Sensex Sheds 0.9%, Tata Plummets

Ivaylo
31 Jan, 2001
New York City

The market started on a positive note Wednesday, supported by S&P decision to upgrade India sovereign rating to investment but then dived ahead of RBI review of its credit policy. Despite winning the bid for Corus, Tata Steel pulled the market lower in afternoon trade as investors considered it has overvalued Corus in its offer. Tata led the decliners, while Gujarat Ambuja led the gainers. The Reserve Bank of India hiked its short-term lending rate in an effort to curb inflation.

[R]10:30AM Mumbai Sensex declines in volatile trade, Tata Steel plummets.[/R]
The Sensex on BSE finished 121.04 points, or 0.85%, lower to 14,090.92. The index traded in a range of 223.70 points for the day in a very volatile session. The market-breadth was negative. As 1,706 shares declined, 939 advanced and 43 remained unchanged. Of the 30 stocks in the Sensex, 19 declined while the rest advanced. The turnover on BSE was Rs 5,099 crore, higher than Rs 3,703 crore on Monday. On NSE, the turnover was Rs 10,330.87 crore, compared to Rs 8418.37 crore on Monday.

Economic news

India revised upwards its 2005/06 GDP growth estimate to 9.0% from an earlier 8.4%, the government announced. Manufacturing output growth was revised to 9.1% from 9.0% earlier and farm output was revised to 6.0% for 2005/06 compared to 3.9% for the same period the previous year.

Standard & Poor’s upgraded India long-term sovereign credit rating on Tuesday to investment grade. The bank issued a stable outlook for the rating. India became the 13th country rated by S&P to have emerged back from non-investment grade.

The Reserve Bank of India lifted its key short-term lending rate on Wednesday to its highest level in nearly four years on inflation worries. The main lending rate, known as the repo rate, was raised to 7.50% from 7.25%, but the Reserve Bank kept its reverse repo rate unchanged at 6.0%.

Trading highlights

Tata Steel Ltd. won the auction for U.K. Corus Group Plc for 6.2 billion pounds, or $12 billion, making the deal the largest acquisition by an Indian company. Tata topped the deal proposed by CSN of Brazil in a three-month race. In its final bid, Tata has offered Corus investors 608 pence per share in cash, compared to a final bid of 603 pence from CSN.

Most-active

Tata Steel was the most-active stock with a turnover of Rs 279.20 crore followed by Shree Ashtavinayak and Pyramid Saimira.

Decliners

Tata Steel led the decliners in the Sensex, as it plummeted 11.10% to Rs 461.80. Tata Steel reported 41.1% growth in Q3 net profit to Rs 1,063.75 crore, on 21.4% growth in net sales to Rs 4,469.98 crore. Other prominent decliners included Hindalco shedding 3.24% to Rs 174.85, Hindustan Lever dipping 3% to Rs 207.45 and Wipro losing 2.66% to Rs 614. Tata Motors also lost 2.5% to Rs 878.

Index heavy Reliance Industries declined 1.52% to Rs 1,360.75. ACC and Grasim dipped 2% each to Rs 1,020 and Rs 2,770, respectively. L&T lost 1.5% to Rs 1,587, ICICI Bank sagged 1.5% to Rs 940. ONGC finished 1% lower to Rs 903. ONGC announced its Q3 net profit rose 20%, topping forecasts of 6% rise in net profit.

Advancers

Gujarat Ambuja Cements led the advancers, adding 1.78% to Rs 137. Reliance Energy gained 1.60% to Rs 514 as the company announced it has secured power projects worth about Rs 4,150 crore in Haryana and Uttar Pradesh. ITC rose 0.93% to Rs 174, after reporting 33.6% growth in net profit in Q3 to Rs 717.40 crore, from Rs 536.83 crore during the year ago period. HDFC Bank and Satyam rallied nearly 2% each. HDFC Bank finished at Rs 1,078, while Satyam advanced to Rs 472.


