Markets hit by bouts of volatility

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The Indian markets witnessed a volatile session today. After trading well above the dotted line for most part of the morning session, profit booking at higher levels took toll during the latter half of the day. Subsequent attempts by the indices to move into positive territory proved futile as they closed into the red. While the BSE Sensex closed lower by around 70 points (down 0.4%), the NSE Nifty closed lower by around 17 points (down 0.3%). Selling activity was also witnessed among midcap and smallcap stocks as the BSE Midcap and Smallcap indices closed lower by around 1% each. While banking FMCG and healthcare stocks weighed heavy on the indices, auto and capital goods stocks managed to find favour.

The Asian indices closed mixed today, while the European indices have opened in the green. The rupee was trading at Rs 46.57 to the dollar at the time of writing.

MNC pharma stocks closed mixed. While Aventis found favour, Novartis and Pfizer closed in the red. As per a leading business daily, MNC pharma major Aventis India has launched a rural market division in a bid to tap the faster growing rural markets. The company has launched 10 products with a sales team of 300 people and aims to corner a bigger pie of this market going forward. It must be noted that Aventis is a very strong player in the chronic therapy segment with focus on the therapeutic areas of diabetes, CNS and cardiology. Further, the company was largely focused on metros and Tier 1 cities where these diseases are highly prevalent. Now that the company is looking to focus on the rural markets as well, the products catering to these regions will be from the therapeutic areas of respiratory, gastrointestinal and nutrition.

Further, the company is expecting to get around 2% share of the rural market in the next five years. We believe this move is a positive one taken by the company not only in terms of augmenting its revenues but also in terms of making medicines accessible to the rural hinterland.

As per a leading business daily, REpower UK, a wholly-owned arm of REpower Systems of Germany controlled by Suzlon, has bagged a Rs 1.9 bn contract from EON Climate and Renewables for supplying 15 turbines. This is the third order won by Suzlon Group in the last fortnight. The wind farms are located at Butterwick Moor and Haswell Moor in County Durham in the UK. Both these sites will produce 30.75 MW of wind power and will be fully operational by the end of 2010. This development will enable REpower reach 500 MW of installed capacity in the UK. The stock of Suzlon closed in the red.

The industrial production data for the month of October is out and the growth at 10.3% has been helped by stimulus measures and robust domestic demand. This then raises the question of how long the RBI will wait before raising interest rates. As reported on Bloomberg, the Deputy Governor Usha Thorat had said that India’s exit from a loose monetary policy will be difficult as the economy’s expansion remains dependent on government stimulus. Having said that, if the government considers postponing its policy of raising interest rates, it may happen at the cost of fanning inflation. Food prices in India in the week ended November 28 have soared due to weak monsoons and its adverse impact on agricultural production and it seems likely that the government might look to tighten interest rates in FY11.

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Emerging-market funds bounced back from the selloff sparked by Dubai, heading for record annual inflows, as investors took money out of
US equities and money markets. Developing nation stocks and bonds rallied.

Equity funds focused on developing nations received $2.3 billion more than was withdrawn in the week to December 9, bringing 2009 inflows to $75.4 billion, Cambridge, Massachusetts-based research firm EPFR Global said in a statement. The previous record was $54 billion in 2007. Emerging-market bond funds took in $317 million in the week, even amid concern that Dubai government-owned companies will delay debt payments.

The plunge in Middle Eastern assets attracted Mark Mobius, who oversees more than $30 billion of developing-nation assets as chairman of Templeton Asset Management, and Pacific Investment Management, which runs the world’s biggest bond fund.

Mobius said December 2 he is buying “bombed out” Dubai developer Emaar Properties PJSC. Pimco’s Michael Gomez said on Thursday he is scooping up bonds of Abu Dhabi and Qatar.

“Risk appetite is very strong and liquidity is coming back,” said Paul Chan, chief investment officer for Asia excluding Japan at Invesco Asia in Hong Kong.

The MSCI Emerging Markets Index of stocks rose 0.8 per cent to 973.05, paring its weekly loss to one per cent, as of 10 am in New York. The difference in the average yield to own bonds in developing countries instead of Treasuries narrowed nine basis points to 2.99 percentage points, according to an index compiled by JPMorgan Chase. That’s down from 3.30 percentage points on November 30.

[b]Bouncing Back[/b]

The risk premium reached 8.65 percentage points in October 2008, a month after Lehman Brothers Holdings filed for bankruptcy. Investors withdrew a record $48.3 billion from equity funds in emerging markets in 2008, while bond funds suffered $18 billion in outflows, EPFR said in previous reports.

Dubai’s possible default raised concern that the global financial crisis that forced bank bailouts across the western world is spreading to emerging markets. Dubai World, a state-owned holding company, is seeking to delay payment on $26 billion of its debt. “Emerging-market equity funds combined bounced back from the blows administered by Dubai World’s debt problems in late November,” EPFR said.

[b]Economic Recovery[/b]

China’s industrial production grew 19.2 per cent in November, faster than economists estimated. Exports fell 1.2 per cent, the least in 13 months. India’s factory production increased 10.3 per cent in October and the Bank of Korea said gross domestic product will grow next year at a faster pace than previously forecast.

“I continue to believe that Asia will post stronger growth than any other region,” said Christian Jin, fund manager in Seoul at HI Asset Management, which manages the equivalent to $7.7 billion. “Exports of Asian countries will recover in tandem with a recovery in developed nations, while there’s much to expect from China’s consumption as well.”

Brazilian stocks rose 0.8 per cent as faster-than-expected industrial production growth in China bolstered commodity producers. Vale, the world’s biggest iron ore miner, and Petroleo Brasileiro, Brazil’s state-controlled oil company, led gains.

Asia excluding Japan and global emerging market stock funds each attracted net inflows of more than $800 million for the week, while those investing in Latin American stocks drew $410 million, according to the statement. Funds tracking Europe, the Middle East and Africa reported inflows of $208 million.

Among the largest developing nations, Russian stocks funds saw inflows rise to a seven-week high of $181 million while Indian equity funds absorbed $128 million, EPFR said. This week also saw inflows into China and Brazil equity funds for the year reach more than $5 billion, according to the company.

Developed-market equity funds suffered redemptions of $83 billion this year, with US stock funds posting an unprecedented $75.2 billion of net outflows this year, EPFR said. Funds investing in Japan stocks have lost $5.8 billion this year, even after taking in $85 million this week, the first gain since early September.

Bond funds received cash even as issuers including Senegal announced sales, according to EPFR. It said that some 90% of the inflows into emerging-market bond funds were focused on those investing in local currencies even amid “uncertainties” over Dubai.

US bond funds, high-yield bond funds and global bond funds all absorbed new money in the week to December 9, EPFR said, adding to their record tally this year. In total, all bond funds took in $5.07 billion for the week, raising the annual inflows to an all-time high of $145 billion, EPFR said.


Artical from The Economic Times.