Nifty attains 29-month closing high

The key indices extended gains for the third straight day, with stepping up of buying by foreign funds lifting spirits. Expectations of strong Q1 June 2010 results, also aided the rally. The 50-unit S&P CNX Nifty attained its highest closing level in more than 29 months. The Sensex attained its highest closing level in more than 3 months.



Seven out of 13 sectoral indices on BSE were in green, five were in the red and one was unchanged. The latest data showed the industrial production in May 2010 rose at a much slower-than-expected pace. Analysts expect a further 25 basis points hike in key interest rates by the central bank at a policy review later this month to control inflationary expectations. The Sensex rose 103.66 points or 0.58%, off 72.87 points from the day's high and up 62.25 points from the day's low. The barometer index crossed the psychological 18,000 mark for a brief period in mid-morning trade but fell below that level later.

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 for the third day in a row. The index shed 1.48% to 19.91. The index had lost 4.31% to 20.21 on Friday, 9 July 2010. It had lost 4.48% to 21.12 on Thursday, 8 July 2010. India VIX is calculated based on the S&P CNX Nifty options prices. India VIX is a measure ofthe market's expectation of volatility over the next 30 calendar days.

The market opened on a firm note, tracking higher Asian stocks. The key benchmark indices hit three-month highs at the onset of the trading session. The market extended gains in morning trade. The market pared gains in mid-morning trade on lower-than-expected growth in industrial production in May 2010. The market came off lows later. The Sensex trimmed gains after extending recovery from lower level in mid-afternoon trade. The market moved in a range in late trade.

Inflows into Indian stock funds rose to an 11-week high in the week ended 7 July 2010 as global investors responded to the arrival of monsoon rains, according global fund tracker EPFR Global. Global emerging market stock funds attracted $518 million and those investing in Asia (ex-Japan) drew $124 million, with Taiwan funds enjoying their second-best week this year, EPFR said.

Foreign funds have bought Indian equities worth a net Rs 1667.86 crore in the first few days this month (till 9 July 2010). Foreign funds had pumped in Rs 7,713.97 crore in equities in June 2010

Domestic funds have sold shares worth a net Rs 213.03 crore in the first few days this month (till 9 July 2010). They had sold equities worth a net Rs 4,777.05 crore in June 2010

Industrial output in May 2010 rose at a slower-than-expected 11.5% from a year earlier, data showed on Monday, 12 July 2010. Manufacturing output rose an annual 12.3%, the statistics office said. Mining output was up 8.7% and power generation rose 6.4%. Production of capital goods rose 34.3% year-on-year after an annual rise of 72.8% in April 2010, while consumer durables output grew 23.7%, down from a 37% rise in the previous month

April's industrial production growth was revised downwards to 16.5% from 17.6%.

European shares held positive zone but gains were capped as mining shares lost ground after data during the weekend showed China's June copper imports fell short of expectations. The key benchmark indices in Germany and UK were up 0.10% and 0.60%, respectively. However, France's CAC 40 was down marginally by 0.01%.

Asian stocks were trading with modest gains, after Wall Street closed out its best week in a year on Friday, 9 July 2010. The key benchmark indices in Hong Kong, Singapore, Indonesia, China, and South Korea rose by between 0.28% to 0.8%. Japan's Nikkei 225 average fell 0.39% in volatile trade after the government lost an upper house election at the weekend. Taiwan's Weighted index fell 0.1%.

Trading in US index futures indicated that the Dow could fall 40 points at the opening bell on Monday, 12 July 2010.

Wall Street closed out its best week in a year on Friday 9 July 2010, snapping back from a long stretch of selling, as investors looked ahead to what many expect will be a solid earnings season. The Dow Jones Industrial Average was up 59.04 points or 0.58% at 10,198.03. The Standard & Poor's 500 Index was up 7.70 points, or 0.72% at 1,077.95. The Nasdaq Composite Index was up 21.05 points, or 0.97% at 2,196.45.

The earnings season begins with Alcoa Inc after the closing bell on Monday, 12 July 2010. In economic news, US wholesale sales fell unexpectedly in May, lifting inventories to their highest level in 11 months, a government report showed.

The International Monetary Fund (IMF) on Thursday, 8 July 2010 raised its world output forecast for 2010, citing solid growth in the first half, especially in Asia, but warned of significant downside risks flowing from Europe. The IMF revised its 2010 world gross domestic product forecast to 4.6%, up from a previous forecast in April of 4.2%. The 2011 GDP forecast was unchanged at 4.3%.

