Banking stocks, RIL lead decline

The key benchmark indices registered their fourth decline in five trading sessions on Wednesday, 7 July 2010, as weak global stocks weighed on investor sentiment. Index heavyweights Reliance Industries (RIL) slumped. Banking, auto, realty and metal stocks fell. The BSE 30-share Sensex fell 143.46 points or 0.81%, off close to 170 points from the day's high and up close to 25 points from the day's low. The market breadth turned negative compared to positive breadth earlier in the day.



The Sensex has lost 303.23 points or 1.7% in seven trading sessions from a recent high of 17,774.26 on 28 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 5.79% to 22.11. The index had lost 4.96% to 20.90 on Tuesday, 6 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 market edged lower in early trade tracking weak Asian stocks. The market extended losses to hit fresh intraday low in morning trade. The market trimmed losses in mid-morning trade. The market moved in a narrow range in early afternoon trade. Weak opening of European stocks dampened investor sentiment in early afternoon trade. A bout of volatility was witnessed in mid-afternoon trade as the market hit fresh intraday low, soon after cutting losses. The market extended losses to hit fresh intraday low in late trade.

European shares declined, as miners lost ground and updates from building materials group CRH and retailer Marks & Spencer also weighed. The key benchmark indices in UK, France and Germany were down by 0.78% to 0.84%.

Asian shares traded broadly lower Wednesday, 7 July 2010, as weak US economic data released overnight reignited worries about global economic growth, with financial and technology stocks hurt across markets. The key benchmark indices in Hong Kong, Indonesia, Taiwan, Singapore, Japan and South Korea fell by between 0.19% to 1.13%. However, the key indices in China and Singapore bounced back into positive territory. China's Shanghai Composite was up 0.49%.

US index futures cut initial losses. Trading in US index futures indicated that the Dow could fall 24 points at the opening bell on Wednesday, 7 July 2010.

Wall Street rebounded on Tuesday, 6 July 2010, but strong buying interest evaporated in the afternoon as bearish sentiment reasserted itself on worries over the global economic recovery. The Dow Jones Industrial Average was up 57.14 points, or 0.59% at 9,743.62. The Standard & Poor's 500 Index was up 5.48 points, or 0.54% at 1,028.06. The Nasdaq Composite Index was up 2.09 points, or 0.10% at 2,093.88.

The Institute for Supply Management's reading on service sector activity showed economic growth in June but at its slowest pace since February, heightening concerns about sluggish economic recovery.

Back home, the next major trigger for the market is Q1 June 2010 results of India Inc, which will start trickling in from the second week of July 2010. Advance tax collections for the first quarter of the current financial year point to a strong growth in corporate sector profits. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year. Corporate advance tax for the first quarter stood at Rs 26,876 crore, against Rs 20,456 crore in the year-ago period, a rise of 31.4%, the fastest since 2005.

Auto firms are seen reporting strong Q1 results on the back of healthy volume growth. However, margins could be under pressure due to higher input costs. Improved lending growth will spur bottom line growth of banks whereas healthy order book will drive earnings of capital goods and engineering giants L&T and Bharat Heavy Electricals (Bhel). Higher sales realisation would boost boom line of metal firms.

As far as the IT sector is concerned, the focus is on whether the IT bellwether Infosys revises its annual guidance when it announces the first quarter results on 13 July 2010. The IT bellwether will issue guidance for the second quarter ending September 2010 at the time of announcing the first quarter results.

Investors are also closely watching the progress of the monsoon rains. According to reports, monsoon rains have covered the entire country. Rains have revived after weak monsoon last month. The weather office on Monday, 5 July 2010, said monsoon rains have advanced into the country's key grain-producing states of Punjab and Haryana and is forecast to progress further. Crop planting suffered last month as rainfall was 16% below normal, but the seasonal shortfall has narrowed to 14% for the June 1-July 3 period after heavy rains.

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 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.

The services sector expanded at its fastest clip in two years last month, led by increases in business expectations and new orders, a survey showed on Monday, 5 July 2010. After dipping slightly in May 2010, the HSBC Markit Business Activity Index, based on a survey of 400 Indian firms, rose to 64 in June 2010 from 58.2 last month, pointing to a substantial rate of growth. Any figure above 50 indicates expansion.

The Reserve Bank of India (RBI) on Friday, 2 July 2010, hiked the repo rate by 25 basis points to 5.5% from 5.25%, with immediate effect. It also hiked the reverse repo rate, at which it absorbs excess cash from the banking system, by an equal 25 basis points to 4% from 3.75%. The central bank said the latest rate hike is a part of the calibrated exit from the expansionary monetary policy.

Two-thirds of WPI inflation in May 2010 was contributed by non-food items, suggesting that inflation is now very much generalised and that demand-side pressures are evident, the central bank said in a statement. WPI inflation increased to 10.2% in May 2010, up from 9.6% in April 2010.

