Sensex at 3-year closing low; RIL tumbles

A surprise cut in policy rates by the Reserve Bank of India (RBI) failed to lift spirits on the bourses with the Sensex tumbling to 3-year closing low. Sustained selling by foreign funds, weak rupee and weak European markets weighed on the sentiment. Bond prices gave up initial gains which also weighed on equities. The BSE 30-share Sensex was down 248.57 points, or 2.94%, off close to 340 points from the day's high.

Index heavyweight Reliance Industries (RIL) led the decline. FMCG, banking and capital goods stocks also declined.

After opening on a positive note on higher Asian stocks and the Reserve Bank of India's latest effort to boost liquidity, the market soon slipped into red as sustained selling by foreign funds and a weak rupee weighed on the sentiment. A sharp slide was witnessed in morning trade as some Asian markets came off the day's peak as there was no announcement of an additional stimulus package by China which the investors were expecting.

The market extended losses in early afternoon trade. It came off the day's low in afternoon trade. The market tanked to the fresh day's low in mid-afternoon trade as European shares dropped in early trade. A bout of volatility was witnessed in the last 40 minutes of trade as day trades squared positions.

Heavy selling by foreign funds has dampened investor sentiment. FII outflow in February 2009 totaled Rs 2707 crore. FII outflow in calendar year 2009 totaled Rs 8519.30 crore (till 4 March 2009). Globally, investors are pulling out money from hedge funds, forcing hedge fund managers to dump assets. At the same time, global banks and insurers are selling assets after amassing $1.2 trillion of credit losses and writedowns since the start of 2007. More recently, fears have intensified about the exposure of Western European banks and companies to deteriorating economic conditions in Eastern Europe.

Domestic institutional investors (DIIs) have been absorbing selling by foreign funds. Yet, at a time of sustained selling by foreign funds, a recovery or stability of the rupee is vital. A weak rupee will dissuade foreign funds from making aggressive buying of Indian shares.

The Instanex FII Index fell 2.83% to 184.20, its lowest level since 28 October 2005, marginally outperforming the Instanex DII 15 Portfolio which was down 2.97%. The Instanex FII Index tracks the price performance of the portfolio of listed Indian equity shares owned by FIIs. Instanex DII 15 Portfolio tracks the price performance of the portfolio of listed Indian equity shares owned by DIIs.

The rupee's recent sharp slide, meanwhile, has added to the woes of those Indian firms which have borrowed overseas. The slide in the rupee will increase in the cost of servicing overseas debt to the extent of the rupee's slide unless the company (which has overseas borrowings) has adopted an effective hedging strategy.

The Reserve Bank of India (RBI) after the market hours on 4 March 2009, announced cut in repo rate and reverse repo rate by 50 basis points each, with immediate effect. It is expected that the reduction in the policy interest rates will further encourage banks to provide credit for productive purposes at viable interest rates, RBI said in a release. RBI said it will continue to maintain ample liquidity in the system.

Meanwhile, the wholesale price index rose 3.03% in the 12 months to 21 February 2009 below the previous week's annual rise of 3.36% government data showed on Thursday.

According to a domestic brokerage, the latest RBI rate cut will set the ball rolling for lower interest rates in the economy and increase credit flow to individuals and the corporate sector. The latest rate cut brings the reverse repo to 3.5%, identical to the rate at which banks mobilize savings deposits. The lower repo rate in turn could dissuade banks from parking surplus funds with the RBI and increase lending, it notes. Banks have been parking large sums of money with RBI through the repo window.

European shares fell in early trade on Thursday ahead of interest rate decisions in Britain and the euro zone. The key benchmark indices in France, Germany and UK were down by between 1.99% to 2.52%. The European Central Bank and the Bank of England are holding policy meeting today.

The Bank of England may cut its benchmark interest rate by a half percentage point to 0.5% while European Central Bank will probably cut its rate by a half-point to 1.5%.

Asian stocks were mixed after China's Premier Wen Jiabao pledged to significantly increase investment in the world's third-largest economy and said 8% growth target for this year is within reach. Key benchmark indices in China, Japan and Taiwan rose by between 0.89% to 2.11%. But key benchmark indices in Hong Kong South Korea and Singapore fell by between 0.1% to 1.66%.

Trading in US index futures indicated the Dow could fall 87 points at the opening bell. Earlier, the futures were mildly higher.

US markets rebounded off 12-year lows on Wednesday after the Obama administration launched its mortgage-rescue plan to stem mortgage defaults. The market shrugged off a bleak beige-book report. According to the Fed's beige book, the Fed does not expect a significant economic recovery until late 2009 or early 2010. The Dow Jones industrial average gained 149.82 points, or 2.2%, to 6,875.84. The S&P 500 index rose 16.54 points, or 2.4%, to 712.87.

