The 4% down week

China is sabre rattling now, threatening to ditch the Euro for the US Dollar. Yeah, right; Europe is China's largest trading partner — if they start walking, China will stop talking.

Italy was downgraded on Tuesday by one notch by S&P to A/A-1 . The earlier rating was A+/A-1+, which has too many mathematical symbols, ostensibly to avoid anything Greek nowadays. Italy's 10-year bond went up 8 bps to 5.662 percent, a rate that is 3.85% higher than German bunds. Italy has promised to cut all sorts of spending, increase taxes and  reform pensions as part of austerity measures that will, says S&P, weaken economic growth prospects.

India's Consumer Price Index based Inflation: The CPI Release on Monday showed a General Index of 111.7, where 2010 was 100, implying that CPI inflation was around 11.7%. Since the CPI includes housing and wages, it tends to be a more accurate indicator, but we have had serious data collection issues with the index.

The Times of India is outraged about the Planning Commission statement, that spending Rs. 1000 per month is not "poor". On closer reading, the PC assumes that a family of five will spend Rs. 4824 per month (urban) or Rs. 3905 per month (rural), which sounds like a better floor for poverty. Unfortunately, they also mathematically induce that Rs. 965 per month per-person —it must be noted that the urban poor do have a lot of people without families; for such individuals, the cap needs to be higher. Eventually, the fight for who gets to be poor is about who is entitled to a ration card, which is a status symbol nowadays.

Stocks fell on Thursday after a Wednesday evening Fed statement that promised to spend $400 billion on a package, largely on exchanging short term bonds for long term ones. The Fed said there was "significant" risk to the economy which, as you all know, is the password to sell all stocks.

Indian stocks fell 4% in the worst single day move in two years — the Nifty opened with a 2% gap down and went another 2% down, making people watch business channels on mute because, let's face it, no one really wants to listen to depressed commentators.  European markets tumbled 4% as well, but for them it's par for the course.

The rupee kept going down against the US Dollar, closing in on the Rs. 50 to a dollar mark, which will make your iPads more expensive. Also your petrol, but you're used to that by now.

 

 

The RBI has tried to intervene, but it has not stemmed the fall; Ajay Shah makes the case that it shouldn't intervene in the first place. While we think that's a good argument today — why bother when the rupee is falling for fundamental reasons — it was necessary to unwind earlier "interventions" when the going was good, so that we would have fallen from a higher level.

In good news, Gold prices fell in dollars, but the rising dollar capped the expectations of the Indian public, and Gold stays around Rs. 27,000 for 10 grams. The price of gold is likely to increase if India has a good festive season in October. About 15% of the 168,000 tonnes of gold ever mined are estimated to be in India, making just the gold worth over 46 lakh cr. ($1 trillion). Perhaps we should stop looking for black money and look for gold instead.

Stock News

The government pulled out of Maruti talks. Union workers were arrested. Now Maruti's management doesn't have anyone to negotiate with.

ONGC is being told to take a larger part of the fuel revenue losses to the government from the cut in taxes. The government expects to lose 1.14 lakh crore, of which the ONGC share is now expected to be 35,000 cr., up from the 24,000 cr. last year. But no one knows why the government wants to say this today, when it wants to divest part of its stake in ONGC in the much delayed but coming-soon follow on public offer.

SAIL also delayed it's open offer, waiting for stable market conditions. If wishes were horse, our markets would be (a) stable.

Reliance was hammered down to Rs. 780 as D6 production dipped to 44.5 mmscmd (million standard cubic meters per day), way below the expected output of 61 mmscmd. They might have to pay $1.8 billion to the government as a write-off for the underproduction.

Markets

The Nifty and Sensex fell over 4% in the week, most of the damage done on Thursday. They fell away from the 50 day moving average, and ended marginally above the near term lows.

Every sector saw some damage, with Metals being hit the most. Inspite of the rupee falling to near 50 levels, the IT stocks fell; the issue isn't that they will earn more rupees from their dollars, it's that they won't get enough dollars in the first place because of the western economic slowdown.

 

 

 

The best and worst:

Everyone has now gone from Rs. 256 to Rs. 400 in two weeks -  a huge gain on the back of a Dubai entity investing in the company.

Last week we said that "Prices will fluctuate". This week, we expect prices to jitter, dither and drink some coffee. Prepare for some late nights as all the action seems to be in the western markets.