A surprise 0.5% hike by the RBI in cash reserve ratio (CRR), and data showing heavy FII sales in the futures segment on Friday (8 December), took a very heavy toll on the market. The domestic bourses bucked the steady-to-firm trend in Asian and European shares.
Bank shares witnessed a setback. Out of the 30 Sensex stocks,16 declined between 3 - 9%, as many as 11 declined between 1% to little less than 3% while three Sensex stocks shed between 0.5% to a little less than 1%.
The BSE Sensex lost 400.06 points (2.9%), to settle at 13,399.43, its lowest closing since 10 November 2006. The last major fall in the Sensex occurred on 11 September 2006, which was for 368 points. The S&P CNX Nifty shed 112.50 points (2.8%), to settle at 3,849.50.
Volatility was high in the second half of the trading session. After a fall of a massive 537.76 points, to 13,261.73 by 12:59 IST, the Sensex had staged an instant recovery from a lower level, to reach 13,463 at 13:21 IST, a fall of about 336 points for the day. However, recovery proved shortlived as the Sensex again drifted to 13,313 by 13:53 IST, a fall of about 486 points for the day. It again recovered to reach 13,497 at 15:07 IST, which was a fall of about 302 points for the day. Once again, sell-off gripped the market at the fag end of the trading session and the Sensex hit 13,300.59 at 15:28 IST, a fall of 498.90 points for the day.
The market remained weak right from the onset of trading today.
The market-breadth was quite weak. For 1,974 shares that declined on BSE, 589 rose. As many as 43 shares were unchanged.
The BSE clocked a turnover of Rs 4,830 crore, much higher than Friday’s Rs 4,148 crore. Turnover on NSE’s futures & options (F&O) segment surged to Rs 41,689 crore compared to Friday (8 December)’s Rs 29,146.38 crore.
All the BSE sectoral indices ended in the red. The biggest loser was BSE’s banking sector index, the Bankex, which tanked 6.4% to 6,749.78.
Finance Minister P Chidambaram, on Monday, said an increase in the cash reserve ratio for banks will moderate credit growth and the government was ready to take further action to curb inflation. In a surprise move, the RBI hiked cash reserve ratio (CRR) by 50 points after trading hours on Friday. The RBI move fuelled expectations of rise in lending and deposit rates by Indian banks. They are likely to take a final view on raising interest rates on loans as well as deposits, by the end of this week, or early next week. Reports suggest that interest rates on home loans are likely to become the first casualty. "Banking scrips will adjust because their profitability is good. The stock market is on a high so no need to worry," Chidambaram opined.
Meanwhile, the data released after trading hours on Friday (8 December) showed FIIs were net sellers to the tune of Rs 1,087 crore in index-based futures on that day. Sensex had lost 173 points on that day. FIIs were net sellers to the tune of about Rs 106 crore in individual stock futures that day. As per provisional data, FIIs were net sellers to the tune of Rs 106 crore in the cash segment the same day.
With today’s fall, the BSE Sensex has shed 572.60 points (4%) in the past two trading sessions, from a record closing high of 13,972.03 on 7 December 2006.
The market was overbought following a solid surge over the past few weeks. The rally did not offer any worthwhile correction; the Sensex had risen 10.6% in a short while to a lifetime closing high of 13,972.03 on 7 December, from 12,623.28 on 23 October. There was a surge in open interest in NSE’s futures & options segment during this rally.
FII buying, on expectations that earnings growth of India Inc will continue, had triggered the solid surge. Latest data indicates Indian economy grew at stronger-than-expected 9.2% in Q2 September 2006, turning the picture even rosier.
In the near term, US Federal Reserve’s decision on US interest rates remains a principal trigger for domestic bourses. US Fed meeting is on Tuesday (12 December), and expectations of interest rates staying unchanged run high. Analysts will closely watch the Fed’s accompanying statement for cues of future rate moves.
A major near term trigger for the market is Q3 December 2006 results. It is expected to be another quarter of strong performance from corporate India.
Meanwhile, good FII allocations are expected for India in the new calendar year 2007.
