Second quarter begins with losses for equities

Equities started the second quarter of the financial year with losses on Thursday, 1 July 2010, as data showed easing manufacturing activity in Asia weighed on investor sentiment. The BSE 30-share Sensex was provisionally down 197.57 points or 1.12%, up close to 50 points from the day's low. Data showing lower food price inflation and reports of revival of monsoon rains in soybean-growing areas of central region, capped decline on the domestic bourses. The market breadth was negative. Metal, IT, banking, auto and realty stocks fell.



Stocks were volatile. The market opened on a weak note, tracking lower Asian stocks. The market extended losses in morning trade. The Sensex trimmed losses in mid-morning trade. The market weakened once again to hit fresh intraday low in early afternoon trade. The market recovered from lower level in afternoon trade soon after hitting a fresh intraday low. The intraday recovery gathered steam in mid-afternoon trade. The market again weakened in late trade.

On the macro front, 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.

Exports rose for the seventh straight month in May 2010, growing an annual 35% to $16.1 billion, the government said on Thursday. Imports rose 38.5% to $27.4 billion, widening the country's trade deficit to $11.3 billion.

Food price inflation eased to its lowest annual growth this year, dampened by a weakening base effect, while the fuel price rise was slightly lower than the previous week, government data on Thursday showed. Food price index rose 12.92% in the year to 19 June 2010, while the fuel price index climbed 12.9%, government data released on Thursday showed. The pace of increase in food prices slowed from the previous week's annual rise of 16.9%, while fuel price inflation eased from last week's annual rise of 13.18%. The primary articles index was up at 14.75%

But, the government's latest decision to raise fuel prices will stoke inflation, maintaining pressure on the Reserve Bank of India to tighten monetary policy. 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.

The consumer price index (CPI) rose 13.91% in May from a year earlier, marginally higher than April's annual rise of 13.33%, government data showed on Wednesday.

Meanwhile, monsoon rains have revived in soybean-growing areas of central region, reports suggest. Investors are closely watching the progress of the monsoon rains, which were 16% below normal in June 2010.

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. Last week, the weather office said the rains were expected to be better than previously forecast. Monsoon rains are expected to be at 102% of the long-period average for the current monsoon season. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

European stocks dropped on Thursday after Moody's warned it may strip Spain of its Aaa sovereign-debt rating and China's purchasing managers' index suggested a slowdown in Chinese manufacturing industry's growth in June. The key benchmark indices in France, Germany and UK fell by between 0.97% to 1.62%.

Moody's Investors Service said Wednesday that it may downgrade the Triple-A sovereign ratings on Spain because of deteriorating economic conditions.

Asian stocks fell on Thursday after Chinese manufacturing growth slowed and Moody's Investors Service placed Spain's credit rating on review for a possible downgrade, fueling concern over the strength of the global economy. The key benchmark indices in China, Taiwan, South Korea, Japan, Singapore and Indonesia and fell by between 0.53% to 2.04%. Hong Kong markets were closed for a holiday.

One of China's two key manufacturing surveys fell in June, coming in below economists' forecasts, according to data released Thursday. The China Federation of Logistics & Purchasing said its purchasing managers' index fell to 52.1 in June, from 53.9 in May.

The Bank of Japan's quarterly tankan survey of business sentiment released Thursday showed that the diffusion index for large manufacturers improved more than expected to a positive reading of 1.

The HSBC South Korea PMI fell to 53.3 for June from 54.6 in May, indicating the weakest pace of expansion since December 2009. HSBC's Taiwan Manufacturing PMI fell for the third successive month to 53.8 in June, from 57.4 a month earlier.

US index futures cut losses. Trading in US index futures indicated that the Dow could fall 20 points at the opening bell on Thursday, 1 July 2010.

US stocks staggered to the end of a dismal second quarter on Wednesday in another low volume session as investors found little reason to take on risk after conflicting economic data. The Dow Jones Industrial Average dropped 96.28 points, or 0.98% to 9,774.02. The Standard & Poor's 500 Index slid 10.53 points, or 1.01% to 1,030.71. The Nasdaq Composite Index fell 25.94 points, or 1.21% to 2,109.24.

The latest data showed Midwest business activity grew slightly more than expected in June, but a private-sector report showed employment grew by only a paltry amount, adding to concerns about the health of the economy ahead of non-farm payrolls numbers on Friday.

Meanwhile, the US House of Representatives on Wednesday approved a landmark overhaul of financial regulations but the Senate put off action until mid-July, delaying a final victory for President Barack Obama. Still, the 237 to 192 vote in the House marked a win for Obama and his fellow Democrats, who have made the most sweeping rewrite of Wall Street rules since the 1930s a top priority in the wake of the 2007-2009 financial crisis. The bill would impose tighter regulations on financial firms and reduce their profits. It would boost consumer protections, force banks to reduce risky trading and investing activities and set up a new government process for liquidating troubled financial firms.

