DESPITE several attempts to protect 5000, the bulls finally surrendered on Wednesday. The mounting selling pressure in heavyweights, increasing volatility, jittery global markets and the continuously depreciating rupee dampened sentiment. The build-up in out-of-money Put options with increase in implied volatility indicates the panicky situation in the market.
VIX, the investor’s fear gauge, has been consistently trading above 20 in the May series. In yesterday’s trade, it shot up above 30 to close at 32.04. This level of high volatility was last seen in the third week of February 2010 when Nifty corrected by over 7% from January highs. The Nifty has so far corrected by over 9% from its highs of 5400. If VIX moves decisively higher from these levels, the Nifty may be pushed below 4900 levels.
Nifty has consistently traded at a discount for most part of the month. We are yet to witness any short covering in the index. Nifty 200 DMA is placed near 4900. If the index does not hold 4900, it may see further downside. The build-up in the Nifty May series 5000 calls has significantly increased suggesting stiff resistance at this level.
Foreign institutional investors, or FIIs, were net sellers in Nifty Futures since the start of this series. However, they have also started selling in the cash market, thanks to the depreciating rupee and European market uncertainties. Losses incurred due to a strengthening dollar may lead to unwinding of carry trade positions by FIIs. Carry trade means borrowing of funds at low interest rates in currencies like dollar and investing in highyielding assets. Midcap banking stocks are looking attractive and these market dips can be utilised to add positions in this segment. However, the upsides in the market can be used for shorting real estate stocks.
WHAT TO WATCH OUT FOR
INDIA
GRASIM: The board will meet to consider the audited financial results for the year ended March 31, ‘10 and also to recommend dividend on equity shares for the same period.
Wockhardt: The board will meet to consider audited financial results of the for the quarter and fifteen months ended March 31, ‘10.
Jet Airways: The board will meet to consider audited financial results for the year ended March 31 ‘10.
Satluj Jal Vidyut Nigam:
The company will make its debut on the bourses. Priced at Rs 26, company’s initial public offering had received good response from investors, attracting an overall subscription of 6.6 times.
Thursday, May 20, 2010
Shock waves rock global markets
WORLD markets dropped sharply on Wednesday after Germany’s new curbs on traders unsettled investors.
The euro, meanwhile, recovered from fouryear lows against the dollar — reached in the aftermath of the ban — as experts suggest European central banks are considering intervening in the markets to slow the currency’s drop. The European Central Bank (ECB) declined to comment.
By late-afternoon, the euro was up 1.3% on the day at $1.2342, having earlier dropped to $1.2146, its lowest level since April 2006.
Stock markets didn’t get any such reprieve. In Europe, Britain’s FTSE 100 index of leading shares closed down 149.26 points, or 2.8%, at 5,158.08 while Germany’s DAX plunged 167.26 points, or 2.7%, to 5,988.67. The CAC-40 in France ended 105.65 points, or 2.9%, lower at 3,511.67.
US stocks failed to sustain an early flourish and the Dow Jones industrial average dropped 135.28 points, or 1.3%, at 10,375.67 and the Standard & Poor’s 500 index fell 14.59 points, or 1.3%, at 1,106.21. In Asia, shares dropped too in the wake of the German decision. Japan’s benchmark Nikkei 225 stock average dropped 55.80 points, or 0.5%, to 10,186.84. South Korea’s Kospi index lost 0.8% to 1,630.08 and Australia’s S&P/ASX 200 index was off 1.9% at 4,387.10.
Benchmarks in Singapore and Indonesia fell more than 1% and Hong Kong’s Hang Seng index lost 1.8% to 19,583.22. — AP
The euro, meanwhile, recovered from fouryear lows against the dollar — reached in the aftermath of the ban — as experts suggest European central banks are considering intervening in the markets to slow the currency’s drop. The European Central Bank (ECB) declined to comment.
By late-afternoon, the euro was up 1.3% on the day at $1.2342, having earlier dropped to $1.2146, its lowest level since April 2006.
Stock markets didn’t get any such reprieve. In Europe, Britain’s FTSE 100 index of leading shares closed down 149.26 points, or 2.8%, at 5,158.08 while Germany’s DAX plunged 167.26 points, or 2.7%, to 5,988.67. The CAC-40 in France ended 105.65 points, or 2.9%, lower at 3,511.67.
US stocks failed to sustain an early flourish and the Dow Jones industrial average dropped 135.28 points, or 1.3%, at 10,375.67 and the Standard & Poor’s 500 index fell 14.59 points, or 1.3%, at 1,106.21. In Asia, shares dropped too in the wake of the German decision. Japan’s benchmark Nikkei 225 stock average dropped 55.80 points, or 0.5%, to 10,186.84. South Korea’s Kospi index lost 0.8% to 1,630.08 and Australia’s S&P/ASX 200 index was off 1.9% at 4,387.10.
