Sensex gains 2% in two days ahead of the onset of earnings season

The key benchmark indices surged for the second straight day as expectations of strong Q1 June 2010 results, a recent upward revision in India's GDP growth forecast by the International Monetary Fund and the stock market regulator Securities & Exchange Board of India (Sebi)'s recent decision to cut exposure margins on stock derivatives, boosted sentiments. Except the BSE FMCG index, all the other sectoral indices on BSE were in green.



The BSE 30-share Sensex jumped 181.81 points or 1.03%, off close to 25 points from the day's high. Metal, banking, auto and realty stocks rose. Index heavyweight Reliance Industries ended almost unchanged after moving between positive and negative zone during the day.

From a recent low of 17,471.03 on 7 July 2010, the BSE Sensex has jumped 362.51 points or 2.07% in two trading sessions.

Coming back to today's trade, 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 second day in a row. The index shed 4.31% to 20.21. The index 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 of the market's expectation of volatility over the next 30 calendar days.

The market jumped in early trade on firm Asian stocks. The market extended gains to hit fresh intraday highs in morning trade as Asian stocks extended initial gains. The market continued the uptrend to hit fresh intraday high in mid-morning trade. The market trimmed gains in early afternoon trade as index heavyweight RIL came off the higher level. The market regained strength in mid-afternoon trade, with the Sensex hitting a fresh intraday high. It, soon, pared gains.

European shares rose, tracking gains on Wall Street on Thursday, which was boosted by jobless claims falling and a handful of large retailers reporting solid sales. The key benchmark indices in UK, France and Germany were up by 0.4% to 0.54%.

Asian stocks rallied for a second day on Friday, supported on positive US economic data. The key benchmark indices in Hong Kong, Indonesia, China, Taiwan, Singapore, Japan and South Korea rose by between 0.5% to 2.31%.

South Korea's central bank raised its key interest rate Friday from a record low amid prospects for faster growth in the country's economy. The Bank of Korea announced that it lifted the benchmark seven-day repurchase rate to 2.25% from 2%.

Trading in US index futures indicated that the Dow could fall 5 points at the opening bell on Friday, 9 July 2010.

Wall Street rose for a third straight day on Thursday, 8 July 2010, as investors were encouraged to see jobless claims fall and a handful of large retailers report solid sales. The Dow Jones Industrial Average was up 120.71 points, or 1.20% at 10,138.99. The Standard & Poor's 500 Index was up 9.98 points or 0.94% at 1,070.25. The Nasdaq Composite Index was up 15.93 points, or 0.74% at 2,175.40.

Sales at stores open at least a year rose 3.1% in June 2010, according to company reports which was better than expected. Initial claims for state unemployment benefits dropped 21,000 to a seasonally adjusted 454,000 in the week ended 3 July 2010, the lowest level since early May, the Labor Department said.

The International Monetary Fund (IMF) on Thursday 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 Dun & Bradstreet (D&B) Composite Business Optimism Index (BOI) for Q3 September 2010 rose to a two-year high of 150 from 132.1 in Q3 September 2009, recording an increase of almost 13.6% on a year-on-year (YoY) basis. The sustained improvement in the BOI is reflective of the continuous strengthening of confidence amongst the corporates, D&B said.

Robust growth in industrial production, stabilising domestic consumption-demand, rapidly-growing investment demand coupled with increase in imports and exports seems to have supported growing business confidence, D&B said. Improvement in hiring intentions of the corporates, as reflected in a 10 quarter high resultant optimism for employees, is a positive development and augurs well for the future growth prospects of the economy, it said.

The latest data showed the food price index rose 12.63% in the year to 26 June 2010, while the fuel price index climbed 18.02%. The pace of increase in food prices slowed from the previous week's annual rise of 12.92% while fuel price inflation accelerated from last week's 12.90%. The primary articles index was up at 16.08% compared with the previous week's reading of 14.75%.