The BSE 30-share Sensex was down 248.57 points, or 2.94%, to 8,197.92, its lowest closing since 2 November 2005. At the day's low of 8,166.97, the Sensex lost 279.52 points in mid-afternoon trade. At the day's high of 8,535.03 Sensex rose 88.54 points in early trade.

The S&P CNX Nifty was down 68.50 points, or 2.59%, to 2,576.70, its lowest closing since 20 November 2008.

The Sensex is down 1,449.39 points or 15.02% in calendar 2009 from its close of 9,647.31 on 31 December 2008. The S&P CNX Nifty is down 382.45 points or 12.92% in calendar 2009 from its close of 2,959.15 on 31 December 2008. The Instanex FII Index has fallen 16.56% in 2009 so far.

The BSE clocked a turnover of Rs 3416 crore, higher than Rs 2868.60 crore on Thursday, 4 March 2008.

Nifty March 2009 futures were at 2558, at a discount of 18.70 points as compared to the spot closing of 2576.70. Turnover in NSE's futures & options (F&O) segment increased Rs 46,285.97 crore from Rs 40,624.43 crore on Wednesday, 4 March 2009.

The market breadth, indicating the overall health of the market turned weak in contrast to a strong breadth earlier in the day. On BSE, 715 shares advanced as compared with 1,703 that declined. A total of 69 shares remained unchanged.

The BSE Mid-Cap index (down 1.71%) and BSE Small-Cap index (down 1.81%) outperformed the Sensex.

The BSE Consumer Durables index (up 0.52%), the BSE Realty index (down 0.84%), the BSE IT index (down 1.07%), the BSE Auto index (down 1.07%), the BSE TECk index (down 1.41%), the BSE Healthcare index (down 1.56%), the BSE Metal index (down 1.77%), the BSE PSU index (down 2%), the BSE Capital Goods index (down 2.63%), outperformed the Sensex.

The BSE Bankex (down 4.15%), the BSE Oil & Gas index (down 3.71%), the BSE Power index (down 3.26%), the BSE FMCG index (down 3.26%), underperfomed the Sensex.

From the 30 share Sensex pack, 25 stocks fell while rest gained.

India's largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) fell 5% to Rs 1,149.10 after combined crude processing at its two export-focused plants at Jamnagar in Gujarat dived 12.1% to 6,68,450 barrels per day (bpd) in January 2009 over January 2008. Reliance commissioned its new 5,80,000 bpd plant in December 2008, turning Jamnagar into the world's biggest refining complex with capacity of 1.24 million bpd.

The board of Reliance Industries on Monday, 2 March 2009, approved the absorption of its unit Reliance Petroleum (RPL) and set a share swap ratio giving it direct control of the world's largest refinery complex. Reliance Industries said it would issue one share for every 16 held in RPL, which runs a refinery.

India's largest oil exploration firm by sales Oil & Natural Gas Corporation fell 1.9% after foreign brokerage Goldman Sachs said the government took $20 billion cash from the company without consulting minority shareholders.

Banking stocks extended recent sharp slide as fears of rising defaults in weakening economy offset hopes a further fall in interest rates may boost lending growth and gains in American Depository Receipts (ADRs) overnight. India's largest private sector bank by net profit ICICI Bank fell 5.17%. Its American Depository Receipts (ADR) rose 4.04% on Wednesday, 4 March 2009. India's second largest private sector bank by operating income HDFC Bank slipped 4.54%. Its ADR rose 3.86% overnight.

India's largest bank in terms of assets and branch network State Bank of India fell 2.4%. The bank has reduced deposit rates by 40 to 50 basis points across maturities. The new rates would be effective from 9 March 2009.

Despite a steep cut in policy rates by Reserve Bank of India (RBI) since October 2008, there has not been a commensurate reduction in lending rates by banks as fears of rising bad loans have made them cautious in increasing advances/lending. One reason why banks have not fully passed on the central bank rate cuts to customers is because higher bond yields are pushing up their funding costs. Bond yields and bond prices are inversely related.

Between 19 December 2008 and 13 February 2009, commercial banks lent only Rs 8091 crore to firms, one-tenth of the Rs 86978 crore lent in the same period a year earlier, as per the latest RBI data.

Nonetheless, lower interest rate have helped automobile sales rebound in the past few months. The stimulus packages announced by the government since December 2008 has started having some positive impact.

Meanwhile, bond yields recouped most of the initial losses triggered by the surprise RBI rate cut. The benchmark 10-year bond yield fell to an intraday low of 6.23%, but pared the fall to 6.42%, two basis points below Wednesday's close. The yields pulled back as investors positioned themselves for a $2.3 billion bond sale on Friday, 6 March 2009. A record government borrowing programme for the year staring 1 April 2009 is weighing on bond prices.

India's largest FMCG major by sales Hindustan Unilever slumped 4.5% after foreign brokerage JPMorgan Chase & Company cut its rating on the stock to 'underweight' from 'neutral', citing weakening growth and increasing competition. Other FMCG stocks, REI Agro, Britannia Industries, ITC, Tata Tea, Nestle India, fell by between 0.35% to 4.92%.

