Interest rate sensitive stocks slide ahead of RBI's policy review; Maruti tanks

The key benchmark indices edged lower as European stocks moved off highs and as US index futures fell. Closer home, caution prevailed ahead of the central bank's quarterly policy review on Tuesday, 27 July 2010 and as investors awaited key first quarter results. The first quarter results of Larsen & Toubro (L&T), Reliance Industries (RIL) and Hindustan Unilever (HUL) are due on Tuesday 27 July 2010. The BSE Sensex settled a tad above the psychological 18,000 mark after falling below that mark for a brief period in late trade.



Interest rate sensitive realty and banking stocks fell ahead of the central bank's policy review. India's largest car maker by sales Maruti Suzuki slumped more than 12% on disappointing Q1 results. Other auto stocks also fell. Capital goods and metal stocks also edged lower.

The market breadth was weak in contrast to a strong breadth earlier in the day. The BSE 30-share Sensex fell 110.93 points or 0.61%, off close to 175 points from the day's high and up close to 40 points from the day's low.

The market moved between positive and negative zone near the flat line in early trade, giving away initial gains. Stocks drifted lower in morning trade. The market was range bound in mid-morning trade. The movement remained confined to a range in early afternoon trade. The market hit a fresh intraday low in afternoon trade. The market extended losses to hit fresh intraday low in mid-afternoon trade. Weakness continued in late trade.

Volatility may rise this week as traders rollover positions in the derivatives segment from July 2010 series to the August 2010 series ahead of the expiry of the near-month July 2010 contracts on Thursday, 29 July 2010.

NSE's volatility index India VIX, which is a gauge of traders' perception of near-term risks in the market based on options prices, rose 3.79% to 19.97. 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.

On the political front, top opposition parties will reportedly seek a special discussion and vote in parliament over high prices this week. Voting can take place only if it is allowed by the parliament speaker. Though there is little threat to government stability, the opposition protests over price rises could delay key legislation. The government has said it will try to get parliament to ratify bills to simplify taxation, including a proposal to introduce a goods and services tax (GST), and another to cap private firms' liability in case of a nuclear accident.

Meanwhile, Moody's Investors Service today, 26 July 2010, raised India's local currency government bond rating to Ba1 from Ba2 and said the outlook remains positive. The ratings agency cited a range of institutional and structural reforms, absence of any heightened recourse to non-market measures for financing the government's large stimulus program and the Indian economy's resilience throughout the global recession as reasons for the upgrade.

Moody's affirmed India's Baa3 foreign currency government bond rating, and said the outlook remains stable. Moody's said it could consider unifying India's local and foreign currency ratings should the fiscal reforms deepen and if inflation pressures normalise.

Analysts expect another 25 basis points rate hike from the central bank on Tuesday, 27 July 2010, aimed at anchoring inflation expectations. The Reserve Bank of India (RBI) on 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 was a part of the calibrated exit from the expansionary monetary policy.

The RBI is also expected to provide an outline on new banking licenses at Tuesday's quarterly monetary policy review. Finance Minister Pranab Mukherjee had announced in this year's budget that the central bank would consider issuing fresh banking licenses to business houses and also to non-banking finance companies (NBFCs).

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 the monsoon rains this month augurs well for the Indian economy which is driven by strong domestic demand. Heavy showers, particularly in soybean regions, have narrowed the shortfall in India's monsoon rains to 9%, raising hopes of strong harvests in the world's leading consumer of rice, vegetable oils and sugar. The annual monsoon rains were 9% below normal during the period from 1 June 2010 to 25 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.

Farmers have already planted rice, oilseeds, cane and cotton in a larger area than last year, and are expected to further expand cultivation as the vital June-September monsoon progresses. In the soybean-growing central regions, the shortfall in monsoon rains since 1 June has narrowed to 6% on Sunday, 25 July 2010 from 18% on 19 July. The weather office has forecast widespread rainfall along the west coast and soybean-growing central regions this week. In the first week of August, rainfall is likely to decrease in the central regions but areas near the foothills of the Himalayas may receive more rain, the weather office said in its two-week forecast

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.