Benchmarks in Singapore and Indonesia fell more than 1% and Hong Kong’s Hang Seng index lost 1.8% to 19,583.22. — AP
Training institute set to be closed
THE Indian Institute of Securities Management (IISM), promoted originally by the erstwhile UTI and which came under the Securities Exchange Board of India (Sebi) fold later, is set to be closed down.
With none of the staffers of the institute willing to accept an exit package, Sebi is in a fix over handling the issue. Some employees are now planning to approach the political establishment to highlight their plight.
The IISM management, in a letter to all its employees on March 3, ’10, has made it clear that “all activities of the institute will come to an end”. It offered a VRS and also made it clear that retrenchment was inevitable if the employees failed to accept the VRS. There, however, are no takers for the two “voluntary separation schemes followed by the “revised voluntary separation scheme” offered by the institute.
This leaves a question mark over the fate of the institute. According to employees, the management’s decision to sack employees goes against the promise made to them when it was merged with Sebi’s National Institute of Securities Markets (NISM) four years ago. “We were promised job protection while the institute was being transferred,” a member of the IISM staff toldET.
When contacted, a former senior official with the market regulator, who was involved with the project, said: “Following the merger of IISM with the NISM, it was decided to offer VRS to employees. Sebi took this decision long ago. Formed as the Indian Institute of Capital Markets as the Unit Trust of India’s training arm in 1989 it was managed and run by the Specified Undertaking of the UTI (SUUTI). A few years later, the institute was taken over by Sebi and was christened as the National Institute of Securities Markets (NISM).
The institute has regularly been conducting programmes for the Central Bureau of Investigation, Central Economic Intelligence Bureau, Indian Economic Service, Indian Revenue Service, Forward Markets Commission and Sebi’s employees besides many public, private and MNCs.
It conducts Securities Markets Programme, a full-time one-year post-graduate diploma along with a popular programme on Financial Engineering and Risk Management.
With none of the staffers of the institute willing to accept an exit package, Sebi is in a fix over handling the issue. Some employees are now planning to approach the political establishment to highlight their plight.
The IISM management, in a letter to all its employees on March 3, ’10, has made it clear that “all activities of the institute will come to an end”. It offered a VRS and also made it clear that retrenchment was inevitable if the employees failed to accept the VRS. There, however, are no takers for the two “voluntary separation schemes followed by the “revised voluntary separation scheme” offered by the institute.
This leaves a question mark over the fate of the institute. According to employees, the management’s decision to sack employees goes against the promise made to them when it was merged with Sebi’s National Institute of Securities Markets (NISM) four years ago. “We were promised job protection while the institute was being transferred,” a member of the IISM staff toldET.
When contacted, a former senior official with the market regulator, who was involved with the project, said: “Following the merger of IISM with the NISM, it was decided to offer VRS to employees. Sebi took this decision long ago. Formed as the Indian Institute of Capital Markets as the Unit Trust of India’s training arm in 1989 it was managed and run by the Specified Undertaking of the UTI (SUUTI). A few years later, the institute was taken over by Sebi and was christened as the National Institute of Securities Markets (NISM).
The institute has regularly been conducting programmes for the Central Bureau of Investigation, Central Economic Intelligence Bureau, Indian Economic Service, Indian Revenue Service, Forward Markets Commission and Sebi’s employees besides many public, private and MNCs.
It conducts Securities Markets Programme, a full-time one-year post-graduate diploma along with a popular programme on Financial Engineering and Risk Management.
Germany goes to war alone, bans naked short selling
GERMANY declared war on speculators on Wednesday, wrongfooting European partners who said they were not consulted about an overnight ban on naked short sales of a range of assets that rattled markets.
Chancellor Angela Merkel told German lawmakers EU leaders had to ensure markets could not “extort” the state any more and the bloc would introduce its own financial transaction tax or levy if the Group of 20 nations failed to reach a deal in June.
Merkel urged EU leaders to speed up financial market supervision and introduce a new tax on them, saying Berlin was ready to act alone on a ban on activities which some leaders blame for deepening the euro zone’s debt crisis.
“I’ll boil it down to its core: The euro is the foundation for growth and prosperity, along with the common market — also for Germany. The euro is in danger,” Merkel told parliament.
But Germany’s European partners were blindsided by the ban. France and senior EU officials said they had not been consulted and called for concerted, not unilateral, action.
“It seems to me that one ought to at least seek the advice of the other member states concerned by this measure,” French Economy Minister Christine Lagarde said, stressing that Paris was not considering banning naked short-selling on European debt. The EU commissioner for internal markets and financial regulation, Michel Barnier, said in a statement the measures would have been more effective if coordinated at European level.
