Volatility index jumps as market loses ground

The key benchmark indices slumped as weak global stocks and worries about the economic health of Greece triggered profit taking after recent sharp surge in share prices. A spike in food price inflation also rekindled fears of a hike in key policy rates when the Reserve Bank of India reviews its monetary policy on 20 April 2010. The market breadth, indicating the overall health of the market turned weak in contrast to a strong breadth earlier in the day. The BSE 30-share Sensex fell 255.62 points or 1.42%.

Metal stocks fell as metal prices declined on the London Metal Exchange. Steel Authority of India fell more than 7% after the cabinet approved a 20% stake sale in state-run firm in two tranches. Rate sensitive auto and banking stocks also fell. Index heavyweight Reliance Industries (RIL) slumped more than 2%. Capital goods stocks also declined.

NSE's volatility index, India VIX, jumped 15.01% to settle at the day's high of 19.92. 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 market extended early losses to hit fresh intraday lows in morning trade tracking weak Asian stocks. It weakened once again after paring losses in mid-morning trade. The market tumbled to a fresh intraday low in afternoon trade after the inflation data was released in early afternoon trade. The market extended losses in mid-afternoon trade. The market hit a fresh intraday low in late trade.

Expectations of good fourth quarter result by India Inc and heavy foreign fund inflows boosted the bourses in the past few weeks with the key benchmark indices surging to their highest level in more than 25 months on Wednesday, 7 April 2010.

Stock-specific action may rule the roost on the bourses in the near term based on expectations of Q4 March 2010 results. IT bellwether Infosys kickstarts the reporting season on 13 April 2010.

On the macro front, the food price index rose 17.70% in the year to 27 March 2010, government data showed on Thursday. The rise in the food price index was higher than an annual rise of 16.35% in the previous week. The fuel price index rose 12.71%, a tad below the previous week's reading of 12.75%. The primary articles index rose 14.5%.

European shares slipped ahead of rate decisions from the Bank of England and the European Central Bank. Key indices in UK, France and Germany were down by 1.08% to 1.62%.

Greece's fiscal health continued to weigh on sentiment as the country's financing costs continue to soar, raising fears of a default. The European Central Bank will flesh out on Thursday a revamp of its lending rules to help ease the financial squeeze on Greece, while keeping euro zone interest rates at a record low of 1%. The focus will remain squarely on what President Jean-Claude Trichet has to say on the subject after the bank's monthly monetary policy meeting meeting.

The Bank of England kept interest rates at a record low of 0.5% for the 13th month running on Thursday and made no increase to its 200 billion pounds asset-buying scheme to boost the economy.

Asian stocks fell for the first time in six days on Thursday after Japanese machinery orders unexpectedly dropped and US consumer credit slumped more than economists' forecast. The key benchmark indices in China, Hong Kong, Singapore, Taiwan, Indonesia, Japan fell by between 0.28% to 1.65%. South Korea's Seoul Composite rose 0.42%.

Trading in US index futures indicated that the Dow could fall 30 points at the opening bell on Thursday, 8 April 2010.

US stocks slipped on Wednesday after a senior Federal Reserve member said policy makers should start raising rates to 1% soon and on Greek debt concerns. In economic data, mortgage applications ticked up just 0.2% last week as a spike in mortgage rates clipped demand for refinancing. Another report showed consumer borrowing fell by $11.5 billion in February, much weaker than the $500 million gain expected. The Dow Jones fell 72.47 points or 0.86% to 10,897.52. The Nasdaq declined 5.65 points or 0.23% to 2431.16 and the S&P 500 fell 6.99 points or 0.59% to 1182.45.

Two top US Federal Reserve officials warned about the risks to the economy from asset bubbles on Wednesday, and one suggested raising interest rates to halt risky behavior that could trigger another bust. Still, Fed Chairman Ben Bernanke offered a relatively downbeat view of the economy during a speech in Dallas, suggesting he was in no rush to tighten monetary policy. Thomas Hoenig, president of the Kansas City Fed, reiterated his concern that the Fed's ultra-low interest rate policies could have unintended consequences.

