RNRL tumbles, RPower jumps after setting swap ratio for merger

The key benchmark indices edged marginally lower in lacklustre trade, with volumes hit by a nationwide strike called by opposition parties to protest against the government's decision to raise fuel prices. Banking stocks shrugged off an unexpected hike in key policy rates by the Reserve Bank of India, which was announced after trading hours on Friday, 2 July 2010. But, PSU OMCs, realty, metal stocks fell. Index heavyweight Reliance Industries (RIL) was flat. Reliance Natural Resources (RNRL) slumped following an unfavorable swap ratio for its merger with group company Reliance Power (RPower). RPower jumped.



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 0.41% to 21.99. The index had risen 2.15% on Friday, 2 July 2010. It had jumped on Thursday, 1 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 breadth was positive as buying was witnessed in select mid-cap and small-cap stocks. The BSE 30-share Sensex fell 19.51 points or 0.11%, off close to 65 points from the day's high and up close to 20 points from the day's low. The BSE clocked turnover of Rs 2840 crore, much lower than Rs 4554.87 crore on Friday, 2 July 2010.

A bout of volatility was witnessed in early trade, with the Sensex swinging between positive and negative zone. The market was range bound in morning trade. The market held positive zone in mid-morning trade after the latest data showed that India's services sector expanded at its fastest clip in two years last month. The market pared gains in early afternoon trade after hitting a fresh intraday high.

The Sensex slipped into the red later. It regained positive zone in afternoon trade. The market lost ground soon to hit a fresh intraday low. It soon regained positive zone in mid-afternoon trade. The market hit a fresh intraday low in late trade.

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) after trading hours 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.

European share prices were little changed in thin trading on Monday, although lingering uncertainty over the results of stress tests conducted on European banks hurt financial stocks. The key benchmark indices in France and Germany rose by between 0.03% to 0.17%. But, UK's FTSE 100 fell 0.09%.

Most Asian markets fell on weaker-than-expected US jobs report which rattled Wall Street on Friday, 2 July 2010. Chinese shares declined, hurt by fears of a slowdown in the Chinese economy. The key benchmark indices in China, Indonesia, Hong Kong and Singapore fell by between 0.01% to 0.8%. But, the key benchmark indices in Japan, Taiwan and South Korea rose by between 0.2% to 1.49%.

A survey of business conditions within China's service sector in June indicated the weakest pace of expansion in 15 months, adding to the growing evidence of a broad-based slowdown in the economy. The services purchasing manager's index for June eased to 55.6 from 56.4 in May, the weakest pace of expansion since March 2009, according to survey results compiled by HSBC and Market Economics.

US stocks fell on Friday, 2 July 2010 as disappointing jobs data joined other recent evidence pointing to a tepid economic recovery. Non-farm payrolls fell in June 2010 for the first time this year, adding to a slew of economic reports signaling the US recovery is slowing.

The Dow Jones Industrial Average dropped 46.05 points, or 0.47% to 9,686.48. The Standard & Poor's 500 Index lost 4.79 points, or 0.47% to 1,022.58. The Nasdaq Composite Index fell 9.57 points or 0.46% to 2,091.79. The Labor Department reported non-farm payrolls dropped by 125,000 in June 2010, the largest decline since October and affected by the loss of temporary government census jobs. The unemployment rate fell to 9.5%, the lowest level since July.

US market remains closed on Monday, 5 July 2010, for Independence Day holiday.

This week the focus will be squarely on how central banks will address signs of a coming global slowdown, with the European Central Bank and the Bank of England both holding policy meetings and the Reserve Bank of Australia and Bank of Korea meeting as well.

Back home, a survey showed manufacturing growth cooled in June 2010 after a surge in activity the prior month, mainly due to slowing production and rapidly easing input price pressures. The HSBC Markit Purchasing Manager's Index, based on a survey of 500 Indian companies, slipped to 57.3 in June from 59 in May, which was the highest in more than two years. Despite an increase in workloads and outstanding business, manufacturers did not add new jobs to their payrolls in June, leaving the employment index stagnating.

The government on 25 June 2010, raised petrol price by Rs 3.50 a litre, diesel price by Rs 2 litre, kerosene by Rs 3 litre and LPG by Rs 35 per cylinder. The government has decided to decontrol petrol prices. The government will also eventually decontrol diesel prices, Oil Secretary S. Sundareshan said on 25 June 2010. The government will, however, continue to subsidize kerosene and LPG.

Investors are closely watching the progress of the monsoon rains. The monsoon rains have revived after weak rains 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.

On the corporate front, most Indian firms, including Reliance Industries, L&T, Tata Steel and Tata Motors, have paid higher advance tax in Q1 June 2010 over Q1 June 2009. Higher advance tax payment normally indicates higher profits for the period under review. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year.

The BSE 30-share Sensex fell 19.51 points or 0.11% at 17,441.44. The Sensex rose 44.78 points at the day's high of 17,505.73 in early afternoon trade. The Sensex fell 37.21 points at the day's low of 17,423.74 in late trade.

The S&P CNX Nifty fell 1.20 points or 0.02% at 5,235.90.

The BSE Mid-Cap index was up 0.29%. The BSE Small-Cap index was up 0.32%. Both these indices outperformed the Sensex.

