Market falters on fears policy makers may start withdrawing stimulus measures

The key benchmark indices fell on worries the central bank may take more monetary action to check inflation after the latest data showed that the headline inflation jumped in January 2010. The BSE 30-share Sensex fell 114.24 points or 0.71%, off close to 190 points from the day's high and up close to 25 points from the day's low. Consumer durables, capital goods, realty, FMCG, banking shares fell. Index heavyweight Reliance Industries (RIL) reversed early gains.

India's largest mobile services provider by sales Bharti Airtel fell more than 9% on concerns the leading mobile firm's $10.7 billion offer for Kuwaiti Zain's African assets could strain its finances. The market breadth, which was strong at the onset of the trading session, turned weak later.

The market was volatile. Stocks turned negative soon after a firm start. The Sensex moved in a narrow range in morning trade. The market edged lower after moving between the positive and negative terrain in mid-morning trade. The market slumped in early afternoon trade as inflation jumped. The market weakened again after recovering sharply from the day's low in mid-afternoon trade.

India VIX, a volatility index based on the S&P CNX Nifty index option prices, rose 3.02% to 29.68. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

EPFR Global, the Massachusetts-based research firm that tracks global fund flows said investors took $2.9 billion out of all emerging-market equity funds in the first week of February 2010, the highest weekly decline since 9 July, 2008. Global funds in particular were hurt as investors pulled $1.76 billion, a 60-week high. Stocks funds focused on Asia aside from Japan saw their biggest outflows since mid-August.

Closer home, the wholesale price index (WPI) rose 8.56% in January 2010 from a year earlier, driven by higher food prices, government data showed on Monday. The latest reading on the WPI was the highest since November 2008. It was higher than an annual 7.3% rise in December 2009.

The rise was driven by a 17.4% jump in food prices, which rose on weak monsoon rains and flooding from last year. Inflation in manufacturing picked up to 6.55% from about 5% in December 2009, a sign that inflationary pressures were spreading to other sectors of the economy. Meanwhile, the government revised upwards WPI inflation for November 2009 to 5.55% from 4.78% earlier. In January, the Reserve Bank of India (RBI) had raised the wholesale price inflation forecast for the current year to end-March to 8.5 % from 6.5%.

RBI Governor Duvvuri Subbarao said over the weekend the large government borrowing influences monetary policy. The government completed its market borrowing of Rs 4.51 lakh crore ($97 billion) for the current fiscal year to end-March early this month and the RBI expects its gross market borrowing next year to be slightly higher than this year.

Industrial output grew at its fastest pace in at least a decade in December 2009, in further evidence of a strong economic recovery that could allow the government to follow the Reserve Bank in withdrawing stimulus. Industrial output grew 16.8% in December from a year earlier, up from revised annual rise of 11.8% in November, data showed on Friday 12 February 2010. The RBI has already started to unwind stimulus, surprising markets by raising banks' cash reserve requirements by more than expected at its January policy review. It is widely expected to tighten rates at its April meeting.

Factory output, which grew for the 12th consecutive month, is riding on a revival in consumer demand following aggressive rate cuts by the central bank and stimulus via tax breaks put in place after the global downturn. Since December 2008, the government has announced stimulus packages equivalent to about 12% of GDP to boost infrastructure and support economic recovery, while the Reserve Bank of India cut its key lending rate by 425 basis points between October 2008 and April 2009.

Purchasing managers' index showed last week manufacturing activity in January grew at its fastest pace in almost 1-1/2 years, boosted by a sharp rise in new export orders, while car sales in January rose an annual 32.3%.

The government has been reluctant to commit any rollback in fiscal stimulus but with the economy increasingly looking on a solid footing, there are expectations that it would lay out a roadmap for a stimulus withdraw in its 26 February 2010 annual budget. Last week, the finance minister said India's economy would grow around 7.75% in the fiscal year ending March.

The economy is likely to grow more than 8% in the fiscal year 2010-11, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said on Friday 12 February 2010. The high industrial output figures show robust economic growth and the economy is likely to do well in the quarter through December, Finance Minister Pranab Mukherjee said on Friday.

