Small-cap, mid-cap indices survive market slide

Key benchmark indices edged lower as a glut in share sales by Indian firms may suck liquidity from the secondary market. Investors took some profits off the table after a recent sharp surge in share prices triggered by huge foreign fund inflows. Intraday volatility was immense. Index heavyweight Reliance Industries (RIL) led the decline as the Supreme Court began hearing arguments on gas tussle with Reliance Natural Resources (RNRL). The BSE 30-share Sensex fell 103 points or 0.59%, off close to 135 points from the day's high and up about 35 points from the day's low.

As per provisional data, foreign funds today, 20 October 2009, bought equities worth a net Rs 275.89 crore. Domestic funds offloaded stocks worth a net Rs 140.80 crore

Capital goods and telecom stocks fell. But, realty and metal stocks rose. The market breadth was negative in contrast to a strong breadth earlier in the day.

The market was volatile. The market surged in early trade as the government's decision to sale stake in two state-run power firms indicated a resolve to speed up reforms. The S&P CNX Nifty hit its highest level in more than 17 months in early trade. The market regained positive territory after slipping into the red for a brief period in morning trade. The market pared gains in choppy trade later. The market weakened again in mid-afternoon trade on lower European stocks.

A solid rebound was witnessed at about 14:40 IST when the Sensex moved into green from red. A sharp fall was witnessed soon after the intraday recovery with the Sensex hitting a fresh intraday low in late trade. The market cut losses at the fag end of the trading session.

The supply of paper by Indian firms appear limitless, raising concerns that additional share sales will suck liquidity from the secondary market. As per reports, Indian firms have garnered about $9 billion (Rs 32,400 crore at the current exchange rates) through sale of shares and convertible bonds to institutional buyers since April 2009. Indian companies are taking advantage of a surge in liquidity to recapitalize and fund capital expenditure after being starved of cash last year.

Most of these companies - from industries ranging from liquor and spirits to infotech - issued equity shares to a select group of investors by way of qualified institutional placement or QIP. If the enabling resolutions passed by the companies are any indication, Indian firms are gearing up to raise $15 billion (Rs 69,427 crore) in the next six months. The list includes Hindalco (Rs 2,900 crore), JSW Steel ($1 billion), India Cements ($100 million), Essar Oil ($2 billion), Tata Steel (Rs 5,000 crore), Jet Airways ($ 400 million) and Bharat Forge ($150 million),

Unlisted Reliance Infratel announced on 22 September 2009 its intention to raise Rs 5,000 crore from the primary market. Divestment of state-run firms by the government may also increase the supply of paper in the market.

The government on Monday approved stake sales in state-run power producer NTPC and another unlisted power firm Satluj Jal Vidyut Nigam which reflects the country's resolve to speed up reforms and raise more resources for social schemes. On Monday, Trade Minister Anand Sharma said the Union Cabinet had approved a 5% stake sale in NTPC, and 10% in, an unlisted power producer. On Friday, 16 October 2009, Prime Minister Manmohan Singh said many state-run firms are eager to list their shares in the stock market as it would help unlock their value.

Singh said on Tuesday the Indian economy will expand at 6-6.5 %in the year to March 2010, despite uncertainty whether signs of a global recovery will lead to a return to a sustained growth path. Singh also said the drought in the country, the worst in decades, had further hit the poorest sections of its people.

Meanwhile, the Union Cabinet has approved a plan to release the key wholesale inflation number every month rather than on a weekly basis to improve the measurement of price movements. The new wholesale price index with 2004 as the base year will debut on 14 November 2009, Commerce Minister Anand Sharma said on Monday. The base year used for the current weekly index is 1993.

Faster industrial output growth and rising inflationary pressures have strengthened case for an end to the RBI's accommodative monetary stance next year. Industrial output grew at its fastest pace in 22 months in August at 10.4 %.

The RBI pumped in massive liquidity in the banking system in the past one year or so to help revive the domestic economy in the aftermath of the global financial crisis. While as exit from the loose monetary policy is imminent, speculation on the bourses is the timing of the exit policy. The RBI is expected to keep its benchmark lending and borrowing rates on hold at a quarterly monetary policy review on 27 October 2009.

Stock and sector-specific activity may dominate trade in the coming days based on expectations on Q2 September 2009 results. Auto firms are seen reporting strong Q2 results on strong volume growth and on lower input costs. Lower interest rates and pay hike for government employees has boosted auto sales this year after last year's slowdown in demand. Government employees have started receiving the balance 60% of their wage arrears as per the recommendations of the VIth Pay Commission.

