Sensex

Friday, September 19, 2008

DG - Why Lehman & Merrill Fell - Must Read

IT all began with the sub-prime crisis.

 

If you lost your money in the market crash of January 2008, here's the route to your loss, in chronological order.

2001-2005: House prices in the US begin to rise rapidly. Banks lend aggressively and create a subprime industry.

Sub-prime lending refers to lending (at slightly higher interest rates) to people who may not be eligible for a loan under normal circumstances. Maybe they don't have a regular job or income, or have defaulted in the past.

Banks traditionally did not lend to such people due to high risk of default. But since these loans were mortgaged against property and property prices were rising continuously, banks started doing so. If customers defaulted, they good sell the mortgaged property.

2005: The booming housing market halted abruptly in many parts of the US.

2006: Prices are flat, home sales fall.

February 2007: Sub-prime industry collapses in the US; more than 25 sub-prime lenders declare bankruptcy, announce significant losses, or put themselves up for sale.

While they were lending, banks did not factor in the possibility of a fall in property prices. When the Federal Bank (the US equivalent of RBI) started increasing interest rates, the sub-prime borrowers started defaulting and banks started selling off the mortgaged properties. As more and more properties came into the market for selling, the property prices fell.

August 2007: Many leading mortgage lenders in the US filed for bankruptcy

March 2008: Bear Sterns falls.

September 2008: Lehman Brothers file for bankruptcy. Merrill Lynch sells off to Bank of America.

Between 2001 and 2006, the US financial markets had developed a new product - a bond securitised against the mortgages.

In simple terms it means that the mortgage banks borrowed money against the mortgages on the condition that they would repay to lenders as soon as they recovered their mortgages. The lenders in this case were financial institutions (like Bear Sterns, Lehman and Merrill Lynch) who in turn sold retail bonds to individuals.

Sadly, the repayment never happened. And institutions like Bear Sterns, Lehman, Merrill Lynch and AIG were the casualties. Since the mortgages were not honoured, the banks could not repay these financial institutions who in turn could not repay retail investors.

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DG - FW: Sharekhan Post-Market Report dated September 19, 2008

 

 

From: The Sharekhan Research Team [mailto:marketwatch@research.sharekhan.com]
Sent: 19 September 2008 16:51
To: The Sharekhan Research Team
Subject: Sharekhan Post-Market Report dated September 19, 2008

 

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September 19, 2008

 

Index Performance

Index

Sensex

Nifty

Open

13,763.83

4,040.80

High

14,097.44

4,262.65

Low

13,674.96

4,040.80

Today's Cls

14,042.32

4,245.25

Prev Cls

13,315.60

4,038.15

Change

726.72

207.10

% Change

5.46

5.13

 

Market Indicators

Top Movers (Group A)

Company

Price 
(Rs)

%
chg

Gainers

Indiabulls Real Estate

224.05

17.00

Indiabulls Financial

216.20

13.79

Reliance Capital

1,272.85

13.27

Akruti City

908.20

11.52

Satyam Computer

370.10

10.48

Losers

Bajaj Holdings

437.35

-2.85

HPCL

234.90

-2.65

Hero Honda Motors

820.95

-1.94

Indian Oil Corporation

396.90

-1.83

IOB

108.65

-1.63

Market Statistics

-

BSE

NSE

Advances

1,888

985

Declines

740

237

Unchanged

72

17

Volume(Nos)

30.45cr

59.05cr

 Market Commentary 

Comeback, and How!

The market rallied sharply, up 726 points, to close marginally above the 14,000 mark due to sharp appreciation in realty and information technology stocks.

After a subdued trend in the last few sessions, the market staged a solid comeback today. The bulls were back in action after closing flat yesterday.  

 

Taking lead from buoyant international markets, the Sensex started the day at 13,764 (448 points above its previous close) on the back of strong buying in heavyweights, realty, information technology, Teck, oil & gas, power and banking stocks. At its day's high of 14,097 by afternoon, the Sensex closed the session 727 points higher at 14,042 and Nifty advanced 207 points to close at 4,245.

The market breadth was highly positive, Of the 2,700 stocks traded on the BSE, where 1,888 stocks advanced only 740 stocks declined. 72 stocks ended unchanged. All the sectoral indices notched up significant gains. BSE Realty index was the biggest gainer and soared 7.59% followed by BSE IT index (up 6.67%), BSE Teck index (up 5.86%), BSE Oil & Gas index (up 5.52%), BSE Power index (up 5.16%), BSE Bankex (up 5.03%) and the BSE CD index (up 4.72%).

Barring few, all the stocks in the Sensex basket ended at higher levels. Satyam Computer Services led the upsurge and flared 10.48% at Rs370.10. Among the other major gainers ICICI Bank surged 9.07% at Rs628.10, HDFC Bank moved up by 8.32% at Rs2308.45 and Tata Power advanced 8.30% at Rs1,027.30. DLF vaulted 7.78% at Rs426.90, ONGC shot up by 7.30% at Rs1072.10, Infosys Technologies added 6.59% at Rs1,623.85 and Tata Consultancy Services rose 6.37% at Rs766. However, HDFC Bank, BHEL, Reliance Industries, Jaiprakash Associates and Reliance Communications ended with gains of over 4-5% each.

Realty stocks were the stars of the day. Ansal Properties & Infrastruture soared 18.36% at Rs89.95, Indiabulls Realestate jumped 17% at Rs224.05, Akruti City added 11.52% at Rs908.20 and Peninsula Land gained 5.65% at Rs50.50.

Over 1.48 crore JP Associates shares changed hands on the BSE followed by Reliance Natural Resources (1.33 crore shares), IFCI (1.27 crore shares), Sesa Goa (1.12 crore shares) and Kohinoor Broadcasting Corporation (0.75 crore shares).

European Indices at 16:15 IST on 19-09-2008

Index

Level

Change (pts)

Change (%)

FTSE 100 Index

5265.30

385.30

7.90

CAC 40 Index

4227.04

269.18

6.80

DAX Index

6126.77

4.49

4.49

Asian Indices at close on 19-09-2008

Index

Level

Change (pts)

Change (%)

Nikkei 225

11920.86

431.56

3.76

Hang Seng Index

19327.73

1695.27

9.61

Kospi Index

1455.78

63.36

4.55

Straits Times Index

2559.07

139.86

5.78

Jakarta Composite Index

1891.72

104.05

5.82

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