Mukherjee will reportedly not present a major tax reform to bring down corporate tax and simplify income tax rules this month. The Direct Taxes Code bill was expected to be presented in the budget session of parliament beginning on 22 February 2010, with the aim of coming into effect from April next year. There are several complications in the Direct Taxes Code in its present form, and it required further scrutiny. Reports added that the government may delay the major tax reform bill to the next session of parliament, which starts in July.

Meanwhile, the government has amended rules for foreign currency convertible bonds (FCCBs) issuance allowing companies that have issued FCCBs prior to 27 November 2008, a six-month window for revising their conversion price.

European shares rose on Monday, with banks and commodity stocks taking the lead as investors awaited the euro zone finance ministers meeting. The key benchmark indices in France, Germany and UK rose by between 0.7% to 0.9%.

Although European stocks inched higher, concerns about debt restructuring of government-backed Dubai World weighed on sentiment and investors appetite for risk. Dubai denied on Sunday a media report that the firm was mulling a two-part deal, including one that may repay lenders 60% over seven years.

Meanwhile, there were few expectations that a meeting of euro zone finance ministers on Monday and Tuesday would yield specific measures to bail out Greece after European Union leaders pledged to support it last week but failed to agree financial aid. ECB President Jean-Claude Trichet said on Sunday that Greece must take extra measures to fix its budget deficit and scrutiny of its economic indicators must be heightened

Asian stocks fell on Monday, 15 February 2010 for the first time in a week, led by commodity producers after BlueScope Steel swung to a loss and China bolstered steps to curb inflation. The key benchmark indices in Japan and Indonesia fell 0.66% and 0.78% respectively. Most Asian markets are shut on Monday and Tuesday for the Lunar New Year holidays.

Japan's economic growth accelerated last quarter as a global trade revival fueled demand for the nation's exports. Gross domestic product rose at an annual 4.6% pace in the three months ended 31 December 2010, the Cabinet Office said in Tokyo today.

China ordered banks on 12 February 2010 to set aside more deposits as reserves for the second time in a month, as loan growth quickened and property prices surged. The reserve requirement will increase 50 basis points effective 25 February 2010.

Trading in US index futures indicated the Dow could fall 11 points at the opening bell on Tuesday, 16 February 2010. US markets are closed on Monday for the Presidents' Day holiday.

US stocks fell on Friday 12 February 2010 as a surprise move by China to restrict bank lending to cool its surging economy weighed on commodity prices and resource shares. The hike by China in bank reserve requirements is the second increase in as many months and raised worries about the impact of monetary tightening on global growth. Markets were also pressured by weaker-than-expected reads on US consumer sentiment and business inventories, and brushed aside a higher-than-forecast figure on January US retail sales, which rose 0.5%. The Dow Jones industrial average fell 45.05 points, or 0.45% to 10,099.14. The Nasdaq Composite index was marginally up. It added 6.12 points, or 0.28% to 2183.53.

The BSE 30-share Sensex fell 114.24 points or 0.71% to 16038.35. The Sensex fell 140.77 points at the day's low of 16,011.82 in late trade. It gained 74.45 points at the day's high of 16227.04 in early trade.

The S&P CNX Nifty fell 24.90 points or 0.52% to 4801.95. Nifty February 2010 futures were at 4,795, at a discount of 6.95 points as compared to the spot closing of 4,801.95. Turnover in NSE's futures & options (F&O) segment was Rs 59,415.62 crore, much lower than Rs 73,749.79 crore on Thursday, 11 February 2010.

The BSE Mid-Cap index fell 0.56% and the BSE Small-Cap index fell 0.37%. Both the indices underperformed the Sensex.

Most of the sectoral indices on BSE fell. The BSE HealthCare index (up 0.4%), BSE IT index (up 0.26%), BSE Metal index (up 0.23%), BSE Capital Goods index (down 0.1%), BSE FMCG index (down 0.17%), BSE Power index (down 0.24%), BSE Auto index (down 0.33%), and BSE Realty index (down 0.47%) outperformed the Sensex.