Cement firms, too, are seen reporting good Q2 numbers on the back of volume growth, higher realisation and decline in costs like imported coal. Metal firms are seen reporting fall in net profit due to a sharp fall in metal prices on year-on-year basis.

Fall in volumes in the commercial property segment and lower realisations in both commercial and residential property segments, will pull earnings of realty firms lower.

Banks are seen reporting a sedate growth in core lending amid sluggish credit offtake. On the flip side, PSU banks will benefit from treasury gains amid volatility in prices of government securities during the quarter.

Strong growth in new subscriber additions will aid topline growth of telecom firms. But falling average revenue per user (ARPU) and revenue per minute due to intense competition will cap bottom line growth.

The aggregate net profit of 196 companies which have announced results so far, rose 22.5% to Rs 8242 crore on 6.9% rise in sales to Rs 51671 crore in Q2 September 2009 over Q2 September 2008.

European shares rose in a volatile trade on earnings optimism. Key benchmark indices in France, Germany and UK were up by between 0.14% to 0.39%.

Earlier in the day Asian stocks rose after reassuring earnings reports in the US from Apple and Texas Instruments on Monday. Key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.03% to 1.52%. Bu, Singapore's Straits Times fell 0.02%.

China's economy is growing faster with every month and its overall recovery is improving, Vice Premier Li Keqiang was quoted as saying on Tuesday. The comments by Li, reported by the official Xinhua news agency, were among the most optimistic by Chinese officials since the economy began to bounce back from the global financial crisis.

Trading in US index futures indicated the Dow could rise 33 points at the opening bell on Tuesday, 20 October 2009.

US markets rallied to new 2009 highs on Monday, 19 October 2009, on earnings optimism. The S&P 500 closed just shy of the 1,100 mark. The Dow added 96.28, points or 1%, to 10,092.19. The S&P 500 index rose 10.23 points, or 0.9%, to 1,097.91. The Nasdaq Composite Index rose 19.52 points, or 0.9%, to 2,176.32.

In important earnings from the US, tech major Apple's profit and sales beat analysts' forecasts. The company reported fourth quarter earnings at nearly 2 dollars a share, up from little over a dollar per share in the same period last year. This was above analyst estimates of around 1.4 dollars per share. Texas Instruments, a maker of microchips for phones and other uses, provided stronger-than-forecast earnings guidance.

Federal Reserve Chairman Ben Bernanke warned on Monday that Asian export-promotion policies and large US budget deficits could refuel global economic imbalances and put efforts to achieve more durable growth at risk if not curbed. Throwing his weight behind a recent call by leaders of the Group of 20 major powers to rebalance the global economy in the wake of a devastating financial shock, Bernanke said Asian nations like China that enjoy large trade surpluses should discourage excess saving and boost consumption.

At the same time, he said the United States needed to increase its saving and "substantially reduce federal deficits over time."

Hedge funds attracted $1.1 billion from investors in the third quarter ended September 2009, ending a one-year streak of net withdrawals, according to Hedge Fund Research Inc. More than two-thirds of hedge funds experienced inflows in the quarter. Funds with assets of more than $5 billion experienced outflows while those with less than $500 million attracted money in the quarter.

Meanwhile, hedge fund manager Galleon Group's founder Raj Rajaratnam was arrested Friday, 16 October 2009, on charges of insider trading. Galleon Hedge Fund, which currently has assets under management of about $3.7 billion, has a 7% stake in broking firm Edelweiss Capital, 4.6% stake in construction firm Shriram EPC and 0.3% stake in Pipavav Shipyard.

Rajaratnam's lawyer has insisted his client isn't guilty of the charges. But investors in the group's funds could follow the lead of Rochdale Investment Management, which said Monday it was liquidating its stake in the Galleon Diversified fund. If enough investors left Galleon, managers at the firm could be forced to sell shares of companies it owns in order to meet those redemptions. Galleon could also seek to prevent investors from redeeming money immediately.

Galleon's troubles already had an impact Monday in Sri Lanka, where Rajaratnam was born and is a citizen--he is also a citizen of the US. That market's benchmark lost as much as 3% early Monday, and ended down 1.6% for the day.

Emerging-market equity fund inflows surged in the second week of October 2009 on optimism improving US earnings and China's trade figures signal increased demand for commodities, fund tracker EPFR Global said on Friday, 16 October 2009. Heavy inflows were seen in funds specialized in BRIC countries -- Brazil, Russia, India and China. Asia ex-Japan funds received $823 million in the week ended 14 October 2009.

The BSE 30-share Sensex lost 103 points or 0.59% to 17,223.01. The Sensex rose 131.25 points at the day's high of 17,457.26 in early trade. The barometer index fell 140.97 points at the day's low of 17,185.04 in late trade.