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. 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. Rains were 2% above normal in the week ended 8 July 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. 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, 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 government on Tuesday, 6 July 2010, took the first step towards opening up foreign direct investment (FDI) in multi-brand retail. Advocating that FDI in retail would bolster farmers' income, tame inflation and bring technical knowhow, the government has kicked off a discussion to formulate the rules of the game, including imposition of FDI cap and riders for local sourcing and rural job creation. While foreign investment in multi-brand retail is prohibited now, the Government allows 51% FDI in single brand retail and 100% in wholesale cash-and-carry trade.

Meanwhile, government officials are reportedly in the process of finalising the constitutional amendments required for the rollout of the goods and services tax from 1 April 2011. The new tax, it is proposed, will replace excise duty and service tax at the Centre and VAT and local taxes at the states' level.

Coming back to stocks, foreign funds have bought equities worth a net Rs 563.78 crore in the first few days this month. Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010

Domestic funds have sold shares worth a net Rs 251.76 crore in the first few days this month. They had sold equities worth a net Rs 4777.05 crore in June 2010.

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.

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 jumped 181.81 points or 1.03% at 17,833.54. The Sensex rose 205.85 points at the day's high of 17,857.58 in mid-afternoon trade. The index rose 16.12 points at the day's low of 17,667.85 in early trade.

The S&P CNX Nifty rose 55.60 points or 1.05% at 5,352.45.

The BSE Mid-Cap index was up 0.9%. The BSE Small-Cap index was up 0.38%. Both the indices underperformed the Sensex.

Barring the BSE FMCG index, all the other sectoral indices on BSE rose. BSE Realty index (up 2.48%), Metal index (up 1.55%), banking sector index Bankex (up 1.34%), Auto index (up 1.29%), and IT index (up 1.06), outperformed the Sensex. The BSE Consumer Durables index (up 0.88%), Oil & Gas index (up 0.3%), PSU index (up 0.29%), Capital Goods index (up 0.15%), Power index (up 0.06%), Healthcare index (up 0.02%), and FMCG index (down 0.76%), underperformed the Sensex.

The market breadth, indicating the strength of the broader market, was positive. On BSE, 1,580 shares advanced while 1,341 shares declined. A total of 98 shares remained unchanged. The breadth was much stronger earlier in the day.

From the 30 share Sensex pack, 22 stocks rose and rest fell.

BSE clocked turnover of Rs 4227 crore, higher than Rs 3913.47 crore on Thursday, 8 July 2010.

Telecom stocks jumped after a foreign brokerage raised its rating on the telecom sector, citing an improvement in the competitive environment. Tariffs had been stable in the last eight months and high cost for 3G mobile spectrum had crimped mobile operators' ability to go for further price war, the brokerage said.

India's largest mobile services provider by sales Bharti Airtel jumped 9.7% and was the top gainer from the Sensex pack. The stock rose on huge volume of 92.13 lakh shares on BSE. Singapore Telecommunications, Southeast Asia's largest telecoms firm, said on Friday it bought around 1.6 million shares of Bharti Airtel on the open market for about Singapore dollar 12.45 million ($9.03 million), hiking its stake by 0.04% to 32.04%.

Reliance Communications rose 2.82% to Rs 193.25. On BSE, 37.01 lakh shares changed hands in the counter. Idea Cellular jumped 13.31% to Rs 66.85. The scrip vaulted on massive volume of 1.21 crore shares.

India's largest FMCG maker by sales Hindustan Unilever fell 1.26% and was the top loser from the Sensex pack.

Index heavyweight Reliance Industries (RIL) was flat at Rs 1055.85. The stock hit a high of Rs 1,066 and a low of Rs 1052.40. 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.

Cipla fell 0.28%. The company today said news report about its chief executive leaving the company is speculative. The executive Amar Lulla is on medical leave, company said.

Metal and mining stocks rose on positive economic data in US, the world's biggest economy. Sterlite Industries, Hindalco Industries, Jindal Steel & Power, Jindal Saw, Sesa Goa, Steel Authority of India, JSW Steel and Hindustan Zinc rose by between 0.72% to 2.52%.

Tata Steel, the world's eighth-largest steelmaker, rose 2.43% to Rs 495.90, with the stock gaining for the second straight day. 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.