[R]9:45AM Market opened mixed. Boeing led the Dow higher.[/R]
U.S. stocks opened mixed on Wednesday, with blue-chip stocks led higher by Boeing Co. ((BA)) The aerospace giant rose 4.5% after it said Q4 profit doubled on 26% revenue increase and boosted its outlook. SanDisk Corp. ((SNDK)) weighed on the tech sector with a decline of 9% in early trading. The company said late Tuesday it swung to a Q4 loss from a year ago, hurt by acquisition-related charges. The company reported a net loss of $35 million, or 17 cents a share, compared with net income of $134 million, or 68 cents a share, in last year's same quarter. It said its sales surged 55% on strong demand for its NAND flash-memory storage chips used in consumer electronics. However, SanDisk shares fell due to a soft sales forecast. It warned there is an oversupply of NAND flash in the market and steep price declines ahead.

Among other earnings-inspired gainers, Estee Lauder Cos. ((EL)) said Q2 net income more than doubled to $208.4 million, or 99 cents a share, from $81.7 million, or 38 cents a share, a year earlier. The cosmetics company said net sales advanced 12% to $1.99 billion from $1.78 billion. Quarterly results beat estimates for earnings of 76 cents a share on net sales of $1.91 billion. Levitt Corp. ((LEV)) surged 29% after the homebuilder said that preliminary Q4 sales figures from its home building subsidiary added up to $143.6 million. The company reported 426 homes delivered in Q2 and backlog at1,248 units with a sales value of $438.2 million. In the first hour of trading, the Dow Jones industrial average was up 14.34, or 0.11%, at 12,537.65. The Standard & Poor's 500 index was down 1.84, or 0.13%, at 1,426.98 and the Nasdaq composite index was down 10.54, or 0.43%, at 2,438.10. Bonds were little changed ahead of the Fed's comments on the economy and interest rates. The yield on the benchmark 10-year Treasury note was flat at 4.88% from late Tuesday.

[R]Fourth-quarter GDP climbs 3.5%.[/R]
Wednesday morning, the Department of Commerce released its advance report on fourth quarter gross domestic product, showing that GDP grew at a much faster rate than most economists had been anticipating. The report showed that GDP grew at an annual rate of 3.5 percent in the fourth quarter compared to the 2.0 percent rate of growth that was seen in the third quarter. Economists had been expecting more modest growth of about 3.0 percent. The Commerce Department said that the GDP growth primarily reflected strong consumer spending, exports, and government spending. The report showed that consumer spending rose 4.4 percent in the fourth quarter following a 2.8 percent increase in the third quarter. At the same time, the GDP growth was partly offset by negative contributions from residential fixed investment and private inventory investment. Additionally, the Commerce Department said that the acceleration in the pace of GDP growth compared to the third quarter reflected a downturn in imports, which are a subtraction in the calculation of GDP.

However, the report also noted that motor vehicle output subtracted 1.17 percentage points from the fourth quarter GDP growth after contributing 0.76 percentage points to the third quarter growth. The closely watched reading on inflation showed that consumer prices, excluding food and energy prices, rose at an annual rate of 2.1 percent in the fourth quarter. This represents a slowdown from the 2.2 percent rate of growth that seen in the third quarter. Despite the slowdown in the pace of core consumer inflation, the stronger than expected GDP growth is likely to further decrease the likelihood that the Federal Reserve will lower interest rates in the near future. The Federal Reserve will announce its latest decision on interest rates later this afternoon, with most analysts expecting the Fed to leave interest rates unchanged once again. Traders will be looking for indications of the Fed's outlook for the economy and interest rates.


[R]9:30AM-2:30PM London The UK benchmark index dipped Wednesday on financials.[/R]
The FTSE 100 declined 23.3 points and was trading at 6,218.7 by mid-day on Wednesday.

Economic news

House prices in the UK increased during January at their slowest pace in eight months. The average price of a house was 173,225 pounds, up 0.3% on December, the smallest increase since last May and a much weaker increase than the 0.8% predicted by analysts.

