Market snaps 4-day rally

The key benchmarks ended lower on Monday, 22 March 2010, as gains in the preceding four trading sessions prompted investors to book profits. Stocks in the rate sensitive sectors bore the major brunt after Reserve Bank of India unexpectedly hiked interest rates. Besides profit booking, weak global markets due to worries over Greece's debt crisis also weighed on investor sentiment. The BSE 30-share Sensex fell 167.66 points or 0.95%, up 73.19 points from the day's low and off 148.61 points from the day's high.

The Reserve Bank of India (RBI) late on Friday 19 March 2010, unexpectedly raised interest rates from record-low levels, citing intensifying inflationary pressures and a steady economic recovery. The market had widely expected the RBI to raise rates soon, but the timing of its 25 basis-point hike for its key lending and borrowing rates, before April policy review, caught markets by surprise.

The RBI raised the repo rate, the rate at which it lends to banks to 5% from 4.75% and reverse repo rate, the rate which it absorbs funds from the system to 3.50% from 3.25% with immediate effect. India is the second major economy after Australia to start raising interest rates with signs of global recovery emerging and local price pressures picking up. China has raised its banks' reserve requirements but has left its rates unchanged.

The market cut losses after a weak start. It further timed losses in morning trade. It extended recovery in mid-morning trade. Indices were marginally lower in early afternoon trade. It weakened once again later. The market may remain volatile in the near term as traders rollover positions in derivatives segment from the March 2010 series to the April 2010 series ahead of the expiry of the expiry of the near-month March 2010 derivatives contracts on Thursday, 25 March 2010. The market remains closed on Wednesday, 24 March 2010, on account of Ram Navmi.

The government hopes to achieve the targeted Rs 40,000 crore ($8.8 billion) from stake sales for the fiscal year 2010/11, Disinvestment Secretary Sumit Bose said on Monday. We have already done Rs 24,000 crore ($5.27 billion) in government stake sales in the financial year ending March 2010, he added.

The government hopes to raise the share of manufacturing to 22% of gross domestic product, Trade Minister Anand Sharma said on Monday.

Meanwhile, the Finance Minister Pranab Mukherjee said today, 22 March 2010, he expected the economy to expand by 7.2% the current fiscal year that ends on 31 March 2010, and by 8.5% in 2010-11.

The wholesale price index-based inflation may fall on a likely easing of food and oil prices, a Reserve Bank of India (RBI) deputy governor K.C. Chakrabarty said on Monday. The bank was right on the curve regarding Friday's unexpected rate hike action and it could act any time, he added.

The headline inflation is expected to come down in two months and the winter crop is likely to be good, the plan panel deputy Montek Singh Ahluwalia said on Monday, after the Reserve Bank of India's (RBI) surprise rate hike late on Friday. The RBI has to look at price trends, the underlying momentum (in prices) and not the annual rate of inflation and look at what else is happening and then make up its firm mind, he added.

The wholesale price index in Asia's third-largest economy accelerated to 9.89% in February, the highest since October 2008 and well above the central bank's end-March projection of 8.5% and the 8.56% January reading.

In the emergent scenario, low policy rates can complicate the inflation outlook and impair inflationary expectations, particularly given the recent escalation in the prices of non-food manufactured goods, the RBI said in a statement on Friday. While the recovery in growth has proceeded broadly along expected lines, the inflationary pressures have intensified beyond our baseline projection, the RBI said.

The central bank has been under increasing pressure to raise rates as inflation is nearing 10%. Key policymakers had said the RBI ought to carefully consider a return to normal monetary policy. The industrial output grew 16.7% in January. Between April and January, industrial growth expanded 9.6%. India is seen growing over 7.2% in the year to March 2010, and 8.5% the year after and 9% in 2011/12.

The Reserve Bank of India's (RBI) rate hike will anchor inflationary expectations but there could be another increase in April when the central bank reviews policy, Kaushik Basu, chief economic adviser in the finance ministry said on Friday.

Meanwhile, Finance ministry and Reserve Bank of India officials will meet in New Delhi on 29 March 2010 to decide on the borrowing for the first half of fiscal year 2010/11, a RBI deputy governor Shyamala Gopinath said on Monday. India is budgeted to borrow a record gross Rs 4,57,000 crore ($100 billion) in the fiscal year starting 1 April 2010.

Encouraging Q4 March 2010 advance tax figures of top Indian firms, indicating good Q4 March 2010 results, had boosted the bourses last week. The market has also witnessed a strong post-Budget rally driven by sustained buying by foreign funds since the presentation of the Union Budget 2010-2011 on 26 February 2010. The stock market has applauded the Union Budget 2010-2011 due to its thrust on infrastructure development, government's pledge to reduce fiscal deficit over the next three years, a smaller-than-expected 2% hike in excise duties, and reduction in taxes for individuals which will boost disposable income. The Finance Minister has assumed a modest GDP of about 8% and inflation of about 4.5% for 2010-2011.

