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Key indices slide as strong US job data strengthens case of hike in US interest rates

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Last Updated : Dec 08 2014 | 9:36 PM IST

Indian stocks dropped amid concerns strong US job growth may prompt the US Federal Reserve to speed up interest rate hikes in the world's biggest economy. The barometer index, the S&P BSE Sensex, hit its lowest level in more than 2 weeks. The 50-unit CNX Nifty hit its lowest level in almost two weeks. The market breadth indicating the overall health of the market was weak. The Sensex was provisionally off 353.96 points or 1.24% to 28104.14. The BSE Mid-Cap index was provisionally off 1.22%.

Steel Authority of India edged lower amid volatility as offer for sale (OFS) for government's 5% stake-sale in the company was successfully concluded during the previous trading session on Friday, 5 December 2014. Index heavyweight and cigarette major ITC extended its recent gains triggered by reports the government may put on hold its plan to ban sales of single cigarettes. Infosys declined after company's founders sold a total 3.26 crore shares of the company in bulk deals on NSE. Thermax advanced after securing a repeat order.

Indian stocks dropped today, 8 December 2014, amid concerns strong US job growth may prompt the US Federal Reserve to speed up interest rate hikes in the world's biggest economy. There is a concern that the tighter monetary policy in the US may slow foreign portfolio flows into the country. Higher interest rates will boost returns on US debt and bank deposits, drawing money back from riskier markets.

Foreign portfolio investors (FPIs) sold shares worth a net Rs 109.45 crore during the previous trading session on Friday, 5 December 2014, as per provisional data.

In overseas markets, European stocks edged lower after Ewald Nowotny, member of the European Central Bank's Governing Council, expressed concerns about the health of the region's economy. Asian stocks fell after disappointing Chinese and Japanese economic data. In the US, the S&P 500 and Dow Jones Industrial Average, both, closed at record levels on Friday, 5 December 2014, after a surprisingly strong job report for November 2014.

In the foreign exchange market, the rupee edged lower against the dollar on a broad strength in dollar triggered by a surprisingly strong US job report for November 2014.

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Brent crude oil futures traded near five-year low amid speculation that US oil producers will fight OPEC for market share. Deregulation of diesel price announced by the Indian government in October 2014 and a sharp decline in global crude oil prices over the past few months will help reduce the government's fuel subsidy burden and help contain its fiscal deficit. The steep slide in global crude oil prices will also help India in containing its current account deficit and fuel price inflation. India imports 80% of its crude oil requirement. However, a weakness in rupee against the dollar will restrict the benefit of falling global crude oil prices to that extent. A weak rupee raises the cost of imports.

As per provisional closing, the S&P BSE Sensex was down 353.96 points or 1.24% to 28104.14. The index lost 360.98 points at the day's low of 28,097.12 in late trade, its lowest level since 21 November 2014. The index gained 36.75 points at the day's high of 28,494.85 in early trade.

The CNX Nifty was down 102.15 points or 1.2% at 8,436.15, as per provisional closing. The index hit a low of 8,432.25 in intraday trade, its lowest level since 25 November 2014. The index hit a high of 8,546.35 in intraday trade.

The BSE Mid-Cap index was off 128.45 points or 1.22% at 10,369.84. The BSE Small-Cap index was off 100.06 points or 0.87% at 11,374.63. The fall in these two indices was lower than the Sensex's decline in percentage terms.

The market breadth indicating the overall health of the market was weak. On BSE, 1,792 shares declined and 1,154 shares gained. A total of 117 shares were unchanged.

The total turnover on BSE amounted to Rs 3150 crore, lower than Rs 3623.11 crore during previous trading session on Friday, 5 December 2014.

IT stocks edged lower. Oracle Financial Serivces Software (down 3.14%), MindTree (down 1.92%), TCS (down 2.44%), HCL Technologies (down 1.89%), MphasiS (down 1.18%), Wipro (down 1.37%) and Tech Mahindra (down 0.1%) declined.

Infosys lost 4.79% at Rs 1,970.50. The company's founders N R Narayana Murthy, Nandan Nilekani, K Dinesh and S D Shibulal, along with their families sold a total 3.26 crore shares of the company in bulk deals on NSE today, 8 December 2014, at Rs 1,988 per share.

Steel Authority of India (Sail) fell 0.72% at Rs 82.20. The stock hit a high of Rs 82.95 and a low of Rs 82. The finance ministry after trading hours on Friday, 5 December 2014, said that the offer for sale (OFS) for divestment of 5% of Government of India equity in Sail was successfully concluded on that day. The issue was oversubscribed more than two times. In addition, retail investors were given 10% allocation and this category was also hugely oversubscribed more than 2.5 times, a record for any retail participation in any OFS, the finance ministry said. The divestment of 5% stake in Sail will fetch about Rs 1715 crore for the government. With this divestment, the Government of India's stake in Sail would come down to 75% and the company has become compliant to the public shareholding norms of 25% for listed companies, the finance ministry said in a statement.

