Sensex Recovers From 9% Plunge

123jump.com Staff
17 Oct, 2007
New York City

Sensex index in the morning trading plunged 9%. SEBI, securities regulatory arm of India, proposed a closer monitoring of foreign investments and raised collateral level for leveraged trades. The market interpreted the government move as a way to control international fund flows. After one hour of trading halt, Sensex climbed its way back to close at a loss of 1.8%. Reliance Energy fell 7% after reporting earnigs rise of 34%. Rupee fell to a two-week low.

[R]1:30PM New York, 11:00PM Mumbai - Sensex plunged 9% only to recover and close 1.8% lower. Rupee fell to two weeks lows.[/R]

Sensex in Mumbai recovered from heavy losses in the morning session to end weaker at 1.8%. The BSE 30-share Sensex ended down 1.8% or 336.04 to 18,715.87. Daily turnover on BSE was recorded at 10,159 crore rupees and on the NSE at 24,061 crore rupees.

The Securities and Exchange Board of India proposed to raise collateral requirements for the Participatory Notes to 40% and asked investors to register with the regulators in the next 18 months. Finance Minister in the morning press conference supported the measure.

India has witnessed a surge of foreign investment in its stock market in the last five years. Investors poured $17.5 billion in the first nine months of the year surpassing total investment of $11.5 billion in 2006. More than $50 billion of foreign investment has flown in the stock market in the last six years lifting market averages to a record high.

The Participatory Notes are used by unregistered investors to invest in India. More than 1,100 institutions have registered with SEBI and 200 companies are waiting for the government approval. In the last three weeks, Mumbai stock markets attracted $4.5 billion of which $2.5 billion have been estimated to have flown through these notes.

The government is worried that these vehicles may become a conduit for illegal funds and terrorist organizations. Finance Minister reiterated that the government is welcoming investments from international organizations as long as they are registered with the regulatory agencies.

Market quickly recovered in the afternoon session from the early plunge of 9.1%, before trading was halted for one hour, to close at 1.8%.

After hitting a record close on Monday, Sensex dropped 1.8% today. Of the 30 shares in Sensex index, 5 gained while the rest declined. Of the BSE stocks 922 advanced, 1,733 declined, and 378 remained unchanged.

Of the index share, Reliance Energy declined 7.46% to 1,762.4 rupees and led the stocks in the Sensex index. Reliance Energy reported a net profit increase of 34% to 250.08 crore rupees in the second quarter, a rise of 34% from a year ago.

Hindalco Industries rose 0.25% to 197.95 rupees.

TCS gained 2.53% to 1,095.1 rupees, Infosys surged 1.2% to 1,889.9 rupees, and Satyam Computer Services climbed 1.6% to 457.25 rupees.

Temptation Foods jumped 4.4% to 257 rupees. The company said it would acquire the food-processing unit of Chambal Fertilizers and Chemicals.

Jubilant Organosys jumped 6.1% to 311 rupees after it posted 106% net profit in the second quarter.

Alembic rose 1.7% to 87.2 rupees after the company said it has entered into a deal with Inorbit Malls for sale of land in Vadodara, Gujarat.

Of the Sensex shares, ACC lost 5% to 1,202.7 rupees. Bharat Heavy Electricals slid 4.7% to 2,283.5 rupees, NTPC slump 4.52% to 220.8 rupees. Larsen & Toubro shed 1.58% to 3,293.5 rupees, Tata Steel edged lower at 4.19% to 869.1 rupees, Steel Authority of India retreated 1.9% to 247.25 rupees.

DLF, the largest real estate company fell 2.45% to 896 rupees, Indiabulls Real Estate lost 4.06% to 577.6 rupees, Unitech shed 3.51% to 341.3 rupees. ICICI Bank lost 3.5% to 1,116.9 rupees, HDFC Bank was down 3% to 1,459.6 rupees and State Bank of India slid 5% to 1, 828.5 rupees edged lower.

[R]12:00AM New York – U.S. stocks jumped after Coca Cola, United Technologies, and Altria report earnings. CPI rose 0.3% and housing starts fell in September.[/R]

Stocks after more than two hours of trading edged higher with Dow Jones Industrial Average up 12 to 13,924, Nasdaq gaining 28 to 2,792, and S&P 500 increased 4 to 1,543.

The Labor Department reported September consumer price index rose 0.3% and core index excluding food and energy prices edged 0.2%. The so called core inflation is in line with the Fed target between 0.1% and 0.2%. However, several economists have recently said that the CPI may not reflect the total rise in housing cost and business and personal services.