Going ahead, the key triggers for the stock market are structural reforms such as decontrol of petrol and diesel prices, targeting of food subsidies, and financial sector reforms such as increase in foreign direct investment in insurance sector.

Global rating agency Standard & Poor's last week revised India's rating outlook to stable from negative. S&P affirmed long-term and short-term sovereign credit ratings on India. The revision in outlook by S&P reflects its view that India's fiscal position could now begin to recover and that its economy will remain on a strong growth path. The government budget targets a general government (including central and state governments) deficit of 8.3% in the fiscal year ending 31 March 2011, from 9.8% in the previous fiscal year, S&P said.

S&P also estimated that India's gross domestic product will grow 8% in the year ending March 31, 2011, higher than its forecast earlier, adding India's external position was resilient. Even so, India's ratings continue to be constrained by the government's high debt burden and deficit, as well as India's weak fiscal profile, the rating agency said.

European shares slipped for a third day on Monday, with drugmakers down after the House of Representatives approved an overhaul of the U.S. healthcare system, while renewed worries over Greece hurt banks. The key benchmark indices in France, Germany and UK fell by between 0.74% to 0.96%.

Asian stocks and the euro fell on Monday on renewed concerns over Greece's debt problems ahead of a euro zone summit, while India's surprise interest rate hike last week weighed on commodity currencies.. The key benchmark indices in Hong Kong, Indonesia, South Korea, Singapore and Taiwan fell by between 0.78% to 2.05%. But, China's Shanghai Composite rose 0.22%. Japanese market was closed on Monday for a national holiday.

Trading in US index futures indicated Dow could fall 59 points at the opening bell on Monday, 22 March 2010.

US stocks fell on Friday 19 March 2010, interrupting the Dow's eight-session winning streak, as the dollar's climb hurtoil prices and dragged on energy stocks. Friday marks the second day of a convergence known as quadruple witching, when four types of options and futures contracts expire, possibly triggering volatility and higher volumes. The Dow Jones industrial average dropped 52.30 points, or 0.49%, to 10,726.87. The Standard & Poor's 500 Index dropped 6.93 points, or 0.59%, to 1,158.91. The Nasdaq Composite Index dropped 19.67 points, or 0.82%, to 2,371.61. .

Advanced economies face “acute” challenges in tackling high public debt, and unwinding existing stimulus measures will not come close to bringing deficits back to prudent levels, said John Lipsky, first deputy managing director of the International Monetary Fund.

European leaders sent out conflicting signals at the weekend over aid to Greece, with Germany's Angela Merkel urging Athens to solve its debt problems alone and Italy's Silvio Berlusconi strongly backing EU support. The 16-nation euro zone is divided over whether and how best to provide financial help to Greece, whose struggles to cope with soaring debt and deficits have plunged the currency bloc into the deepest crisis of its 11-year existence.

Combined support for Greece from the IMF and the European Union would be the best way to help the over-borrowed country deal with its debt crisis, OECD Secretary General Angel Gurria said on Sunday.

The BSE 30-share Sensex was down 167.66 points or 0.95% to 17,410.57. The barometer index fell 19.05 points at the day's high of 17,559.18 in mid-morning trade. The Sensex fell 240.85 points at the day's low of 17,337.38 in early trade.

The S&P CNX Nifty was down 57.60 points or 1.09% at 5205.20.

The BSE Mid-Cap index fell 1.05% and the BSE Small-Cap index fell 0.85%.

The market breadth, indicating overall health of the market, was weak. On BSE, 988 shares advanced as compared with 1853 that declined. A total of 78 shares remained unchanged.

BSE clocked a turnover of Rs 4442 crore lower than Rs 4884.66 crore on Friday, 19 March 2010.

The BSE HealthCare index (up 0.26%), the BSE Teck index (down 0.13%), the BSE IT index (down 0.35%), the BSE FMCG index (down 0.38%), the BSE Capital Goods index (down 0.62%), and the BSE Bankex (down 0.85%), outperformed the Sensex.

The BSE PSU index (down 1.12%), the BSE Oil & Gas index (down 1.13%), he BSE Power index (down 1.14%), the BSE Auto index (down 1.73%), the BSE Consumer Durables index (down 1.74%), the BSE Metal index (down 1.96%), the BSE Realty index (down 3.88%), underperformed the Sensex.

From the 30 share Sensex pack, 22 stocks fell while the rest were trading positive.

Index heavyweight Reliance Industries (RIL) fell 1.46% on profit taking after recent rally triggered by expectations of good Q4 March 2010 results. As per the market buzz, RIL's Q4 advance tax surged to Rs 770 crore in Q4 March 2010 from Rs 365 crore a year ago. Meanwhile, Reliance Industries is reportedly seeking a joint venture with Atlas Energy to develop the US firm's Marcellus Shale gas operations.

Reliance Industries on 14 March 2010 announced a sports and entertainment joint venture with IMG Worldwide, a global leader in sports marketing and management. The equal venture, IMG Reliance, will set up modern infrastructure and coaching facilities for sports and create and operate sports and entertainment assets including celebrity management.