Bharat Heavy Electricals (Bhel) fell 1.56% at Rs 267.70. The stock hit a high of Rs 275.30 and a low of Rs 262.05. The company during market hours today, 8 December 2014, said it has achieved one more landmark in the African region by constructing and successfully commissioning a hydro power project in Rwanda on turnkey basis. Significantly, the order for setting up the 28 megawatts (MW) Nyaborongo Hydro Electric Project (2x14 MW), was the first order received by Bhel from this East-African country, the company said.

Thermax rose 0.62% at Rs 1,070.80. The company after market hours on Friday, 5 December 2014, said it has won a repeat order from a leading African industrial major. The new order worth Rs 351 crore is also for supplying a captive power project for one of the conglomerate's cement plants. The back-to-back repeat order further strengthens Thermax's credentials to provide lump sum turnkey solutions for African customers, the company said in a statement.

Index heavyweight and cigarette major ITC rose 1.47% to Rs 397.20 after scaling a record high of Rs 399.50 in intraday trade. The stock extended recent gains triggered by media reports that the government may put on hold its plan to ban sales of single cigarettes. It may be recalled that the health ministry had last month accepted a panel's proposal to ban loose cigarettes to deter smoking.

State Bank of India (SBI) fell 1.26% at Rs 313.65. The stock hit high of Rs 319.85 and low of Rs 312.60. The bank after market hours on Friday, 5 December 2014, said it has decided to issue bond under reverse enquiry up to $300 million for 3 year/5 year/10 year at T+140 bps, T+160 bps, T+185 bps respectively, through issuance of senior unsecured fixed rate notes. According, the bank has finalized the pricing of $100 million 10 year senior unsecured fixed rate note at a fixed pricing of T+175 with a fixed yield of 4.045. The bonds will carry an interest rate of 3.95% per annum that will be paid semi-annually.

ICICI Bank fell 1.13% at Rs 355.40. The stock hit a high of Rs 362.75 and a low of Rs 353.35. The bank after market hours on Friday, 5 December 2014, said that the board of directors of the bank has approved a proposal for the sale of ICICI Bank's shareholding in ICICI Bank Eurasia Limited Liability Company (IBEL), a non-material wholly-owned banking subsidiary in Russia, to Sovcombank, an unrelated third party Russian bank. At 30 September 2014, IBEL had total assets of RUB 4.5 billion and paid-up equity capital of RUB 1.6 billion. IBEL's profit after tax in the six months ended 30 September 2014 was RUB 28 million. IBEL accounted for less than 0.1% of ICICI Bank's consolidated total assets at that date and consolidated profit after tax for the period.

In the foreign exchange market, the rupee edged lower against the dollar on a broad strength in dollar triggered by a surprisingly strong US job report for November 2014. The partially convertible rupee was hovering at 61.925, compared with its close of 61.795 during the previous trading session on Friday, 5 December 2014.

Brent crude oil futures traded near five-year low amid speculation that US oil producers will fight OPEC for market share. Brent for January settlement was off $1.44 a barrel at $67.63 a barrel. The contract had lost 57 cents a barrel to settle at $69.07 during the previous trading session on Friday, 5 December 2014, the lowest closing level since October 2009.

Prime Minister Narendra Modi yesterday, 7 December 2014, said it is impossible for the nation to develop unless states develop. In his opening remarks at the consultation meeting with Chief Ministers of state governments on replacing the Planning Commission, Modi said that state governments should have a key role in the new body to replace the Planning Commission. He also said there should be an effective mechanism to address inter-state disputes. The Prime Minister also recalled his own speech on Independence Day, and said that the Planning Commission should be replaced by an organization which can think creatively, strengthen the federal structure, and energize states.

The government plans to introduce the Coal Mines (Special Provisions) Bill, 2014 to replace the Coal Mines (Special Provisions) Ordinance, 2014 in Lok Sabha this week. The government intends to get the Insurance Laws Amendment Bill that seeks to enhance FDI limit in capital starved insurance sector passed during the ongoing winter session of parliament. The government is also likely to introduce the constitutional amendment bill for the goods & services tax in the winter session of parliament. The government also plans to bring the MMDR Amendment Bill, 2014 during the the ongoing session of parliament.

