Sensex off nearly 3% from recent high

The key benchmark indices drifted lower today on speculation the central bank would tighten monetary policy to help stem rising prices. The yield on the 10-year benchmark bond rose to 7.7%, matching a 13-month high hit on 11 December 2009. The 10-year bond yield had ended at 7.64% on Thursday, 17 December 2009.

The S&P CNX Nifty fell below the psychological 5,000 mark. The BSE Sensex fell 174.42 points or 1.03%, off close to 180 points from the day's high and up close to 25 points from the day's low. Two index heavyweights, Reliance Industries (RIL) and ICICI Bank, slumped. FMCG, banking and realty stocks fell. The market breadth turned weak in contrast to a strong breadth earlier in the day.

Intraday volatility was high. The market cut losses soon after an early slide. The market came off the higher level later. The market recovered from lower level after hitting a fresh intraday low in morning trade. The market slumped, reversing course after moving into positive zone from negative zone for a short while in afternoon trade. The market extended losses in late trade with the Sensex ending at the lowest level of the day.

India VIX, a volatility index based on the S&P CNX Nifty index option prices, declined 2.17% to 26.66. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days

Rumors of a Pakistan coup sparked by a government minister being barred from leaving the country were dismissed on Friday after briefly causing flutters in financial markets. Political tension has risen in Pakistan since the Supreme Court on Wednesday, 16 December 2009, struck down an amnesty that protected President Asif Ali Zardari, several of his ministers and thousands of others from corruption charges. A spokesman for Pakistan President denied rumours there had been a coup.

Meanwhile, the International Monetary Fund said on Thursday that a fragile global economic recovery is underway. It said a double-dip recession is unlikely. IMF spokeswoman Caroline Atkinson said that questions remained about the sustainability of the recovery, which has so far been driven by policy actions by various governments and central banks.

Closer home, the finance ministry said in a report to parliament that current levels of capital inflows into India can be managed without "significant costs". Raising interest rates could attract more capital into India and complicate policymaking, the report said. The finance ministry, said the central bank was facing a dilemma on timing its exit from an easy money policy, and the challenge was to support the recovery of the economy without compromising on price stability.

The country needs to focus on expenditure reforms to cut its high fiscal deficit, the finance ministry noted in a report presented in parliament on Friday. The goverrnment is aiming to cut its fiscal deficit to 5.5% of gross domestic product in the fiscal year 2010/11 (April-March), from 6.8% estimated for 2009/10.

The report said pressure on food prices was likely to continue and food imports could help stem price rises. The economy could grow more than 7.75% in the fiscal year to March 2010, the finance ministry said. The ministry said the Economic Survey 2008/09 in July had projected GDP growth could be around 7%, with an allowance of 0.75 percentage points on either side. "With the latest GDP data on Q2 (July-Sept) of 2009/10 being higher at 7.9 percent, the growth outlook for the next two quarters and for the whole year is likely to be in the upper bound of the range predicted; and may even exceed it," the report said.

Finance Minister Pranab Mukherjee said on Friday that containing inflation is high on the government's agenda and the government is monitoring the price situation. Reserve Bank of India (RBI) Governor Duvvuri Subbarao will reportedly meet the Finance Minister on Friday night. The meeting comes amid speculation that the RBI could tighten monetary policy to help stem rising prices.

Food prices rose 19.95% in the year to 5 December 2009, picking up from a 19.05 % rise a week earlier, weekly data showed on Thursday. The data reinforced market expectations the central bank would tighten policy as early as January 2010. The government is under pressure from opposition parties and allies to contain inflation, especially politically sensitive food prices which are hurting poorer sections in the country.

Monthly data for November this week showed manufacturing prices rose an annual 4%, a sign the building economic recovery is allowing firms to pass on higher costs. The annual wholesale price inflation, which stood at 1.34% in October 2009, rose to 4.78% in November 2009.

Food prices are jumping because of shortages after crops were hit by the weakest monsoon rains in 37 years and then flooding in parts of the country, but the price rises come as the economy is picking up strength after a dip in late 2008 and early 2009.

Subbarao has said that monetary policy was not the right tool to fix supply problems such as food shortages, but has also noted the risk that if soaring food prices were factored into expectations for other prices, it would create inflation pressures through the economy. The central bank holds its next policy meeting in late January, but it can adjust monetary policy at any time.

Meanwhile, the two main bourses the Bombay Stock Exchange and the National Stock Exchange have postponed by more than two weeks their move to bring forward the start of trading by 55 minutes, after strong protests from brokers. Extended trading on the two premier stock exchanges in the country will now begin on 4 January 2010, instead of the earlier planned 18 December 2009.