US government will encourage China, India, Brazil and other fast-growing markets to buy more American goods as part of its bid to double exports in five years, Under Secretary for International Trade Francisco Sanchez said on Wednesday.

Closer home, chief statistician Pranab Sen on Wednesday said the Reserve Bank of India will have to further tighten monetary policy on 20 April 2010 if prices continue to rise, as expected, from 9.89% headline inflation in February. The Reserve Bank of India (RBI) will review its monetary policy on 20 April 2010. Sen, however, declined to specify what policy actions were required, saying it was for the central bank to decide.

The four-month spell of wholesale price inflation above the RBI's perceived comfort zone of 5% prompted the central bank in March to unexpectedly hike its key lending rates by 25 basis points. The Reserve Bank of India last month warned of inflationary pressures from higher capacity utilisation and rising commodity and energy costs.

Sen said WPI inflation in March was likely to be higher than February's 9.89%, partly due to a low base effect. Headline inflation could start easing from April when the base effect starts wearing off, he added, noting that food price inflation has already started moderating. The inflation for the month of March 2010 will be announced by the government on 12 April 2010.

Global credit rating agency Standard & Poor's, last month, revised the outlook on India to stable from negative due to improved government finances.

The forecast for the southwest monsoon for 2010 is the next major trigger for the market. 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, said on 18 March 2010. The cyclical heating of the Pacific Ocean known as El Nino will continue to fade, US forecasters said last month. The weather event, which occurs every four to seven years, brings more rain to South America and less precipitation to Asia.

But abnormally hot weather and lower than expected rains are reportedly raising the spectre of India facing another water shortage in the coming kharif season, reports suggest. Rains have been 66% lower than normal in March. Temperature has been 4 to 7 degrees above normal, making it the hottest March in almost a decade report said.

Meanwhile, Indian companies continue to raise funds for expansion, future growth and in some cases to lower debt. Market men expect Indian companies to raise large sums of money this year from equity issuance which includes initial public offerings, American Depositary Receipts, Global Depositary Receipts, qualified institutional placements etc. Indian firms have so far raised about $10.5 billion from equity, equity related instruments in calendar 2010 so far. This includes divestment by the government. The government has targeted raising Rs 40,000 crore from divestment in state-run firms in the financial year ending March 2011.

Trends indicate that more Indian companies will be upgraded than downgraded in fiscal year 2010/11, the local unit of a global rating agency said on Wednesday. In a reversal of a three-year trend, the rating agency's upgrades outnumbered downgrades in the second half of 2009/10. However, a global credit event on sovereign debt, impact of inflationary expectations on interest rates, and exchange rate volatility were outlined as the key the risks that could affect credit quality.

While the Greek debt crisis is still sending shivers through the global economy, India's central bank looks set to raise interest rates for the second time in as many months on 20 April 2010, and the speedy recovery of Asia's third-largest economy has raised concerns of a possible surge in capital inflows.

The BSE 30-share Sensex fell 255.62 points or 1.42% to 17,714.40. The Sensex lost 290.68 points at the day's low of 17,679.34 in late trade. The index fell 9.11 points at the day's high of 17960.91 in early trade.

The S&P CNX Nifty declined 70.20 points or 1.31% to 5,304.45.

The BSE Mid-Cap index fell 0.4% and the BSE Small-Cap index fell 0.38%. Both the indices outperformed the Sensex.

Most sectoral indices on BSE declined. BSE Oil & Gas index (down 1.88%), Metal index (down 1.87%), and banking sector index Bankex (down 1.65%), underperformed the Sensex. BSE Consumer Durables index (up 2.25%), Realty index (up 0.55%), IT index (up 0.34%), FMCG index (down 0.54%), Power index (down 0.76%), Healthcare index (down 0.78%), Capital Goods index (down 1.06%), Auto index (down 1.35%), and PSU index (down 1.41%), outperformed the Sensex.

The market breadth, indicating the overall health of the market, turned weak in contrast to a strong breadth earlier in the day. On BSE, 1188 shares advanced as compared with 1688 that declined. A total of 81 shares remained unchanged.

Among the 30-member Sensex pack, 26 fell while the rest of them advanced.

