Sensex Down 0.5%, Rate Hike Worries

Elena
29 Jan, 2007
New York City

The market was wary Monday, expecting RBI decision on short-term interest rates due this Wednesday. Reliance Industries ended in positive territory, supporting the market. Banks plunged with ICICI Bank leading the decline. Other decliners included Tata Motors and Satyam. Reliance Communication and Tata Steel led the advancers as the metal sector finished higher. Reported earnings so far have been stronger than expected and significantly better than a year ago.

[R]10:30AM NY-9:30PM Mumbai Sensex declines in thin trading, Reliance gains.[/R]
The Sensex on BSE finished 70.76 points, or 0.5%, lower at 14,211.96. Trading was thin and range-bound throughout the day and the turnover on BSE was Rs 3,703 crore, much lower than Rs 4,733 crore on Thursday. The market-breadth was even as 1,324 shares advanced on BSE, 1,322 declined and 47 shares were unchanged. Of the 30 stocks in the Sensex, 14 advanced, while the rest declined. On NSE, the turnover was Rs 8,418.37 crore, also lower than Rs 11,465.61 crore on Thursday.

Economic news

The Reserve Bank of India may hike its benchmark overnight borrowing rate for the fourth time in a year on record economic growth which gives rise to higher inflation. The bank may increase the reverse repurchase rate by a quarter of a percentage point to a five-year high of 6.25%

Third-quarter earnings have been record-breaking so far with 808 companies reporting 67% rise in net profit, compared with 19% increase for the companies in the third quarter from a year ago. Non-ferrous metals, telecommunication, cement, electronics, textiles, auto and engineering sector have reported earnings growth of over 90% compared to a year ago.

Trading highlights

Jindal Steel & Power reported third quarter net profit of Rs 189.90 crore, up 50% compared to Rs 126.54 crore a yea ago. Total income of the company increased by 58% to Rs 1,012.

Most-active stocks

Indiabulls was the most-active stocks with a turnover of Rs 206 crore followed by Pyramid Saimira and Shree Ashtavinayak.

Advancers

Index heavy Reliance Industries advanced almost 1% to Rs 1,382.85, trading in positive territory and supporting the benchmark index throughout the session.

Reliance Communications soared 4% to Rs 454.85, on hopes of strong Q3 results, and on the decision of the company to transfer its wireless and related infrastructure to its subsidiary, Reliance Telecom Infrastructure.

Tata Steel rose 2% to Rs 520. The month end is the deadline for Tata Steel and CSN to make revised offers for Corus. Hindalco rallied over 3% to Rs 181 and BHEL gained over 2% at Rs 2,506. NTPC jumped almost 4% to Rs 143.

Decliners

Banks were the worst hit in trade today. ICICI Bank plunged 3.3% to Rs 952, State Bank of India lost 1.9% to Rs 1,153 and HDFC Bank dipped 1.6% to Rs 1,050. Cigarette large-cap ITC also declined 3% to Rs 173.

Auto shares declined too. Tata Motors lost nearly 3% to Rs 899 and Maruti Udyog shed 0.5% to Rs 937.90. IT shares declined on profit-taking. Wipro was off 3% to Rs 630, Satyam Computer lost 2.9% to Rs 462.50 and TCS declined 1.6% to Rs 1,292.

Other prominent decliners included Gujarat Ambuja down 2.5% to Rs 135, State Bank of India off 1.7% to Rs 1,155, and Dr.Reddy''s lost 1.5% to Rs 752.


[R]9:45AM Market opened higher, boosted by merger deals.[/R]
U.S. stocks opened moderately higher Monday on earnings and deal news. First Republic Bank ((FRC)), private banking and wealth-management firm, soared 40% after Merrill Lynch & Co. ((MER)) said Monday that it agreed to buy the company in a $1.8 billion cash-and-stock deal, at a healthy 46% premium, The transaction will help expand the brokerage giant''s profitable wealth-management business. Merrill said it will repurchase in the open market the number of its shares equivalent to those it will issue in the transaction. Merrill shares fell 1.5%. Citigroup Inc. ((C)) agreed to acquire British insurer Prudential PLC''s Egg Banking PLC online bank for 575 million pounds, or about $1.13 billion. Citigroup''s shares lost 0.5%. In another deal concluded over the weekend, Laureate Education ((LAUR)) agreed to be bought for $3.1 billion by CEO Douglas Becker and a consortium of firms including Kohlberg Kravis Roberts and Citigroup Private Equity. Company''s shares climbed 13%.

