Rally fizzles out as euphoria over euro zone rescue plan fades

The key benchmark indices edged lower in choppy trade as world stocks retreated after Monday (10 May 2010)'s solid surge amid uncertainty over euro-zone countries' ability to reduce their deficits. The BSE 30-share Sensex fell 189.02 points or 1.09%, up close to 35 points from the day's low and off close to 275 points from the day's high. All the sectoral indices on the BSE were in the red. The market breadth, indicating the overall health of the market, was weak. Metal, realty, telecom and IT stocks fell. Hindalco Industries declined in a weak market despite strong Q4 result. Ranabaxy Laboratories, too, fell a weak market after turnaround Q1 result.

The Sensex had surged 3.35% on Monday, 10 May 2010, as global stocks rallied after European leaders on Sunday, 9 May 2010, announced a rescue package to prevent Greece's fiscal woes from triggering a broader sovereign-debt crisis.

Stocks were volatile. The market slipped into the red soon after a firm start. The market came off the lower level in early trade. But, the intraday recovery proved short-lived. The Sensex hit a fresh intraday low in morning trade. The market extended losses in early afternoon trade. Bargain hunting in select Sensex stocks helped the market trim losses in afternoon trade. The market once again weakened in mid-afternoon trade, with the Sensex hitting a fresh intraday low.

NSE's volatility index India VIX, a measure of traders' perception of near-term risks in the market based on options prices, jumped 6.92% to 25.81. The index had tumbled 11.9% to 24.14 on Monday, 10 May 2010. India VIX is calculated based on the S&P CNX Nifty options prices. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

European shares fell after a massive rally on Monday, as doubts about Greece's ability to cut its fiscal deficit still persisted. The key benchmark indices in UK, France and Germany were down by 1.26% to 2.33%.

Asian equities fell on Tuesday, reversing initial gains, as lingering doubts about how Greece and other debt-laden euro zone countries will reduce their budget deficits put the brakes on the impressive relief rally in global stocks on Monday. The key benchmark indices in Hong Kong, China, Indonesia, Singapore, Japan, South Korea and Taiwan fell by between 0.44% to 1.90%.

Moody's Investors Service, in an unusual move regarding its sovereign ratings process, said on Monday it may downgrade its ratings on Portugal, and Greece's rating could fall to as low as junk.

The European Union and the International Monetary Fund agreed on Sunday to create a nearly $1 trillion rescue fund to support European nations burdened by heavy debt.

Meanwhile, higher inflation for April 2010 raised worries of further monetary tightening in China. China's consumer prices rose a more-than-estimated 2.8% in April from a year earlier, the fastest pace in 18 months. Another data showed industrial production rose 17.8% in April from a year earlier, after an 18.1% gain in March.

Trading in US index futures indicated that the Dow could fall 114 points at the opening bell on Tuesday, 11 May 2010.

US stocks racked up their biggest one-day gain in over a year on Monday as an agreement on a $1 trillion emergency rescue package from the European Union reduced fears a new credit crisis would derail European economies. The Dow Jones Industrial Average gained 404.71 points, or 3.90% to 10,785.14. The Standard & Poor's 500 Index rose 48.85 points, or 4.40% to 1,159.73. The Nasdaq Composite Index added 109.03 points, or 4.81% to 2,374.67.

Meanwhile, US market watchdogs and six major exchanges agreed new safeguards were needed to curb trading in plunging markets, an effort to address last Thursday's mysterious market free fall. Securities and Exchange Commission Chairman Mary Schapiro met on Monday with the leaders of major stock and option exchanges, as well as the brokerage industry watchdog, the Financial Industry Regulatory Authority (FINRA). Regulators still have not pinpointed the exact cause of last week's 20-minute market roller coaster, when many stocks dropped precipitously for several minutes before recovering most of their losses.

Back home, the fourth quarter corporate results announced so far have been fairly encouraging. The combined net profit of a total of 1444 companies rose 30.3% to Rs 44322 crore on 29% rise in sales to Rs 415840 crore in the quarter ended March 2010 over the quarter ended March 2009.

Business at Indian service companies rebounded to a 21-month-high in April 2010 on new business and high input prices. The HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 62.1 in April, its highest since July 2008, and compared with 58.1 in March 2010.

The government will announce the industrial output data for the month of March 2010 on Wednesday, 12 May 2010. Industrial output rose by lower than expected 15.1% February 2010 and also lower than 16.7% rise in January 2010.