Rate sensitive banking stocks fell as the central bank on Friday, 19 March 2010 raised interest rates. India's largest bank by net profit and branch network State Bank of India (SBI) fell 0.85%. India's largest private sector bank by net profit ICICI Bank fell 2.03% extending Friday's 0.58% losses. The bank's Q3 advance tax payment surged to Rs 350 crore versus Rs 250 crore a year ago. Its ADR fell 3.84% on Friday. But, India's largest private sector bank by net profit HDFC Bank rose 1.11%. Its ADR fell 0.25% on Friday.

Rate sensitive auto stocks too fell after central bank raised the interest rates. India's largest bike maker by sales Hero Honda Motors fell 1.13%. Hero Honda has short-listed Karnataka as one of the states for setting up its fourth manufacturing plant. Hero Honda Motors has reportedly proposed an investment of Rs 2,000 crore for the upcoming plant.

Bajaj Auto fell 0.76%. As per recent report a joint venture between Nissan Motor, Renault S.A. and Bajaj Auto is working to make a car that will match the price of Tata Motors' Nano.

India's largest car maker by sales Maruti Suzuki India fell 2.22% extending recent fall triggered by fears increase in competition may dent sales. Recently, Ford India entered the small car market with 'Figo'.

Maruti Suzuki India, recently said that Japanese auto giant Nissan has placed orders for 35,000 units of its small car A- Star for 2010-11 to sell it in the European market. Nissan sources the A-Star from Maruti's Manesar facility and sells it in the European market as 'Pixo'.

India's largest commercial vehicle maker by sales Tata Motors fell 3.02%. Tata group's global sales rose 59% in February from a year earlier, the company said in a statement last week.

India's largest tractor maker by sales Mahindra & Mahindra (M&M) fell 2.28%, falling for the straight fourth day. The company paid Rs 235 crore in advance tax in Q4 March 2010 versus nil payment a year earlier.

Increase in raw material prices coupled with costs associated with new emission norms could force auto makers to increase prices further, which may hit volumes. The government raised excise duties on large cars and sport utility vehicles by 2%, which was immediately passed on by vehicles makers, including top carmaker Maruti Suzuki and utility vehicle makers Mahindra & Mahindra and Tata Motors. From 1 April 2010, all vehicles will have to comply with Euro IV emission norms across 13 major cities, adding to costs and setting the stage for another round of price hikes.

Rate sensitive realty shares also fell after the central bank's interest rate hike. Indiabulls Real Estate, HDIL, DLF, Omaxe, Orbit Corporation, Unitech, Mahindra Life Space Developers, Peninsula Land, Parsvnath Developers, Ackruti City and Phoenix Mills fell by 2.61% to 6.68%.

The Union budget last month proposed to impose service tax on the realty sector both on commercial rentals as well as on sale of under-construction housing units. The service tax would come to be about 3.5% of the cost of the apartment that includes the value of the land and also the cost of construction, realty body Credai said recently.

Metal stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange, fell 0.93% on Friday, 19 March 2010. NMDC, Hindalco Industries, Steel Authority of India, Gujarat NRE Coke, Welspun Gujarat Stahl Rohren, Ispat Industries, Jindal Saw, Jindal Steel & Power and JSW Steel fell by between 0.99% to 3.69%.

India's largest steel maker by sales Tata Steel fell 2.16% on profit taking after the recent strong gains. Its Q4 advance tax payment rose to Rs 513 crore from Rs 406 crore a year earlier.

India's largest copper maker by sales Sterlite Industries fell 1.57% on reports a legal fight seems likely between Sterlite Industries and US copper miner Asarco LLC. The American company has filed a lawsuit against Sterlite for going back on a two-year old deal to acquire Asarco. This prompted Sterlite to also file a lawsuit against Asarco to claim recovery of about $50 million (about Rs 230 crore) that was deposited earlier.

National Aluminium Company lost 0.73% after the Union Minister for Mines ruled out any possibility of disinvestment in the state-run aluminium firm.

Punj Lloyd rose 1.55%, extending gains for the second day, after the company secured an overseas order worth $40 million from Abu Dhabi Gas Industries, UAE for an engineering, procurement and construction project.

ARSS Infrastructure Projects reported a highest turnover of Rs 370.28 crore on the BSE. Man Infraconstruction (Rs 228.53 crore), Jubilant FoodWorks (Rs 153.37 crore), Reliance Industries (Rs 100.21 crore) and Sesa Goa (Rs 88.72 crore), were the other turnover toppers on the BSE.

Cals Refineries clocked a highest volume of 2.19 crore shares on the BSE. Birla Power Solutions (1.20 crore shares), Alok Industries (1.08 crore shares), S Kumars Nationwide (95.18 lakh shares) and Pipavav Shipyard (84.37 lakh shares), were the other volume toppers on the BSE.