Sectoral indices on BSE were mixed. The BSE Healthcare index (up 0.53%), BSE IT index (up 0.39%), banking sector index Bankex (up 0.32%), Auto index (up 0.08%), and FMCG index (down 0.01%), outperformed the Sensex. The BSE Oil & Gas index (down 0.79%), Metal index (down 0.4%), PSU index (down 0.37%), Power index (down 0.32%), Capital Goods index (down 0.28%), Realty index (down 0.25%), and Consumer Durables index (down 0.19%), underperformed the Sensex.

The market breadth, indicating the strength of the broader market, was positive. On BSE, 1627 shares advanced while 1254 shares declined. A total of 91 shares remained unchanged. The breadth was much stronger earlier in the day.

From the 30 share Sensex pack, 18 stocks fell and the rest rose.

Index heavyweight Reliance Industries (RIL) was flat at Rs 1067.80. The stock came off the day's low of Rs 1063.40. 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.

Metal stocks fell on worries about the global economy. National Aluminum Company, Sterlite Industries, JSW Steel, Hindalco Industries fell by between 0.01% to 1.73%. LMEX, a gauge of six metals traded on the London Metal Exchange rose 0.96% on Friday, 2 July 2010.

Interest rate sensitive realty stocks fell after the central bank hiked interest rates sooner than expected. DLF, HDIL, Unitech, Omaxe, Sobha Developers fell by between 0.05% to 0.63%.

IT stocks were mixed after weak US economic data. US is the biggest market for Indian IT firms. India's third largest IT exporter by sales Wipro rose 0.89%, with the stock gaining for the second straight day. India's second largest IT exporter by sales Infosys rose 0.51%. 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 fell 0.52%.

PSU OMCs fell on profit taking after recent strong gains triggered by the government's decision to decontrol petrol and diesel prices which will help reduce underrecoveries of PSU OMCs on fuel sales. BPCL, HPCL and Indian Oil Corporation (IOC) fell by between 0.62% to 1.92%.

Bank stocks rose even as the central bank hiked interest rates sooner than expected. India's largest private sector bank by market capitalisation ICICI Bank rose 0.11%. 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 biggest commercial bank in terms of branch network, State Bank of India, rose 0.32%, with the stock gaining for the second 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 India rose by between 2.17% to 2.66%. But, Bank of Baroda fell 0.37%.

India's second largest private sector bank by operating income HDFC Bank was flat. HDFC Bank has set its base rate at 7.25%.

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 0.81%. HDFC has 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.

Reliance Natural Resources (RNRL) slumped 27.26% due to unfavorable swap ratio for its merger with group company Reliance Power (RPower). RPower surged 3.57%. Anil Dhirubhai Ambani Group's (ADAG's) gas transportation company, Reliance Natural Resources (RNRL), will merge with sister firm Reliance Power (R-Power) in a Rs 50,000-crore, all-stock deal. The board of directors of the two companies, in meetings held on Sunday, approved a swap ratio of 4:1, meaning RNRL shareholders are to get one R-Power share for every four they hold.

RNRL slumped on heavy volume of 1.85 crore shares on BSE. The average daily volume in the stock on BSE in the past one quarter to 2 July 2010 was 1.14 crore shares.

Reliance Power rose on high volume of 1.09 crore shares on BSE. The average daily volume in the stock on BSE in the past one quarter to 2 July 2010 was 17 lakh shares.

India's second largest mobile services provider by sales Reliance Communications fell 2.88%. The stock was the top loser from the Sensex pack. The company after market hours on Thursday, 1 July 2010, announced the acquisition of one of India's largest 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.

Healthcare stocks rose on bargain hunting. Ranbaxy Laboratories, Pfizer, Cipla and Dr Reddy's Laboratories rose by between 0.13% to 1.72%.

Index heavyweight Larsen & Toubro rose 0.12%. The company announced last week that it has bagged orders worth Rs 1383 crore.

FMCG stocks fell on profit taking. ITC, Tata Tea, Hindutan Unilever and Marico fell by between 0.23% to 1.13%.

Fertiliser shares rose due to improvement in monsoon rains this month after weak rains last month. National Fertilizer, GSFC, Chambal Fertilisers and Chemicals, Deepak Fertilisers rose by between 2.46% to 6.74%. The fortunes of the fertilizer sector are directly linked to monsoon. A good monsoon boosts demand for fertilizers whereas scanty rains negatively impact demand.

Interest rate sensitive auto stocks were mixed after central bank hiked interest rates sooner than expected. India's largest car maker by sales Maruti Suzuki India fell 0.94%. The company's total vehicle sales rose 17.3% to 88,091 vehicles in June 2010 over June 2009.

India's largest tractor maker by sales Mahindra & Mahindra (M&M) rose 1.33%. 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 0.26%. The company's 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.

The country's largest two-wheeler maker Hero Honda Motors rose 0.05%. The company reported a 16.6% jump in its sales at 4,26,454 in June 2010 over June 2009.

Ashok Leyland rose 4.88% after 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.

FCS Software clocked the highest volume of 2.91 crore shares on BSE. Reliance Natural Resources (1.85 crore shares), Karuturi Global Solutions (1.64 crore shares), Cals Refineries (1.58 crore shares) and Reliance Power (1.09 crore shares) were the other volume toppers in that order.

Reliance Power clocked the highest turnover of Rs 199.50 crore on BSE. Bajaj Auto Finance (Rs 119.69 crore), Reliance Natural Resources (Rs 86.41 crore), Persistent Systems (Rs 60.55 crore) and VIP Industries (Rs 41.38 crore) were the other turnover toppers in that order.