The government will unveil industrial production data for October 2014 on Friday, 12 December 2014. Industrial production growth improved to 2.5% in September 2014, from a revised 0.5% growth in August 2014.

The government will release annual rate of inflation based on the combined consumer price indices (CPI) for urban and rural India for November 2014 on Friday, 12 December 2014. CPI for urban and rural India eased to 5.52% in October 2014, from 6.46% in September 2014.

The government will release the inflation data based on wholesale price index (WPI) for November 2014 on 15 December 2014. WPI eased to 1.77% in October from 2.38% in September 2014.

On the domestic political front, a regional party in Tamil Nadu MDMK today, 8 December 2014, reportedly passed a resolution at a meeting of the district secretaries to quit the BJP led NDA alliance. MDMK said that the BJP has been acting against Tamils. The MDMK also said that the Modi government has not helped in solving the fishermen issue.

Meanwhile, Russian President Vladimir Putin arrives on a two-day visit to India on Wednesday, 10 December 2014, for the 15th Annual India-Russia Summit. India's Ministry of External Affairs on Friday, 5 December 2014, said that the Summit will have a strong focus on redefining the economic partnership between the two countries. Several documents are under preparation for signing at the Summit, in the fields of defence, nuclear energy, customs, banking and energy, the Ministry of External Affairs said. Russia is a significant partner for India in strategic sectors like defence, nuclear security and science, including space. Russia is also India's primary defence partner and will remain so for decades, the Ministry of External Affairs said.

While bilateral economic, commercial and investment ties between India and Russia have been growing, they are way below potential, the Ministry of External Affairs said. India is keenly interested in participating in more hydrocarbon projects in Russia, the Ministry of External Affairs said. India has said clearly that it cannot be party to any sanctions against Russia, the Ministry of External Affairs said in a statement.

European stocks edged lower after Ewald Nowotny, member of the European Central Bank's Governing Council, expressed concerns about the health of the region's economy. Key indices in Germany, France, and UK were off 0.29% to 0.7%.

Nowotny reportedly said today, 8 December 2014, that eurozone inflation could fall even further in the first quarter of 2015, which would take the currency union dangerously close to deflation. Nowotny also said he sees the eurozone as the weak spot in the world economy and that it is worth discussing government-bond purchases, according to the reports.

The latest data showed German industrial production rose for a second month in October, in a sign that a slow recovery in Europe's largest economy is continuing. Production, adjusted for seasonal swings, gained 0.2% from September, when it climbed a revised 1.1%, the Economy Ministry in Berlin said today, 8 December 2014. Output advanced 0.8% from a year earlier.

The French economy is expected to slow down in the fourth quarter as business sentiment remains weak, according to a survey by the Bank of France released today, 8 December 2014. Growth in the eurozone's second-largest economy is expected to slow to 0.1% in the fourth quarter from the third quarter, the central bank said in its monthly survey. The French economy expanded 0.3% in the third quarter after a slight contraction in the second quarter and a stagnation in the first quarter. The survey by the Bank of France showed business leaders still lack the confidence that could spur a recovery.

Asian stocks edged lower today, 8 December 2014, after disappointing economic data from Japan and China. Key benchmark indices in Taiwan, Singapore, South Korea, and Indonesia were off 0.21% to 0.85%. Key indices in Japan, China and Hong Kong were up 0.08% to 2.86%.

In Japan, the latest data showed that the economy contracted an annualized 1.9% in the July to September period from the previous quarter, weaker than the 1.6% drop reported in preliminary data.

In China, the latest trade data painted a gloomy picture for the world's second-largest economy with both exports and imports slowing sharply in November. Exports rose just 4.7% in November, compared to October's 11.6% rise. Imports sank 6.7% in November against a 4.6% rise in October. There was one bright spot in November's trade data, however. Weak imports and the slight rise in exports left a record trade surplus of $54.47 billion in November, compared with a surplus of $45.4 billion in October.

Trading in US index futures indicated that the Dow could fall 48 points at the opening bell today, 8 December 2014. US stocks rose on Friday, 5 December 2014, lifting the Dow and S&P 500 to record high as investors embraced a stronger-than-forecast November payrolls report as backing the view the economy can handle rate hikes by the Federal Reserve in 2015. The Labor Department reported on Friday, 5 December 2014 that employers added 321,000 jobs in November, a much stronger number than economists had predicted and the tenth consecutive month of net job gains above 200,000.

The Federal Open Market Committee (FOMC) next undertakes monetary policy review at a two-day meeting on 16-17 December 2014. The policy meeting will be keenly watched for any hints on the timing of interest rate increases in the world's biggest economy.

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First Published: Dec 08 2014 | 3:34 PM IST

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