The BSE Consumer Durables index (down 1.49%), BSE Teck index (down 1.3%), BSE Oil & Gas index (down 0.94%), BSE PSU index (down 0.76%), and BSE Bankex (down 0.74%), underperformed the Sensex.

The market breadth, indicating the overall health of the market was weak. On BSE, 1155 shares advanced as compared with 1628 that declined. A total of 74 shares remained unchanged. The breadth was strong earlier in the day.

From the 30-member Sensex pack, 20 fell and rest rose.

BSE clocked a turnover of Rs 2988 crore, much lower than Rs 3970.72 crore on Thursday, 11 February 2010.

Index heavyweight Reliance Industries (RIL) fell 0.64% reversing early gains. RIL recently submitted a $2 billion expression of interest for Value Creation Inc, a Canada-based private firm which holds oil sands assets.

India's largest mobile services provider by sales Bharti Airtel fell 9.22% on concerns the leading Indian mobile firm's $10.7 billion offer for Kuwaiti Zain's African assets could strain its finances. The stock fell on heavy volume with 50.07 lakh shares changing hands on BSE.

Bharti Airtel said on Monday it is in talks to buy the African assets of Kuwaiti telecom Zain for $10.7 billion, a deal that would give India's leading mobile operator a foothold in a largely untapped region with significant growth potential. Zain's board has reportedly approved the sale to Bharti, which is controlled by billionaire Sunil Mittal and 30% owned by Singapore Telecommunications.

Bharti said in a statement on Monday that it has entered into exclusive talks with Zain over the assets, which exclude operations in Morocco and Sudan, until 25 March 2010.

India's largest engineering and construction firm by sales Larsen & Toubro fell 1.06%. The company said last week it won orders worth Rs 582 crore.

Among other capital goods stocks, SKF India, Praj Industries and Punj Lloyd fell by between 0.43% to 1.93%.

India's largest power equipment maker by sales Bharat Heavy Electricals rose 1.41% extending Thursday's 0.76% gains. The company last week secured a contract for the electro-mechanical equipment package for a 1,200 megawatt hydroelectric project in Bhutan valued at Rs 1,016 crore.

Rate sensitive realty shares fell on possible hike in interest rates by the central bank to check a surge in inflation as economy shows a sign of pick up. Among realty stocks, Akruti City, DLF, Phoenix Mills and Housing Development and Infrastructure fell by between 0.29% to 1.25%.

But, Unitech rose 0.2%. Recently Telenor bought a further 7.15% stake in its telecom joint venture Unitech Wireless by pumping in additional Rs 2022 crore of fresh equity.

Consumer durables stocks fell on profit taking. Rajesh Exports, Titan Industries, Videocon Industries, Blue Star, Gitanjali Gems fell by between 0.83% to 2.73%.

FMCG stocks fell on profit taking. TaDabur India, United Spirits, Hindustan Unilever, Nestle India fell by between 0.36% to 1.3%.

Rate sensitive banking shares fell on possible hike in interest rates by the central bank to check surge in inflation as economy showed a sign of pick up. India's largest private sector bank by net profit ICICI Bank fell 1.16%. Its ADR fell 0.11% on Friday, 12 February 2010. India's largest bank by net profit and branch network State Bank of India fell 1.25%. But, India's second largest private sector bank by net profit HDFC Bank rose 1.11%. Its ADR fell 0.53% on Friday.

The central bank said on last week it will introduce from 1 April 2010 a new base rate to price credit more transparently, replacing the existing benchmark prime lending rate (BPLR). The Reserve Bank of India said the base rate will be the new reference rate for determining lending rates. According to draft guidelines, the RBI has proposed that the actual lending rate charged to borrowers would be the base rate plus borrower-specific charges including product-specific operating cost, credit-risk premium and tenure premium said.

India's second largest mobile services provider by sales Reliance Communications fell 2.92%. The company said it added 2.8 million mobile users in January 2010.

