Market correction continues for the third day

22 August 2005

Markets opened the day with a large positive gap in line with the firmness across most Asian markets. The mood was bullish and the indices looked all set to resume the up trend after two days of consolidation. Both the Sensex and Nifty gained close to three-quarters of a per cent in opening trades.

But once again, the indices could not hold on to their gains later in the day. After trading within a range till noon, the indices dropped sharply early in the afternoon and within half-an-hour had lost two-thirds of a per cent.

There was no buying support as frontline stocks like Tata Steel, Tata Motors, SBI and VSNL declined sharply. The last half-hour saw some recovery as traders covered their positions.

The sensex closed at 7750, a loss of 30 points, and the Nifty at 2368, a loss of 15 points. Nifty August futures closed the day at a discount of 4 points to the spot index.

Cipla, HCL Technologies and Ranbaxy were among the major gainers among Nifty stocks while VSNL, Tata Motors and GAIL were the major losers.

After acquiring 10 per cent stake in China Gas, GAIL is planning equity stakes in more international projects. According to media reports, the company is in negotiations to acquire minority stakes in two more Chinese companies.

GAIL is also reportedly in talks to acquire a minority stake in the European gas pipeline, which will transport natural gas from the producing countries of Eastern Europe to markets in the west. The project is expected to cost $5.7 billion. The stock closed over 2 per cent lower.

The ONGC-Mittal combine has reportedly lost out in the race to acquire Petro Kazakhstan. CNPC of China, parent of listed company Petro China, has agreed to buy the Canadian listed company with major operations in Kazakhstan for $4.18 billion.

Petro Kazakhstan has reserves of over 500-million barrels and accounts for around 10 per cent oil production in Kazakhstan. The price at which the deal has been struck is considered high, but Chinese companies are going aggressive on strategic acquisitions with the full support of the government. ONGC lost close to a per cent today.

The government is once again testing the waters about a possible fuel price hike. The finance minister indicated that there is no other option but to increase retail fuel prices.

NTPC has initiated discussions with many overseas companies to secure natural gas supplies for its power plants. The company is in discussions with firms in Australia, Nigeria and Iran on acquiring minority stakes in exploration and LNG liquefaction projects. The stock closed flat.

NTPC is facing a generation loss of over 700mw because of short supply of natural gas. With ambitious plans for expanding generation capacity over the next few years, it is imperative for NTPC to secure fuel supplies. Coal shortages because of lack of investments in mining by Coal India, a PSU monopoly, have made the fuel situation more difficult.

Colgate Palmolive has opened a new toothpaste manufacturing unit in Himachal Pradesh. The unit was set up at an investment of over Rs 100 crore. The stock closed a per cent higher.

Pharma company Cipla opened with strong gains today on persistent market talk about Swiss company Sandoz making an acquisition bid. Cipla has denied such reports. The stock finally closed 3 per cent higher.

Dr Reddy's has received tentative approval from the US FDA for an anti-diabetic drug. The stock closed half a per cent higher.

Mid-Cap Action

Mid-caps also had a very strong opening with the index gaining over a per cent within an hour of trade. The weakness in frontline indices spread to the smaller stocks as well though the losses on the mid-cap index were lower. The CNX Mid-Cap index closed the day at 3624, a loss of 6 points.

Road projects continue to flow in for construction companies. Nagarjuna Constructions has received an order from the National Highway Authority for construction of two roads in the state of UP. The order is worth over Rs400 crore.

Andhra Cements of the GP Goenka group is planning a private placement of up to 15 per cent. The group, which owns over 70-per cent stake in the company, is planning the move to come out of the debt burden.

Kinetic Engineering gained over 5 per cent after the company's board approved a rights issue at an attractive rate. The shares would be issued in the ratio of two shares for every share held at a price of Rs40 per share. The stock is currently trading around Rs135 per share.

According to media reports, Alcoa of US is in negotiations to buy out aluminium foil manufacturer India Foils. The company is now a part of the Vedanta group. Alcoa is one of the largest aluminium manufacturers in the world. The stock was locked in the 20 per cent upper circuit on the BSE.