“It is important that member states act together and that we design a European regime to avoid regulatory arbitrage and fragmentation both with the EU and globally,” he said.
Markets were spooked by the lack of coordination and fears that Germany’s move was in response to a new financial problem.
Some analysts suggested Germany’s ban might be an attempt to get markets under control before further negative developments in the euro zone debt crisis — conceivably even a restructuring of Greek debt, which officials have so far ruled out.
Rabobank said Germany’s move “raises the question as to whether the German regulator knows something the market doesn’t. If there is a secret here, it can’t possibly be a positive one.”
EU TALKS ON FRIDAY
EU finance ministers will discuss Germany’s ban on Friday, said EU President Herman van Rompuy, who is to chair meetings on toughening EU budget rules and improving economic governance.
Merkel’s comment on the euro heaped fresh pressure on the single currency, which had already tumbled overnight on the back of Germany’s plan to ban naked short-selling of some financial shares, euro government bonds and related transactions in credit default swaps. In the United States, where the bulk of credit default swap trading is done, US. Treasury Secretary Tim Geithner told CNBC television the history of trading restrictions was “not good”. Credit default swaps insure against the risk of debt defaults, short selling is a trade that bets a price will fall.
Naked short selling involves selling a financial instrument without first borrowing the instrument or ensuring that it can be borrowed, as would be done in a conventional short sale. A German Finance Ministry spokesman said the ban would run until March 31, 2011. — Reuters
Chancellor Angela Merkel told German lawmakers EU leaders had to ensure markets could not “extort” the state any more and the bloc would introduce its own financial transaction tax or levy if the Group of 20 nations failed to reach a deal in June.
Merkel urged EU leaders to speed up financial market supervision and introduce a new tax on them, saying Berlin was ready to act alone on a ban on activities which some leaders blame for deepening the euro zone’s debt crisis.
“I’ll boil it down to its core: The euro is the foundation for growth and prosperity, along with the common market — also for Germany. The euro is in danger,” Merkel told parliament.
But Germany’s European partners were blindsided by the ban. France and senior EU officials said they had not been consulted and called for concerted, not unilateral, action.
“It seems to me that one ought to at least seek the advice of the other member states concerned by this measure,” French Economy Minister Christine Lagarde said, stressing that Paris was not considering banning naked short-selling on European debt. The EU commissioner for internal markets and financial regulation, Michel Barnier, said in a statement the measures would have been more effective if coordinated at European level.
“It is important that member states act together and that we design a European regime to avoid regulatory arbitrage and fragmentation both with the EU and globally,” he said.
Markets were spooked by the lack of coordination and fears that Germany’s move was in response to a new financial problem.
Some analysts suggested Germany’s ban might be an attempt to get markets under control before further negative developments in the euro zone debt crisis — conceivably even a restructuring of Greek debt, which officials have so far ruled out.
Rabobank said Germany’s move “raises the question as to whether the German regulator knows something the market doesn’t. If there is a secret here, it can’t possibly be a positive one.”
EU TALKS ON FRIDAY
EU finance ministers will discuss Germany’s ban on Friday, said EU President Herman van Rompuy, who is to chair meetings on toughening EU budget rules and improving economic governance.
Merkel’s comment on the euro heaped fresh pressure on the single currency, which had already tumbled overnight on the back of Germany’s plan to ban naked short-selling of some financial shares, euro government bonds and related transactions in credit default swaps. In the United States, where the bulk of credit default swap trading is done, US. Treasury Secretary Tim Geithner told CNBC television the history of trading restrictions was “not good”. Credit default swaps insure against the risk of debt defaults, short selling is a trade that bets a price will fall.
Naked short selling involves selling a financial instrument without first borrowing the instrument or ensuring that it can be borrowed, as would be done in a conventional short sale. A German Finance Ministry spokesman said the ban would run until March 31, 2011. — Reuters
ICICI-BoR deal fuels hopes of more M&As
THE proposed merger of Bank of Rajasthan (BoR) with ICICI Bank has triggered hopes of mergers and acquisitions slowly gaining pace in the banking segment, prompting investors to take a positive view on mid-cap banking stocks even in a choppy market. Shares of select banks like South Indian Bank, Federal Bank, City Union Bank and DCB outperformed the broader market on Wednesday, gaining between 0.6% and 4.6% against a 2.8% fall in the Sensex.
According to analysts, BoR’s valuation, taking into account the price offered by ICICI, was at a significant premium to the current market price. This could have acted as a trigger for the movement in other stocks. However, analysts say that investors should not base their decision purely on the merger play but should rather look at specific stocks, particularly those trading at attractive valuations.
