Banking, IT stocks lead decline; breadth weak

The key benchmark indices slumped to intraday lows in late trade as European stocks and US index futures declined. Oil & gas stocks surged after the government freed petrol prices. The government will also eventually decontrol diesel prices, Oil Secretary S. Sundareshan said. But, some auto shares fell on worries the latest fuel price hike may crimp sales. Bank shares, too, declined on worries the fuel price hike will stoke inflation. Index heavyweight Reliance Industries (RIL) rose after the company signed a new gas supply master agreement with Reliance Natural Resources.

The market breadth was weak. The BSE 30-share Sensex was provisionally down 153.01 points or 0.86%, up close to 30 points from the day's low and off about 130 points from the day's high.

Intraday volatility was high. The market lost ground in early trade on weak Asian stocks. The market extended losses in morning trade. The market came off the lows later. It recovered sharply after moving in a narrow range in afternoon trade. The market trimmed losses after weakening once again in mid-afternoon trade. The market slumped to a fresh intraday low in late trade.

The government has decided to raise petrol price by Rs 3.50 a litre and diesel price by Rs 2 a litre, as part of a plan to move towards a market-determined fuel price regime. The decision follows a ministerial panel meeting on freeing up petrol prices and cutting subsidies on diesel, kerosene and cooking gas, to help rein in the fiscal deficit, which is projected at 5.5% of the gross domestic product in 2010/11 and free up revenues for other programmes.

Kerosene price has been raised by Rs 3 per litre and LPG by Rs 35 per cylinder. The government has decided to decontrol petrol prices. It has also decided to decontrol diesel prices, though not immediately. It will, however, continue to subsidise LPG and kerosene.

European stocks edged lower on Friday, as losses for BP and autos worked to offset gains for banks ahead of this weekend's G-20 summit as reports indicated rules at a global and US level won't be as tough as initially drafted. The key benchmark indices in France, Germany and UK fell by between 0.75% to 0.82%.

Asian stocks slid for a fourth straight session on Friday, driven lower by worries of tighter financial regulation ahead of the weekend G20 meeting and on uncertainty about the global economic recovery. The key benchmark indices in China, Singapore, Hong Kong, Japan, Taiwan and South Korea fell by between 0.21% to 1.92%. But, key benchmark indices in Indonesia and Singapore rose by between 0.14% to 1.03%.

Taiwan's central bank raised its policy discount rate after markets hours on Thursday by 12.5 basis points to 1.375%. The rate hike was its first since June 2008.

US index futures reversed gains. Trading in US index futures indicated that the Dow could fall 38 points at the opening bell on Friday, 25 June 2010.

US stocks slumped on Thursday as fresh signs of consumer weakness and worries about stringent financial regulation provoked investors to unload positions. The Dow Jones Industrial Average dropped 145.64 points, or 1.41% to 10,152.80. The Standard & Poor's 500 Index fell 18.35 points, or 1.68% to 1,073.70. The Nasdaq Composite Index lost 36.81 points, or 1.63% to 2,217.42.

A fall in initial jobless claims and a rise in a gauge of long-lasting manufactured goods failed to offset recent weak economic data, and the Federal Reserve on Wednesday gave a subdued assessment about the economy's recovery.

Back home, most Indian firms including Reliance Industries, L&T, Tata Steel and Tata Motors, have paid higher advance tax in Q1 June 2010 over Q1 June 2009. Higher advance tax payment normally indicates higher profits for the period under review. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year.

On the macro front, food inflation accelerated in mid-June 2010, maintaining pressure on the Reserve Bank of India to tighten monetary policy at a faster pace. The food price index rose 16.90% in the year to 12 June 2010, higher than the previous week's annual reading of 16.12%, data released by the government on Thursday showed. The fuel price index remained unchanged at 13.18% in the year to 12 June 2010.

Investors will closely watch the progress of the monsoon rains. Annual monsoon rains were 11.1% below normal between June 1-23, the India Meteorological Department (IMD) said on Thursday, 24 June 2010.

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 south-west monsoon usually covers the entire country by mid-July. The weather office late April 2010 said rainfall is likely to be 98% of the long-term average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

Global rating agency Fitch recently raised India's growth forecast to 8.5% in the year to March 2011 from earlier forecast of 7% growth. The rating agency raised the local currency rating outlook to stable from negative as it forecast a decline in government debt to GDP ratio to 80% by March 2011 from 83% at the end of March 2010.

Meanwhile, in a major development, the government recently ended the row over unit linked insurance plans or Ulip by promulgating an ordinance on Friday, 18 June 2010, stating that unit linked insurance policies with investment component are insurance products which will come under the regulatory jurisdiction of the Insurance Regulatory & Development Authority (Irda) and not the Securities & Exchange Board of India (Sebi). It amended four Acts to make it clear that Ulips are not securities and they did not form part of collective investment schemes or mutual funds.