The S&P CNX Nifty fell 27.35 points or 0.53% to 5,114.45. It hit a high of 5,181.95 in early trade, its highest since 6 May 2008. Nifty October 2009 futures were at 5,107, at a discount of 7.45 points as compared to the spot closing of 5,114.45. Turnover in NSE's futures & options (F&O) segment surged to Rs 74,134.92 crore from Rs 56,190.92 crore on Friday, 16 October 2009.

BSE clocked a turnover of Rs 5328 crore, lower than Rs 6237 crore on Friday, 16 October 2009.

The market breadth, indicating the overall health of the market turned negative. Breadth was strong in early trade. On BSE, 1315 shares advanced as compared with 1466 that declined. A total of 52 shares remained unchanged.

Among the 30-member Sensex pack, 18 fell while the rest rose.

With foreign funds making heavy purchases, the Sensex is up 7,575.70 points or 78.52% in calendar year 2009 as on 20 October 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 9062.61 points or 111.05% as on 20 October 2009. FII inflow in the calendar year 2009 totaled Rs 66,706.30 crore (till 16 October 2009).

Coming back to today's trade, the BSE Mid-Cap index rose 0.06% and the BSE Small-Cap index rose 0.16%. Both the indices outperformed the Sensex.

Sectoral indices on BSE displayed mixed trend. The BSE Realty index (up 0.9%), the BSE Metal index (up 0.81%), the BSE IT index (up 0.34%), the BSE Auto index (up 0.2%), the BSE PSU index (down 0.36%), the BSE FMCG index (down 0.36%), the BSE Bankex (down 0.37%), the BSE Teck index (down 0.41%), outperformed the Sensex.

The BSE Oil & Gas index (down 1.7%), the BSE Consumer Durables index (down 1.5%), the BSE Capital Goods index (down 1.21%), the BSE Healthcare index (down 0.71%), the BSE Power index (down 0.69%), underperformed the Sensex.

Index heavyweight Reliance Industries (RIL) fell 1.84% to Rs 2,183.65. It came off a day's high of Rs 2240.30. Supreme Court, which on Tuesday began a hearing in the high-profile gas supply dispute between Reliance Industries and Reliance Natural Resources, will continue to hear the case on Wednesday, a lawyer for one of the firms said on Tuesday.

This is the first hearing on the case after Anil Ambani offered to make peace with Mukesh Ambani. The younger brother had earlier accused the Ministry of Petroleum and Natural Gas of siding with Mukesh.

RIL had first moved the apex court, challenging the decision of the Bombay High Court delivered on 15 June 2009 and which had asked RIL to provide 28 million metric standard cubic metres per day (mmscmd) of gas to RNRL at a price of $2.34 per million British thermal unit (mBtu). The government had also moved a special leave petition in the case, asserting its right on pricing and distribution of natural gas. RNRL argued that the government has no role to play either in the utilisation or the fixation of gas price on its contract with RIL. However, RIL has contended that it was only a contractor for the gas from the KG-D6 block and did not have the power to fix the price.

PSU OMCs rose as a stronger rupee has partly negated the effect of the rally in crude prices. BPCL, HPCL and Indian Oil Corporation (IOC) rose by between 0.02% to 1.81%. Higher crude oil prices normally result in increase in under recoveries for PSU OMCs on domestic sale of petrol, diesel, kerosene and LPG at controlled prices. The rupee has surged in the past few days against the dollar. It is currently hovering near one year high against the dollar.

US crude futures rose more than half a percent on Tuesday to a one-year high of $80.05 a barrel on a weak dollar and firm US stock markets.

Realty stocks rose on recent reports that demand for residential projects in major cities is picking up on lower home loan rates, property price cuts by developers and a recovery in the job market. Realty market had slumped last year amid a global credit crunch and buyers fearing job losses. Anant Raj Industries, DLF, Housing Development & Infrastructure rose by between 0.33% to 1.6%.

Unitech rose 1.77% after the Cabinet Committee on Economic Affairs (CCEA) on Monday approved Norway-based Telenor's proposal to hike stake in Unitech Wireless, its telecom venture with Unitech, to 74%.

Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange, rose 3.16% on Monday. Hindalco Industries, National Aluminum Company, Hindustan Zinc rose by between 0.43% to 4.74%.

Steel Authority of India (Sail) rose 4.03% on renewed market talk the government is considering a stake sale in the state-run firm. The government holds 85.82% % stake in Sail.

But, India's largest copper maker by sales Sterlite Industries fell 1.15%. The company, last week, raised $500 million in convertible senior notes and plans to use the proceeds primarily for expansion of its copper business. The notes are convertible into American depositary shares at $23.33 per share.

