Sensex, Nifty attain 29-month closing highs; realty shares soar

Revival of monsoon rains and stepping up of buying by foreign funds helped the key benchmark indices attain their highest closing level in 29-months. Rally in European stocks and US index futures supported the domestic bourses as the market extended gains for the fourth day. The stock market regulator Securities & Exchange Board of India (Sebi)'s recent decision to cut exposure margins on stock derivatives, also supported sentiment. Realty shares jumped in late trade on speculation the government will soon announce a hike in foreign direct investment (FDI) in the real-estate sector. Index heavyweight Reliance Industries (RIL) surged.



But, IT stocks fell as sector bellwether Infosys warned that the global economic environment continues to be uncertain, even though the company raised its full-year revenue and profit forecasts at the time of announcing Q1 June 2010 results today. Banking and capital goods stocks rose. The BSE 30-share Sensex rose 48.70 points or 0.27%, up 130.05 points from the day's low and off 12.14 points from the day's high. The Mid-cap and Small-cap indices on BSE outperformed the Sensex.

A bout of volatility was witnessed at the onset of the trading session as the key benchmark indices slipped into the red after recovering from an initial slide. The Sensex recovered from lower level in morning trade after hitting a fresh intraday low. The market moved in a narrow range in mid-morning trade. The market hit a fresh intraday low in early afternoon trade led by decline in IT stocks. The market recovered from lower level in afternoon trade after hitting a fresh intraday low. The market moved into positive zone, with the key benchmark indices hitting fresh intraday highs in mid-afternoon trade. The market extended gains in late 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 fourth day in a row. The index shed 4.02% to 19.11. 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.

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 today, 13 July 2010, bought Indian stocks worth a net Rs 784.68 crore, as per the provisional data from the stock exchanges. Domestic funds dumped shares worth a net Rs 650.96 crore.

Foreign funds have bought equities worth a net Rs 3454.29 crore this month so far, till 13 July 2010. Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010

Domestic funds have sold shares worth a net Rs 1157.03 crore this month so far, till 13 July 2010. They had sold equities worth a net Rs 4777.05 crore in June 2010.

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 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 government today set up a committee headed by Reserve Bank of India (RBI) Deputy Governor Shyamala Gopinath to review the structure of National Small Savings Fund (NSSF). The panel will review the existing terms of loans extended from the NSSF to the centre and states and recommend the changes required in the arrangement of lending the net collection of small savings to centre and states.

The panel has been set up following the recommendation of the Thirteenth Finance Commission which suggested debt relief to states by re-setting loans to states at a common interest rate of 9% in place of the current 10.5% and 9.5%. The panel will also recommend ways to make small saving plans more market-linked and other investment opportunities for the fund collections. While making its recommendations, the committee is expected to consider the importance of small savings within the overall savings in the economy especially its contribution in promoting savings amongst small investors and need of NSSF to be a viable fund, the government said in the release.

Meanwhile, the revival of monsoon rains helped accelerate the planting of rice, oilseeds and cotton last week. The area under rice cultivation jumped 56% to 7.2 million hectares on 9 July 2010 while cotton planting rose by half, during the week, compared with the previous week, as monsoon rains were 2% above normal, ending a two-week dry spell since 18 June 2010. Rainfall was 16% below average in June 2010. The shortfall narrowed to 10% last week.

While total rainfall since 1 June 2010 is now 13% below normal, key crop areas such as rice-growing Punjab and Haryana and soybean-growing Madhya Pradesh have received adequate rains.

The weather office in its daily update on Monday, 12 July 2010, said the southwest monsoon was vigorous over Chhattisgarh and was active over Gangetic West Bengal, Orissa, Bihar, Uttar Pradesh, Punjab, East Madhya Pradesh, Vidarbha and Telangana during past 24 hours. Widespread rain/thundershowers would occur over Sub-Himalayan West Bengal & Sikkim, Bihar and East Uttar Pradesh during next 48 hours and decrease thereafter, the India Meterological Department (IMD) said. Fairly widespread rain/thundershowers would occur over northeastern states, Lakshadweep, West Coast, it said.