In its April 2010 policy review, the Reserve Bank projected real GDP growth for 2010-11 at 8% with an upside bias. More recent data suggest that the upside bias has largely materialized, thecentral bank said. The growth projection will be reviewed in the first quarter review on 27 July 2010, RBI said.

Analysts expect another 25 basis points rate hike by the central bank at its quarterly review on 27 July 2010.

The government on Tuesday, 6 July 2010, took the first step towards opening up foreign direct investment (FDI) in multi-brand retail. Advocating that FDI in retail would bolster farmers' income, tame inflation and bring technical knowhow, the government has kicked off a discussion to formulate the rules of the game, including imposition of FDI cap and riders for local sourcing and rural job creation. While foreign investment in multi-brand retail is prohibited now, the Government allows 51% FDI in single brand retail and 100% in wholesale cash-and-carry trade.

Meanwhile, government officials are reportedly in the process of finalising the constitutional amendments required for the rollout of the goods and services tax from 1 April 2011. The new tax, it is proposed, will replace excise duty and service tax at the Centre and VAT and local taxes at the states' level.

The BSE 30-share Sensex fell 143.46 points or 0.81% at 17,471.03. The Sensex fell 167.33 points at the day's low of 17,447.15 in late trade. The index rose 9.18 points at the day's high of 17,623.66 in early trade.

The S&P CNX Nifty fell 47.95 points or 0.91% at 5,241.10.

The BSE Mid-Cap index was down 0.06%. The BSE Small-Cap index was down 0.12%. Both these indices outperformed the Sensex.

Most sectoral indices on BSE declined. BSE Oil & Gas index (down 1.7%), Metal index (down 1.23%), banking sector index Bankex (down 1%), Realty index (down 0.86%), and Auto index (down 0.83%), underperformed the Sensex. The BSE Consumer Durables index (up 0.86%), IT index (down 0.08%), FMCG index (down 0.12%), Capital Goods index (down 0.51%), Power index (down 0.52%), Healthcare index (down 0.64%), and PSU index (down 0.79%), outperformed the Sensex.

The market breadth, indicating the strength of the broader market, turned negative. The breadth was positive earlier in the day. On BSE, 1341 shares advanced while 1572 shares declined. A total of 95 shares remained unchanged.

From the 30 share Sensex pack, 26 stocks fell while the rest rose.

BSE clocked turnover of Rs 3756 crore, lower than Rs 3830.45 crore on Tuesday, 6 July 2010.

Index heavyweight Reliance Industries (RIL) fell 1.83%. As per recent reports the Mukesh Ambani group is close to signing an equal joint venture agreement with global private equity and hedge fund company, DE Shaw, to enter the financial services sector.

RIL recently announced its seventh oil discovery in Cambay basin in Gujarat. RIL and Reliance Natural Resources (RNRL) on 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.

Interest rate sensitive realty stocks reversed early gains on rate hike worries. Phoenix Mills, DLF, Peninsula Land, Unitech, Indiabulls Real Estate fell by between 0.23% to 1.91%.

India's largest IT exporter by sales TCS rose 0.77% to Rs 763.60. The stock came off the day's low of Rs 749.75.

Auto stocks fell on worries the recent increase in fuel prices and higher interest rates may dent demand. India's largest tractor maker by sales Mahindra & Mahindra (M&M) fell 0.85%, with the stock snapping last two days' gains. The company, last week, reported an increase of 19.84% in auto sales to 27,562 units in June 2010 over June 2009. Despite the annual shutdown in the first week of June, the auto division posted strong growth rates, M&M said in a press release. Tractor sales declined 9% to 16,590 units in June 2010 over June 2009, as the company is facing supply constraints from component makers (casting and tyres).

India's largest commercial vehicle maker by sales Tata Motors fell 2.22%. Tata Motors' total sales jumped 49% to 67,730 in June 2010 over June 2009. Domestic sales rose 45% to 62,602 and exports jumped 138% to 5,128 in June 2010 over June 2009. The figures do not include the luxury Jaguar, Land Rover brands it makes in Britain.

Ashok Leyland rose 0.82%, extending last two days' gains. The company reported an over two-fold jump in total commercial vehicle sales to 8,400 units in June 2010 compared to the same month last year.

The country's largest two-wheeler maker Hero Honda Motors fell 0.54%. The company reported a 16.6% jump in its sales at 4,26,454 in June 2010 over June 2009.

India's largest car maker by sales Maruti Suzuki India fell 0.66%, with the stock falling for the third straight day. The company's total vehicle sales rose 17.3% to 88,091 vehicles in June 2010 over June 2009.