IT stocks rose on positive economic data in the US. US is the biggest market for Indian IT firms. India's third largest software services exporter Wipro rose 0.64% extending Thursday's 1.2% gains. Its ADR was flat on Friday. As per recent reports, Wipro Consumer Care and Lighting, the FMCG arm of Wipro, is in advanced talks to buy Nigeria-based skincare company, Tura International. India's largest IT exporter by sales Tata Consultancy Services rose 0.45% extending Thursday's 1.44% gains. Reportedly TCS' Passport Seva Project, which aims to issue passports in flat three days, is all set to be launched in a week or two.

India's second largest IT exporter by sales Infosys was flat. Its ADR fell 0.44% on Friday.

Shares of oil exploration firms declined, after crude oil prices fell more than $1 a barrel on the New York Mercantile Exchange, on Friday, 12 February 2010. India's second biggest oil and gas exploration firm by revenue, Oil India, declined 1.48%. Cairn India dropped 1.12%. India's biggest state-run oil exploration firm by revenue Oil & Natural Gas Corporation (ONGC) fell 1.08%. Fall in crude oil prices would result in lower realizations from crude sales for oil exploration firms. Light, sweet crude oil declined $1.15, or 1.53%, to $74.13 a barrel on the New York Mercantile Exchange on Friday, 12 February 2010 after US government data showed a surprise rise in inventories stockpiles last week.

India's largest power utility firm by sales NTPC fell 0.47%. The company's follow on public offer managed to scrape through with the issue getting subscribed 1.2 times. The issue, through which the government is divesting 5% of its stake, at a floor price of Rs 201 a share, opened on 3 February 2010 and closed on 5 February 2010. At the floor price, the follow-on-public offer (FPO) is valued at Rs 8,286 crore.

Among other power stocks, Tata Power Company, Reliance Infrastructure, Reliance Power fell by between 0.46% to 1.99%.

Metal stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange, fell 0.92% on Friday, 12 February 2010. Steel Authority of India, Sesa Goa, National Aluminum Company, Hindustan Zinc, Jindal Steel & Power fell by between 0.31% to 2.91%.

But, Hindalco Industries rose 1.81% extending Thursday's 1.28% gains on reports the company hopes to complete raising Rs 4900 crore of debt in the next two weeks to achieve financial closure for Utkal Alumina Refinery, a 15 lakh tonne per annum project in Orissa.

India's largest drug maker by sales Ranbaxy Laboratories fell 1.24%. Daiichi Sankyo said it will launch new innovative products in Mexico through the marketing division of Ranbaxy's Mexican subsidiary Ranbaxy Mexico.

But other healthcare stocks rose. Cipla, Pfizer, Sun Pharmaceutical Industries, Dr Reddy's Laboratories, Wockhardt rose by between 0.16% to 1.58%.

Rate sensitive auto stocks fell on concerns of rate hike by the central bank. India's largest commercial vehicle maker by sales Tata Motors fell 0.78%. The company said on Monday its global vehicle sales for January nearly doubled to 85,714 units from a year earlier. The sales include UK-based luxury brands Jaguar and Land Rover, whose sales nearly trebled in the month to 16,269 units from a year ago, the company said in a statement. It had earlier said domestic sales, including trucks, buses and cars, jumped an annual 77 % in January.

India's top small car manufacturer by sales Maruti Suzuki India fell 1.47%. As per reports the company expects a 20% growth in sales and hopes to double its exports to around 1.6 lakh units this fiscal ended March 2010. India's biggest tractor maker by sales Mahindra & Mahindra (M&M) rose 1.96% extending Thursday's 3.17% gains.

Among two-wheeler makers, TVS Motor Company and Bajaj Auto fell by between 0.09% to 1.65%.

Cals Refineries clocked the highest volume of 4.26 crore shares on BSE. Syncom HealthCare (2.61 crore shares), Unitech (0.69 crore shares), Camlin (0.65 crore shares) and Vascon Engineers (0.59 crore shares) were the other volume toppers in that order.

Syncom HealthCare clocked the highest turnover of Rs 229.30 crore on BSE. Bharti Airel (Rs 142.94 crore), Tata Steel (Rs 96.77 crore), Vascon Engineers (Rs 87.6 crore) and Titagarh Wagons (Rs 77.31 crore) were the other turnover toppers in that order.