The Commerce Department said that September housing starts fell 10.2% to a seasonally adjusted annual rate of 1.19 million homes after declining in August by a revised rate of 3.2% to an annual unit rate of 1.32 million.

Crude oil edged higher as the talks of Turkish military strike in Northern Iraq intensified. Crude oil front month contract edged 28 cents to $87.89

Coca Cola ((KO)) reported third quarter earnings increase of 13% on revenue rise of 19%. The beverage company reported revenue of $7.69 billion and earnings of $1.65 billion in the quarter. Global volume of sparkling beverages increased 4% and flat beverages rose 14%. Domestic revenue rose 21% on acquisition and in the European Union increased 6%.

United Technologies ((UTX)) third quarter revenue increased 14% to $13.86 billion and earnings increased 20% to $1.21 billion. Earnings per share increased to $1.21 from 99 cents a year ago.

After the market close Intel reported earnings rise of 43% from a year ago, Yahoo earnings fell but reported 12% increase in earnings and beat the expectations of 8 cents per share, and IBM reported earnings rise of 6.3%.


[R]10:00AM New York – J P Morgan reported third quarter profit of $3.4 billion and credit losses provision of $2.4 billion.[/R]

J P Morgan ((JPM)), banking and financial services group, reported third quarter earnings rise of 4% to $16.11 billion from a year ago. Net income increased 2% to $3.3 billion in the period and earnings per share increased 5% to 97 from 92 cents.

The company also issued 38 cents per share dividend and book value per share increased to $35.72 from $32.75 a year ago.

Net managed revenue was $17.0 billion, up by $603 million, or 4%, from the prior year. Noninterest revenue of $8.1 billion was down by $1.5 billion, or 15%, reflecting markdowns on leveraged lending funded and unfunded commitments and lower fixed income trading results. These decreases were offset partially by increased asset management, administration, and commissions revenue, which benefited from a higher level of assets under management and by strong private equity gains.

Net interest income was $8.8 billion, up by $2.1 billion, or 31%, due to trading net interest income; growth in liability and deposit balances, primarily in the wholesale businesses; a higher level of credit card loans and fees; and the impact of the Bank of New York transaction. These increases were offset partially by a narrower net interest spread in the Corporate segment and a shift to narrower–spread deposit products.

The managed provision for credit losses was $2.4 billion, up by $944 million, or 67%, from the prior year. The wholesale provision for credit losses was $351 million, compared with $35 million, reflecting an increase in the allowance for credit losses, primarily related to portfolio growth. Wholesale net charge-offs were $82 million, compared with net recoveries of $11 million, resulting in net charge-off rates of 0.18% and (0.03)%, respectively.

The total consumer managed provision for credit losses was $2.0 billion, compared with $1.4 billion in the prior year, reflecting an increase in the allowance for credit losses, largely related to home equity loans, and higher net charge-offs. Consumer managed net charge-offs were $1.7 billion, compared with $1.4 billion, resulting in managed net charge-off rates of 1.96% and 1.69%, respectively. The firm had total nonperforming assets of $3.2 billion at September 30, 2007, up by $881 million, or 38%, from the prior-year level of $2.3 billion.


Revenues in the investment banking fell 39% to $2.95 billion from a year ago and 49% from $5.8 billion a year ago. Net income in the division was reported at $296 million, 70% lower from a year ago.


Investment banking fees were $1.3 billion, down by 6% from the prior year, reflecting lower debt underwriting fees offset partially by record advisory fees. Debt underwriting fees were $468 million, down 34%, reflecting lower bond underwriting and loan syndication fees, which were negatively affected by market conditions. Advisory fees were $595 million, up 36%, driven by a strong performance across all regions. Equity underwriting fees were $267 million, down 3%, driven by lower revenue in Europe and Asia, partially offset by strong performance in the Americas in common stock and convertible offerings.


Fixed Income Markets revenue was $687 million, down by $1.8 billion, or 72%, from the prior year. The decrease was primarily due to markdowns of $1.3 billion (net of fees) on leveraged lending funded and unfunded commitments and markdowns of $339 million (net of hedges) on collateralized debt obligation (CDO) warehouses and unsold positions. Fixed Income Markets revenue also decreased due to very weak credit trading performance and significantly lower commodities results, compared with a strong prior-year quarter. These lower results were offset partially by record revenue in both rates and currencies.


