multi-million dollar IT contract from Vodafone's telecom operations in Qatar. The telecom major has around 700,000 subscribers in Qatar. The contract will cover application development and maintenance (ADM), infrastructure management as well as other services. The value of the deal was however not disclosed. IBM was also one of the bidders for the contract. Hewlett Packard, Infosys and TCS had also reportedly bid for the contract. The stock however closed negative in a weak market.

Tata Steel recently announced that steel prices will continue to increase in line with a rise in costs of raw materials. Demand however may not see much pressure. Steel is used widely in the construction industry including roads, railways, infrastructure, buildings etc. One of the main reasons for higher raw materials is due to increased prices of coking coal. The price of spot coking coal is rising as Queensland; the largest coal producing province in Australia has been battered by its worst floods in a few decades.

Engg, banking drag markets lower
01:30 pm

Selling pressure continued to push the Indian markets deeper into the red during the post noon trading session. Stocks across sectors are trading weak with those from the consumer durables, capital goods and banking spaces leading the pack of losers, while FMCG and realty stocks are amongst the best performers.

The BSE-Sensex is currently trading lower by 270 points (down 1.5%), while the NSE-Nifty is trading lower by 100 points (down 1.9%). Stocks from the mid and smallcap spaces are also under pressure as the BSE Midcap and BSE Small cap indices are trading down by 1.8% and 1.6% respectively. The rupee is trading at 45.46 to the US dollar.

Auto stocks are currently trading weak led by Bharat Forge, TVS Motor, Ashok Leyland and Tata Motors. The stock of Ashok Leyland has not been in favour for a while now. From a high of Rs 82, the stock is currently trading lower by about 44% at Rs 46. Quite a few factors have played a role for this sharp decline. The slowdown in sales volumes, poor operating performance during the quarter ended December 2010, the company's sales volumes for the month of January 2011 failing to meet market expectations. Apart from company specific issues, other factors such as rising competition, rising inflation and in turn commodity prices, rising interest rates, rising fuel prices, have been taking a toll on commercial vehicle manufacturers as well. Apart from these, another factor that is looming the commercial vehicle industry is the shortage of truck drivers.

A leading business daily has covered a story stating that with the many issues that truck drivers have been facing for a while now (such as punishing work schedules and harassment at octroi posts) have led to many drivers to move towards easier and attractive employment options (government programmes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme, etc) to earn a living. As per a certain fleet operator, about 5 to 15% of the trucks of most transport firms are idle on the back of this issue. It may be noted that the issue of shortage of drivers has been going on in the country for a while now. But with this development coming at a time when the industry is facing issues which are out of its control would only add to the woes.

Auto Ancillary stocks are trading deep in the red with Bharat Forge, SKF India, Bosch leading the pack of losers. SKF India, one of the largest manufacturers of bearings announced its results. For the quarter ended December, 2010 the company reported a 16% growth in topline and 41% surge in the bottomline. It seems the bearings company has managed to keep its expenditure under check despite the inflationary environment. For the full year (CY10) the company registered a 32% rise in the sales, whereas its profits zoomed by a whopping 88%. Profits for the full year stood at Rs 1,770 m.

Basket selling drags indices
11:30 am

After starting today's session on a negative note in the morning Indian indices have failed to recoup losses in the previous two hours of trade and are currently trading in the red. All the sectoral indices are in the red with stocks from the consumer goods and consumer durables space leading the pack of losers.

Currently, the BSE-Sensex is down by 273 points while NSE-Nifty is trading 71 points below the dotted line. BSE Midcap and BSE Small cap indices are both down by 1.49% and 1.29% respectively. The rupee is trading at 45.45 to the US dollar.

Banking stocks are trading weak with Kotak Bank and DCB leading the pack of losers.ICICI Bank and HDFC Bank, the country's two leading private sector lenders have increased their lending rates by up to 50 basis points, making home, auto and commercial loans dearer. While ICICI Bank has hiked the base rate, the minimum lending rate, by 50 basis points (0.5%) to 8.25%, HDFC Bank has raised the same by 45 basis points to 8.20%. ICICI Bank has also increased the deposit rates by up to 50 basis points across various maturities. RBI has raised the short-term lending and borrowing rates (repo and reverse repo) seven successive times since April, 2010 to 6.5% and 5.5% respectively. These moves were aimed at combating the rising inflation in the economy. So far, over a dozen banks, including SBI, Punjab National Bank, Bank of Baroda, Union Bank and Indian Overseas Bank had revised interest rates since the third quarterly review of the monetary policy by the RBI.

Protests against high food prices have now reached New Delhi, after hitting the Middle East and Africa. A least 50,000 people, representing trade unions of various parties marched through the streets of the nation's capital, demonstrating against high food prices. This comes a less than a week before the latest Union Budget is due, piling additional pressure on the UPA government. India is home over a billion people, and has been grappling with double-digit food inflation. Millions of poor have been the worst hit in this crisis. The RBI in turn raised interest rates seven times to tame rising inflation. However, much of the problem stems from bad weather problems and supply side issues.

