Market snaps nine-week winning streak on Ulip controversy

The market snapped a nine-week rally on profit booking in frontline stocks as a tussle between regulators on oversight of unit linked insurance products or Ulips weighed on investor sentiment. Speculation that the Reserve Bank of India (RBI) will further tighten monetary policy next week also worried investors.

Ignoring strong global cues, the key Indian indices fell in all four trading sessions last week. The stock market was closed on Wednesday, 14 April 2010, on account of Dr. Babasaheb Ambedkar Jayanti.

There were fears that a controversy with regard to unit linked insurance plans (Ulips) will adversely impacts inflows into Ulips which are a major source of inflows into equities. On 9 April 2010, Sebi banned 14 private life insurance companies from raising funds through Ulips without its approval.

Soon after the Sebi order, insurance industry regulator Insurance Regulatory and Development Authority of India (Irda) directed the 14 insurers to ignore the Sebi order saying that the implementation of the Sebi directive will bring the insurance industry to a standstill which would not be in public interest and would be detrimental to the interests of the policyholders and prejudicial to the interests of the insurers.

Later, following intervention from the finance ministry, Sebi toned down its order on Ulips, saying that launch of new Ulip products will require its prior approval and that insurers can continue selling existing Ulip schemes which were in force as on 9 April 2010.

Ulips are products similar to mutual funds with an added life cover. A large chunk of funds raised through Ulips are invested in equities. According to IRDA, a total of 16.7 lakh Ulip policies, with a premium of Rs 44611 crore, were sold from 1 April 2009 to 28 February 2010. A total of 7.03 crore Ulip polices involving a total premium of Rs 90645 crore were in force in 2008-09.

On the macro front, the latest data showed that inflation rose less-than-expected in March 2010. The wholesale price inflation (WPI) rose 9.9% in March 2010, a tad higher than a 9.89% rise in February 2010. The headline inflation for January 2010 was revised upwards to 9.44% from 8.56% The government also announced that the primary articles price index rose 13.88% in the year to 3 April 2010. The fuel price index rose 12.43% and the food price index rose 17.22% in the year to 3 April 2010.

The BSE Sensex fell 341.96 points or 1.91% to 17,591.18 in the week ended Friday, 16 April 2010. The S&P CNX Nifty lost 99.15 points or 1.84% to 5262.60 in the week.

The BSE Mid-Cap index fell 0.87% and the BSE Small-Cap index fell 0.52% in the week. Both these indices outperformed the Sensex.

A spat between regulators on oversight of unit linked insurance products or Ulips weighed on the domestic bourses in what was a volatile trading session on Monday, 12 April 2010. The BSE 30-share Sensex fell 80.14 points or 0.45% to 17,853. The S&P CNX Nifty fell 22.05 points or 0.41% to 5339.70.

The key benchmark indices registered small losses tracking weak global stocks on Tuesday, 13 April 2010. Infosys led a rally in IT pivotals after the IT sector bellwether issued a stronger revenue guidance in dollar terms which indicated robust outsourcing demand. The BSE 30-share Sensex fell 31.04 points or 0.17% to 17,821.96. The S&P CNX Nifty declined 16.75 points or 0.31% to 5,322.95.

Profit booking in some large-cap stocks dragged the key indices to the lowest level in two weeks on Thursday, 15 April 2010. The market fell for the third consecutive session as European stocks turned negative and US index futures edged lower. Front line stocks bore the major brunt of selling with mid and small-cap indices on BSE falling to a smaller extent. The BSE 30-share Sensex fell 182.70 points or 1.03% to 17,639.26. The S&P CNX Nifty was down 49.35 points or 0.93% to 5273.60.

The key benchmark indices edged lower in volatile trade on Friday, 16 April 2010 as an imminent hike in key short-term interest rates by the Reserve Bank of India (RBI) at a policy review next week weighed on investor sentiment. Stocks fell for the fourth straight trading session. The BSE 30-share Sensex fell 48.08 points or 0.27% to 17,591.18. The S&P CNX Nifty declined 11 points or 0.21% to 5262.60.

Index heavyweight Reliance Industries (RIL) fell 3.62%. On Friday, 16 April 2010, RIL said it will provide growth capital to logistics firm Deccan 360. The investment would be done through a wholly owned subsidiary. Deccan 360 is a cargo service headed by Captain Gopinath.

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.

Capital goods pivotals declined. India's largest engineering and construction firm by sales Larsen & Toubro (L&T) fell 4.29%. The company, last week, received an order worth Rs 1,060 crore from Gujarat State Petroleum Corporation (GSPC) to build an offshore oil platform.

India's top power equipment maker by sales Bharat Heavy Electricals (Bhel) lost 2.78%. The stock hit a 52-week high of Rs 2,585 on Monday, 12 April 2010.

Bharti Airtel, India's largest mobile operator by sales fell 1.20%. The company added 30 lakh mobile subscribers in March 2010, and took its total subscribers to 12.76 crore. India's second largest mobile operator by sales Reliance Communications fell 5.65%.

India's largest private sector bank by net profit ICICI Bank declined 5.71% ahead of a policy review by the RBI.

India's largest mortgage finance firm by total income Housing Development Finance Corporation (HDFC) fell 5.87%. The company said on Thursday it has 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.

FMCG stocks rose on expectation of good Q4 results. ITC (up 0.24%), Dabur India (up 1.16%) and Hindustan Unilever (up 2.33%), rose.

Godrej Consumer Products spurted 10.26% on reports the company is in talks to acquire Brazilian hair care company Embelleze.

India's second largest software exporter by sales Infosys Technologies rose 3.99%. It hit a record high of Rs 2,823.80 on Thursday 15 April 2010 after the company issued a stronger revenue guidance in dollar terms for financial year ending March 2011 (FY 2011). The stock had jumped 3.69% on Tuesday, 13 April 2010, after the IT bellwether projected a 16% to 18% growth in revenue at between at between $5.57 billion to $5.67 billion for the current year.

Among other IT pivotals, India's third largest software services exporter by sales Wipro rose 1.70%. India's largest software services exporter by sales Tata Consultancy Services rose 2.83%.

Auto stocks fell on profit taking after recent strong gains triggered by expectations of strong Q4 results. Vehicle sales in India should grow 10-15% in the fiscal year to March 2011, an industry body said on Friday 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 fell 2.19%. 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 fell 4.85%. India's leading bike maker by sales Hero Honda Motors fell 6.68%.

India's second largest bike maker by sales Bajaj Auto fell 0.75%. Bajaj Auto has raised its stake in KTM Power Sports AG, Europe's second largest motorcycle maker.

India's largest commercial vehicle maker by sales Tata Motors fell 2.99%. The company said on Thursday, 15 April 2010 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

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.