Market snaps five-day losing streak; volatility index falls

The key benchmark indices registered small gains, snapping loses in the preceding five trading sessions, after the Reserve Bank of India (RBI) announced a small increase in policy rates at a monetary policy review. Firm global stocks supported the domestic bourses. The BSE 30-share Sensex rose 59.90 points or 0.34%, off close to 100 points from the day's high and up close to 66 points from the day's low.

Interest rate sensitive banking, auto and realty stocks rose. But IT stocks fell. Index heavyweight Reliance Industries (RIL) edged higher in volatile trade. The market breadth was strong as a host of small-cap and mid-cap stocks rose.

Investors heaved a sigh of relief after a small hike in short term interest rates and the cash reserve ratio (CRR) by the central bank at its annual policy review. The Reserve Bank of India (RBI) raised repo rate, reverse repo rate and CRR by 25 basis points each. Analysts were expecting a 25 to 50 basis points hike in short term rates and the CRR. The RBI said it will continue to monitor macroeconomic conditions, particularly the price situation closely and take further action as warranted.

The hike in CRR is effective from 24 April 2010 while repo and reverse repo rate hikes are applicable immediately. After the hike, the CRR will increase to 6%, the repo rate to 5.25% and the reverse repo to 3.75%. Repo is the rate at which the central bank lends to banks and reverse repo is the rate at which the central bank absorbs excess cash from the banking system. CRR is the portion of deposits banks must set aside with the RBI.

The RBI said there is need to move in a calibrated manner in the direction of normalising its policy instruments given that the economic recovery is firmly in place. The latest CRR hike will suck out excess liquidity of Rs 12500 crore from the banking system. According the central bank, non-food credit growth is expected at 20% in the year ending March 2011 (FY 2011).

The central bank said it has to do a fine balancing act and ensure that while absorbing excess liquidity, the government borrowing programme is not hampered. Notwithstanding lower budgeted government borrowings for FY 2011, fresh issuance of securities will be 36.3% higher than in the previous year, the central bank said.

The RBI said the economy is recovering rapidly from a slowdown but inflationary pressures, which were triggered by supply side factors, are now developing into a wider inflationary process. The central bank said there in uncertainty about the shape and pace of ongoing global economic recovery.

The central bank expects GDP growth of 8% for the year ending March 2011 (FY 2011) with an upward bias, assuming a normal monsoon this year and sustenance of good performance of the industrial and services sectors on the back of rising domestic and external demand. The quick rebound of the Indian economy in the year ended March 2010 (FY 2010) despite the failure of monsoon rainfall suggests that the Indian economy has become resilient, the RBI said. Growth in FY 2011 is expected to be more broad-based than in FY 2010.

The central bank has pegged headline inflation for end-March 2011 at 5.5%, lower than near double digits in the month of March 2010. According to RBI three major uncertainties cloud the outlook for inflation. First, the prospects of the monsoon in 2010-11 are not yet clear. Second, crude prices continue to be volatile. Third, there is evidence of demand side pressures building up.

Equities were volatile. Stocks pared gains after an early surge triggered by higher Asian stocks. The market moved in a tight range in morning trade ahead of the RBI policy review. The market surged to hit fresh intraday high soon after the RBI's policy statement in mid-morning trade. The market trimmed gains after hitting a fresh intraday high in early afternoon trade. The market pared gains amid intense volatility in mid-afternoon trade.

The focus is on the fourth quarter corporate results and outlook provided by management for the current year. The combined net profit of a total of 76 companies rose 13.7% to Rs 5623 crore on 23.7% rise in net sales to Rs 36378 crore in the quarter ended March 2010 over the quarter ended March 2009.

European stocks rose Tuesday, boosted by positive global earnings news. The key benchmark indices in UK, France and Germany rose by 0.81% to 1.27%.

Asian stocks rebounded on Tuesday, a day after suffering their biggest percentage fall in 10 weeks, as Citigroup's best results since 2007 raised investor optimism about corporate earnings and risk aversion receded. The key benchmark indices in Hong Kong, Indonesia, South Korea, Singapore and Taiwan rose by between 0.59% to 1.31%. But the key benchmark indices in China and Japan fell by between 0.03% to 0.07%.

Trading in US index futures indicated that the Dow could gain 34 points at the opening bell on Tuesday, 20 April 2010.

US markets rose on Monday as investors reassessed the potential damage of the fraud case against Goldman Sachs and earnings optimism grew. Shares of Goldman Sachs recovered following news that the Securities Exchange Commission's decision to press on with charges of fraud against Goldman Sachs was only secured with a 3-to-2 vote, which suggested that the case might not be so strong. The Dow Jones Industrial Average rose 73.59 points or 0.67% to 11092.05. The S&P 500 gained 5.39 points or 0.45% to 1197.52. But, the Nasdaq fell 1.15 points or 0.05% to 2480.11.

