Headlines : 19 February 2009
Corporate News Headline
• Tata Motors has entered into an agreement with Central Bank of India to finance its passenger vehicles. (ET)
• KEC International has bagged new orders worth Rs. 3.65 bn in the areas of rural electrification and transmission. (ET)
• Reliance Infrastructure violated the country's overseas borrowing and foreign exchange rules by investing funds raised abroad in the domestic capital market. (BS)
• The Planning Commission Deputy Chairman Montek Singh Ahluwalia said that India's fiscal deficit would shoot to about 7.8% if off-budget items like bonds issued to oil companies are included. (ET)
• India's central bank governor Duvvuri Subbarao said that there is "certainly room" to cut interest rates as the impact of the global recession was "much sharper" than expected. (Bloomberg)
• The US President Barack Obama pledged USD 275 bn to a program that includes cutting mortgage payments for as many as 9 mn struggling homeowners and expanding the role of Fannie Mae and Freddie Mac in curbing foreclosures. (Bloomberg)
Trading Calls 19th Feb 2009
USE STRICT Stop Loss for todays trading
Buy BPCL-415 for 437 with sl 410 [Trade]
Buy BHEL-1398 for 537 with sl 490
Buy HPCL-301 for 310 with sl 299
Buy Bajaj-auto-495 for 537 with sl 490 [positional]
Buy HDIL-79 for 94 with sl 75
NIFTY FUTURES (F & O)
Buying may continue up to 2786 level for time being.
Support at 2720 & 2753 levels. Below these levels, expect profit booking up to 2648-2650 zone and thereafter slide may continue up to 2602-2604 zone by non-stop.
Break below 2579-2581 zone can create panic up to 2533-2535 zone and if breaks and sustains at below this zone then downtrend may continue and have caution.
On Positive Side, cross above 2856-2858 zone it can zoom up to 2925-2927 zone and supply expected at around this zone and have caution.
Short-Term Investors:
Bearish Trend. 3 closes below 2974 level, it can tumble up to 2510 level by non-stop.
BSE SENSEX
Traders can expect fall further.
Short-Term Investors:
Short-Term trend is Bearish and target at around 8208 level on down side.
Maintain a Stop Loss at 9637 level for your short positions too.
Strong & Weak futures
This is list of 10 strong futures:
Renuka, Edu Comp, APIL, India Info, SRF, ACC, Amtek Auto, Colpal, Maruti & BPCL.
And this is list of 10 Weak Futures:
GDL, EKC, Aban, Orient Bank, Mah Life, Patel Eng, Gitanjali, Network 18, PunjLloyd & Indian Bank.
Nifty is in Down Trend.
GLOBAL CUES & RUPEE
The Dow Jones Industrial Average closed at 7,555.63. Up by 3.03 points.
The Broader S&P 500 closed at 788.42. Down by 0.75 points.
The Nasdaq Composite Index closed at 1,467.97. Down by 2.69 points.
The partially convertible rupee <INR=IN> closed at 49.92/93 per dollar on yesterday, down from Tuesday's close of 49.67/68.
-ve to Market :
1. Global cues 2. Expected slowdown in growth 3. SGX
nifty 4. Investors confidence on Gold 5. US Market 6. Small Investors
selling
NIFTY & SENSEX SPOT LEVELS TODAY
2776.15( 0.20 %) 5.65
123
Resistance2831.00 2891.50 2928.35
Support 2733.65 2696.80 2636.30
9015.18( -0.22 %) -19.82
123
Resistance 9167.49 9299.97 9386.55
Support 8948.43 8861.85 8729.37
FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
CategoryDateBuy ValueSell ValueNet Value
FII18-Feb-2009960.411248.86-288.45
DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
CategoryDateBuy ValueSell ValueNet Value
DII18-Feb-2009525.58423.24+102.34
Banking: Low interest rates are doing much more harm than good
Morgan Stanley's Economist Chetan Ahya claims yield on 30 year GOI bonds will drop to 5 per cent by December 2009. This means a fall of 1.5 per cent in another 9 months from now. The siren voices of the construction, retail and manufacturing industries will be cheering, and clamouring for even more rate cuts.
