Market declines for the third time in four days

The key benchmark indices registered their third decline in four days on Tuesday, 29 June 2010, as Asian and European stocks and US index futures slumped. Metal stocks tumbled after the Conference Board corrected down its April 2010 gauge for the outlook of China's economy. Banking, auto, IT and realty stocks also fell. Index heavyweight Reliance Industries (RIL) edged lower.



The market breadth was weak in contrast to a strong breadth earlier in the day. All the sectoral indices on BSE were in the red. The BSE 30-share Sensex fell 240.17 points or 1.35%, up close to 70 point from the day's low. Index heavyweights Larsen & Toubro, Infosys and Bharti Airtel recovered in late trade.

The Sensex has lost 342.46 points or 1.9% from 2-1/2 month closing high of 17,876.55 on 21 June 2010.

Coming back to today's trade, NSE's volatility index India VIX, which is a gauge of traders' perception of near-term risks in the market based on options prices, jumped 5.58% to 20.64. The index had lost 2.25% to 19.55 on Monday, 28 June 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.

The market edged lower in early trade on weak Asian stocks and lower US index futures. Stocks extended losses later on a setback in Chinese stocks triggered by economic growth worries there. The market trimmed losses in late trade after hitting a fresh intraday low.

Capital inflows have not become a problem for the Indian economy as of now and the country does not face a situation that requires imposition of capital controls, Prime Minister Manmohan Singh said on Tuesday.

European shares fell on Tuesday, led lower by commodity and banking stocks as investor jitters grew over the funding situation of banks ahead of repayments to the European Central Bank (ECB) later in the week. The key benchmark indices in France, Germany and UK were down by between 1.95% to 2.65%.

Media reports on Monday suggested that Spanish banks have been lobbying the ECB hard to take action to cushion the impact of the expiration of euro 442 billion ($543 billion) in one-year loans, which were provided at an interest rate of 1%. The ECB doesn't plan to renew the program.

Chinese stocks tumbled after the Conference Board corrected down its April 2010 gauge for the outlook of China's economy. The Chinese market was also hurt by a lowered pricing range for the Shanghai portion of Agricultural Bank of China's upcoming initial public offering. The Shanghai Composite index fell 4.27% and Hong Kong's Hang Seng lost 2.31%.

In other Asian markets, the key benchmark indices in Taiwan, South Korea, Japan, Indonesia and Singapore fell by between 1.03% to 2.11%.

The leading economic indicator for China rose 0.3% in April 2010, less than the 1.7% gain reported on 15 June 2010, the Conference Board said. The previous release contained a calculation error for total floor space on which construction began, the research group said.

Sentiment was sluggish in Tokyo after government figures showed Japan's economic recovery faltered in May as moderating export demand dented factory output, household spending fell and the jobless rate unexpectedly rose for a third straight month.

Trading in US index futures indicated that the Dow could fall 105 points at the opening bell on Tuesday, 29 June 2010.

US stocks ended slightly lower on Monday, 28 June 2010, as gains in consumer-related stocks, including tobacco shares, were offset by losses in the energy sector. The Dow Jones Industrial Average dropped 5.29 points, or 0.05% to 10,138.52. The Standard & Poor's 500 Index slipped 2.19 points, or 0.20% to 1,074.57. The Nasdaq Composite Index shed 2.83 points, or 0.13% to 2,220.65.

Back home, the Insurance Regulatory and Development Authority (Irda) announced drastic changes to Unit Linked Insurance Plans (Ulips) on Monday, 28 June 2010, cutting agent commissions, increasing the lock-in period and making it a more risk-based product. The move follows last week's government ordinance on these popular insurance-investment plans, bringing them squarely under Irda's purview.

On the macro front, the infrastructure sector output grew 5% in May from a year earlier, lower than an upwardly revised annual growth of 5.4% in April, government data showed on Monday. The infrastructure sector accounts for 26.7% of the industrial output.

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 24 June 2010 showed. The fuel price index remained unchanged at 13.18% in the year to 12 June 2010.

The government's latest decision to raise fuel prices will stoke inflation, maintaining pressure on the Reserve Bank of India to tighten monetary policy. The government on Friday, 25 June 2010, raised petrol price by Rs 3.50 a litre, diesel price by Rs 2 litre, kerosene by Rs 3 litre and LPG by Rs 35 per cylinder.