Foreign funds have made heavy purchases of Indian stocks over the past few days. The net inflow totaled Rs 6900.07 crore in June 2010 so far (till 24 June 2010) compared to a massive outflow of Rs 12071.13 crore in May 2010.

Domestic funds, which had absorbed some of the heavy selling from foreign funds last month, offloaded stocks worth a net Rs 3970.14 crore this month so far. Domestic funds had mopped up equities worth a net Rs 6361.17 crore in May 2010.

As per provisional figures, the BSE 30-share Sensex was down 153.01 points or 0.86% at 17,577.23. The Sensex fell 25.13 points at the day's high of 17,705.11 in early trade. The Sensex lost 183.51 points at the day's low of 17,546.73 in late trade.

The S&P CNX Nifty was down 53.90 points or 1.01% to 5266.70 as per provisional figures.

The BSE Mid-Cap index was down 0.8%. The BSE Small-Cap index was down 0.58%. Both the indices outperformed the Sensex.

The market breadth, indicating the strength of the broader market was weak. The breadth was positive earlier in the day. On BSE, 1772 shares declined while 1080 shares advanced. A total of 98 shares remained unchanged.

From the 30-share Sensex, 22 stocks fell and rest rose.

BSE clocked turnover of Rs 4471 crore, lower than Rs 5046.77 crore on Thursday, 24 June 2010.

Index heavyweight Reliance Industries (RIL) was up 1.42% to Rs 1066.20, rebounding from the day's day's low of Rs 1043.20. RIL during market hours today said that pursuant to and in compliance with the directions and orders contained in the judgment of the Supreme Court of India delivered on 7 May 2010, RIL and Reliance Natural Resources (RNRL) on 25 June 2010, have signed a gas supply master agreement which is in compliance with the gas utilization policy and EGoM decisions.

RNRL earlier today said it will now take appropriate steps requesting the government for expeditious allocation of natural gas. RNRL rose 3.52%.

PSU OMCs rose after the Empowered Group of Ministers decided to decontrol petrol and decided prices which will help reduce underrecoveries of PSU OMCs HPCL, BPCL and Indian Oil Corporation rose by between 9.26% to 13.29%. At present, state-run oil marketing firms suffer revenue loss on domestic sale of petrol, diesel, LPG and kerosene at a controlled price.

Shares of state-run oil exploration firms also jumped. ONGC and Oil India rose by between 3.37% to 6.31%.

But, some auto stocks fell after government raised petrol and diesel prices. Ashok Leyland, Mahindra & Mahindra and Hero Honda Motors fell by between 0.26% to 2.84%.

India's largest commercial vehicle maker by sales Tata Motors fell 2.12%, with the stock falling for the third straight day on equity dilution concerns after the company said during market hours on Wednesday that a meeting of the board of directors of the company will be held on Monday, 28 June 2010 to consider various options for raising long term capital funds.

But, Bajaj Auto and Maruti Suzuki India rose by between 0.92% to 1.13%.

According to a monthly report released by auto industry body the Society of Indian Automobile Manufacturers (Siam) on 9 June 2010, car sales in India rose 30.4% to 1.48 lakh units in May 2010 over May 2009. Auto sales rose despite recent price increases and a partial withdrawal of government stimulus measures in February 2010. The auto industry expects consumer demand to sustain following the overall economic expansion.

Bank stocks fell on rate hike worries. India's largest private sector bank by market capitalisation ICICI Bank fell 3.09%, with the stock falling for the second straight day. India's second largest private sector bank by operating income HDFC Bank fell 2.69%.

PSU banking major State Bank of India fell 2.78%. Among the other PSU bank stocks, Punjab National Bank and Bank of India fell by between 1.09% to 1.23%. But, Bank of Baroda rose 0.61%, reversing initial losses.

IT stocks fell after the Federal Reserve recently downgraded its assessment of the economic recovery in the US, the biggest market for Indian IT firms. India's largest IT exporter by sales Tata Consultancy Services fell 1.74%, with the stock falling for the second straight day. India's third largest IT exporter by sales Wipro fell 2.75%, with the stock falling for the fourth straight day. India's second largest IT exporter by sales Infosys fell 1.34%.



HCL Technologies fell 0.25% in volatile trade extending Thursday's 3.9% losses. HCL Corporation on Thursday announced that it has sold 1.67 crore of shares of HCL Technologies, constituting 2.5% stake of the company. The sale proceeds will be donated to Shiv Nadar Foundation to be used for philanthropic initiatives.

Metal stocks fell on concerns over the outlook for the global economic recovery. Steel Authority of India, Sterlite Industries, Sesa Goa, Tata Steel, Hindustan Zinc, Jindal Steel & Power and National Aluminum Company fell by between 1.08% to 3.25%. LMEX, a gauge of six metals traded on the London Metal Exchange rose 2.07% on Thursday, 24 June 2010.