Decliners

F&C Asset Management gave a warning it would have to readjust its dividend after a sharp decrease in assets under management. The group admitted that AUM had declined 20%, dragging F&C shares 17.2% lower. The news also hit Friends Provident, which is the controlling shareholder of lF&C with a 52% stake. Friends Provident lost 4.9% while Legal & General retreated 1.9% and Aviva lost 0.8%.Other financial stocks also dropped, as Royal & Sun Alliance fell 1.7% and Alliance & Leicester gave back 1.3%.

Tobacco stocks also declined as Morgan Stanley cut its rating on the European sector from attractive to in-line. Imperial Tobacco lost 1.2% and British American Tobacco was down 0.8%.

Advancers

Vodafone gained 1.7% as the mobile phone company posted better-than-expected key performance indicators for Q3 as it acquired more than 200 customers. B&Q owner Kingfisher rose 2% after JP Morgan lifted its recommendation on the stock from neutral to overweight.

Satellite broadcaster BSkyB was in line with forecasts with a 10% increase in first-half revenues though pre-tax profit fell to 356 million pounds from 390 million pounds after 84 million pounds of losses at its start-up broadband venture. Shares advanced 0.92%. Wallpaper supplier Walker Greenbank announced full-year profits would exceed market expectations. The company surged 8.52%.


[R]9:00AM Market futures pared losses on robust GDP growth.[/R]
U.S. stock futures moved to the downside, but data showing that the U.S. economy grew at a faster-than-expected pace in Q4 helped to limit losses. The Department of Commerce said that GDP grew at an annual rate of 3.5% in Q4 compared to the 2% rate of growth that was seen in Q3, faster than the 3% growth, anticipated by economists. Investors were also awaiting the Fed's decision on interest rates and the statement on the interest rate outlook. Economists expect rates to stay at 5.25%.

Earnings from major companies were also in focus. Dow component Boeing ((BA)) reported Q4 earnings of $989 million, or $1.29 a share, up from $460 million, or 58 cents a share last year. On a continuing operations basis, the aerospace giant earned $980 million, or $1.28 a share, while on an adjusted basis earned $1.16 a share, compared to 74 cents a share last year. The company’s revenue climbed to $17.54 billion from $13.9 billion in the same period a year earlier. The quarterly results beat the average estimate for a profit of 98 cents a on revenue of $16.48 billion. Shares of Boeing rose 3% in pre-open.

Another pre-market highlight was media conglomerate Time Warner ((TWX)), which reported Q4 profit growth of over 30%, boosted by an investment gain and a rise in AOL advertising sales. However, shares in the company fell 2% in pre-open. Eastman Kodak ((EK)) rose 1.9% after it posted its first quarterly profit in more than two years. The world's top maker of photographic film earned $16 million, or 6 cents a share, compared with a year-ago loss of $46 million, or 16 cents a share. Excluding one-time items, Kodak beat analyst expectations of 55 cents a share. Drug maker Eli Lilly ((LLY)) also posted stronger-than-expected earnings. S&P 500 futures slipped 1.70 points to 1,432.30 and Nasdaq 100 futures eased 3.75 points to 1,785.50. Dow industrial futures were unchanged at 12,560.


[R]8:00AM Time Warner Q4 earnings and revenue topped forecast.[/R]
Time Warner Inc. ((TWX)) reported an increase in Q4 earnings and revenue and set financial targets for tracking 2007 profit growth. The media giant earned $1.75 billion, or 44 cents a share, up from $1.3 billion, or 28 cents, earned in the same period a year ago. Quarterly revenue rose to $12.47 billion from $11.52 billion last year, reflecting gains in its cable-television and networks divisions that offset lower contributions from AOL and filmed entertainment. Time Warner’s financial results exceeded the average estimates for earnings of 22 cents a share on revenue of $12.46 billion.

The company’s CEO Dick Parsons said he is pleased with the media giant's 2006 performance and all the achieved financial goals. In 2006, the company in tandem with Comcast Corp. completed the acquisition of bankrupt cable operator Adelphia Communications. As a result, Time Warner Cable added about 3.2 million basic-cable subscribers and 7.6 million homes passed. Looking ahead, Time Warner said it expects 2007 earnings of $1 a share. This forecast excludes discontinued operations and the cumulative effect of an accounting change, but it includes about 10 cents a share to reflect the sale of AOL's Internet access business in Germany. The average analyst profit view stands at $1.01 a share, compared with 81 cents a share on an adjusted basis earned in 2006.


