Weakness lurks across Asian markets

Tue, 15 Mar Closing

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Falling in line with their peers in Asia, the Indian stock market indices gave in to selling pressure across sectors. Although selective buying interest did help the indices recover from the day's lows, they failed to make inroads into the positive territory. While the BSE-Sensex closed 272 points lower (a 1.5% fall), the NSE-Nifty closed lower by 82 points (down 1.5%). The BSE Midcap and the BSE Small cap indices also closed with losses of 1.4% and 1.6% respectively. All sectoral indices except the oil and gas index closed in the negative.

As regards major global stock markets, all Asian indices ended in negative with Japan leading the pack of losers. Japanese stocks plunged nearly 11% today on reports of rising radiation levels near Tokyo and lurched towards their biggest loss since the 1987 crash. Most European indices opened in the red. The rupee was trading at Rs 45.03 to the dollar at the time of writing.

Indian markets remained cautious in the wake of the nuclear crisis in Japan and ahead of the Fed meeting later today. Amidst higher oil and food prices, unemployment at 9% and the dual crises of Middle East and Japan, the US Fed is set take a call on the US$ 600 bn treasury bond-purchase program, which is set to expire at the end of June. The US Fed has kept interest rates near zero since December 2008. An increase in the interest rates may see a flight of capital from emerging markets.

The adverse impact of Japan's crisis on the global economy is well documented. But the nation's re-building efforts could also provide impetus to demand for commodities in the long term. It is expected that the export of finished steel to Japan will rise in the coming months. The wooden houses and structures traditionally found on Japan's coastline are now expected to be replaced with buildings made of steel and cement, as they would be better able to withstand the impact of a tsunami. However, in the near term, the electricity outages could also impact the production of steel in Japan and therefore hurt demand for iron ore.

Iron prices in India which have slipped over the past month due to low demand from China, are likely to slip further as Japanese steel mills slow down immediate purchases while they recover from the earthquake. In the past month, the export price of iron ore has nearly halved. Meanwhile steel companies in India including SAIL and Tata Steel also lost about 3% each in today's trade.

Tata Motors, India's largest CV manufacturer, with an overall domestic market share of 64% in FY10, posted a 14% YoY growth in its global vehicle sales in February 2011. The company has reported a 10% rise in global sales of trucks and buses in the past month. The global sales of cars and SUVs also rose 18% YoY. Further the sales of Land Rover SUVs grew 33% YoY, but those of Jaguar cars fell 2% YoY. During the 3QFY11 results, the company had accorded the revenue surge to both higher volumes coupled with better realizations as the product mix changed in favour of the company. This had also led to a better than expected performance at the operating level as the company's EBIDTA margins stood in the region of 17% plus.