Expectations that banks will raise lending and deposit rates following RBI’s move to raise CRR, spooked bank scrips. SBI plunged 9% to Rs 1,230, ICICI Bank lost 7% to Rs 814, and HDFC Bank shed 5.3% to Rs 1,027.
Reliance Industries (RIL) lost 3.2% to Rs 1,227. As many as 17.8 lakh shares changed hands in the counter on BSE.
Cellular service providers succumbed to profit-taking. Bharti Airtel shed 4.9% to Rs 602 and Reliance Communications shed 4.6% to Rs 426.70.
Tata Steel 6.7% to Rs 460. The stock recovered from a 9.2% plunge, to Rs 438, at 13:00 IST. Reacting to the CSN bid Tata Steel said Monday, it was considering its position on Corus. Brazil’s CSN today announced a bid at 515 pence per share for Corus. CSN's announcement came close on the heels of Tata Steel raising its offer for Corus to 500 pence per share from the earlier 455 pence per share, today.
Cement major ACC plunged 6.8% to Rs 1,029.50, and NTPC lost 6.5% to Rs 141.65.
Infosys lost 0.6% to Rs 2,182 in volatile trade. As per reports, the company is renewing a few of its contracts at a premium. Meanwhile, the stock has been included in the Nasdaq 100 index.
L&T was down 1.3% to Rs 1,431.50. As per reports, it has bagged a massive Rs 5,400 crore contract from GMR Infrastructure, to design and construct the terminal and run-way at New Delhi airport. Oil exploration major ONGC was down 0.4% to Rs 837.
IVRCL Infrastructures rose 0.3% to Rs 404, after the company said Cushman & Wakefield India had valued land reserves of its subsidiary, IVR Prime Urban Developers, at Rs 3,887.90 crore - Rs 4,297.10 crore. As many as 22.5 lakh shares changed hands in the counter on BSE.
Zee Telefilms plunged 8.7% to Rs 316.45, after rival ESPN-Star, a joint venture of Walt Disney Co and News Corp, won the broadcast rights for International Cricket Council (ICC) matches.
Mid-Day Multimedia rose 1% to Rs 53.15, ahead of a board meeting on Monday afternoon to consider a fund raising plan, which envisages allotment of shares to promoters and an unidentified Indian investor.
Budget airline SpiceJet jumped 8.7% to Rs 58.10, after Tata group on Monday said it had picked up `less than 10% stake' in the company as a purely financial investment. The stock rose on an extremely high volume of 41.8 lakh shares on BSE.
Saurashtra Cement lost 3% to Rs 71. The company said on Monday, it will allot 1.52 million shares at Rs 73 per share as part of its corporate debt restructuring strategy. The shares will be allotted on conversion of 10% of the outstanding loan amount, to lenders and debenture holders.
Cement producer Rain Commodities lost 7.5% to Rs 170.80. The company said on Monday its board had approved raising the foreign funding limit to 49% of the share capital.
Textile firm Suryajyoti Spinning Mills lost 4% to Rs 62. The company said Monday, it expects 2007/08 operating margins at 17-19% and revenue to be more than Rs 250 crore, driven by capacity expansion. The company reported operating margins of 12% on revenue of Rs 140 crore in 2005/06. Suryajyoti said, it had started production of its expanded yarn unit in Andhra Pradesh. The company spent Rs 48 crore on expansion.
Chowgule Steamships lost 6.9% to Rs 26.30. The company said on Monday, it has signed an agreement with Singapore's Skill Navigation Co to buy a used, 47,574 dead weight tonnage vessel built in 1995, which will join the company's fleet by March 2007.
Aftek Infosys shed 4.7% to Rs 50.50. The company set a 123-for-100 share-swap ratio for merger of Elven Micro Circuits, with itself.
Carborundum Universal shed nearly 1% to Rs 170.30. The company said on Friday, it had acquired two industrial units in Madhya Pradesh for Rs 3.20 crore.
Nymex Crude was down, or rather almost unchanged, at $62 a barrel.
Response to Cairn India IPO, which opened for subscription today, improved as the day progressed. By 16:00 IST, the IPO was oversubscribed. It had bids for 34.14 crore shares compared to the issue size of 32.8 crore shares.