[R]7:30AM Asian markets end lower Wednesday on Shanghai poor performance.[/R]
Asian markets finished lower on Wednesday. The Shanghai Composite Index plunged 4.9% to 2,786, its biggest single-day loss in eight months. Large-capitalized companies declined sharply on increased worries over high stock valuations. China United Telecommunications plummeted 9.3%, China Petroleum & Chemical dived 8.8% and China Vanke plunged 9.4%.

Japanese Nikkei Index also slipped 0.6% to end at 17,383. Shares in Sony closed 1.4% lower after the company Tuesday announced a 5.3% drop in Q3 net profit. Nikko Cordial dived 15% after it was revealed that senior executives had been involved in manipulating earnings at the brokerage.

The Hong Kong Hang Seng Index shed 1.7% to 20,106. China Mobile, the second-largest constituent of the local benchmark index by market capitalization after HSBC, slid 3.2% after rising 3.1% Tuesday. South Korean Kospi Index declined 0.8% to 1,360. Korea Electric Power declined 3.1% on an increase in global oil prices. Hynix Semiconductor finished 1.7% lower, reducing gains on concerns its earnings could decline sharply in Q1.

Australian S&P/ASX 200 decreased 0.7% to close at 5,773. Profit-taking was the reason for the stock market decline after strong gains Tuesday. Stocks that led the rally Tuesday were hit the most Wednesday, with QBE Insurance ending 2.2% lower. Taiwan index ended 0.5% lower at 7,700.


[R]6:30AM European markets are flat Wednesday, as financials pull stocks down.[/R]
European markets edged lower on Wednesday. By mid morning, the FTSE 100 in London lost 0.1% to 6,238.0, Frankfurt Xetra Dax shed 0.3% to 6,769.70 and the CAC 40 in Paris slid 0.4% to 5,620.6.

Advancers

Amsterdam-listed Corus gained 6.6% as Tata Steel of India won the bidding war with CSN of Brasil. Expectations for consolidation in the sector are still high as the offer by Tata for Corus followed on closely from Mittal Steel buying Arcelor. Shares in Arcelor Mittal were up 1.5%, German ThyssenKrupp added 1.3%, Salzgitter rose 1.8% and Finnish stainless steel group Outokumpu gained 0.8%.

Banco Popolare di Verona e Novara advanced, despite weakness in the banking sector, after HSBC maintained its overweight position and raised its price target. Last week, the Bank of Italy cleared the proposed merger of BPVN with Banca Popolare Italiana. BPVN shares gained 1.3%, while BPI added 0.9%. Novo Nordisk, the Danish drugmaker, gained after reporting a 13% rise in full-year operating profits. The shares gained 0.9%.

Decliners

Financial stocks declined after several sessions of gains. Commerzbank of Germany fell 0.4% as its Polish division BRE Bank decided not to pay an annual dividend despite posting net income had more than doubled in 2006.

Infineon fell 2.4% after Goldman Sachs removed the German chipmaker from its conviction buy list after the stock recent strong performance. Carmakers were also lower, with Porsche off 1.7% and Peugeot down 2.5%.

Oil and gold

Oil prices declined Wednesday as the market awaited the weekly U.S. inventories report. Crude oil for March delivery fell 39 cents to $56.90 in electronic trading on the New York Mercantile Exchange. Brent crude for March delivery dipped 36 cents to $56.03 a barrel on the ICE Futures exchange in London. Gold fell in London as the dollar gained against the euro. Gold for immediate delivery in London traded at $645.60 an ounce in early trade, down 0.3%.

Currencies

The US dollar traded at $1.2934 against the euro in early trade in London, from $1.2970 late yesterday in New York. The dollar was trading at 121.50 yen, down slightly from 121.62 yen late Tuesday in New York.