BSE clocked turnover of Rs 4784 crore, lower than Rs 5891.13 crore on Wednesday, 7 April 2010.

Reliance Industries (RIL) fell 2.19% on profit taking after recent strong gains. Reliance Industries' promoter entities have acquired shares worth Rs 113.57 crore through off-market transactions, the company said on Wednesday. Five promoters, however, have sold shares of the company worth Rs 78.03 crore through off-market transactions, the filing said.

RIL is producing 63-64 million standard cubic metres a day (mmscmd) of gas from the D6 block off India's east coast, executive director P.M.S. Prasad said on Tuesday. The company is producing 21,000 barrels per day of oil from the block, he added.

Capital goods pivotals fell on profit taking. India's top power equipment maker by sales Bharat Heavy Electricals (Bhel) fell 1.63%. The stock had risen to a 52-week high of Rs 2,559.50 in intra-day trade on Wednesday, 7 April 2010. As per recent reports the company plans to re-enter wind turbine manufacturing space in the next three months.

India's largest engineering and construction firm by sales Larsen & Toubro (L&T) fell 1.19%, with the stock declining for the second straight day. The company on Monday said it has received an order worth Rs 1,060 crore from Gujarat State Petroleum Corporation (GSPC) to build an offshore oil platform.

Among other capital goods stocks, Punj Lloyd, ABB, BEML, Siemens, Praj Industries fell by between 0.33% to 1.18%.

Auto stocks fell on profit taking after the recent upmove that was triggered by robust March 2010 sales figures. India's largest commercial vehicle maker by sales Tata Motors fell 2.41% as one of its ultra-cheap Nano cars caught fire on Wednesday, 7 April 2010, perhaps due to a technical snag in its rear portion.

India's top small car maker by sales, Maruti Suzuki India fell 1.23%. The company said on Monday it has raised the price 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 leading bike maker by sales Hero Honda Motors fell 1.54%. India's second largest bike maker by sales Bajaj Auto fell 0.23% reversing early gains. Bajaj Auto will distance itself from the parent brand Bajaj and focus on just four motorcycle brands - Boxer, Discover, Pulsar and KTM - as well as the rear-engine three-wheeler brand, phasing out the rest, managing director Rajiv Bajaj was quoted by the media as saying on Thursday.

India's largest tractor maker by sales Mahindra & Mahindra fell 0.91% reversing early gains on reports the company has raised prices of utility vehicles due to a rise in input and fuel costs, and expenses associated with migrating to new emission norms.

From this month, 13 cities across the country have switched over to Bharat Stage IV emission norms. Following this, many carmakers, have increased the vehicle prices. With newer technology required for upgradation, auto companies had said they would have to pass on the increased cost to customers. In February, 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.

Metal stocks declined after LMEX, a gauge of six metals traded on the London Metal Exchange, fell 0.61% on 7 April 2010. NMDC, Sterlite Industries, National Aluminum Company, Hindalco Industries, JSW Steel, Sesa Goa and Hindustan Zinc fell by between 0.45% to 4.29%.

India's largest private sector steel maker by sales Tata Steel fell 1.86%. The company said on Tuesday its sales for the fiscal year ended on 31 March 2010 rose 18% from a year ago to 6.17 million tonnes.

Steel Authority of India (Sail) fell 7.18% after the cabinet approved a 20% stake sale in state-run firm in two tranches. The sale is expected to fetch the government Rs 8000 crore ($1.8 billion) in the first sale of 10%, Home Minister Palaniappan Chidambaram said. The government currently holds 86% stake in Sail, India's top domestic maker of the alloy.

Banking and housing finance shares edged lower on fears of an impending hike in key policy rates by the Reserve Bank of India at its monetary policy review meet scheduled to be held on 20 April 2010. India's largest bank by net profit and branch network State Bank of India fell 0.86% extending losses for the third straight day. Chairman O.P. Bhatt said on Tuesday the bank may raise its lending and deposit rates in a couple of months. The state-owned bank will wait for the Indian central bank's monetary policy action to take a final call on interest moves, Bhatt said.

India's largest private sector bank by net profit ICICI Bank fell 2.65% extending Wednesday's 1.13% loses. India's second largest private sector bank by net profit HDFC Bank fell 1.7%.