India's largest engineering and construction firm by sales Larsen & Toubro fell 1.02%. Strong project execution is seen driving growth in L&T's top line and bottom line in Q2 September 2009. A total of five brokerages expect a between 19% to 42.3% growth in L&T's net profit at between 546.30 crore to Rs 654.70 crore in Q2 September 2009 over Q2 September 2008. L&T unveils Q2 September 2009 results on Thursday, 22 October 2009

India's largest power maker by sales Bharat Heavy Electricals fell 1.3%. The government, last week, ruled out any immediate plan to disinvest its stake in the power equipment maker. The government owns 67% stake in Bhel.

Among other capital goods stocks, ABB, Praj Industries, BEML, Siemens, Punj Lloyd, fell by between 0.61% to 2.08%.

India's largest thermal power generator by sales NTPC rose 1.01% after Union Cabinet approved a 5% stake sale in the firm by the government.

Among other power stocks, Torrent Power, Reliance Infrastructure, GVK Power & Infrastructure rose by between 0.22% to 3.76%.

Telecom stocks fell. India's second largest mobile services provider by sales Reliance Communications (RCom) fell 2.85%. Anil Ambani chairman of RCom on Thursday, 15 October 2009, alleged there was a 'vicious and malafide' campaign against his telecom company Reliance Communications by a 'known rival group' and dubbed the special audit report, which claimed that RCom was mis-stating its revenues as 'biased and prejudiced'. But the auditor, Parekh & Co defended its work and also denied a claim by Mr Ambani that it had not sought feedback from RCom.

India's largest mobile services provider by market share Bharti Airtel fell 1.31%.

Bank stocks fell on profit taking after recent strong gains. India's largest private sector bank by net profit ICICI Bank fell 0.44% even as its ADR rose 1.8% on Monday. The bank recently reduced auto loan rates by 50 basis points.

India's second largest private sector bank by net profit HDFC Bank fell 0.92% even as its ADR rose 1.65% on Monday. The bank's net profit rose 30.2% to Rs 687.46 crore in Q2 September 2009 over Q2 September 2008. The results, which hit the market last week, were more or less in line with market expectations.

But, India's largest bank by branch network State Bank of India rose 0.12%.

The central bank will reportedly hike the ceiling on the portion of government securities that banks can park in held-to-maturity (HTM) category. Banks do not have to make any mark-to-market provisions on securities held this basket if prices of securities fall. Provisions have to be made out of profit and therefore, impact a bank's bottom line. Yields on ten-year government bonds have risen sharply this year. Bond prices and bond yields are inversely related.

Indian banks can put bonds equal to 25% of the value of deposits in their HTM accounts. The market expectations is for an increase in the ceiling by up to 2 percentage points, possibly at a quarterly monetary policy review on 27 October 2009.

India's largest dedicated housing finance firm HDFC fell 1.15%. HDFC, last week, announced its net profit rose 24.27% to Rs 663.94 crore in Q2 September 2009 over Q2 September 2008. The results beat market expectations.

Jaiprakash Associates rose 2.04% to Rs 265.15 ahead of its Q2 results on Wednesday, 21 October 2009. Strong order book and higher cement realization are seen driving growth at construction and cement firm Jaiprakash Associates (JAL) in Q2 September 2009. A total of 6 brokerages expect a between a 4.7% fall to a 21.7% growth in JAL's net profit at between Rs 193.50 crore to Rs 247.20 crore in Q2 September 2009 over Q2 September 2008. Their expectations peg a between 64.4% to 83.6% growth in revenue at between 1944.80 crore to Rs 2170.80 crore in Q2 September 2009 over Q2 September 2008.

Reliance Infrastructure rose 0.38% after company announced today it had won an order worth Rs 590 crore.

Auto stocks rose on expectation of strong Q2 September 2009 results. India's largest motor bike maker by sales Hero Honda Motors rose 0.59%. Hero Honda is seen reporting robust Q2 results on the back of higher volumes and surge in profit margins due to fall in input costs. A total of nine brokerages expect a between 59.1% to 83.1% growth in Hero Honda's net profit at between Rs 487.20 crore to Rs 560.70 crore in Q2 September 2009 over Q2 September 2008. The company unveils Q2 results on Wednesday, 21 October 2009.

India's top small car maker by sales Maruti Suzuki India rose 1.65%. The company's total sales rose 17.3% to 83,306 vehicles in September 2009 over September 2008. The figures were released during trading hours on 1 October 2009.