European banks borrowed less than expected from the European Central Bank in a key funding operation on Wednesday, easing fears about how they would cope with repaying close to half a trillion euros in emergency loans on Thursday.

Back home, India's infrastructure sector output grew 5% in May from a year earlier, lower than an upwardly revised annual growth of 5.4% in April, government data showed on Monday. The infrastructure sector accounts for 26.7% of the industrial output.

The fiscal deficit from April to May was Rs 101000 crore ($21.7 billion), or 26.5% of the full-year target, the government said in a statement on Wednesday. In February 2010, the government had forecast a fiscal deficit of Rs 381000 crore or 5.5% of gross domestic product, for the current financial year.

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.

Coming back to stocks, foreign funds bought shares worth a net Rs 7713.97 crore in June 2010, as per data from the stock exchanges. Domestic funds offloaded shares worth a net Rs 4777.05 crore in June 2010

As per provisional figures, the BSE 30-share Sensex was down 197.57 points or 1.12% at 17,503.33. The Sensex fell 21.56 points at the day's high of 17,679.34 in early trade. The Sensex lost 245.49 points at the day's low of 17,455.41 in afternoon trade.

The S&P CNX Nifty was down 62.05 points or 1.17% to 5,250.45 as per provisional figures.

The BSE Mid-Cap index was down 0.44%. The BSE Small-Cap index was up 0.1%. Both these indices outperformed the Sensex.

The market breadth, indicating the strength of the broader market, was negative. The breadth swung positive and negative terrain during the day. On BSE, 1,532 shares declined while 1369 shares advanced. A total of 106 shares remained unchanged.

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

BSE clocked turnover of Rs 4439 crore, lower than Rs 4962.38 crore on Wednesday, 30 June 2010.

Index heavyweight Reliance Industries (RIL) was down 1.13% to Rs 1074.60. The stock came off the day's low of Rs 1068. The stock had risen nearly 2% on Wednesday on 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 announced early this week that it made 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.

Auto stocks fell on rate hike worries. Ashok Leyland, Mahindra & Mahindra, Hero Honda Motors fell by between 1.4% to 2.27%. Bajaj Auto rose 1.12%, reversing initial losses.

India's largest car maker by sales Maruti Suzuki India fell 1.66%. The company announced during market hours today that its total vehicle sales rose 17.3% to 88,091 vehicles in June 2010 over June 2009.

India's largest commercial vehicle maker by sales Tata Motors fell 2.07%, extending recent losses on equity dilution concerns after the company announced after market hours on Monday that it plans to raise about Rs 4700 crore ($1.02 billion) through a combination of shares, bonds, debentures and other equity-linked instruments to cut debt and grow its business.

Bank stocks fell on rate hike worries. India's second largest private sector bank by operating income HDFC Bank fell 0.44%. HDFC Bank has set its base rate at 7.25%. India's largest private sector bank by market capitalisation ICICI Bank fell 2.44% after it 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.

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

India's biggest commercial bank in terms of branch network, State Bank of India, fell 1.8%. SBI announced during market hours on Tuesday it has fixed the base rate at 7.5% per annum with effect from 1 July 2010.

Among the other PSU banks, Punjab National Bank fell 2.25%. Bank of India and Bank of Baroda rose by between 1.95% to 2.43%.

India's largest dedicated housing finance firm by revenue HDFC fell 0.92%.

Bank credit grew an annual 19.1% in early June 2010, according to the RBI data, in tune with a rise in business and consumer confidence.

Metal and mining stocks fell on weak economic data in China. China is the world's largest consumer of copper and aluminium. Steel Authority of India, Sterlite Industries, Sesa Goa, Tata Steel, Hindustan Zinc, JSW Steel, Jindal Steel & Power, Hindalco Industries fell by between 0.38% to 3.09%.

High beta realty stocks fell on rate hike worries. HDIL, DLF, Omaxe, Unitech, Phoenix Mills and Indiabulls Real Estate fell by between 0.21% to 2.6%.

Index heavyweight Larsen & Toubro was down 0.71% to Rs 1791.70. The stock came off the day's low of Rs 1781.25. The company announced during market hours on Wednesday that it has bagged orders worth Rs 1383 crore.

IT stocks fell on recent weak economic data in the US, the biggest market for Indian IT firms. India's largest IT exporter by sales Tata Consultancy Services fell 1.88%, with the stock falling for the third straight day. India's third largest IT exporter by sales Wipro fell 2.53%, with the stock falling for the third straight day.

India's second largest IT exporter by sales Infosys fell 1.02% to Rs 2760, with the stock falling for the second straight day. Nonetheless the stock came off the day's low of Rs 2750.10.

Indraprastha Gas jumped 2.58% after the ministry of petroleum and natural gas approved the company's proposal to set up a gas distribution network at Ghaziabad in Uttar Pradesh.

Mold-Tek Packaging rose 0.88% after the company said its shareholders have approved issuing 22.50 lakh fully convertible warrant at Rs 45.40 each to promoter and non-promoter group.