In early earnings highlights, Mattel ((MAT)) reported Q4 net income of growth, exceeding analyst estimates. The stock rose 2.4%. Meat producer Tyson Foods ((TSN)) rose 6% after it said it swung to profit in Q1, breaking a series of three quarterly losses. The company reported a higher-than-expected profit jump of 46%. Verizon Communications Inc. ((VZ)) slightly disappointed investors with its quarterly results, although the telecommunication company''s per-share earnings came in a penny above estimates. In the first hour of trading, the Dow Jones industrial average was up 30.36, or 0.24%, at 12,517.38. The Standard & Poor''s 500 index was up 2.04, or 0.14%, at 1,424.22, and the Nasdaq composite index was up 1.51, 0.6%, at 2,437.00


[R]9:30AM NY-2:30PM London FTSE 100 advances on Prudential deal.[/R]
The FTSE 100 advanced 9 points to 6,236.9 in afternoon trade.

Advancers

Banks were upbeat after the Prudential announced the sale of its internet banks Egg to Citigroup. Prudential advanced 1.6%, Amvescap also gained 1.6% and Barclays added 1%. British Airways surged, up 2.8%, as trade unions called off industrial action planned for this week. Greene King moved 0.5% higher after the pub company announced trading for the 36 weeks to January 7 had matched expectations. Reports from Barron’s, the influential US business magazine, helped FKI, the engineering group, 4.4% higher.

Decliners

Telecoms responded negatively to the warning from Deutsche Telekom. Vodafone shed 1%, BT Group edged 0.7% and Cable & Wireless eased 0.3%. SABMiller shed 1.4% as Goldman Sachs lowered its rating on the brewer from buy to neutral. Drax Group slumped, down 2.4 %, after a series of downgrades for the power generator last week. Among the mid-caps and small-caps, Debt Free Direct slumped 33.5%, Debtmatters declined 25.1%, Accuma fell 21.4%, Cleardebt eased 11.9% and Debts.co.uk gave up 10.3%.


[R]9:00AM Market futures traded slightly higher on earnings and deal news.[/R]
U.S. stock futures moved slightly higher Monday, helped by earnings reports and some merger activity. Investors were cautious at the start of a week with busy economic agenda. Market eagerly awaits a Federal Reserve interest rate policy meeting, a reading on the manufacturing sector and the jobs report for January which were due later in the week.

In pre-market earnings highlights, Dow component Verizon Communications ((VZ)) reported Q4 earnings decline, while earnings excluding special items topped analyst expectations, as the telephone company''s cellular business added 2.3 million customers Verizon earned $1.03 billion, or 35 cents per share, down from $1.66 billion, or 59 cents per share last year, blaming taxes on the sale of assets and costs related to a spinoff. Schering-Plough ((SGP)) said earnings came in line with expectations, while revenue rose above forecasts.

Mattel Inc. ((MAT)) reported Q4 net income of $286.4 million, or 75 cents a share, up from $279.2 million, or 69 cents a year ago, exceeding estimates of 67 cents a share. Quarterly sales rose 14% to $2.11 billion. Meat producer Tyson Foods ((TSN)) swung to profit in Q1, breaking a series of three quarterly losses. The company reported a profit jump of 46%to $57 million, or 16 cents per share from $39 million, or 11 cents per share last year, due to higher chicken sales and lower cost. The results beat analysts'' expectations for profit of 6 cents on revenue of $6.38 billion.

In deal news, Citigroup ((C)) agreed to buy online bank Egg from the U.K.''s Prudential for 575 million pounds. Citigroup also plans to cut jobs and $1 billion in costs. Abitibi-Consolidated ((ABY)) and Bowater ((BOW)) said they would merge to create the eighth-largest publicly-traded forest products company. Laureate Education Inc. ((LAUR)) agreed to a $3.1 billion buyout by CEO Douglas Becker and a consortium of private equity firms including Kohlberg Kravis Roberts and Citigroup Private Equity. S&P 500 futures inched up 0.60 of a point to 1,428.10 and Nasdaq 100 futures edged up 0.25 of a point to 1,779.50. Dow industrials futures ticked up 3 points to 12,526.