Are they right? No.
There's plenty of evidence to suggest that low rates are now doing much more harm than good.
Firstly, low rates are dreadful for savers. Remember them? They're the ones who didn't borrow all they could and then, when the going got tough, threw in the towel and bleated for a bail out. They're also the people who have kept India's banks afloat.
So how have we rewarded savers? One year deposit rates are n fetching 7 per cent, down 3.5 per cent per annum since December 2008. Short term deposits between 15 and 60 days are fetching 4 per cent. If Bond yields continue to fall, depositor returns will sink down to zilch.
Considering that the bankrupt Government at Delhi has to borrow Rs 50,000 crore over the next 30 days, why are banks running themselves over to buy GOI Secs? Simply because they do not want to lend money to business and raise their NPAs one year from now. Already analysts that follow ICICI Bank claim that loan growth in FY10 will drop down to zero, while NPAs could rise to as much as 6 per cent.
This is not banking but whiling away time in the hope that something changes dramatically. Till such time, better to keep reducing deposit rates thereby keeping depositors away and keep lending to the GOI, where a default is simply not possible. But do lower rates do any good to industrial growth? Nil is my answer.
It's time to stop this. And yet no voice is being raised against the stupid move by RBI to keep cutting repo rates and allowing the CRR and SLR tap to leak. Lower interest paid to savers means less chance that they'll keep their cash in the banks. Which in turn means fewer funds available for borrowers.
In any case, lower interest rates aren't exactly helping many borrowers. Even the banks prepared to lend any money these days are being very cagey about passing on the rate cuts. Yes, SBI and a number of PSU banks have cut PLRs but average rate is still almost 12 per cent.
So all the Bank's rate reductions are doing is making the job for bankers easy-borrow at 4 per cent and lend to GOI at 5 per cent. But this in the long run will not be profitable banking or even be considered as a banking activity.
The damage caused by the weak rupee
Then there's the serious damage to the Rupee. If you've been making holiday plans outside India this year, or if your livelihood depends on imports, your costs will have soared as the Rupee has bought less and less.
At some stage, that's going to help stoke up inflation again (more on this another day). But right now, more rate cuts will just do more damage. Just as with domestic savers, even lower rates mean lower returns for foreign holders of the Rupee. That gives them less reason to hold our currency. And that tends to be self-feeding, i.e. the more the Rupee devalues, the more reluctant external holders are to own it.
And don't be fooled by the "it doesn't matter if the Rupee drops" brigade. It does. Our national debt, i.e. the amount of money we owe the rest of the world, is set to shoot to well over $ 200 bn within five years. And that's on the official numbers – the real ones are likely to be even worse. So, like it or not, as a country we'll have to borrow vast amounts from abroad, via the government flogging hundreds of billions of Rupees-worth of gilts.
There's no way that'll happen if outside investors don't want to invest in Rupee based assets. Unless of course, we have to entice them by paying much more. In other words, cutting the base rate is simply forcing up the long-term rate of interest that we'll have to shell out.
Then there's those banks who won't lend, mainly because they're terrified about the state of their own finances. It's very unlikely that these banks' assets will be appreciating in value as fast as their liabilities are rising. A further sizeable Rupee drop could wreak havoc with their already ultra-fragile balance sheets.
Let's hope the RBI learns from Japan's mistake
But there's also another reason, less tangible, but maybe the biggest of all. And that's confidence. When the general public sees the policy makers panicking, they get the jitters even worse themselves. As Dr Ros Altmann said day before yesterday, "this negative effect far outweighs the positive possible impact of encouraging already indebted consumers to borrow and spend more by lowering interest rates".
On this point, just remember what happened when the Japanese cut interest rates to nearly zero in 1995. All that succeeded in doing was shattering confidence so badly that the economy suffered the so-called "lost decade" of collapsing property and share prices. In fact, the Nikkei 225 index is now no higher than it was fully 26 years ago.
The bottom line? Lowering interest rates further makes no sense. Let's hope the RBI has worked that out.
--
Arvind Parekh
+ 91 98432 32381