The government has decided to decontrol petrol prices. The government will also eventually decontrol diesel prices, Oil Secretary S. Sundareshan said on 25 June 2010. The government will, however, continue to subsidize kerosene and LPG.

Investors will closely watch the progress of the monsoon rains. Annual monsoon rains were 12% below normal between June 1-27, the India Meteorological Department (IMD) said in its update on Monday, 28 June 2010. The seasonal rains were above normal in rice, corn and cane growing areas of south India, but lower-than-normal in the rest of the country, including soybean-growing areas of central India.

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. Last week, the weather office said the rains were expected to be better than previously forecast. Monsoon rains are expected to be at 102% of the long-period average for the current monsoon season. 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.

The market sentiment remains strong, with most Indian firms, including Reliance Industries, L&T, Tata Steel and Tata Motors, paying 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.

The BSE 30-share Sensex fell 240.17 points or 1.35% at 17,534.09. The Sensex rose 3.69 points at the day's high of 17,777.95 in early trade. The Sensex lost 308.53 points at the day's low of 17,465.73 in mid-afternoon trade.

The S&P CNX Nifty fell 77.35 points or 1.45% to 5,256.15.

The BSE Mid-Cap index was down 0.65%. The BSE Small-Cap index was down 0.62%. Both the indices outperformed the Sensex.

All the sectoral indices on BSE were in the red. BSE Metal index (down 2.74%), Realty index (down 1.55%), banking sector index Bankex (down 1.47%), and Power index (down 1.36%), underperformed the Sensex. The BSE Oil & Gas index shed 1.35%, matching the slide in the Sensex. The BSE Capital Goods index (down 0.36%), Consumer Durables index (down 0.42%), FMCG index (down 0.45%), PSU index (down 0.7%), IT index (down 0.76%), Auto index (down 0.85%), and Healthcare index (down 0.96%), outperformed the Sensex.

The market breadth, indicating the strength of the broader market was weak. The breadth was strong earlier in the day. On BSE, 1761 shares declined while 1139 shares advanced. A total of 92 shares remained unchanged.

From the 30 share Sensex pack 27 stocks fell and 3 rose.

BSE clocked turnover of Rs 4440 crore, higher than Rs 4248.22 crore on Monday, 28 June 2010.

Index heavyweight Reliance Industries (RIL) fell 1.9% to Rs 1067.30, on profit taking after recent strong gains. The company announced during market hours on Monday that it made seventh oil discovery in Cambay basin in Gujarat.

Meanwhile, as per media reports, RIL and Mexican state-run oil giant Pemex may soon join hands to develop a greenfield refinery in Mexico.

RIL and Reliance Natural Resources (RNRL) on Friday, 25 June 2010, entered into a new gas supply agreement, as directed by the Supreme Court. The Supreme Court had ordered the two companies to renegotiate the Gas Supply Master Agreement, which was signed between the Ambani brothers as part of the business demerger in 2005.

Index heavyweight Larsen & Toubro rose 0.22% to Rs 1793.95. The stock came off the day's low of Rs 1780. The stock was the top gainer form the Sensex pack.

IT stocks fell, extending recent losses triggered by weak economic data in the US, which is the largest market for Indian IT firms. India's largest IT exporter by sales Tata Consultancy Services fell 1.23%. India's third largest IT exporter by sales Wipro fell 0.83%. But, India's second largest IT exporter by sales Infosys came off lows. The stock fell 0.5% to Rs 2,790.40, off the day's low of Rs 2,767.30.

Auto stocks fell on profit taking after recent strong gains. Maruti Suzuki India, Ashok Leyland and Mahindra & Mahindra fell by between 0.51% to 1.25%. Hero Honda Motors was flat.

India's largest commercial vehicle maker by sales Tata Motors fell 2.41%, on equity dilution concerns as the company announced after market hours on Monday that it plans to raise about Rs 4700 crore ($1.02 billion) through a combination of shares, bonds, debentures and other equity-linked instruments to cut debt and grow its business.

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.

