Equity Market Updates

Markets drifts back in red
Markets finished off the week closing negative and reversing the earlier weeks sentiments as investor sentiment remained jittery on political uncertainty ahead of state elections and uncertainty about the US treasury plan to forgo buying bad mortgage-related investments to buy stakes in US lenders and caution ahead of a meeting of G20 political leaders. Fall in India's exports for the first time in five years also weighed on the negative sentiment. Higher-than-expected industrial production (IIP) growth in September 2008 and fall of inflation to single digit, failed to boost the market sentiments. Sensex fell 5.81% in the week and Nifty dipped 5.47%. At the close of the week the BSE Mid-Cap slipped 4.15% and the BSE Small-Cap index lost 3.46% to 3,766.05.

Inflation drops to single digit
Inflation for the week-ended November 1, 2008 dropped to 8.98% from 10.72% in the previous week. Inflation made a welcome return to single digit growth after five months, thanks to lower industrial oil, commodity and food prices. During the week, naphtha prices dipped sharply by 33%, furnace oil slipped by 13% and light diesel oil was cheaper by 6%. Aviation turbine fuel prices were down by 18%. However, inflation for 30 essential commodities increased to 7.74% on a weekly basis from 7.51%.

IIP grows at 4.8% in September
The index of industrial production (IIP) grew by 4.8% in September, compared to a revised 1.4% growth in August, but lower than 6.98% year-on-year. The growth is believed to be largely driven by a spurt in order for capital goods and pre festival sales of consumer durables. The factories ramped up production to meet the festival season demand in October. The capital goods sector grew 18.8% during the month, consumer durables 13.1%, basic goods (industrial raw material) 4.6% and consumer non-durables 2.8%. However, intermediate goods like paints and chemicals fell 3.3%.

RBI announces measures to ease liquidity in the banking system
In view of the current macroeconomic, monetary and credit conditions, RBI has reduced provisioning requirements for all types of standard assets to a uniform level of 0.40% except in case of direct advances to agricultural and SME sector which shall continue to attract provisioning of 0.25%. The revised norms will be effective prospectively, but the provisions held at present should not be reversed. All unrated claims on corporates shall attract a uniform risk weight of 100% as against the earlier risk weight of 150% for exposures above Rs.50 crore from April 1, 2008 and for exposures above Rs.10 crore from April 1, 2009. Similarly commercial real estate loans shall attract a risk weight of 100% as against the earlier risk weight of 150 %. Risk weightage on Non Banking Financial Companies has also been reduced to 100%.

GSM adds a record subscriber's base in October
The GSM operators such as Bharti Airtel, Vodafone Essar, BSNL, Idea, MTNL and others added 7.7 million subscribers (without including Reliance Communication's figures) as declared by the Cellular Operators' Association of India (COAI). Bharti Airtel continues to maintain its leadership position with a subscriber base of 80.19 million and market share of 33.23% adding 2.72 million users. It was followed by Vodafone that has 56.7 million users and market share of 23.49%. Vodafone added two million new subscribers. State-run BSNL continued its snail journey with subscriber base still  hovering under the 40 million mark. BSNL has added 0.6 million new users in the month.

NTT DoComo buys 26% stake in TTSL
Japan's leading telecom operator NTT Docomo has entered into a definitive agreement with Tata Teleservices Limited (TTSL) to buy 26% stake in TTSL for a consideration of US$2.7bn (Rs.133bn). Out of this 20% would be issue of fresh equity and 6% would be stake sale by the promoter group. In addition, Docomo will make an open offer for up to 20% for Tata Teleservices (Maharashtra) Ltd., worth ~US$140m at Wednesday's closing price of Rs.18.The open offer for 20% shares of TTML would be at a price of Rs.24.7 per share. Tata Tele operates in 20 circles and Tata Teleservices (Maharashtra) Ltd. operates in Mumbai and Maharashtra circles. Both the parent and subsidiary provide CDMA wireless, fixed-line, broadband and internet services. The latest deal once again highlights that global telcos are ready to pay significant premiums to enter the Indian wireless market and incumbent operators are trading at extremely low valuations.

Lupin's Mandideep facility under USFDA scanner
US Food and Drug Administration (US FDA) completes an inspection of manufacturing facility in Mandideep, India. Of the 15 inspectional observations, response to 8 observations was immediately provided. The Company is to revert to US FDA on balance observations. The outcome of this inspection does not affect the supply of products manufactured at this facility to markets across the world, or the approvability of pending applications with the USFDA. The stock lost about 15.8% to close at weekend.

FIIs remain sellers, domestics were buyers
FIIs remain sellers to the tune of Rs.746.1 Cr in the cash market and were sellers to the tune of Rs.573.9 Cr in the derivatives market for three days of trading last week. Domestic funds were buyers to the tune of Rs.223.6 Cr for three days of trading last week.

Going Forward
The developed economies have slipped in recession based on the data released for September quarter. The ripple off effect of the global recession has now been forecasted for Indian economy also for FY09 & FY10 as the GDP growth rate estimates have been downgraded. Next week markets may look forward for a direction from the G20 meet to arrive at a solution for easing the global financial crisis.

Volumes in the market have been lower and we feel markets may remain in a range with a negative bias in the very short term.

Debt Market Updates

WPI - Inflation
Inflation for the week ended November 1, 2008 has reached single-digit and come in at 8.98% compared with 10.72% the week earlier. Inflation has fallen to single digits after 21 weeks. The sharp decline of 1.74% is on account of a significant fall in the prices of fuel, mineral oil as well as manufactured products like steel. The Manufacturing Index was 0.7%. The Fuel Power and Lubricant Index was down 3.4% mainly on account fall in naptha prices (33%) and Aviation turbine fuel (18%). Primary Articles index was down 0.4%.

IIP September at 4.8%
The Index Of Industrial Production grew by 4.8% in September; compared to a revised 1.4% growth in August, spurred by higher consumer spends during the festive season. While this does provide a brief relief to the industry and the policy makers, the consensus is that the trend of weakness could intensify in the months to come.

US Treasuries
US treasuries remained in range of 3.73%-3.85%. The week started with bond prices down on account of better than expected economic data. However, later during the week, bond prices rose on account of lower retail sales data and fall in the equity markets. Bond prices also rose on account of increase in the jobless claims. Initial jobless claims increased by 32,000 to a larger- than-forecast 516,000 in the week ended November 8, 2008 from a revised 484,000 the prior week. The week ended with 10 year at 3.73%.

Outlook
Liquidity was tight during the week with CBLO at 7% and call rates in the range of 7.50-7.75%. Bank borrowed Rs. 8000 crs from RBI. Liquidity should be easy next week on account second week of reporting. RBI has announced T-Bill auction worth Rs. 7000 crs. With inflation coming down to single digit, crude falling below $60 per barrel and expectation that IIP could go negative in the next few months, the 10 year GSEC rallied by 25bps during the week and closed at 7.46%. RBI may look to cut rates more aggressively given that inflation is a non-event. We expect 10-yr to be in the range of 7.25%-7.50%.

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