But Marico rose 1.29% as one of the promoters increased his stake in the company.

Capital goods stocks fell on worries a slowing economy will crimp orders. ABB, Larsen & Toubro, Bharat Heavy Electricals, Praj Industries, Thermax, Punj Lloyd fell by between 0.13% to 5.18%.

Rate sensitive realty stocks dropped on reports falling interest rates have failed to revive housing demand .DLF, Indiabulls Real Estate and Unitech fell by between 0.17% to 5.04%. Most of the realty deals including sale of commercial property and housing sales is driven by finance.

Outsourcing focussed IT firms edged higher on a weaker rupee. India's third largest software services exporter Wipro rose 0.19%. Its ADR gained 7.09% on Wednesday. India's largest software services exporter by sales TCS rose 0.42%.

But India's second largest software services exporter Infosys Technologies fell 1.26% after its Chief Financial Officer V. Balakrishnan said in an interview to a news agency that the company is seeing a slowdown in getting new outsorcing contracts even though are no large-scale cancellations. Its ADR had gained 4.33% overnight.

The partially convertible rupee was at 51.77 per dollar, weaker than its previous close 51.53/55. The rupee has declined sharply in the past few days. A weak rupee boosts revenues of IT firms in rupee terms as IT companies earn a lion's share of revenue from exports.

But there have been concerns of cut back in technology spend by global firms amid a recession in the US economy and due to the global financial sector crisis. IT firms derive a lion's share of revenue from exports to US.

India's largest drug maker by sales Ranbaxy Laboratories slumped 9.27% on reports the Australian drug regulator is investigating allegations by US drug regulators that one of Ranbaxy's plants falsified data for drug approvals.

A recent investigation by the US food and drug administration had found that Ranbaxy Laboratories had falsified data and test results of medicines manufactured at its Himachal Pradesh facility in India to obtain marketing approval in the United States.

Other healthcare stocks, Dr Reddy's Laboratories, Pfizer, Biocon, Cipla, Wochardt fell by between 0.14% to 3.27%.

Metal stocks fell on profit taking after recent jump supported by China's plans to boost spending. Hindalco Industries, Steel Authority of India, Tata Steel, Sterlite Industries India fell by between 1.91% to 2.94%. China is the world's largest consumer of a number of industrial commodities. It is the world's biggest consumer of copper.

As per reports, China will boost spending in areas including infrastructure and manufacturing on top of the 4 trillion yuan stimulus package unveiled in November 2008.

Auto shares fell after recent gains due to jump in February 2009 vehicle sales. TVS Motor Company fell 1.71%. Its two wheeler sales rose 13% to 1,07,301 units in February 2009 over February 2008.

India's largest commercial vehicle maker by sales Tata Motors fell 2.66% As per recent reports the company plans to bring the Nano, the world's cheapest car, to Europe by 2011. Tata Motors will begin selling the Rs 1-lakh car Nano in India in April 2009.

Recently, Tata Motors reported improved vehicle sales. Tata Motors' total domestic sales for the month of February 2009 at 42,493 units, were the highest in the last 4 months. Domestic commercial vehicle sales at 23,454 units were the highest since September 2008 and domestic passenger vehicle sale at 19,039 units were was the highest since May 2008. The total domestic sales, however, declined 15% in February 2009 over February 2008.

But, India's largest car maker by sales Maruti Suzuki India fell 1.96%. Maruti during trading hours on Monday 2 February 2009 reported 24.1% rise in sales to 79190 units in February 2009 over February 2008.

India's largest tractor maker by sales Mahindra & Mahindra fell 1%. Recent reports said the company is looking to grow business from the defence sector through global partnerships. Recently, M&M recorded 10.8% growth in total volumes to 29,017 units in February 2009 over February 2008.

But India's largest motorcycle maker by sales Hero Honda Motors rose 0.99%. Hero Honda's sales rose 24% to 3,29,055 units in February 2009 over February 2008.

Tata Power Company tumbled 5.07% on reports the company may face difficulties repaying $850 million debt used to buy stakes in two Indonesian mines as coal prices decline.

Satyam Computer Services clocked the highest volume of 86.88 lakh shares on BSE. Unitech (78.05 lakh shares), ICICI Bank (77.83 lakh shares), Cals Refineries (70.55 lakh shares) and Jaiprakash Associates (68.36 lakh shares) were the other volume toppers in that order.

Reliance Industries clocked the highest turnover of Rs 316.40 crore on BSE. Akruti City (Rs 221.20 crore), ICICI Bank (Rs 216.14 crore), ICICI Bank (Rs 216.14 crore), HDFC (Rs 202.74 crore) and State Bank of India (Rs 162.47 crore) were the other turnover toppers in that order.