European shares slipped back on Monday with GlaxoSmithKline leading drug makers lower on reports it is interested in buying Genzyme although banks gained following the results of stress tests. The key benchmark indices in France and Germany were down by 0.13% to 0.2%. But, UK's FTSE 100 rose 0.04%.

Results of Europe's test of banks' capital strength came out after the close on Friday 23 July 2010 and revealed that only seven out of ninety one banks had failed an adverse test scenario that assumed a sovereign risk shock and a double-dip recession.

Asian stocks rose on Monday, 26 July 2010, as most European banks passed stress tests, boosting optimism over the health of the global economy. The key benchmark indices in China, Hong Kong, Japan, South Korea, and Taiwan were up by between 0.12% to 0.77%. But, the key benchmark indices in Indonesia and Singapore were down by between 0.22% to 0.6%.

South Korea's economy grew 1.5% during the second quarter, the nation's central bank said Monday. The rise in real gross domestic product beat the Bank of Korea's own forecast for 1.2% growth.

Japan's exports rose for the seventh straight month in June 2010. Exports climbed 27.7% from a year earlier to 5.87 trillion yen ($67.2 billion), the Finance Ministry said Monday.

US index futures reversed initial gains. Trading in US index futures indicated Dow could fall 9 points at the opening bell on Monday, 26 July 2010.

US stocks rose on Friday, 23 July 2010 as General Electric delivered a shot of confidence to US investors when it raised its dividend on Friday, pushing the S&P 500 through the key 1,100 level. The Dow Jones Industrial Average gained 102.32 points, or 0.99% to 10,424.62. The Standard & Poor's 500 Index rose 8.99 points, or 0.82% to 1,102.66. The Nasdaq Composite Index added 23.58 points, or 1.05% to 2,269.47.

The BSE 30-share Sensex fell 110.93 points or 0.61% to 18,020.05. The Sensex rose 63.11 points at the day's high of 18,194.09 in early trade. The index lost 137.10 points at the day's low of 17,993.88 in late trade.

The S&P CNX Nifty fell 30.50 points or 0.56% to 5,418.60.

The BSE Mid-Cap index fell 0.96%. The BSE Small-Cap index shed 0.81%. Both the indices underperformed the Sensex.

Most sectoral indices on BSE declined. The BSE Auto index (down 3.25%), Realty index (down 2.13%), banking sector index Bankex (down 0.79%), PSU index (down 0.76%), Capital Goods index (down 0.75%), and Oil & Gas index (down 0.72%), underperformed the Sensex. The BSE IT index (up 0.59%), FMCG index (up 0.09%), Consumer Durables index (up 0.05%), Healthcare index (down 0.05%), Metal index (down 0.33%), and Power index (down 0.42%), outperformed the Sensex.

The market breadth, indicating the overall health of the market, was weak. The breadth was positive in early trade. On BSE, 1834 shares declined while 1095 shares advanced. A total of 81 shares remained unchanged.

From the 30-share Sensex pack, 16 stocks fell and the rest rose.

BSE clocked turnover of Rs 3701 crore, lower than Rs 4909.01 crore on Friday, 23 July 2010.

Bharti Airtel rose 2.12% and was the top gainer form the Sensex pack.

NTPC fell 0.17%. The company announced after market hours today its net profit fell 16.03% to Rs 1841.89 crore in Q1 June 2010 over Q1 June 2009.

India's largest power equipment maker by sales Bharat Heavy Electricals was flat. The stock had risen 1.39% on Friday, 23 July 2010, boosted by strong Q1 results. Net profit surged 41.85% to Rs 667.66 crore on 15.78% increase in net sales to Rs 6479.69 crore in Q1 June 2010 over Q1 June 2009. The company declared its results during trading hours on Friday, 23 July 2010.