IT stocks drag down indices
09:30 am

The crisis in Libya continued to dampen the investors' mood in Asia. Most of the Asian indices have opened in the negative zone. Indonesia (down 0.7%) and Japan (down 0.4%) are the main losers. Asian markets have opened on a mixed note. However, markets in Hong Kong (up 0.2%) and China (up 0.1%) are trading in the positive zone. Following cues from Asia, Indian markets have opened the day in the negative as well. IT stocks are leading the losers' pack. However, realty stocks are trading in the green.

The BSE-Sensex is trading lower by around 67 points (0.4%), while the NSE-Nifty is down by around 33 points (0.6%). Mid stocks are trading in the negative as well, with the BSE Midcap index down by about 0.02%. However, small cap stocks are trading in the positive with the BSE Small cap index up by about 0.08%. The rupee is trading at 45.21 to the US dollar.

IT stocks have opened the day on a mixed note with heavyweights such as Infosys, TCS and Wipro seeing selling pressure. On the other hand, mid cap IT firms Tech Mahindra and HCL Tech are witnessing buying interest. Mid size IT firm Mindtree announced that it bagged 2 multi-million dollar deals, totally US$ 70 m (Rs 3.2 bn from an Information and Communication Technology service provider in Europe and a US bank. This deal will be spread over a 5 year period, and Mindtree will be providing infrastructure management services, telecom support services and remote desktop management to its customers. The company hopes that these deals will help boost investor confidence in the smaller IT companies. The European order is the largest win for Mindtree till date. The management is of the opinion this contract help in garnering more big-ticket deals. The company had earlier faced some flak over its failed venture into the 3G phone business, which it has subsequently discontinued. The stock however, still closed in the red.

Mahindra Finance recently announced that it raised Rs 4.3 bn through a qualified institutional placement (QIP) of 6.1 m shares at Rs 695 per share. The firm received strong demand for the issue from international institutions, with the issue being oversubscribed 4 times. The firm had earlier stated that wanted to raise Rs 5.7 bn at a floor price of Rs 672.8 per share. The money raised will be used to enhance its Tier-1 capital base, leverage business opportunities, and help fund loans for its customers. Post the allotment, its parent Mahindra & Mahindra Ltd will hold 56% of the total equity, compared to 61% currently.

A repeat of the dotcom bubble?

Agri-commodities, precious metals and crude oil. What is common between the three? Among other things, all three are vying to be asset class of choice for investors across the globe.

There are chances that few years down the line people would think of these assets as another bubbles gone bad. Just as people now recollect the housing bubble that went bust in the US in the 2007-08 period. Or to give another example, the dot com bubble that burst at the start of the previous decade.

The human mind is indeed a profit seeking one. It tends to focus more on current asset classes that are hot rather than reminisce about the ones that have already passed us. This is precisely the reason why very few people talk about the housing bubble or the dot com bubble at the current point in time.

Little wonder, an important land mark event concerning the NASDAQ, the birth place of the dot com bubble passed us by without so much of a flutter.

Interestingly, last Friday marked the day when the tech laden index NASDAQ closed within 25 points of its highest level in a decade. It would have certainly brought back memories for investors who would have witnessed the bursting of the dotcom bubble firsthand. They would have thought of the time when tech stocks were selling like hot cakes. Ironically, as Moneynews puts it, tech is hot yet again.

Apple is creating ripples with its products. Microsoft is still the eternal monopolist. Whereas Google and Facebook have come like a breath of fresh air. In view of all this, is the new found interest in NASDAQ for real this time around? We think so.

As per a fund manager, it is night and day compared to 10 years ago. These business models are real. Revenues are real and the cash flows are also real.

Indeed. A mere glance at the cash flow generating ability of giants like Apple and Microsoft and one can come to the conclusion that these business models are certainly real and here to stay for some time to come. Besides, even the valuations arenít as out of whack as they were 10 years ago. Infact, they could well be termed as pretty reasonable. Sample this. In December 1999, NASDAQ companies were earning close to US$ 40 per share cumulatively and were priced at a whopping 103 times their earnings. In contrast, most recent earnings per share stood at around US$ 130, priced at a pretty acceptable 22 times earnings.

Furthermore, the future also looks bright for some of the world beating NASDAQ companies. Most of these earn a substantial part of their revenues outside of the US and hence, stand a much better chance of riding out the slowdown in US economy, if any. Besides, their enormous war chest also gives them sufficient staying power and also the ability to continuously innovate and grow their revenues.

Thus, from the evidence at hand, it does look like the repeat of the dot-com bubble in the very same asset class could well be avoided this time around.