The IMF raised India's growth forecast for 2010 to 9.5%, stating that favourable financing conditions and robust corporate profits will accelerate economic expansion. The IMF expects India's economy to grow 8.5% in 2011.

The major near term trigger for the market is Q1 June 2010 results of India Inc, which starts with results of Infosys on Tuesday, 13 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. Rains have revived after weak monsoon last month. Crop planting suffered last month as rainfall was 16% below normal, but rainfall deficit for the country as a whole has narrowed down to 10% for the period 1 June-8 July after heavy rains in the past few days. Out of 36 meteorological subdivisions, the rainfall has been excess in 11 subdivisions, normal in 15 subdivisions, deficient in 9 subdivisions and scanty in 1 sub-division.

Southwest monsoon was vigorous over Rayalaseema and active over Sub-Himalayan West Bengal, Bihar, East Uttar Pradesh and South Interior Karnataka during past 24 hours, the India Meteorological Department said in its daily update on Sunday, 11 July 2010. The weather office expects decrease in rainfall activity over parts of Gujarat, northwest, central and interior peninsular India this week. It sees widespread rainfall with isolated heavy to very heavy falls continuing over Sub-Himalayan West Bengal & Sikkim and northeastern states.

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 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 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, the central bank on 2 July 2010. The growth projection will be reviewed in the first quarter review on 27 July 2010, RBI said.

Meanwhile, the government will announce the inflation data for the month of June 2010 on Wednesday, 14 July 2010.

Coming back to stocks, the stock market regulator Securities & Exchange Board of India (Sebi) has relaxed the exposure margin requirement for stock derivatives, based on the feedback received from market participants. After trading hours on Wednesday, 7 July 2010, Sebi issued a circular saying that the exposure margin would be higher of 5% or 1.5 times the standard deviation of the notional value of the gross open position in single stock futures and gross short open position in stock options in a particular underlying.

The revised exposure margin requirement would be effective from 15 July 2010. The exposure margin requirement was similar prior October 2008, after which Sebi increased the exposure margin requirement to higher of 10%, or 1.5 times the standard deviation, to promote market safety and safeguard investor interest.

The BSE 30-share Sensex rose 103.66 points or 0.58% at 17,937.20, its highest closing level since 7 April 2010. The index rose 41.41 points at the day's low of 17,874.95 in afternoon trade. The Sensex rose 176.53 points at the day's high of 18,010.07 in morning trade.

The S&P CNX Nifty rose 30.55 points or 0.57% at 5,383, its highest closing level since 5 February 2008. The Nifty hit a high of 5,402.70.

The BSE Mid-Cap index underperformed the Sensex, rising 0.26%. The BSE Small-Cap index outperformed the Sensex, rising 0.60%.

The market breadth, indicating the strength of the broader market, was positive. On BSE, 1,567 shares advanced while 1,320 shares declined. A total of 126 shares remained unchanged. The breadth was much stronger earlier in the day.

BSE clocked turnover of Rs 3903 crore, lower than Rs 4264.85 crore on Friday, 9 July 2010.

The BSE Realty index (up 2.24%), Bankex (up 1.34%), IT index (up 1.26%) and Capital Goods index (up 0.75%), outperformed the Sensex.

The BSE Power index (up 0.44%), Metal index (up 0.42%), PSU index (down 0.14%), FMCG index (down 0.14%), Healthcare index (down 0.15%), Consumer Durables index (down 0.21%) and Oil & Gas index (down 0.43%), underperformed the Sensex. The BSE Auto index was flat, underperforming the Sensex.

From the 30 share Sensex pack, 17 stocks rose and rest fell.

Reliance Infrastructure fell 1.91% and was the top loser from the Sensex pack.

Index heavyweight Reliance Industries (RIL) was almost unchanged at Rs 1055.75. The stock came off the day's high of Rs 1068. RIL is reportedly looking to completely buyout the Bombay Dyeing brand from the Wadia family. Indo Rama Synthetics (India) and JBF Industries are the other players in the fray, reports added.

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. RIL also recently announced its seventh oil discovery in Cambay basin in Gujarat.