Metal stocks tumbled after the Conference Board corrected down its April 2010 gauge for the outlook of China's economy. Steel Authority of India, Sterlite Industries, Sesa Goa, Tata Steel, Hindustan Zinc, JSW Steel, Jindal Steel & Power, National Aluminum Company, Hindalco Industries fell by between 1.3% to 4.35%. China is the world's largest consumer of copper and aluminum.

Bank stocks fell on worries the central bank may hike interest rates to tame inflation. India's second largest private sector bank by operating income HDFC Bank fell 2.46%. India's largest private sector bank by market capitalisation ICICI Bank fell 2.27%.

India's biggest commercial bank in terms of branch network, State Bank of India, fell 0.31%. SBI announced during market hours today it has fixed the base rate at 7.5% per annum with effect from 1 July 2010.

Among the other PSU banks, Punjab National Bank, Bank of India and Bank of Baroda fell by between 0.22% to 0.96%.

India's largest dedicated housing finance firm by revenue HDFC fell 1.96%, as the stock turned ex-dividend today. The lender had announced dividend of Rs 36 per share for the year ended March 2010.

High beta realty stocks fell on profit taking. Ackruti City, HDIL, DLF, Unitech, Phoenix Mills and Indiabulls Real Estate fell by between 0.55% to 2.39%.

Samruddhi Cement, which now owns Grasim's cement business, settled at Rs 484.90 on BSE. The stock debuted at Rs 588. It hit a high of Rs 600 and low of Rs 477.55. Volumes in the stock were substantial as 11.55 lakh shares changed on BSE.

The listing Samruddhi Cement on the bourses is part of the restructuring process of the cement business at the A V Birla group. As part of the arrangement, the company will be merged with UltraTech Cement in July 2010. According to the plan, four shares of UltraTech would be issued for every seven shares of Samruddhi. Shares of UltraTech Cement tumbled 5% to Rs 876.

Each Grasim shareholder had received one equity share of Rs 5 of Samruddhi Cement for every one share held in Grasim, as a part of the scheme.

Reliance Communications, India's second biggest cellphone operator by sales, fell 3.82% on profit taking. The stock had risen 4.65% on Monday after company agreed to merge its telecoms communication towers business with that of GTL Infrastructure to create what it said would be the world's largest telecoms infrastructure firm not controlled by an operator. Financial terms of the deal were not disclosed, but the combined operations would have an enterprise value of over $11 billion and would own more than 80,000 towers, with more than 125,000 tenancies from over 10 operators, Reliance Communications said on Sunday.

Among other telecom stocks, Bharti Airtel rose 0.15% to Rs 265.95, reversing initial losses. The stock came off the day's low of Rs 263.50. Idea Cellular fell 2.56%.

Reliance Infrastructure fell 2.87% on profit taking. The stock had risen 4.04% on Monday on reports the company had signed a concession arrangement with Maharashtra State Road Development Corporation (MSRDC) to develop the phase 2 of Mumbai Sea Link. The phase 2 is likely to get commissioned by June 2014.

India's largest cigarette maker by sales ITC fell 0.2%, with the stock falling for the third straight day. The stock hit a record high of Rs 307.80 on Friday, 25 June 2010. The company's board of directors recently recommended liberal 1:1 bonus issue.

Among other FMCG stocks, Marico, Ruchi Soya Industries, Hindustan Unilever, Nestle India fell by between 0.08% to 1.37%.

PSU OMCs fell on profit taking after a recent solid rally triggered by the government's decision on Friday, 25 June 2010, to decontrol petrol and diesel prices which will help reduce underrecoveries of PSU OMCs on fuel sales. BPCL and Indian Oil Corporation fell by between 1.08% to 1.1%. But, HPCL rose 0.48% reversing initial losses.

Cals Refineries clocked the highest volume of 7.88 crore shares on BSE. Sanraa Media (4.16 crore shares), FCS Software (2.38 crore shares), Reliance Natural Resources (91.71 lakh shares) and NHPC (66.45 lakh shares) were the other volume toppers in that order.

HPCL clocked the highest turnover of Rs 146.57 crore on BSE. Aban Offshore (Rs 137.51 crore), State Bank of India (Rs 95.41 crore), Tata Steel (Rs 85.82 crore) and Hathway Cable (Rs 81.58 crore) were the other turnover toppers in that order.