India's largest engineering & construction firm by sales Larsen & Toubro fell 0.91%. The stock hit a 52-week high of Rs 1949 in intra-day trade today, 26 July 2010. As per recent reports, the company has bagged the Rs 12,132 crore Hyderabad Metro Rail project. L&T announces Q1 results on Tuesday, 27 July 2010.

Metal stocks fell on profit taking. Sesa Goa, National Aluminium Company, Hindalco Industries, Tata Steel, JSW Steel and Jindal Saw fell by between 0.12% to 2.05%.

Copper maker Sterlite Industries rose 0.2% after its consolidated net profit rose 49.91% to Rs 1008.43 crore in Q1 June 2010 over Q1 June 2009. The company announced the result during market hours today, 26 July 2010.

Index heavyweight Reliance Industries (RIL) was down 0.76% at Rs 1052.05. The stock hit a high of Rs 1068.30 and low of Rs 1049.50. RIL unveils Q1 June 2010 results on Tuesday, 27 July 2010. As per recent reports, RIL has rejected the oil ministry's directive to sell gas from its Krishna Godavari basin field to new customers by reducing supply to existing ones. As many as 16 companies are waiting to sign gas sale and purchase agreements with RIL.

India's largest car maker by sales Maruti Suzuki slumped 12.31% as 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. The stock was the top loser from the Sensex pack. The scrip declined on high volume of 14.4 lakh shares on BSE, compared to average daily volume of 1.04 lakh shares in the past one quarter to 23 July 2010.

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 largest motorbike maker by sales Hero Honda Motors fell 7.46%. Honda Motor Co said on Monday it had no intention of selling any part of its 26% stake in India's profitable motorcycle maker Hero Honda Motors, denying a media report which said Honda was likely to divest a stake of about 6% in Hero Honda. The stock was the second biggest loser from the Sensex pack.

Among other auto stocks, Ashok Leyland, Tata Motors and Mahindra & Mahindra fell by between 1.16% to 2.24%.

But, Bajaj Auto rose 2.3% to Rs 2,528. The stock today, 26 July 2010, hit a record high of Rs 2,544.50.

Bank stocks fell ahead of central bank's monetary policy review tomorrow, 27 July 2010. India's biggest commercial bank in terms of branch network, State Bank of India (SBI) fell 3.44% after raising $1 billion in overseas bond issue late last week. The stock today matched a record high of Rs 2504 it had hit on Friday, 23 July 2010.

Among other PSU banking stocks, Bank of India, Bank of Baroda and Punjab National Bank fell by between 0.43% to 2.37%,

But, India's largest private sector bank by market capitalisation ICICI Bank rose 0.47% and India's second largest private sector bank by market capitalisation HDFC Bank rose 0.64%.

Interest rate sensitive realty stocks fell on concerns rise in interest rates could hit property demand. HDIL, Ackruti City, Unitech, Indiabulls Real Estate, DLF and Sobha Developers fell by between 0.06% to 5.06%.

India's largest FMCG maker by sales Hindustan Unilever was flat ahead of its Q1 result on Tuesday, 27 July 2010.

Among other FMCG stocks, ITC, Nestle India Marico, United Spirits rose by between 0.48% to 1.66%, on revival of monsoon rains. A good monsoon boosts rural sales of FMCG firms

DCM Shriram Consolidated lost 1.75% after the company reported net loss of Rs 9.42 crore in Q1 June 2010 compared to net profit of Rs 29.37 crore in Q1 June 2009 on consolidated basis.

Cals Refineries clocked the highest volume of 2.26 crore shares on BSE. FCS Software (1.21 crore shares), IFCI (1.18 crore shares), Shree Ashtavinayak Cine Vision (1.15 crore shares) and Sanraa Media (1.14 crore shares) were the other volume toppers in that order.

Maruti Suzuki India clocked the highest turnover of Rs 172.83 crore on BSE. TCS (Rs 114.36 crore), B F Utilities (Rs 92.46 crore), State Bank of India (Rs 83.99 crore) and IFCI (Rs 73.23 crore) were the other turnover toppers in that order.