On Friday, 14 May 2010, the government will unveil data on inflation based on the wholesale prices for the month of April 2010. The headline inflation was 9.9% in March 2010. The RBI has forecast the headline inflation to ease to 5.5% at end-March 2011 on expectations of a normal monsoon.

Inflation based on food prices rose 16.04% in the year through 24 April 2010, slower than previous week's annual rise of 16.61%. Fuel prices inflation remained at elevated level. The fuel price index rose 12.69% in the year through 24 April 2010, same as a week ago. The primary articles index rose 13.93% in the year through 24 April 2010.

The Indian Meteorological department (IMD) expects normal rainfall in the June-September monsoon season this year. Rainfall is likely to be 98% of the long-term average, the IMD said on 23 April 2010. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation. The south west monsoon 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. The quantum of rainfall in the crucial sowing month of July and distribution of rainfall during the monsoon season holds key.

The Reserve Bank of India expects India's economy to expand 8% in 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 RBI at its annual policy review on 20 April 2010 said it will continue to monitor macroeconomic conditions, particularly the price situation closely and take further action as warranted.

In its half-yearly World Economic Outlook, the International Monetary Fund (IMF) has pegged India's GDP growth at 8.75% in calendar 2010 and 8.5% in calendar 2011. According to the IMF, domestic demand in India will strengthen as the labour market improves, and investment is expected to be boosted by strong corporate profitability, rising business confidence and favourable financing conditions.

The BSE 30-share Sensex fell 189.02 points or 1.09% to 17,141.53. The Sensex fell 226.10 points at the day's low of 17,104.45 in mid-afternoon trade. The index rose 48.60 points at the day's high of 17,379.15 in early trade.

The S&P CNX Nifty declined 57.45 points or 1.11% to 5,136.15.

The BSE Mid-Cap index fell 0.99% and the BSE Small-Cap index fell 0.85%. Both the indices outperformed the Sensex.

All the sectoral indices on BSE were in red. Metal index (down 2.57%), Realty index (down 2.43%), Healthcare index (down 1.59%), Power index (down 1.59%), Capital Goods index (down 1.22%), and Oil & Gas index (down 1.15%), underperformed the Sensex. Banking sector index Bankex (down 0.34%), Auto index (down 0.41%), Consumer Durables index (down 0.79%), FMCG index (down 0.82%), IT index (down 0.91%) and PSU index (down 0.92%), outperformed the Sensex.

BSE clocked turnover of Rs 4202 crore, lower than Rs 4329.67 crore on Monday, 10 May 2010.

The market breadth, indicating the overall health of the market, turned weak. The breadth was positive earlier in the day. On BSE, 1100 shares advanced as compared to 1760 shares that declined. A total of 93 shares remained unchanged.

Among the 30-share Sensex pack, 27 declined while the rest rose.

Index heavyweight Reliance Industries (RIL) fell 1.2% to Rs 1067.20 in volatile trade. The stock came off the day's high of Rs 1089. The stock had surged in the past two trading sessions after a favourable ruling in the Supreme Court late last week on gas dispute with Anil Ambani controlled Reliance Natural Resources (RNRL). The Supreme Court ordered the two firms to renegotiate a deal based on government policy on gas utilization.

Earlier, the Bombay High Court, in its order dated 15 June 2009 had directed that RNRL will get assured supply of 28 mmscmd of gas from RIL's Krishna-Godavari basin for 17 years at $2.34 per million British thermal units (mBtu). The gas price was 44.28% lower than the price fixed by the government for gas sale from the RIL block in the KG basin at $4.2 mBtu.

Telecom stocks fell after the telecom regulator suggested telecom firms to pay a one-time fee for holding radio-spectrum beyond 6.2 mega hertz (MHz) based on 3G prices. India's largest cellular services provider by sales Bharti Airtel fell 3.11%. India's second largest listed cellular services provider by sales Reliance Communications fell 4.95%. The stock was the top loser from Sensex pack. Idea Cellular declined 5.31%.

The telecom regulator on Tuesday also recommended ending restrictions on telecoms firms selling out, a move which will help consolidation in the world's fastest growing telecoms market. The current rules restrict telecom firms from selling majority stakes within three years of getting licence.

Cipla fell 1.84%, extending Monday's 6.42% losses. Net profit rose 8.93% to Rs 275.53 crore in Q4 March 2010 over Q4 March 2009. The result was announced after market hours on Friday, 7 May 2010.