The two exchanges had late on Wednesday, 16 December 2009, announced extension of trade timing in equity and derivative segments by almost an one hour to 9:00 IST effective from Friday, 18 December 2009. The move was to align the timings with that in major Asian markets.

European equities drifted higher on Friday, with stronger energy shares on the back of firmer crude oil prices outpacing a weaker financials. The key benchmark indices in France, Germany and UK rose by between 0.29% to 1.02%.

The Ifo Institute's closely watched indicator of German business sentiment rose to 94.7 in December from 93.9 in November, according to media reports on Friday. Economists had forecast a rise to 94.5.

France's business sentiment index declined to 89 in December from 90 in November, according to the monthly survey by the French National Institute of Statistics and Economic Studies (Insee) released on Friday. Analysts expected the index to be at 91 in December. The business climate indicator remains below its long-term average, Insee said in a statement.

Asian stocks fell on Friday on concerns banks will need to raise more equity and FedEx Corp. forecast profit that missed analysts' estimates. The key benchmark indices in China, Hong Kong, Indonesia, Japan, South Korea, Singapore fell by between 0.05% to 2.05%. But, Taiwan's Taiwan Weighted rose 0.15%.

The Bank of Japan on Friday unanimously voted to keep its overnight call-rate target at 0.1% as widely expected, left its overall assessment of Japan's economy unchanged, and emphasized the need to pull Japan out of deflation - perhaps laying the groundwork for more easing ahead.

Trading in US index futures indicated Dow could rise 50 points at the opening bell on Friday, 18 December 2009.

US markets edged lower on Thursday as the dollar gained and jobless claims rose more than expected. Financials were among the hardest hit. The Dow slipped 132.86 points, or 1.3%, to 10,308.26. The broader Standard & Poor's 500 index was down 13.10 points, or 1.2%, to 1,096.08, and the Nasdaq Composite Index fell 26.89 points, or 1.2%, to 2,180.05.

Driving some of the losses in the US markets was the jobless claims data, which unexpectedly rose 7,000 to a seasonally adjusted 4,80,000, in the week ended 12 December 2009.

The loss for banks also came as a proposal for tighter global capital standards was published. The Basel Committee on Banking Supervision on Thursday published their proposals on bank capital and liquidity rules. The fully calibrated set of standards will be developed by the end of 2010 to be phased in as financial conditions improve and the economic recovery is assured, with the aim of implementation by end-2012. It stressed that it's still considered different proposals. Requirements for the trading book, resecuritizations and exposures to off-balance sheet conduits are to be implemented by the end of 2010.

The BSE Sensex fell 174.42 points or 1.03% to 16719.83. The Sensex fell 201.19 points at the day's low of 16693.06. The Sensex rose 4.94 points at the day's high of 16,899.19 in afternoon trade.

The S&P CNX Nifty fell 54.05 points or 1.07% to 4,987.70.

The market breadth, indicating the overall health of the market turned weak. The breadth was strong earlier in the day. On BSE, 1172 shares advanced as compared with 1658 that declined. A total of 85 shares remained unchanged.

Among the 30-member Sensex pack, 24 fell while rest rose.

BSE clocked a turnover of Rs 4546 crore, a tad higher than turnover of Rs 4517.99 crore on Thursday, 17 December 2009.

From a recent high of 17,227.68 on 8 December 2009, the Sensex has lost 507.85 points or 2.94% to the current level of 16,719.83.

A deluge of global liquidity has boosted stocks across the globe this year. Governments and central banks around the world have injected trillions of dollars in the past one year to pull the world out of a most severe recession since the 1930s Great Depression. The Sensex is up 7072.52 points or 73.31% in calendar year 2009, as on 18 December 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 8559.43 points or 104.88% as on 18 December 2009.

Coming back to today's trade, the BSE Mid-Cap index fell 0.66% and the BSE Small-cap index fell 0.38% Both the indices outperformed the Sensex.

The sectoral indices on BSE showed a mixed trend. The BSE Healthcare index (up 1.32%), the BSE Consumer Durables index (up 0.53%), the BSE Auto index (up 0.27%), the BSE IT index (down 0.62%), the BSE Capital Goods index (down 0.63%), the BSE Power index (down 0.68%), the BSE Teck index (down 0.91%), the BSE Metal index (down 0.97%), the BSE PSU index (down 1.02 %), outperformed the Sensex.

The BSE Realty index (down 2.06%), the BSE Oil & Gas index (down 1.74%), the BSE FMCG index (down 1.23%), the BSE Bankex (down 1.22%), underperformed the Sensex.

India's largest private sector firm by market capitalisation Reliance Industries (RIL) fell 2.28%. Reliance Industries' efforts to buy a controlling stake in bankrupt petrochemical maker LyondellBasell has reportedly got a bit complicated, as the Netherlands-based company submitted a new reorganisation plan to a court in the US, even as the Indian company evaluates a binding bid.