Equity Markets revenue was $537 million, down 18% from the prior year, as weaker trading results were offset partially by strong client revenue across businesses. Fixed Income Markets and Equity Markets had a combined benefit of $454 million from the widening of the firm’s credit spread on certain structured liabilities, with an impact of $304 million and $150 million, respectively. Credit Portfolio revenue was $392 million, up 45% from the prior year, primarily due to higher trading revenue from hedging activities and gains from loan workouts.


Average loans retained were $61.9 billion, up by $2.9 billion, or 5%, from the prior quarter. Average fair value and held-for-sale loans were $17.3 billion, up by $2.5 billion, or 17%, from the prior quarter. Fair value and held-for-sale loans at September 30, 2007, were $20.2 billion, up by $8.6 billion, or 76%, from the prior quarter. Both average and end-of-period fair value and held-for-sale loans reflect a net increase in third-quarter, 2007 leveraged lending activity.


Net revenue in retail financial services rose 18% to $4.2 billion and income declined 14% to $639 million. The provision for credit losses was $680 million, compared with $114 million in the prior year. The current-quarter provision includes a net increase of $306 million in the allowance for loan losses related to home equity loans as continued weak housing prices have resulted in an increase in estimated losses for high loan-to-value loans. Home equity net charge-offs were $150 million (0.65% net charge-off rate), compared with $29 million (0.15% net charge-off rate) in the prior year. In addition, the current-quarter provision includes an increase in the allowance for loan losses, reflecting increased loan balances resulting from the decision to retain rather than sell subprime mortgage loans. Subprime mortgage net charge-offs were $40 million (1.62% net charge-off rate), compared with $13 million (0.36% net charge-off rate) in the prior year.


The bank reported a total of 10.6 million checking accounts, up 15% after the acquisition of 615,000 accounts from the Bank of New York. Average total deposits increased to $205.3 billion, up 10% or $18 billion. Number of branches increased to 3,096, an increase of 419 from a year ago.

Mortgage banking net loss was $48 million, compared with a net loss of $83 million in the prior year. Net revenue was $406 million, up by $208 million. Net revenue comprises production revenue and net mortgage servicing revenue. Production revenue was $176 million, down by $21 million, as markdowns of $186 million on the mortgage warehouse and pipeline were offset partially by an increase in mortgage loan originations and the classification of certain loan origination costs as expense.


Net revenue in credit card services increased 6% to $3.8 billion and net income increased 11% to $786 million. Commercial banking revenue rose 8% to $1.009 billion and net income increased 12% to $258 million.


Treasury and securities services increased 17% to $1.75 billion and net income rose 41% to $360 million. Asset management revenue jumped 35% to $2.2 billion and income rose 51% to $521 million in the quarter.

[R]8:30AM New York – Markets in India drop nearly 9% on crackdown on anonymous trading.[/R]

Asian stocks fell after a week of sharp gains. India plunged nearly 10% during the session on new regulation requiring hedge funds investors to trade under accounts registered with the government.

India led the decliners with a fall of 1.8% followed by losses in Philippines of 1.5%, in South Korea and Thailand of 1.1%, and in Japan of 1.07%. Hong Kong led the gainers with a rise of 1.2% followed by increase of 0.9% in Singapore.

The Securities & Exchange Board of India said that it plans to limit anonymous trading conducted in the derivative market by international hedge funds through what is known as participatory notes. Regulators are worried that anonymous trading is inflating market values and may hurt small investors. The proposed plan will limit the exposure through derivative contracts and will require at least 40% collateral in the margin account. The owners of participatory notes will have eighteen months to transfer the securities held through derivative contract in their name and register with the regulator.

At the worst of the plunge Nifty CNX Index fell 9.3% to 5,143.20 and Sensex 30 index on Bombay Stock Exchange dropped 9.1% or 1,743.96 to 17,307.90 before the market were halted for one hour of trading.

Finance Minister P Chidambaram said that foreign investors are welcome to invest in India but said that international fund flows must be controlled. The government is worried that derivative contracts used by offshore investors may invite illegal sources of funds and may end up benefiting terrorist organization. The steep rise in rupee is also a concern.

SEBI, after the market close, announced a series of steps to curb trading through participatory notes and plans to implement new requirements on October 25th.