Bank stocks fell on rate hike worries. India's largest private sector bank by market capitalisation ICICI Bank fell 1.47%, with the stock snapping last two days' gains. Its ADR rose 1.26% on Tuesday, 6 July 2010. The bank, last week, set its base rate for loans at 7.5% effective 1 July 2010 as part of a new rule to set minimum lending rates. India's second largest private sector bank by operating income HDFC Bank fell 1.15%. Its ADR rose 1.49% on Tuesday, 6 July 2010. HDFC Bank has set its base rate at 7.25%.

India's biggest commercial bank in terms of branch network, State Bank of India, fell 0.39% in volatile trade. SBI announced last week it has fixed the base rate at 7.5% per annum with effect from 1 July 2010.

Among other PSU banks, Punjab National Bank and Bank of India fell by between 1.17% to 1.69%. But, Bank of Baroda rose 0.3%.

The Reserve Bank of India introduced the new lending rate system with effect from 1 July 2010 to ensure that larger borrowers do not bargain for cheaper rates from banks, distorting their asset liability management.

India's largest dedicated housing finance firm by revenue HDFC fell 1.29%. HDFC recently launched "Dual Rate Product - 3", a special home loan product at a fixed rate of 8.25% per annum up to 31 March 2011, 9.25% for the period between 1 April 2011 and 31 March 2012 and the applicable floating rate for the balance term. This special offer is applicable to all new home loan customers who apply before 31 August 2010 and take at least part disbursement before 30 September 2010, HDFC said.

India's largest mobile services provider bys sales Bharti Airtel rose 1.86% on reports the company plans to invest $600 million in Nigeria over the next three years. The stock was the top gainer from the Sensex pack.

India's second largest mobile services provider by sales Reliance Communications rose 1.59%, on bargain hunting after a four-day slide. The company last week announced the acquisition of cable service provider, Digicable, in a cashless, all-stock deal. Reliance will demerge its direct-to-home (DTH) and IPTV business, now under the Reliance BigTV brand and the domestic retail broadband business of Reliance Communications, into a new entity along with the newly acquired Digicable. The new entity will be called Reliance DigiCom and Digicable will be given a stake in this entity.

A government statement said the telecom ministry has set up a panel to look into mobile firms' concerns over the sector regulator's proposals, including levying a one-time fee on 2G radio spectrum.

Metal and mining stocks fell on worries about the global economy. Sterlite Industries, Jindal Steel & Power, Sesa Goa, Hindalco Industries, Hindustan Zinc, Steel Authority of India fell by between 0.62% to 2.77%.

Tata Steel, the world's eighth-largest steelmaker, fell 1.04% in volatile trade. The company said after trading hours on Tuesday that sales from its Indian operations stood at 1.4 million tonnes in the April-June 2010 quarter, nearly flat compared with the same period last year. Sales in the quarter were hurt by weak market sentiment in the flat products segment and excessive imports of hot rolled coil from China, Tata Steel said.

Sales of long products, primarily used in construction, rose 8% Tata Steel said. It did not disclose growth for flat products, but said within this segment, demand from the auto sector rose 20%. The Indian operations account for about a quarter of the group's total annual global capacity of 30 million tonnes, which includes unit Corus, Europe's second-largest steelmaker. The company's crude steel production in India rose 8.3% to 1.63 million tonnes for the quarter.

Consumer durables stocks were at the fore. Gitanjali Gems, VIP Industries, Bajaj Electricals, Videocon Industries, Rajesh Exports, Blue Star, Whirlpool of India and Titan Industries were up by between 0.24% to 3.2%.

FMCG stocks fell on profit taking. ITC, Nestle India, Hindutan Unilever fell by between 0.06% to 0.49%.

Healthcare stocks also fell on profit taking. Sun Pharmaceutical Industries, Sterling Biotech, Lupin, Cipla and Dr Reddy's Laboratories fell by between 0.12% to 1.72%.

Capital goods stocks, too, declined on profit taking. Larsen & Toubro, Siemens, ABB, Thermax fell by between 0.16% to 1.52%.

Retail stocks rose after the government on Tuesday, 6 July 2010, sought suggestions from various stakeholders on opening up foreign direct investment in multi-brand retail trading. Vishal Retail, Trent, Shopper's Stop and Pantaloon Retail India rose by between 2.7% to 13.8%.

FCS Software clocked the highest volume of 3.6 crore shares on BSE. Supertex Industries (2.48 crore shares), Cals Refineries (1.46 crore shares), IFCI (1.45 crore shares) and LML (67.99 lakh shares) were the other volume toppers in that order.

Everonn Education Systems clocked the highest turnover of Rs 151.46 crore on BSE. JSW Steel (Rs 98.73 crore), Aban Offshore (98.16 crore), Tata Steel (Rs 85.70 crore) and IFCI (Rs 83.89 crore) were the other turnover toppers in that order.