Among other pharma stocks, Pfizer, Dr Reddy's Laboratories and Sun Pharmaceutical Industries fell by between 0.4% to 2.07%.

But, Ranbaxy Laboratories rose 0.88% to Rs 458.25 on strong Q1 result. The stock hit a high of Rs 469.50 and a low of Rs 449.80. The company reported consolidated net profit of Rs 960.58 crore in Q1 March 2010 compared to a net loss of Rs 767.33 crore in Q1 March 2009. The company announced the result during market hours today.

Capital goods stocks fell on profit taking. SKF India, BEML, ABB, Bharat Heavy Electricals, Larsen & Toubro, Praj Industries, Siemens fell by between 0.92% to 3.24%.

Realty stocks, too, fell on profit taking after Monday's sharp gains. Omaxe, Ackruti City, HDIL, DLF, Indiabulls Real Estate and Unitech fell by between 0.87% to 3.94%.

Metal and mining stocks fell amid worries that China could move to cool its stellar growth. JSW Steel, Sesa Goa, Tata Steel, Jindal Saw, Hindustan Zinc, Jindal Steel & Power, Sterlite Industries, Steel Authority of India fell by between 0.47% to 4.27%. China is the world's largest consumer of copper and aluminum.

Aluminum maker Hindalco Industries fell 3.28%. Net profit surged 147.03% to Rs 663.92 crore in Q4 March 2010 over Q4 March 2009. The company announced the result during market hours today.

IT pivotals fell amid uncertainty over euro-zone countries' ability to reduce their deficits. Europe is the second largest market for Indian IT firms. India's third largest software services exporter Wipro fell 0.66% on profit taking after the stock jumped 5.18% on Monday. India's second largest software services exporter Infosys fell 0.45%. The stock had risen 2.12%, on Monday. India's largest software services exporter TCS fell 1.88% on profit taking after Monday's near 4% rally.

Auto shares were mixed. India's largest small car maker by sales Maruti Suzuki India fell 1.87%. Maruti's total sales rose almost 30% to 93,058 units in April 2010 over April 2009. Domestic sales rose 23.4% to 80,034 units. The data was unveiled on 1 May 2010.

India's top truck maker by sales Tata Motors fell 1.75%, with the stock giving away a small portion of Monday's near 7% rally. Total sales including exports of commercial and passenger vehicles jumped 52% to 57,202 vehicles in April 2010 over April 2009. Domestic sales rose 49% to 54,065 units. Exports rose 148.8% to 3,137 units.

But, India's largest tractor maker by sales Mahindra & Mahindra gained 1.51% extending Monday's 5.81% surge. Bajaj Auto rose 0.12%, extending Monday's 2.97% gains.

Car sales in India rose an annual 39.5% to 143,976 cars in April 2010 over April 2009, data from the Society of Indian Automobile Manufacturers (SIAM) showed. Sales of trucks and buses, a barometer of economic activity, rose 64.5 % to 49,086 units in April 2010 over April 2009, SIAM said.

FMCG shares fell on profit taking. Tata Tea, Hindustan Unilever, ITC and Dabur India fell by between 0.53% to 1.18%.

Interest rate sensitive banking shares fell on profit taking after Monday's sharp surge. India's largest private sector bank by net profit ICICI Bank fell 0.59% on profit taking after Monday's 5.12% rally. Its ADR surged 10.61% on Monday.

India's biggest commercial bank in terms of branch network State Bank of India fell 0.86% after Monday's 3.61% gains.

But, India's second largest private sector bank by net profit HDFC Bank rose 0.69%. Its ADR rose 7.83% on Monday.

India's largest mortgage lender by total income Housing Development Finance Corporation declined 0.67%. The company's board on 3 May 2010 approved a 5-for-1 stock-split.

Cals Refineries clocked the highest volume of 2.29 crore shares on BSE. Reliance Natural Resources (1.73 crore shares), Talwalkars Better Value Fitness (1.66 crore shares), Birla Power Solutions (1.5 crore shares) and IFCI (1.09 crore shares) were the other volume toppers in that order.

Talwalkars Better Value Fitness clocked the highest turnover of Rs 319.98 crore on BSE. Tata Steel (Rs 156.33 crore), Reliance Industries (Rs 140.25 crore), State Bank of India (Rs 110.17 crore) and Reliance Natural Resources (Rs 87.13 crore) were the other turnover toppers in that order.