The new plan of Lyondell to emerge from bankruptcy through a rights issue and payment of its huge debt does not preclude Reliance from proceeding with its plans.

Reliance Industries told the Supreme Court on Thursday that the government can even undo a judicial verdict, if it is held that it has no powers to regulate gas prices based on production sharing contracts.

RIL counsel Harish Salve made this assertion before the three-member bench of Chief Justice K.G. Balakrishnan, in his counter-arguments in the legal battle with Reliance Natural Resources (RNRL) over gas supplies from the Krishna-Godavari basin. The RIL counsel also sought to refute RNRL's claim over a suitable bankable agreement on gas supplies with RIL for 28 million units for 17 years at $2.34 per unit.

Realty stocks fell on profit taking. India's largest realty player by market capitalization DLF fell 1.97%, extending Wednesday's sharp 3.7% decline. DLF has announced a merger of its commercial realty arm DLF Assets (DAL) with itself a move aimed at repaying some of DAL's debt. The new structure involves the merger of DLF subsidiary DLF Cyber City Developers with Caraf Builders and Constructions, which is the holding company of DAL. The valuation ratio approved by the board for Cyber City and Caraf is in the ratio of 60:40.

This means that DLF shareholders will have access to 60% and promoters to 40% of the merged entity. However, this will be a cashless transaction. DLF sells commercial property to DAL, which is controlled by KP Singh who owns 78% in the latter along with his son and DLF promoter Rajeev Singh. DAL buys commercial property from DLF and collects lease rentals from it. With this merger, the debt on DLF's books would be an additional Rs 2,460 crore.

Among other realty stocks, Indiabulls Real Estate, Phoenix Mills, Unitech and Omaxe fell by between 0.23% to 3.03%.

India's largest FMCG maker by sales Hindustan Unilever fell 1.86% The company paid Rs 200 crore as advance tax in third quarter versus Rs 155 crore same quarter last year.

Among other FMCG stocks ITC, Godrej Cosumer HealthCare, United Spirits and Nestle India fell by between 0.73% to 3.52%.

Banking shares fell on a likely monetary tightening by the RBI. India's second largest private sector bank by net profit HDFC Bank was down 0.48% as its ADR fell 4.14% on Thursday. The bank's Q3 advance tax jumped to Rs 400 crore from Rs 300 crore.

India's largest bank by net profit and branch network State Bank of India was down 0.95%. The state-run bank paid advance tax of Rs 1795 crore versus Rs 1700 crore.

India's largest private sector bank by net profit ICICI Bank fell 2.02% The bank's Q3 advance tax fell to Rs 301 crore from Rs 625 crore. Its ADR fell 2.65% on Thursday. ICICI Bank has launched a home-loan scheme under which 8.25% interest rate will be fixed for the first two years. The floating rates will apply after 2 years. These rates will be applicable to loans sanctioned between December 2009 and January 2010.

Auto stocks fell on profit taking. India's top tractor marker by sales Mahindra & Mahindra (M&M) fell 0.22%. The company paid Rs 195 crore as advance tax in third quarter versus Rs 4.5 crore same quarter last year. M&M has forayed into the aerospace business by acquiring majority stakes in two Australian companies, Aerostaff Australia and Gippsland Aeronautics. Mahindra Aerospace (MAPL), in which Kotak Private Equity has also invested Rs 150 crore, will hold 75% stake in each of the two Aussie companies. The remaining will be held by the existing managements. The payments will be made in installments.

India's largest small car maker by sales Maruti Suzuki India fell 0.24% extending recent losses. Suzuki Motor Corp and Volkswagen AG will start detailed discussions over joint projects after 10 January 2010, Suzuki CEO Osamu Suzuki said on Wednesday. Japan's Suzuki Motor said on 9 December 2009 it will sell a 19.9% stake to Volkswagen (VW) for $2.5 billion and use half the proceeds to buy shares in the German automaker, as the two firms form a formidable force in the auto industry. Japan's Suzuki has a 54.2% stake in Maruti Suzuki India.

Maruti's total vehicle sales spurted 66.60% to 87,807 units in November 2009 over November 2008. Domestic sales spurted 60.10% to 76,359 units, while exports surged 128.60% to 11,448 units in November 2009 over November 2008.

India's second largest bike maker by sales Bajaj Auto fell 1.39%. Bajaj Auto will reportedly stop producing scooters by March 2010 to focus on motorcycles.

Bajaj Auto on 9 December 2009 launched a 135 cc Pulsar, pushing the Pulsar brand into the mass segment. Bajaj expects a sell a minimum 30,000 units per month of the new Pulsar model. The automaker had recently refreshed the entire Pulsar lineup and expects total Pulsar sales to cross 80,000 units per month.