[R]8:00AM U.K. Prudential agreed to sell Egg Banking to Citigroup for $1.13 B.[/R]
U.K. banking and insurance group Prudential announced on Monday that it had agreed to sell Egg Banking to Citigroup ((C)) for 575 million pounds ($1.13 billion). The transaction is expected to improve the group''s surplus under the Financial Conglomerates Directive by an estimated £300 million. Prudential said the deal is expected to complete in April, and is subject to regulatory approvals. Prudential said that a distribution agreement to provide life and pensions products to Egg customer for five year was reached. The sale will enhance Prudential’s earnings in 2007. Separately, Citigroup said it expects the deal to boost its earnings in its first year. Citigroup corporate and investment banking advised Citigroup on this transaction.


[R]7:30AM Asian markets ended mixed Monday with China up and HK down.[/R]
Asian markets finished mixed on Monday. In Japan, the Nikkei Index finished the day 0.3% higher at 17,470. Stocks rebounded as Seiko Epson and Nomura Research Institute soared after releasing upbeat earnings results. Seiko Epson ended 5.7% higher and Nomura Research Institute surged 7.3%. Seiyu surged 13% in response to news from Wal-Mart that the biggest retailer in the world may look for corporate acquisition opportunities in Japan.

The Hong Kong Hang Seng Index ended 0.2% lower at 20,237. China-related shares surged. China Southern surged 7.3%, China Eastern Airlines rose 3.7% and Air China gained 3.1%. Property developers fell on interest-rate concerns, as Sino Land dropped 1.2%, Swire Pacific declined 1.2% and Sun Hung Kai Properties lost 0.5%. The Shanghai Composite Index soared 2.2% to 2,945. Banks led the rally. Hua Xia Bank hit the 10% upper limit, China Minsheng Banking rose 8.9% and Bank of China gained 3.1%.

South Korean Kospi Index lost 0.6% to 1,363. Samsung Electronics declined 1.5% and Hynix Semiconductor fell 3.8% on investor concerns about declining DRAM prices. Australian S&P/ASX 200 slipped 0.2% to close at 5,760. Brambles advanced 3% on broker upgrades, takeover speculation and expectations of an earnings surprise in its first half results due next month. Big banks dragged the market down with National Australia Bank losing 0.7% and Commonwealth Bank of Australia slipping 0.6%.


[R]6:30 AM European markets edged higher on Monday despite warning from DT.[/R]
European markets inched higher on Monday. By mid morning, the FTSE 100 in London inched 0.1% higher to 6,231.2, Frankfurt Xetra Dax gained 0.2% to 6,706.1, and the CAC 40 in Paris added 0.4% to 5,606.54.

Advancers

Airline stocks advanced as German airline Lufthansa gained 1.6%. Air France-KLM shares were up 1.2%, Ryanair gained 0.1% and British Airways climbed 1.2%, despite caution ahead of expected strikes by cabin crew this week. Infineon, the German chipmaker, climbed 2.6% after it reported better-than-expected results for its fiscal Q1.

Fiat gained 1.6% after a price target upgrade from JPMorgan. Financial services stocks added weight to the overall gains in the market. Danske Bank gained 2.1%, BNP Paribas added 1.2%, and Portuguese largest lender Millennium BCP rose 1.4%.

Decliners

Deutsche Telekom said it now anticipated core profit for this year to come in at 19 billion euros rather than the previous estimate of between 19.7 billion euros - 20.2 billion euros. The shares fell 5.9%. Among other telecom stocks, Dutch group KPN fell 2.4%, France Telecom lost 2%, Belgacom shed 1.5% and BT Group slid 1.3%.

Oil and gold

Light, sweet crude for March delivery gained 31 cents to $55.73 a barrel in electronic trading on the New York Mercantile Exchange. March Brent crude on the ICE Futures exchange in London rose 36 cents to $55.65 a barrel. Gold traded in London at $643.40 per troy ounce, down from $645.95 late Friday.

Currencies

The dollar was mostly higher against other major currencies in European trading Monday morning. The euro traded at $1.2916, up from $1.2910 late Friday. The British pound was quoted at $1.9570, down from $1.9588. The dollar bought 121.89 Japanese yen, up from 121.58.