Rupee has appreciated 15% against dollar while currencies of other Asian nations have gained less than 8%. More than half of investments attracted to India’s stock market are through participatory notes, where investors can hide their true identity. International investment in stocks market has jumped to $17 billion from less than $11 billion a year ago. In the last three weeks alone investment through these anonymous notes was estimated to exceed $2.5 billion.


[R]6:00AM New York, 7:00PM Tokyo- Tokyo stocks decline led by a weakness in banks. Demand for services increased 1.3%.[/R]

In Tokyo trading Nikkei 225 shed 1.07% or 182.61 to 16,955.31 while the broader Topix Index fell 1.5% to 1,600.29. Banks led the decliners on the worries that U.S. mortgage market turmoil may have an impact on its economy and hurt earnings of banks in Japan.

Of the Nikkei 225 stocks 57 rose, 164 dropped, and 4 traded unchanged. Resona Holdings led decliners, falling 7.46%, followed by Shinsei Bank retreating 6.55%. Sanyo Electric slid 6.12% after abandoning plans to sell its semi-conductor business unit to a private equity group Advantage Partners which has failed to raise the 110 billion-yen on the constrained credit market.

Japan’s Ministry of Economy, Trade and Industry said that the Tertiary and Industry Activity, which measures demand for services increased 1.3% to a seasonally adjusted 111.3 in August, the highest since 1988. The index had declined to a downwardly revised 0.4% in July.

Of the eleven service sectors covered by the report, six were up. Wholesale and retail trade index increased 2.0%; electricity, gas, heat supply and water rose 8%; eating, drinking places and accommodation soared 3.7%; finance and insurance industry was up 1.1%, while transport added 1.3% and information and communications increased 0.9%.

Services, learning support, real estate, medical healthcare and welfare and compound services were down. Hot temperatures increased sales of air conditioners and apparel.

According to METI the value of equity trading in Japan had increased in August by 55% to a record 77.88 trillion-yen as investors unwound their positions on concerns of the risk posed by the U.S. housing slump.

Japan planned to spend 9 billion yen for gas and oil exploration along the Pacific Coast and the Sea of Japan, driving budget for natural resource development by 12% to 176 billion yen. Norway’s Petroleum Geo-Services ASA will deliver a $213million vessel for three-dimensional seismic surveys. Separately, Japanese officials from Itochu Corp, Mitsubishi Gas Chemicals, Mitsubishi Heavy Industry, Nippon Oil Exploration Limited, JGC Corp, LNG Japan, Cosmo Oil Company Limited and Sumitomo Mitsui Bank are in Papua New Guinea for a week long meeting to explore possible investment opportunities in the gas and oil sector.

Crude oil rose for the six day, gaining 1.7% to a record $87.61 per barrel. Oil companies however slumped. Inpex Holdings fell and Nippon Oil Corp tumbled.

Of the Nikkei 225 index shares Yahoo Japan led the gainers with a rise of 5.30%, followed by gains in Hino Motors of 3.49%, in Casio Computer of 3.46%, in Denki Kagaku of 3.28% and in Asahi Kasei Corp of 3.23%.

Resona Holdings led the decliners with fall of 7.46% followed by losses of 6.55% in Shinsei Bank, 6.12% in Sanyo Electric, 5.84% in Sumitomo Mitsui and 5.56% in Nomura Holdings. Mitsubishi UFJ Financial Group fell 4% and Mizuho Financial Group and 3.80%. Sanyo Electric fell after it aborted plans to sell its semiconductor business and now it will reorganize the business and work to improve operating margins. Sony lost 0.74% and Toyota Motor Corporation retreated 2.03%.

Exporters plunged as the yen firmed against the dollar, rising 116.73 from 116.78.

Banks fell in Tokyo trading after the U.S. Treasury Secretary Henry Paulson said that the housing market correction is likely to take longer than anticipated earlier and it poses a significant risk to the economy. He also cautioned that regulated banks are still grappling with the size of the problems and banks need to improve accounting of these assets.

The Securities and Exchange Board of India, known as SEBI, proposed to limit exposure in derivative market. International hedge funds are using participatory notes to invest in India and hide true identity from regulators. The recent crackdown will require hedge funds to transfer their holdings to accounts under their names registered with the authorities.

Sensex in Mumbai, India trading fell nearly 10% but managed to recover at a close with a loss of 1.8%. Stocks linked to emerging markets fell sharply on the news. JFE Holdings lost 3.8% to 7,670 yen, Mitsui O.S. K lost 3.5% to 1,930 yen.