India's largest truck maker by sales Tata Motors rose 0.36%. Tata Motors is planning to ramp up production of its Nano, billed as the world's cheapest car, by a fifth this month, Rajiv Dube, head of the company's passenger car business said last week. The company said during market hours on 16 October 2009 said it has raised $750 million through an issue of global depositary receipts (GDRs) and convertible bonds. The company said it will use the funds to repay debt taken for acquisition of Jaguar Land Rover (JLR).

Bajaj Auto rose 0.54%. Bajaj Auto's net profit jumped 117.85% to Rs 402.83 crore in Q2 September 2009 over Q2 September 2008. The company announced the Q2 results during trading hours on Thursday, 15 October 2009.

But, India's largest tractor maker by sales Mahindra & Mahindra fell 3% on profit taking after recent surge. Total sales rose 10.94% to 28434 vehicles in September 2009 over September 2008. The company unveiled the sales figures during trading hours on 1 October 2009.

Total domestic automobile sales in the country in the first half of the financial year 2009-10 rose by 14.51% year-on-year to 57,82,920 units, according to automobile sales figures released by the Society of Indian Automobile Manufacturers (Siam). The jump in sales for the April-September period came from the double-digit growth posted by the passenger vehicle segment (comprising cars and sports utility vehicles) which grew by 13.46%, by the 15.68% spurt in two-wheeler sales and by an increase of 12.37% in sales of three-wheelers.

FMCG stocks fell on profit taking. Hindustan Unilever, ITC, Tata Tea, Nestle India, REI Agro fell by between 0.02% to 1.75%.

Ultratech Cement fell 1.83% extending Friday's fall after the company issued a cautious outlook at the time of announcing Q2 results on Friday, 16 October 2009. Net profit jumped 53% to Rs 251 crore in Q2 September 2009 over Q2 September 2008.

UltraTech said the performance was affected on a sequential basis due to lower demand in Southern India. The net profit dropped 39.94% to Rs 250.90 crore in Q2 September 2009 over Q1 June 2009.

The company said the cement demand may grow 9% in the year ending March 2010 on the back of government's initiative to boost rural development, infrastructure and housing. It, however, said new capacities which at various stages of implementation will result in pressure on margins.

The company said its focus on higher volume growth, captive power generation and capital productivity will help offset the impact of lower prices on margins.

Among other cement stocks, ACC, Grasim Industries, Birla Corporation and Ambuja Cements, fell by between 0.36% to 1.82%.

IT stocks rose after US tech major Apple reported better-than-expected results on Monday. India's third largest software services exporter Wipro rose 1.88% as its ADR rose 2.51% on Monday.

India's largest software services exporter TCS rose 2.09% after the company after market hours on Friday, 16 October 2009, reported stronger-than-expected Q2 September 2009 results. Consolidated net profit as per US accounting standards rose 6.81% to Rs 1623.90 crore on 3.16% growth in revenue to Rs 7435.10 crore in Q2 September 2009 over Q1 June 2009.

TCS has a good business pipeline and is pursuing 20 to 25 large outsourcing deals, chief executive N. Chandrasekaran said. The management is seeing signs of recovery but it believes it will be slow. The discretionary spent is still tight but there is spent seen in banking, finance services and insurance (BFSI), retail, utility and pharma verticals, TCS said at a conference call after the results. However, a continuous improvement in volumes cannot be expected, it said. The company is seeing stability in demand environment. The management expects to maintain margins at current levels provided there is no adverse rupee movement.

But, IT bellwether Infosys Technologies fell, 0.36%. Infosys raised its earnings and revenue guidance in both dollar and rupee terms for the year ending March 2010 (FY 2010) at the time of announcing Q2 September 2009 results before trading hour on 9 October 2009.

Infosys, however, said strengthening rupee is a big concern for its earnings. A stronger rupee negatively impacts operating margins of IT firms as the sector earns a lion's share of revenue from exports. The rupee is hovering near its highest level in more than a year.

Sugar stocks rose on firm global sugar prices. Bajaj Hindustan, Balrampur Chini, Shree Renuka Sugars and Dhampur Sugars rose by between 3.23% to 8.25%.

Cals Refineries clocked highest volume of 9.94 crore shares on BSE. Reliance Natural Resources (1.5 crore shares), Ispat Industries (0.99 crore shares), GVK Power & Infrastructure (0.96 crore shares) and Unitech (0.88 crore shares) were the other volume toppers in that order.

DLF clocked highest turnover of Rs 161.91 crore on BSE. State Bank of India (Rs 137.43 crore), Reliance Industries (Rs 134.26 crore), Reliance Natural Resources (Rs 132.47 crore) and Educomp Solutions (Rs 130.29 crore) were the other turnover toppers in that order.