European debt troubles pummel global equities
Stocks across the world sank amid growing concerns of a potential sovereign debt default in Europe, even as global markets were recovering from the recent turbulence owing to concerns on China and new bank regulations in the US. Portuguese bonds come under renewed pressure as fears of Greece’s debt problems spreading in the other parts of the eurozone persisted. Banking stocks from Portugal, Spain, Greece and Ireland slid further as worries about sovereign debt and its potential impact on the eurozone continued to spread. European Central Bank (ECB) President Jean-Claude Trichet said that the eurozone still faces major challenges but is heading in the right direction. He was speaking shortly after the ECB kept interest rates steady. Eurozone governments have borrowed a record €110bn from the markets so far this year, forcing up borrowing costs for those countries with the weakest public finances as they pay a heavy price for their ballooning debt levels.
Meanwhile, China’s government, seeking to stem property speculation, told banks to raise interest rates on third mortgages and demand bigger down payments for such loans. In addition, a senior policy adviser to China's central bank said that asset bubbles were a concern for the nations' policy makers, reflecting official unease about the rapid gains in real estate prices. Overseer of US$700bn government bank bailout program said that Fed policies could be creating US housing bubble similar to one that triggered the 2008 global financial crisis.
Risk premium escalated further amid mounting worries that last year's astonishing recovery could lose steam, particularly in the matured economies, notwithstanding the ultra-loose monetary policies and the unprecedented fiscal stimulus. Gains in the US dollar accelerated as investors and fund managers fled risky assets and sought refuge in the relative safety of the greenback. The US dollar rose to an eight-month high against the euro. The dollar gained amid discouraging signals in several European countries as well as a mixed US jobs report for January.
The cost to protect against a default on European sovereign debt exceeded that of US investment-grade companies for the first time. Bond prices rose, pushing the yields down, amid heightened fears about the fiscal stability of Greece, Spain and Portugal. The dollar’s climb reduced the appeal of commodities as an alternative investment. Crude oil tumbled to a seven-week low as the dollar surged on speculation that European efforts to reduce deficits will curb growth in that region. Crude oil futures posted their worst loss in six months on Feb. 4.
Asian currencies dropped for a fourth week, the longest run of losses since June, as concern that some European nations will struggle to contain and finance budget deficits eroded demand for emerging-market assets. The MSCI Asia-Pacific Index of regional shares slumped to a 10-week low. Emerging-market equity funds lost US$1.6bn in the week ended Feb. 3, the biggest outflow in 24 weeks, according to US-based research company EPFR Global.
The Dow Jones Industrial Average fell below 10,000 level for the first time since Nov. 6. The blue chip US benchmark recovered on the last trading day, albeit marginally, to end above the key level. All the three major US indexes touched three-month lows before recovering on Friday. A three-session rout had sent the US market to its lowest point since last fall. European stocks suffered the biggest weekly slump in 11 months. The Dow Jones Stoxx 600 Index retreated extended the measure’s fourth straight weekly decline to 3.9%.
Disinvestment in doldrums...NTPC FPO draws poor response
The Government's big bang disinvestment plans to curb spiraling fiscal deficit kicked off on a sour note with the NTPC follow-on-offering (FPO) failing to generate enough interest amid a carnage in global stocks. Several reasons were being speculated for the dismal performance of the NTPC issue, including low fees paid to the merchant bankers by the Government. But, chief among those reasons was said to be the high bid placed by state-run institutions - LIC and SBI. According to reports, the high bids quoted by LIC and SBI in the first ever French auction for a public issue in India managed to drive away potential investors of all categories.
The Rs83bn NTPC FPO managed to scrape through and was fully subscribed primarily due to the support from public sector banks and insurance monolith LIC. The issue was subscribed only 1.2 times. It received a little over 100,000 applications from the retail investors. It received bids for 49.36 crore shares against the 41.2 crore shares on offer. NTPC owns the country’s 20% power generation capacity.
While the QIB portion was fully subscribed the response from the Retail investors and HNIs was highly disappointing. Retail investors did not see much opportunity in the NTPC issue as the floor price of Rs 201 was not much higher than the current market price. The duration of the issue saw the scrip run up from Rs 205 to a high of Rs 211.65 and fall 3.4% since then.
The big worry is that the forthcoming public issues of Rural Electrification Corporation (REC) and NMDC could also suffer the similar fate, especially if the market sentiment doesn't improve materially. REC is set to open on February 19 while NMDC issue will open on March 10. What's worse, both these issues are also going to be done under the French auction route. These two issues are expected to raise a combined Rs185bn. Meanwhile, in another setback to the Government's efforts in curtailing the fiscal deficit, the Power Ministry has decided to postpone the IPO of Satluj Jal Vidyut Nigam Ltd. The issue is unlikely to hit the markets in the current fiscal years, according to reports.
Meanwhile, several smaller IPOs that preceded the NTPC FPO also saw lukewarm retail participation. In some of these, the institutional investor portion was also low. Non-institutional investors helped these issues to sail through. Of the six IPOs in the last one week, only DB Realty (issue size: Rs12.88bn) did well. The others just about managed to get fully subscribed.
NTPC to add 4150 MW in 2010-11
Gujarat plans to raise US$648mn from GSPC IPO: reports
Fitch reiterates warning on India's fiscal deficit
Bond yields inch up on borrowing worries
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