State-run oil marketing companies declined as a latest newspaper report raised doubts about the government's plan to decontrol diesel prices. A media report on Monday, 12 July 2010, suggested that the government may continue to provide a fixed subsidy of Rs 1.49 per litre on diesel irrespective of the rise or fall in its market-linked retail price. Shares of BPCL, HPCL and Indian Oil Corporation declined by 2.08% to 3.02%.

The government freed up prices of petrol and diesel on 25 June 2010, but capped the increase in the case of diesel to Rs 2 per litre against a required hike of Rs 3.49 a litre. The government also at that time raised prices of kerosene and LPG. The price hike will reduce under-recoveries of PSU OMCs on domestic sale of petrol, diesel, kerosene and LPG at controlled prices.

Interest rate sensitive realty stocks rose on bargain hunting. Mahindra Lifespace Developers, Peninsula Land, Unitech, Omaxe, HDIL, DLF, Ansal Properties and Indiabulls Real Estate, rose by between 1.64% to 6.36%.

Bank stocks rose on a pick up in credit offtake. India's largest private sector bank by market capitalisation ICICI Bank rose 2.06%, with the stock gaining for the third straight day. The bank on Friday, 9 July 2010, announced the pricing of an international bond offering of $500 million. The bank recently 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 rose 2.06% with the stock gaining for the third straight day. The stock hit the record high of Rs 2,051 today. HDFC Bank announced during market hours on Thursday, 8 July 2010 that the bank has issued on a private placement basis unsecured, redeemable, non-convertible, subordinated bonds in the nature of debentures towards Tier-II Capital for an amount aggregating Rs 1105 crore. HDFC Bank, recently set its base rate at 7.25%.

India's biggest commercial bank in terms of branch network, State Bank of India, rose 1.30%, with the stock gaining for the third straight day. SBI announced recently it has fixed the base rate at 7.5% per annum with effect from 1 July 2010.

But, other PSU bank stocks were in the red. Bank of India, Bank of Baroda and Punjab National Bank fell by between 0.24% to 1.16%.

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 1.18%, with the stock gaining for the third straight day. The lender will announce its Q1 result on Wednesday, 14 July 2010. 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.

IT stocks rose ahead of IT bellwether Infosys' Q1 result on Tuesday, 13 July 2010. India's second largest IT exporter by sales Infosys rose 0.80%, with the stock gaining for the third straight day. The stock today hit a record high of Rs 2,911.55.

India's third largest IT exporter by sales Wipro rose 2.25%, with the stock gaining for the third straight day. India's largest IT exporter by sales TCS rose 2.19%. The company will announce its Q1 result on Thursday, 15 July 2010.

Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange rose 1.63% on Friday, 9 July 2010. Sterlite Industries, Steel Authority of India, Hindustan Zinc, Sesa Goa, Hindalco Industries and JSW Steel rose by between 0.02% to 1.34%.

Tata Steel, the world's eighth-largest steelmaker, inched up 0.28%. The stock turned ex-dividend for a dividend of Rs 8 per share from today, 12 July 2010. Sales from company's 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 last week.

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.

Capital goods stocks rose on hopes of strong order flow in a fast rebounding economy and on the government's thrust on the infrastructure sector. Crompton Greaves, Bharat Heavy Electricals, Gammon India, Praj Industries, ABB and Larsen & Toubro rose by between 0.35% to 3.40%.

Parabolic Drugs rose 2.41%, after the company's Cephalasporin manufacturing facility at Derabassi, Punjab got Good Manufacturing Practice approval from the European Union.

GVK Power & Infrastructure rose 1.49% on reports the company is finalising plans to invest up to Rs 1,000 crore in the expansion of the Bangalore airport.

Blue Star declined 2.17% after the stock turned ex-dividend today, 12 July 2010, for a dividend of Rs 8 per share for the year ended March 2010.

Dr. Reddy's Laboratories clocked the highest turnover of Rs 85.47 crore on BSE. State Bank of India (Rs 81.13 crore), Reliance Capital (Rs 78.78 crore), Tata Steel (Rs 75.49 crore) and Bharti Airtel (Rs 74.72 crore), were the other turnover toppers on BSE.

Cals Refineries reported a highest volume of 7.94 crore shares on BSE. FCS Software Solutions (2.84 crore shares), Shree Ashtavinayak Cine Vision (90.27 lakh shares), Idea Cellular (72.30 lakh shares) and Unitech (50.11 lakh shares), were the other volume toppers on BSE.