Auto shares in top gear

The key benchmark indices ended a tad higher as firm European stocks and higher US index futures, helped the domestic bourses shrug off a rate hike from the Reserve Bank of India (RBI) at a quarterly monetary policy review. The BSE 30-share Sensex was up 57.56 points or 0.32%, off close to 70 points from the day's high and up close to 80 points from the day's low.



The market breadth was negative. Auto stocks saw an across the board rally with Bajaj Auto striking a record high. Banking stocks edged higher, rebounding from the days' lows. IT pivotals gained following upbeat new home sales data in US. L&T recovered from lower level after the company said order inflow jumped 63% to Rs 15626 crore in Q1 2010 over Q1 June 2009. But, FMCG giant Hindustan Unilever slipped after posting fall in net profit in Q1 June 2010. Reliance Industries (RIL) was almost unchanged ahead of its Q1 June 2010 results, which were announced after trading hours.

The market moved in a narrow range ahead of the RBI's policy review and as investors awaited key first quarter results. The market surged to a fresh intraday high in early afternoon trade after the central bank raised short-term interest rates to rein in inflation and anchor inflationary expectations. The central bank announced the outcome of the quarterly policy review at 11:30 IST. The market soon came off highs. The market hit a fresh intraday high in afternoon trade as European stocks opened higher and as US index futures rose. The market extended gains in mid-afternoon trade. The market came off the higher level later.

Foreign funds today, 27 July 2010, sold shares worth a net Rs 22.80 crore, as per the provisional data from the stock exchanges. Domestic funds offloaded shares worth a net Rs 222.28 crore

NSE's volatility index India VIX, which is a gauge of traders' perception of near-term risks in the market based on options prices, shed 3.76% to 19.22. The index had risen 3.79% to 19.97 on Monday, 26 July 2010. The index had risen 1.79% to 19.24 on Friday, 23 July 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 Reserve Bank of India (RBI) at its Q1 monetary policy today, 27 July 2010, raised its key interest rates for the fourth time this year to curb surging inflation. The central bank also raised its economic growth and inflation forecasts. The RBI hiked repo rate by 25 basis points to 5.75% and the reverse repo rate by 50 basis points to 4.50%, with immediate effect. The central bank kept cash reserve ratio (CRR) unchanged at 6%. Cash reserve ratio is the amount of deposits that a bank must set aside with RBI.

While the quarter-point increase in repo rate was in line with expectations, the half-point rise in the reverse repo rate was twice what the market expected. Repo rate is the rate at which banks borrow from RBI. Reverse repo rate is the rate at which RBI borrows money from banks.

The RBI raised GDP forecast to 8.5% for the year ending March 2011 (FY 2011), from 8% with an upside bias earlier. The central bank said the upward revision in growth forecast is primarily based on better industrial production and its favourable impact on the services sector and also giving due consideration to the global scenario.

The RBI also raised the baseline projection for inflation based on wholesale price index for March 2011 to 6% from 5.5% indicated in the April 2010 policy statement, taking into account the emerging domestic and external scenario. The RBI said its outlook on inflation will partly be shaped by the distribution of monsoon rains and their impact, as the agricultural harvest will be crucial to easing currently high food prices in the country.

The central bank said consumer price inflation remains at elevated levels and demand-side pressures need to be contained. The central bank also said real policy rates are not consistent with strong economic growth.

The central bank said the stance of the monetary policy is to contain inflation and anchor inflationary expectations, while being prepared to respond to any further build-up of inflationary pressures. The central bank said the policy stance is to maintain an interest rate regime consistent with price, output and financial stability and also to actively manage liquidity to ensure that it remains broadly in balance so that excess liquidity does not dilute the effectiveness of policy rate actions.

The dominant concern that has shaped the monetary policy stance in this review is high inflation, RBI Governor D Subbarao said in a statement. Non-food inflation has risen, and demand-side pressures are clearly evident. With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation and anchoring inflationary expectations, the RBI said.

The RBI said today's hike in short-term interest rates is expected to moderate inflation by reining in demand pressures and inflationary expectations. It will help maintain financial conditions conducive to sustaining growth, generate liquidity conditions consistent with more effective transmission of policy actions and reduce the volatility of short-term rates in a narrower corridor.

Finance Minister Pranab Mukherjee said the Reserve Bank of India's decision to raise key rates will lead to an easing of inflation while keeping economic growth on track

The Reserve Bank of India (RBI) said it will henceforth undertake mid-quarter policy reviews. The mid-cycle reviews, due in June, September, December and March months are intended to take the surprise element out of off-cycle actions, it said. The next mid-quarter policy review will be held on 16 September 2010 and the next quarterly review will be done on 2 November 2010.

