Market snaps three-day slide as monsoon revives

The key benchmark indices surged, snapping last three days' losses as world stocks rose. The BSE 30-share Sensex jumped 173.04 points or 0.99%, up close to 310 points from the day's low and off close to 25 points from the day's high. Revival of monsoon rains in the past few days after weak rains last month, also underpinned sentiment. Metal, IT, banking and realty stocks surged. All the sectoral indices on BSE were in green.



The Sensex had lost 259.46 points or 1.46% in the preceding three trading sessions to settle at 17441.44 on Monday, 5 July 2010, from a recent high of 17,700.90 on 30 June 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, declined 4.96% to 20.90. The index had risen during the preceding three trading sessions. 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 turned positive soon after opening lower as Asian stocks recovered. The market extended gains to hit fresh intraday highs in morning trade. It continued the upward trend to hit fresh intraday high in mid-morning trade. The market was range bound in early afternoon trade. Higher European stocks pushed the key benchmark indices to fresh intraday highs in afternoon trade. The market extended gains in mid-afternoon trade. It trimmed gains in late trade.

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.

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 realisations 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.

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.

European shares rose on Tuesday, shaking off some weakness from the previous session, with commodity-sector stocks among the best performers. The key benchmark indices in UK, France and Germany rose by 2.17% to 2.84%.

Asian stocks rebounded, with the regional benchmark rising from the lowest level in almost a month. But, turnover was very light, with US markets closed on Monday, 5 July 2010, for Independence Day holiday. The key benchmark indices in Indonesia, Singapore, Taiwan, Japan and South Korea rose by between 0.57% to 1.46%.

China's shares reversed earlier losses to trade higher, led by gains in banking shares after their recent sharp declines. The Shanghai Composite index was up 1.92% and Hong Kong's Hang Seng was up 1.22%

US index futures reversed initial losses. Trading in US index futures indicated that the Dow could jump 101 points at the opening bell on Tuesday, 6 July 2010.

Back home, 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.

The above monetary measures should contain inflation and anchor inflationary expectations going forward, while not hurting the recovery process, the central bank said in a statement. This mid-cycle policy action has been warranted by the evolving macroeconomic situation, it said.

Although entirely justified in terms of long-term fiscal and energy conservation objectives, the recent increase in fuel prices will have an immediate impact of around one percentage point on inflation based on wholesale price index (WPI), with second round effects also being felt in the months ahead, the Reserve Bank of India said. Significantly, 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 RBI said.

The central bank's monetary policy stance is of calibrated exit from the expansionary monetary policy, with focus on containing inflation and anchoring inflationary expectations without hurting growth. This is the first rate action by the central bank after banks switched over to the new base rate system from 1 July 2010.

To address what it said was temporary and unexpected tight liquidity in the financial system, the RBI also on Friday extended an earlier measure to infuse cash into the system.

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 BSE 30-share Sensex rose 173.04 points or 0.99% at 17,614.48. The Sensex rose 201.70 points at the day's high of 17,643.14 in mid-afternoon trade. The Sensex fell 45.86 points at the day's low of 17,395.58 in early trade.

The S&P CNX Nifty rose 53.15 points or 1.02% at 5,289.05.

The BSE Mid-Cap index was up 0.75%. The BSE Small-Cap index was up 0.6%. Both these indices underperformed the Sensex.

All the sectoral indices on BSE rose. BSE Metal index (up 1.88%), Consumer Durables index (up 1.77%), banking sector index Bankex (up 1.73%), IT index (up 1.68%), and Realty index (up 1.08%), outperformed the Sensex. The BSE Auto index (up 0.75%), Capital Goods index (up 0.57%), Healthcare index (up 0.53%), PSU index (up 0.42%), Power index (up 0.39%), Oil & Gas index (up 0.37%), and FMCG index (up 0.25%), underperformed the Sensex.

The market breadth, indicating the strength of the broader market, was strong. On BSE, 1641 shares advanced while 1271 shares declined. A total of 96 shares remained unchanged. The breadth was much stronger earlier in the day.

From the 30 share Sensex pack, 25 stocks rose while the rest fell.

BSE clocked turnover of Rs 3811 crore, much higher than Rs 2857.42 crore on Monday, 5 July 2010.

Index heavyweight Reliance Industries (RIL) rose 0.45%. 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.