Goldman Sachs stock had fallen nearly 13% on Friday, 16 April 2010, after the Securities and Exchange Commission alleged it committed fraud in the structuring and marketing of a debt product tied to subprime mortgages, which cost investors more than $1 billion.

Back home, the monsoon holds key. Good rains this year after last year's drought will boost farm output and rural incomes. But another monsoon failure will add to inflationary pressure which in turn may hamper the current strong economic rebound. The June-September monsoon season is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector.

Tokyo-based Research Institute for Global Change has predicted normal monsoon rains in India for the current year. Agriculture secretary P K Basu said in a media interview on Monday, 5 April 2010, that early signs indicate normal monsoon rains this year. The Indian Meteorological Department (IMD) issues a monsoon forecast, usually in the second half of April after considering weather observations in different parts of the world and extrapolating statistical data.

A weakening El Nino is a positive sign for the monsoon, Ajit Tyagi, director general at the India Meteorological Department, had said on 18 March 2010.

The BSE 30-share Sensex rose 59.90 points or 0.34% to 17,460.58. The index fell 6 points at the day's low of 17,394.68 in early trade. The Sensex rose 159.41 points at the day's high of 17,560.09 in afternoon trade.

The Sensex had shed 532.46 points or 2.96% in five sessions to 17400.68 on Monday, 19 April 2010, from a recent high of 17,933.14 on 9 April 2010.

The S&P CNX Nifty gained 26.45 points or 0.51% to 5230.10. NSE's volatility index India VIX tumbled after a recent sharp rise. The index lost 7.9% to 20.87. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days. The index is calculated based on the S&P CNX Nifty options prices.

The BSE Mid-Cap index rose 1.39% and the BSE Small-Cap index rose 1.58%. Both these indices outperformed the Sensex.

The market breadth, indicating the overall health of the market was strong. On BSE, 2088 shares advanced as compared with 785 that declined. A total of 94 shares remained unchanged.

Most sectoral indices on BSE gained. The BSE Realty index (up 3.08%), Bankex (up 1.53%), PSU index (up 1.48%), Auto index (up 1.19%), Capital Goods index (up 0.98%), Power index (up 0.80%), Oil & Gas index (up 0.54%), Healthcare index (up 0.41%), Consumer Durables index (up 0.4%) and Metal index (up 0.38%), outperformed the Sensex.

The FMCG index (up 0.11%), Teck index (down 1%) and IT index (down 1.28%), underperformed the Sensex.

From the 30 share Sensex pack, 19 stocks rose while the rest declined.

BSE clocked turnover of Rs 4532 crore, higher than Rs 3972.85 crore on Monday, 19 April 2010.

Index heavyweight Reliance Industries (RIL) rose 0.18% to Rs 1063.90. The stock was volatile. The scrip hit a high of Rs 1079.30 and the low of Rs 1055. RIL is seen reporting strong Q4 March 2010 results on 23 April 2010.

RIL on 9 April 2010 said the company will pay $1.7 billion to form a joint venture at one of the most promising natural gas deposit regions in the US with Atlas Energy, becoming the latest foreign company to invest in shale plays that are expected to be very lucrative. The firm will pick up a 40% stake in Atlas's operations in the booming Marcellus Shale, a gas project that spans parts of Pennsylvania, West Virginia and New York in the United States and which, according to some geologists, could hold enough natural gas to satisfy US demand for a decade.

Rate sensitive auto stocks jumped after the RBI's policy statement. Vehicle sales in India should grow 10-15% in the fiscal year to March 2011, an industry body said on 9 April 2010. In 2009/10, a total of 1.23 crore vehicles were sold in the country, up 26.4% from the previous fiscal year, data from the Society of Indian Automobile Manufacturers (SIAM) showed.

India's top small car maker by sales, Maruti Suzuki India rose 1.63%. The company recently raised prices of its vehicles across different models due to higher input costs and expenses from the introduction of the new Bharat Stage IV emission norms.

India's largest tractor maker by sales Mahindra & Mahindra rose 1.41%. Mahindra & Mahindra said on 16 April 2010 that it is buying out Renault's stake in a joint venture that makes the Logan sedan. The Renault name and logo will continue to be used on the Logan till the end of calendar 2010, the company said in a statement.

India's largest commercial vehicle maker by sales Tata Motors gained 2.13%. The company said on Thursday 15 April 2010 that its global vehicle sales rose 39% to 101,712 units in March 2010 over March 2009.This includes sales of UK-based Jaguar and land Rover brands that rose 43% to 23,538 vehicles in March 2010 over March 2009

India's second largest bike maker by sales Bajaj Auto rose 3.25%. Bajaj Auto on Friday, 16 April 2010 said it has raised its stake in KTM Power Sports AG, Europe's second largest motorcycle maker.