Bank stocks led rally in European equities after the Basel Committee on Banking Supervision, late on Monday, 26 July 2010, reached an agreement to amend some of its capital and funding reform proposals for the banking sector. The key benchmark indices in France, Germany and UK rose by between 0.65% to 1.17%.

Asian markets were trading mixed today, 27 July 2010. The key benchmark indices in Singapore, Hong Kong, and Indonesia were up by between 0.42% to 0.64%. The key benchmark indices in Japan, China, South Korea and Taiwan were down by between 0.04% and 0.51%.

US stocks extended gains on Monday, 26 July 2010, as sentiment was boosted by a surge in new home sales and higher company earnings. The Dow Jones Industrial Average jumped 100.81 points, or 0.97%, to a two-month high of 10,525.43. The Nasdaq composite index gained 26.96 points, or 1.19%, to 2,296.43, while S&P 500 index added 12.35 points, or 1.12%, to 1,115.01.

The new homes increased by 23.6% to 330,000 units in June 2010 from a revised May 2010 rate of 267,000, a record low.

Trading in US index futures indicated Dow could rise 28 points at the opening bell on Tuesday, 27 July 2010.

Back home, the Prime Minister's Economic Advisory Panel on Friday, 23 July 2010, forecast 8.5% growth in GDP in the fiscal year that ends in March 2011 (FY 2011). It expects 4.5% growth in farm output in FY 2011. The headline inflation will be at 6.5% by March 2011, the panel said in a report. The report also said net capital inflows would be $73 billion.

Prime Minister's Economic Advisory Council C. Rangarajan said fertiliser subsidy bill must come down and diesel prices could be freed once inflation begins to come down.

The revival of monsoon rains in the crucial sowing month of July 2010 augurs well for the Indian economy which is driven by strong domestic demand. The annual monsoon rains were 7% below normal during the period from 1 June 2010 to 26 July 2010, improving rapidly from a deficit of 16% on 19 July 2010 as the rain-bearing monsoon winds ended a weak phase in the middle of the month.

Heavy showers, mainly in soybean-growing areas in the past week, have raised hopes of a strong harvest in the world's leading consumer of rice, cooking oils and sugar. As per reports, rainfall has been well distributed over major crop-growing regions of the country. Monsoon rainfall has been three times the normal level in the main soybean region in the past two to three days, reports suggest. In southern India, where rice, cane and corn are grown, rainfall has been a quarter above average in recent days.

The weather office expects good rains in coming days as favourable weather conditions are expected to develop over the Bay of Bengal on the east coast in the next 48 hours. The weather office also expects good rains over rice-producing Orissa, and soybean-growing central India this week.

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 weather office expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

On the corporate front, the combined net profit of a total of 555 companies fell 15.8% to Rs 27000 crore on 19.4% rise in sales to Rs 357295 crore in Q1 June 2010 over Q1 June 2009.

The BSE 30-share Sensex was up 57.56 points or 0.32% to 18,077.61. The Sensex rose 129.51 points at the day's high of 18,149.56 in mid-afternoon trade. The index lost 21.31 points at the day's low of 17,998.74 in early trade.

The S&P CNX Nifty was up 12 points or 0.22% to 5,430.60.

The market breadth, indicating the health of the market turned negative in late trade. On BSE, 1541 shares declined while 1369 shares advanced. A total of 92 shares remained unchanged.

From the 30 share Sensex pack, 20 stocks rose and the rest fell.

The total turnover on BSE amounted to Rs 4061 crore, higher than Rs 3722 crore on Monday, 26 July 2010

The BSE Mid-Cap index rose 0.27%. The BSE Small-Cap index fell 0.03%. Both these indices underperformed the Sensex.

Most of the sectoral indices on BSE rose. The BSE Auto index (up 2.4%), BSE Realty index (up 1.47%), Consumer Durables index (up 0.96%), The BSE Bankex index (up 0.69%), BSE IT index (up 0.66%), the BSE TECk index (up 0.57%), the BSE FMCG index (up 0.4%) outperformed the Sensex.

The BSE Capital Goods index (down 1.91%), BSE Healthcare index (down 0.32%), Power index (down 0.19%), BSE Oil & Gas index (up 0.07%), BSE Metal index (up 0.17%), BSEPSU index (up 0.23%) underperformed the Sensex.

Rate sensitive auto stocks shrugged off RBI's rate hike and were the starts of the day's trading session. Auto stocks also gained in anticipation normal monsoon will boost rural sales. Auto companies derive substantial revenues from rural sales.

India's largest tractor maker by sales Mahindra & Mahindra jumped 3.23% and was the top gainer from the Sensex pack.

India's largest motorbike maker by sales Hero Honda Motors gained 2.97%. The stock had tumbled over 7% on Monday on reports Honda Motor Company may sell 6% stake in the company. Honda's spokeswoman Natsuno Asanuma was quoted by the media as saying on Monday that Honda had no intention of selling any part of its 26% stake in Hero Honda.