Bank stocks rose on a pick up in credit offtake. India's largest private sector bank by market capitalisation ICICI Bank rose 1.09%, with the stock gaining for the second straight day. The bank today announced the pricing of an international bond offering of $500 million. The bank, last week, 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 3.09% to Rs 2003.10, with the stock gaining for the second straight day. The stock hit the record high of Rs 2,010.90 today. HDFC Bank announced during market hours on Thursday 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, last week, set its base rate at 7.25%.

India's biggest commercial bank in terms of branch network, State Bank of India, rose 0.51% 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.

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 1.09%, with the stock gaining for the second straight day. 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.

Interest rate sensitive realty stocks rose on bargain hunting after a recent slide triggered by rate hike worries. Mahindra Lifespace Developers, Unitech, Indiabulls Real Estate, Omaxe, Orbit Corporation, DLF, Peninsula Land and HDIL rose by between 0.42% to 4.73%.

IT stocks rose on positive economic data in the US, which is the biggest market for Indian IT firms. India's second largest IT exporter by sales Infosys rose 1.63%, with the stock gaining for the second straight day. The stock today hit a record high of Rs 2,882.

India's third largest IT exporter by sales Wipro rose 1.01%, with the stock gaining for the second straight day. India's largest IT exporter by sales TCS fell 0.27%, reversing early gains.

Auto stocks rose on expectations of good Q1 results. India's largest tractor maker by sales Mahindra & Mahindra (M&M) rose 2.51%, 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 1.92%, with the stock gaining for the second straight day. 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 0.87%, extending last four days' gains. 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.

India's largest car maker by sales Maruti Suzuki India rose 1.39%, with the stock gaining for the second straight day. The company's total vehicle sales rose 17.3% to 88,091 vehicles in June 2010 over June 2009.

Car sales in India rose an annual 30.8% in June 2010, an industry body said on Thursday. Firms sold 141,184 cars in the month, compared with 107,948 units a year ago, data from the Society of Indian Automobile Manufacturers (SIAM) showed. Sales of trucks and buses, a barometer of economic activity, rose 44% to 52,211 units in June, SIAM said.

The country's largest two-wheeler maker Hero Honda Motors rose 0.51%, with the stock snapping last three days' losses. The company reported a 16.6% jump in its sales at 4,26,454 in June 2010 over June 2009.

Bajaj Auto gained 0.65% to Rs 2,417.60 after the two-wheeler major signed an agreement with Renault-Nissan alliance to manufacture an ultra low-cost car to be sold in India and other emerging markets, which would be a rival to Tata Motors' Nano.

PSU OMCs extended recent gains after the government, late last month, decided to decontrol petrol prices and hiked diesel, cooking fuel and cooking gas prices. Indian Oil Corporation, HPCL and BPCL rose by between 0.88% to 2.62%. The price hike will reduce under-recoveries of PSU OMCs on domestic sale of petrol, diesel, kerosene and LPG at controlled prices.

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. Larsen & Toubro, Praj Industries, Bharat Heavy Elecricals, BEML, SKF India rose by between 0.02% to 3.08%.

Sugar stocks rose after Farm Minister Sharad Pawar said on Friday the country must ease restrictions on the sugar sector. Balrampur Chini, Bajaj Hindustan, Dhampur Sugars and Shree Renuka Sugars rose by between 4.06% to 6.41%. This is the time millers and the government should sit together to decide on easing restrictions on sugar sector, Pawar told an industry conference.

Consumer durables stocks rose. Gitanjali Gems, Videocon Industries, Rajesh Exports, Blue Star and Titan Industries were up by between 3.12% to 5.67%.

Cals Refineries clocked the highest volume of 5.99 crore shares on BSE. FCS Software (1.75 crore shares), Birla Power Solutions (1.41 crore shares), Idea Cellular (1.21 crore shares) and Bharti Airtel (92.13 lakh shares) were the other volume toppers in that order.

Bharti Airtel clocked the highest turnover of Rs 283.82 crore on BSE. HPCL (Rs 82.97 crore), Idea Cellular (Rs 80.95 crore), Persistent Systems (Rs 76.33 crore) and Tata Steel (Rs 75.49 crore) were the other turnover toppers in that order.