But, motorbike maker Hero Honda Motors fell 2.39%, reversing initial gains on profit taking. Net profit jumped 48.8% to Rs 598.81 crore on 19.6% rise in total income to Rs 4191.81 crore in Q4 March 2010 over Q4 March 2009. The company announced the results after trading hours on Monday.

Hero Honda managing director and CEO Pawan Munjal said factors like movement in commodity prices, inflation and interest rate scenario will play a crucial role in the growth and profitability of the two-wheeler industry, going ahead. He said Hero Honda has set ambitious milestones for the current year after vehicle sales surpassed the company's target in the year ended March 2010 (FY 2010).

He said the company is looking forward to a series of defining initiatives in the year ending March 2011 (FY 2011), including aggressively expanding geographical reach, building on production capacities and augmenting strong brand portfolio.

Most carmakers increased vehicle prices from 1 April 2010 after 13 cities across the country switched over to Bharat Stage IV emission norms. Earlier in February 2010, following the 2% increase in excise duty on all non-oil products to 10% in the Budget, auto players had hiked prices of vehicles by up to Rs 70,000.

Automobile firms are seen reporting strong Q4 results on a healthy volume growth. However, the sector is witnessing a headwind of rising input costs. Recently, Maruti Suzuki raised car prices due to a surge in input costs and shift to new emission norms from 1 April 2010. M&M, too, hiked utility vehicles prices recently.

Realty majors surged after the Reserve Bank of India kept risk weightage on loans to commercial real estate sector unchanged at its annual monetary policy review today. Mahindra Lifespace Developers, Unitech, Sobha Developers, Ansal Properties and Infrastructure, Peninsula Land, Indiabulls Real Estate and DLF rose between 3.15% to 4.87%. A section of the market was expecting the Reserve Bank of India to raise the risk weightage on loans to commercial real estate to prevent asset bubbles.

Banking majors rose after RBI raised the key short term interest rates by 25 basis points. India's largest bank by net profit and branch network State Bank of India rose 3.26%. Among other PSU banks, Bank of India rose 2.68%. But, Bank of Baroda and Punjab National Bank, fell by between 0.19% to 0.26%.

India's largest private sector bank by net profit ICICI Bank rose 1.49%. But, India's second largest private sector bank by net profit HDFC Bank fell 0.11%, reversing early gains.

Axis Bank rose rose 2.51% as net profit jumped 31.54% to Rs 764.87 crore in Q4 March 2010 over Q4 March 2009.

India's largest mortgage finance firm by total income Housing Development Finance Corporation (HDFC) rose 0.33% to Rs 2700.90. The stock hit a high of Rs 2715.90 and a low of Rs 2668. The company, last week, launched a Dual Rate Product-2 (DRHL-2) in which home loan interest rates will be fixed rate at 8.25% annually up to 31 March 2011, 9% for the period between 1 April 2011 and 31 March 2012, and the applicable floating rate for the balance term. The offer is for loan application made before 30 April 2010 and at least part-disbursement taken before 30 June 2010.

The Reserve Bank of India said recently banks would determine their lending rates with reference to the base rate, effective 1 July 2010. To stabilise the system of base rate calculation, banks are allowed to change the benchmark and methodology anytime

India's largest information technology services provider by sales, TCS, fell 2.74% on profit taking, reversing early gains. The company posted 9.7% growth in consolidated net profit as per Indian accounting standards to Rs 2,001 crore on 1.17% rise in revenues to Rs 7738 crore in Q4 March 2010 over Q3 December 2009. The result was announced after the market hours on Monday.

TCS chief executive officer and managing director N Chandrasekaran said the company's sales and execution machine is primed and the company has laid a solid platform for growth. There is a significant traction for TCS' strategy of full services which together with TCS' global engagement model positions the company well for accelerated growth, Chandrasekaran said.

Among other IT majors, India's second largest software exporter by sales Infosys Technologies fell 0.99%. India's third largest software services exporter by sales Wipro fell 1.27%. The company will announce its Q4 result on Friday, 23 April 2010.

ARSS Infrastructure Projects clocked a highest turnover of Rs 281.73 crore on BSE. State Bank of India (Rs 149.75 crore), Unitech (Rs 119.57 crore), Tata Steel (Rs 89.16 crore) and Reliance Industries (Rs 81.26 crore), were the other turnover toppers on BSE.

FCS Software Solutions reported a highest volume of 3.04 crore shares on BSE. Cals Refineries (1.78 crore shares), Unitech (1.45 crore shares), Development Credit Bank (83.93 lakh shares) and Birla Power Solutions (73.02 lakh shares), were the other volume toppers on BSE.