India's largest car maker by sales Maruti Suzuki rose 1.41% on bargain hunting. The stock had slumped 12.31% on Monday after net profit fell 20.2% to Rs 465.40 crore on 27% growth in net sales to Rs 8050.70 crore in Q1 June 2010 over Q1 June 2009.

Maruti said the fall in net profit was due to higher commodity prices, increase in royalty and lower 'other income'. The company said income from exports to Europe declined due to weakening of the euro.

India's second largest bike maker by sales Bajaj Auto surged 4.88% to Rs 2649.95 after striking a record high of Rs 2678.60 in intra-day trade today, 27 July 2010.

Among other auto stocks, Tata Motors (up 3.16%), and TVS Motor Company (up 1.46%), rose.

India's largest FMCG maker by sales Hindustan Unilever slipped 0.46% to Rs 260.30, off day's high of Rs 265.50 in volatile trade. The company's net profit fell 1.84% to Rs 533.21 crore on 8.42% increase in total income to Rs 4918.34 crore in Q1 June 2010 over Q1 June 2009. The result was announced during market hours today, 27 July 2010.

Index heavyweight Reliance Industries (RIL) rose 0.14% to Rs 1053.50, moving in a narrow range of Rs 1051.25- 1061 during the day. RIL's net profit jumped 32.3% to Rs 4851 crore on 86.7% increase in net turnover to Rs 58228 crore in Q1 June 2010 over Q1 June 2009. The results were announced after trading hours today, 27 July 2010.

India's largest power generation firm by sales NTPC was flat after net profit declined 16.03% to Rs 1841.89 crore on 7.85% rise in net sales to Rs 12,944.49 crore in Q1 June 2010 over Q1 June 2009. The result was announced after market hours on Monday, 26 July 2010.

Banking stocks edged higher, rebounding from the day's lows. India's biggest commercial bank in terms of branch network, State Bank of India (SBI) rose 1.09% after raising $1 billion in overseas bond issue late last week.

India's largest private sector bank by market capitalisation ICICI Bank rose 0.91% to Rs 924.15, recovering sharply from day's low of Rs 898.75. India's second largest private sector bank by market capitalisation HDFC Bank rose 0.67%.

India's largest engineering & construction firm by sales Larsen & Toubro (L&T) fell 2.94% to Rs 1863,25, off the day's low of Rs 1845. The company during market hours today said that order inflow jumped 63% to Rs 15626 crore in Q1 June 1010 over Q1 June 2009. L&T's profit after tax from normal operations rose 15% to Rs 666 crore on 6.5% growth in gross customer sales to Rs 7913 crore in Q1 June 2010 over Q1 June 2009.

Larsen & Toubro has forecast 20% sales growth for the year ending March 2011 (FY 2011). The company maintained its earlier forecast of 25% rise in new order inflows for FY 2011.

Among other capital goods stocks, SKF India, ABB, Bharat Heavy Electricals, BEML fell by between 0.27% to 1.82%.

IT pivotals gained following upbeat new home sales data in US. Indian IT firms derive a lion's shares of revenue from exports to the US.

India's third largest software services exporter Wipro gained 0.88% after the company's American depository receipt, or ADR rose 1.06% to $19.07 on the New York Stock Exchange on Monday, 26 July 2010.

India's second largest software services exporter Infosys Technologies advanced 0.81% after its ADR rose 0.81% on Monday, 26 July 2010. India's largest software services exporter TCS rose 0.25%.

Metal stocks saw mixed trend. Hindustan Zinc (down 0.36%), JSW Steel (down 0.81%), Tata Steel (down 0.47%), declined. Hindalco Industries (up 1.06%) Sesa Goa (up 0.51%), Sterlite Industries (up 1.09%), National Aluminium Company (up 0.83%), gained.

LMEX, a gauge of six metals traded on the London Metal Exchange rose 1.61% on Monday, 26 July 2010.

Rate sensitive realty stocks, too, shrugged off RBI's rate hike. DLF, HDIL, Sobha Developers, Indiabulls Real Estate and Ackruti City rose by between 0.29% to 3.13%.

Cals Refineries clocked the highest volume of 2.51 crore shares on BSE. IFCI (99.41 lakh shares), Shree Ashtavinayak Cine Vision (83.27 lakh shares), NHPC (61.32 lakh shares) and Unitech (58.55 lakh shares) were the other volume toppers in that order.

Larsen & Toubro clocked the highest turnover of Rs 175.42 crore on BSE. BF Utilities (Rs 151.26 crore), State Bank of India (Rs 124.91 crore), Maruti Suzuki India (Rs 119.29 crore) and JSW Steel (Rs 111.06 crore) were the other turnover toppers in that order.