Tata Power Company rose 0.49% after the company during market hours today announced that it along with its consortium partner Arrow Energy has been awarded the Satpura coal bed methane (CBM) block in Madhya Pradesh during the CBM IV bidding round.

Consumer durables stocks rose on bargain hunting. Gitanjali Gems, Blue Star, Videocon Industries, Titan Industries rose by between 0.71% to 5.65%.

Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange rose 0.54% on Monday, 5 July 2010. Sterlite Industries, JSW Steel, Hindalco Industries, Hindustan Zinc, Steel Authority of India, JSW Steel rose by between 0.76% to 4.65%.

Tata Steel, the world's eighth-largest steelmaker, rose 1.77%. The company said after trading hours 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.

Interest rate sensitive realty stocks rose even as the central bank hiked interest rates sooner than expected. DLF, HDIL, Unitech, Omaxe, Indiabulls Real Estate, Sobha Developers rose by between 0.41% to 4.37%.

IT stocks rose on bargain hunting after a recent slide triggered by weak US economic data. US is the biggest market for Indian IT firms. India's third largest IT exporter by sales Wipro rose 1.6%, with the stock gaining for the third straight day. India's second largest IT exporter by sales Infosys rose 1.59% with the stock gaining for the second straight day. Infosys on Thursday, 1 July 2010 said it will unveil Q1 June 2010 results on 13 July 2010. India's largest IT exporter by sales TCS rose 2.45%.

India's second largest mobile services provider by sales Reliance Communications fell 1.8%, with the stock sliding for the fourth straight day. The company after market hours on Thursday, 1 July 2010, 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.

Bank stocks rose on expectations of a pick up in lending growth in a fast rebounding economy. India's largest private sector bank by market capitalisation ICICI Bank rose 2.12%, with the stock gaining for the second straight day. The bank, last week, set its base rate for loans at 7.5% effective Thursday, 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 rose 2.41%. HDFC Bank has set its base rate at 7.25%.

India's biggest commercial bank in terms of branch network, State Bank of India, rose 1.78%, with the stock gaining for the third straight day. 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 Baroda fell by between 0.13% to 0.24%. But, Bank of India rose 2.4%.

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 rose 0.13%. 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.

Healthcare stocks rose on bargain hunting. Sun Pharmaceutical Industries, Pfizer, Cipla and Dr Reddy's Laboratories rose by between 0.44% to 3.02%.

Most auto stocks rose even after central bank hiked interest rates sooner than expected. India's largest tractor maker by sales Mahindra & Mahindra (M&M) rose 2.67%, with the stock gaining for the second straight day. 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 rose 0.39% on reports its unit Tata Auto Comp Systems (TACO) is planning to exit the 50:50 joint venture with Ficosa in Spain. The company no longer finds the JV as a strategic fit. The company intends to raise funds to reduce the debt burden on the parent company, Tata Motors.

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 2.29% extending Monday's 4.88% surge. 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.

But, the country's largest two-wheeler maker Hero Honda Motors fell 0.47%. 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 0.22%, with the stock falling for the second straight day. The company's total vehicle sales rose 17.3% to 88,091 vehicles in June 2010 over June 2009.

India's largest thermal power producer by sales National Thermal Power Corporation (NTPC) rose 0.6% after the company signed production sharing contracts (PSCs) with the Government of India for oil/gas exploration blocks awarded under eighth round of bidding under New Exploration Licensing Policy (NELP-VIII). NTPC will have a 100% interest and operate an onland block in the Cambay basin in western India, while it will hold a 10% interest in three other blocks in other regions.

FMCG stocks rose on revival of monsoon rains. ITC, Tata Tea, Hindutan Unilever, Marico and Dabur India rose by between 0.04% to 2.06%. FMCG companies derive substantial revenue from rural sales.

SpiceJet clocked the highest volume of 3.42 crore shares on BSE. FCS Software (2.97 crore shares), Cals Refineries (1.95 crore shares), Jindal Cotex (1.22 crore shares) and Karuturi Global (1.2 crore shares) were the other volume toppers in that order.

SpiceJet clocked the highest turnover of Rs 185.35 crore on BSE. Jindal Cotex (Rs 153.08 crore), Aban Offshore (Rs 83.21 crore), Bharti Airtel (Rs 81.61 crore) and State Bank of India (Rs 73.98 crore) were the other turnover toppers in that order.