Vaibhav Agrawal, V-P-research, banking, Angel Broking, says that the BoR deal sets a very high benchmark valuation for other smaller private banks. “However, it would not be advisable to invest in these stocks only based on the M&A theme due to the substantial uncertainties involved.”
Harendra Kumar, head, institutional equities & global research at Elara Capital, says, “We do not see this valuation to be secular ascribed to other mid-sized banks. Mergers are typically driven by strategic objectives and hence would be wrong benchmarks to be used across-theboard. They should trade on the fundamentals of their business and at a discount to large private and public sector banks. Most stocks in terms of valuation are closer to fair value.”
“The price commanded by Bank of Rajasthan was certainly higher than most of the other banks. Stocks such as South Indian Bank, Federal Bank and Karnataka Bank are expected to outperform the markets. However, every deal may not be able to get these kind of valuations due to scattered shareholding in case of other banks unlike BoR,” says Ajay Parmar, head, institutional equities, Emkay Global Financial Services.
Some stocks such as Federal Bank and South Indian Bank look quite attractive based on their current fundamentals, says Mr Agrawal. “Both are trading at very cheap valuations of less than one times their adjusted book values, as compared to five times of book value at which Bank of Rajasthan has been valued. The M&A possibility can be seen as an added potential catalyst in some stocks, rather than the only positive. Even on fundamentals, such as the substantial low-cost NRI deposits that these banks have, profitable operations among others these banks look attractive.”
Apart from listed old generation private sector banks, there are few unlisted banks such as Catholic Syrian Bank, Tamilnad Mercantile Bank and Ratnakar Bank which are also viewed as potential acquisition candidates. Analysts, however, say that the acquisition of these banks is not easy as there is likely to be resistance from stake holders including majority shareholders and employees.
They also said there could be uncertainty in the recent deal till the time the special audit is complete. “On most metrics on the liability side, the valuation seems sensible. But, given that the authenticity of Bank of Rajasthan’s reported numbers are not certain until the special audit is complete, risks remain,” says a note from Execution Noble.
Mr Kumar adds that consolidation in banks is never easy given cultural, technological and asset quality differences. “It will be premature to herald a consolidation at this moment. Depending on the portfolio strategy, one can take tactical positions in smaller banks.”
According to analysts, BoR’s valuation, taking into account the price offered by ICICI, was at a significant premium to the current market price. This could have acted as a trigger for the movement in other stocks. However, analysts say that investors should not base their decision purely on the merger play but should rather look at specific stocks, particularly those trading at attractive valuations.
Vaibhav Agrawal, V-P-research, banking, Angel Broking, says that the BoR deal sets a very high benchmark valuation for other smaller private banks. “However, it would not be advisable to invest in these stocks only based on the M&A theme due to the substantial uncertainties involved.”
Harendra Kumar, head, institutional equities & global research at Elara Capital, says, “We do not see this valuation to be secular ascribed to other mid-sized banks. Mergers are typically driven by strategic objectives and hence would be wrong benchmarks to be used across-theboard. They should trade on the fundamentals of their business and at a discount to large private and public sector banks. Most stocks in terms of valuation are closer to fair value.”
“The price commanded by Bank of Rajasthan was certainly higher than most of the other banks. Stocks such as South Indian Bank, Federal Bank and Karnataka Bank are expected to outperform the markets. However, every deal may not be able to get these kind of valuations due to scattered shareholding in case of other banks unlike BoR,” says Ajay Parmar, head, institutional equities, Emkay Global Financial Services.
Some stocks such as Federal Bank and South Indian Bank look quite attractive based on their current fundamentals, says Mr Agrawal. “Both are trading at very cheap valuations of less than one times their adjusted book values, as compared to five times of book value at which Bank of Rajasthan has been valued. The M&A possibility can be seen as an added potential catalyst in some stocks, rather than the only positive. Even on fundamentals, such as the substantial low-cost NRI deposits that these banks have, profitable operations among others these banks look attractive.”
Apart from listed old generation private sector banks, there are few unlisted banks such as Catholic Syrian Bank, Tamilnad Mercantile Bank and Ratnakar Bank which are also viewed as potential acquisition candidates. Analysts, however, say that the acquisition of these banks is not easy as there is likely to be resistance from stake holders including majority shareholders and employees.
They also said there could be uncertainty in the recent deal till the time the special audit is complete. “On most metrics on the liability side, the valuation seems sensible. But, given that the authenticity of Bank of Rajasthan’s reported numbers are not certain until the special audit is complete, risks remain,” says a note from Execution Noble.
Mr Kumar adds that consolidation in banks is never easy given cultural, technological and asset quality differences. “It will be premature to herald a consolidation at this moment. Depending on the portfolio strategy, one can take tactical positions in smaller banks.”
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