Last week was a nightmare for investors around the globe, as market indices across boundaries tumbled on fears of a global recession. A global sell-off triggered the biggest weekly fall for Indian indices in the last 18 years. The Sensex corrected by 50 per cent from its peak of 21,207 in January this year. Sebi's relaxed norms on FII investment, CRR rate cut of 150-basis points (during the week) by RBI, a lower inflation number at 11.80 per cent and sharp correction in crude oil prices to $80 levels failed to lift sentiment, with the Sensex crashing by 1,998 points (or 15.95 per cent) to 10,527.9 and Nifty tanking by 538 points (or 14.09 per cent) to 3,279.9 during the week. Lower August IIP numbers at 1.3 per cent versus 10.9 per cent year-on-year made things worse, with the Sensex coming very close to the 10 per cent lower circuit on Friday but pulling back to recover.
What to expect this week
While it’s difficult to predict which way the markets will move from this point, traders see more downside in the near-term, as negative news continue to flow from various quarters. Foreign institutional investors (FIIs) have already sold Indian equities amounting to more than $10 billion in 2008 and are currently holding stocks worth over $55 billion. Understandably, fears of further selling by FIIs will continue to weigh on the domestic bourses.
Softening demand, high interest rates, unpredictable forex losses and lower other income could depress earnings growth in Q2 FY09. Analysts expect capital goods, telecom and textile firms to post decent numbers in the second quarter of FY09, while cement, auto and real estate companies are likely to see pressure on earnings during the same period.
Stock to watch
Shares of Axis Bank could witness some action this week, with its Q2 FY09 results being announced on October 13. The cash reserve ratio (CRR) rate cut of 150 basis points by RBI last week is a positive for the banking sector as it will infuse additional liquidity to the tune of Rs 60,000 crore in the system | ||||||||||||||||
The CRR, which is the proportion of deposits banks must keep with the central bank, now stands at 7.50 per cent. In Q1 FY09, Axis Bank's net profit had increased 88.6 per cent year-on-year (y-o-y) to Rs 330.14 crore. Total income, on the other hand, had grown by 53.8 per cent y-o-y to Rs 2,891.24 crore.
As per analysts' estimates, the stock currently trades at 1.87x FY10E adjusted book value. The stock has declined 21.43 per cent in the last one week.