The company's total vehicle sales rose 73% to 2.76 lakh units in November 2009 over November 2008. Motorcycles sales jumped 84% to 2.42 lakh units.

But, India's largest motorcycle maker by sales Hero Honda Motors rose 0.62%. The company's total vehicle sales jumped 32% to 3.81 lakh units in November 2009 over November 2008.

India's top truck maker by sales Tata Motors rose 3.16% after the company on Thursday reported a 62% jump in its total global sales in November 2009 to 75,775 units. The company paid Rs 100 crore as advance tax in third quarter versus Nil same quarter last year.

Car sales in India rose an annual 61% to 1,33,687 in November 2009 over November 2008, boosted by improved consumer sentiment, easier availability of loans and a low sales base a year earlier, an industry body said on Tuesday. Sales of trucks and buses, a gauge of economic activity, doubled to 40,847 units in November from 20,631 a year earlier, data from the Society of Indian Automobile Manufacturers showed.

India's largest cement maker by sales ACC fell 0.5%. The company's Q3 advance tax was at Rs 110 crore, lower than Rs 125 crore in the same period last year.

Among other cement stocks, Birla Corporation, UltraTech Cement and Ambuja Cements fell by between 0.55% to 1.45%.

Cement prices are reportedly seen hardening in the January-March 2010 quarter as demand from state projects picks up and rural housing drives volume growth. Prices went up by Rs 8-10 for a 50 kg bag southern India late November to Rs 155-175, while a similar hike in Mumbai on 2 December 2009 raised prices to Rs 240-245 per bag.

India's largest thermal power generator by sales NTPC fell 0.29%. As per reports the government plans to mop up around Rs 11,000 crore from the disinvestment of 5% stake in the utility giant.

Among other power stocks, Torrent Power, Reliance Infrastucture, Power Grid Corporation of India fell by between 0.19% to 1.85%.

IT stocks rose on a recent slide of the rupee against the US dollar. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports. India's third largest software services exporter Wipro rose 0.27% as its ADR rose 2.93% on Thursday. India's largest IT exporter by sales Tata Consultancy Services rose 0.67%. The company's Q3 advance tax surged to Rs 177 crore from Rs 129 crore.

But, India's second largest software services exporter Infosys Technologies fell 1.36%. Its ADR fell 0.33% on Thursday. Infosys Technologies expects revenue growth in the fiscal year starting in April to be better than 2009/10 as a recovery in the global economy spurs investments by its clients, Subhash Dhar, senior vice-president and head of global sales and marketing said.

The rupee tuned stronger, shedding initial weakness against dollar. The partially convertible rupee was at 46.72/73 per dollar, stronger than Thursday's close of 46.88/89.

India's largest engineering and construction firm by sales Larsen & Toubro fell 0.49% extending Thursday's 1.33% decline. The company paid Rs 270 crore as advance tax in third quarter versus Rs 210 crore same quarter last year.

Among other capital goods stocks, BEML, Praj Industries, Bharat Heavy Electricals, fell by between 0.59% to 1.97%.

Telecom shares fell for the second straight day after new entrant Sistema Shyam Teleservices extended the tariff war in the telecom segment. Idea Cellular (down 1.81%), Bharti Airtel (down 1.89%), and Reliance Communication (down 1.09%), declined. Sistema Shyam Teleservices (SSTL), which operates under the MTS brand, on Wednesday, 16 December 2009, launched mobile telephony services in Mumbai.

Telecom stocks have taken a severe pounding recently following concerns that the ongoing tariff war will further shrink revenues and margins of telecom companies.

Metal stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange, fell 2.23% on Thursday, 17 December 2009. Sterlite Industries, Hindustan Zinc, National Aluminum Company fell by between 1.65% to 2.2%.

India's largest aluminum maker by sales Hindalco Industries fell 1.46%. The company paid Rs 100 crore as advance tax in third quarter versus Rs 40 crore same quarter last year.

India's largest steel maker by sales Tata Steel fell 0.14%. The company's European unit Corus secured a 350 million euro contract to supply rails tracks to French railway operator SNCF. Meanwhile, Tata Steel paid Rs 650 crore as advance tax in third quarter versus Rs 260 crore same quarter last year.

Unitech clocked highest volume of 1.34 crore shares on BSE. Cals Refineries (1.21 crore shares), Suzlon Energy (1.14 crore shares), Wire & Wireless (0.68 crore shares), IFCI (0.56 crore shares) were the other volume toppers in that order.

Havells India clocked highest turnover of Rs 173.07 crore on BSE. DLF (Rs 164.94 crore), Sate Bank of India (125.39 crore), Housing Development & Infrastructure (Rs 123.66 crore) and Tata Steel (Rs 120.89 crore), were the other turnover toppers in that order.