India's largest mortgage finance firm by total income Housing Development Finance Corporation fell 2.86%, with the stock declining for the second straight day.

As per the latest fortnightly report released by the RBI, banks disbursed an additional Rs 1,15,548 crore in the 15 days up to 26 March 2010, almost 25% of the Rs 4,64,849 crore disbursed in the entire financial year. Thus, fourth quarter of FY 2010 accounted for 47% of the total loans disbursed during the entire FY 2010. The unusually high disbursals pushed the year on-year growth in credit to 16.7% at the end of the financial year. Banks typically step updisbursals in the last weeks of a quarter, even more so towards the end of the year, to meet targets. However, disbursals in the fortnight up to 26 March 2010 are high even by year-end standards, surpassing the Rs 79,500 crore disbursed in the last fortnight of FY 2009.

Telecom pivotals fell ahead of the auction to provide super fast third generation (3G) service in the country's booming cellular market. The government is hoping to reap around $8 billion from the sale of 3G airwaves on 9 April 2010. India's largest listed cellular services provider by users Bharti Airtel fell 2.4%.

India's second listed largest cellular services provider by users Reliance Communications fell 1.32%.

3G allows mobile phone users to surf the Internet, video conference and download music, video and other content at a much faster pace than the current second-generation or 2G service.

Oil exploration firms fell, after the crude prices declined almost $1 a barrel on the New York Mercantile Exchange on Wednesday, 7 April 2010. India's biggest state-run oil exploration firm by revenue Oil & Natural Gas Corporation (ONGC) declined 1.97%. Cairn India lost 2.29%. But, India's second biggest oil and gas exploration firm by revenue, Oil India, rose 0.14%. Fall in crude oil prices would result in lower realizations from crude sales for oil exploration firms. Light, sweet crude oil declined 96 cents or 1.11%, to $85.88 a barrel on the New York Mercantile Exchange on Wednesday, 7 April 2010, after the US government data showed a bigger-than-expected increase in crude inventories.

India's largest real estate company by sales DLF gained 0.48%. The stock extended three-day gains on recent reports the company has appointed an advisor to find buyers for Aman Resorts, a luxury hotel chain it had acquired in November 2007, for $400 million.

Among other realty stocks, Indiabulls Real Estate, Phoenix Mills, Omaxe rose by between 0.64% to 6.44%.

IT stocks rose on bargain hunting after recent losses triggered by a firm rupee. A firm rupee adversely affects operating profit margins of IT firms as the sector derives a lion's share of revenue from exports.

India's largest IT exporter by sales Infosys rose 0.52%. The key focus is Infosys' guidance for the year ending March 2011 (FY 2011). The company unveils its Q4 March 2010 and year-ended March 2010 (FY 2010) results on 13 April 2010. Market men expect a muted revenue and earnings guidance from the IT major after taking into account cross currency impact, planned employee addition, wage hike and higher taxes. The government hiked the minimum alternate tax (MAT) to 18% from 15% in the Union Budget 2010-2011.

Infosys is seen reporting about 1% to 2% growth in net profit in Q4 March 2010 over Q3 December 2009. The IT bellwether's revenue is seen rising 2% to 3% sequentially on the back of higher volume growth.

India's third largest software services exporter by sales Wipro rose 0.06%. India's largest software services exporter by sales Tata Consultancy Services was flat.

FMCG stocks also declined on profit taking. Hindustan Unilever, ITC, Tata Tea, Nestle India fell by between 0.4% to 1.44%.

Cals Refineries clocked the highest volume of 1.03 crore shares on BSE. Birla Power Solutions (0.93 crore shares), IFCI (0.88 crore shares), Shree Ashtavinayak Cine Vision (0.85 crore shares) and Pipavav Shipyard (0.75 crore shares) were the other volume toppers in that order.

Persistent Systems clocked the highest turnover of Rs 241.26 crore on BSE. Jubilant Food Organosys (155 crore), ARSS Infra (126.17 crore), Steel Authority of India (Rs 96.65 crore) and Jai Corp (Rs 7.84 crore) were the other turnover toppers in that order.