The IMD added that fairly widespread rain/thundershowers would occur over Gangetic West Bengal, Jharkhand, Chhattisgarh, east Madhya Pradesh, Vidarbha, North Andhra Pradesh, Jammu & Kashmir, Himachal Pradesh, West Uttar Pradesh, Uttarakhand, Punjab, Haryana, Chandigarh and Delhi during next 48 hours and decrease thereafter. Scattered rain/thundershowers would occur over Madhya Maharashtra, Marathwada, West Madhya Pradesh, Gujarat, Rayalaseema, interior Karnataka, Orissa, and Tamilnadu, the IMD said.

IMD expects fairly widespread to widespread rainfall with isolated heavy to very heavy falls over Sub-Himalayan West Bengal & Sikkim, northeastern states and west coast, this week.

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.

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.

European shares surged, extending a rally into a sixth session, after Alcoa got the second-quarter US earnings season off to a strong start. The key benchmark indices in UK, France and Germany were up by 1.37% to 1.51%

Moody's Investor Service on Tuesday downgraded Portugal's bond ratings two notches to A1 from Aa2, with the ratings outlook stable. Moody's said the Portugal government's financial strength will continue to weaken over the medium term, as evidenced by ongoing deterioration in the country's debt metrics. Moody's had placed Portugal's bond ratings on review for possible downgrade on 5 May 2010.

Asian markets declined on Tuesday, 13 July 2010, as a tumble in Chinese stocks tempered optimism from US aluminum maker Alcoa's earnings. The key benchmark indices in Japan, Hong Kong and Taiwan fell by between 0.11% to 0.55%. China's Shanghai Composite fell 1.62% after the Chinese government quashed speculation it will abandon real-estate curbs that drove property prices to snap 15 months of gains. The key benchmark indices in Indonesia, Singapore and South Korea rose by between 0.06% to 0.12%.

The Chinese government denied an unsourced report in the state-run Securities Times Monday that China had loosened some controls on mortgage lending in first-tier cities. In response to the newspaper report, China's Ministry of Housing and Urban-Rural Development late Monday said it would strictly carry out differentiated mortgage policies to support reasonable housing consumption in households, while also resolutely curbing investment and speculative types of property purchases.

US index futures reversed initial losses. Trading in US index futures indicated that the Dow could rise 49 points at the opening bell on Tuesday, 13 July 2010.

Caution prevailed in the US stock market on Monday, 12 July 2010, with indexes edging higher as investors reserved their bets ahead of the onset of the earnings season. The Dow Jones Industrial Average added 18.24 points, or 0.18% to end at 10,216.27. The Standard & Poor's 500 Index edged up just 0.79 of a point, or 0.07% to 1,078.75. The Nasdaq Composite Index gained 1.91 points, or 0.09% to close at 2,198.36. Dow component Alcoa Inc reported its second-quarter results after the closing bell. The aluminum producer reported a second-quarter profit as sales rose 22%.

Closer home, 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%.

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 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.

Analysts expect a further 25 basis points hike in short term interest rates by the central bank at the policy review later this month. Meanwhile, the government will announce the inflation data for the month of June 2010 on Wednesday, 14 July 2010.

The BSE 30-share Sensex rose 48.70 points or 0.27% at 17,985.90, its highest closing level since 19 February 2008. The index fell 81.35 points at the day's low of 17,855.85 in early afternoon trade. The Sensex rose 60.84 points at the day's high of 17,998.04 in late trade.

The S&P CNX Nifty rose 17.65 points or 0.33% at 5,400.65, its highest closing level since 6 February 2008. It hit a high of 5,406.20 in late trade.

The BSE Mid-Cap index rose 0.72%. The BSE Small-Cap index rose 0.72%. Both these indices outperformed the Sensex.

The market breadth, indicating the strength of the broader market, was strong. On BSE, 1,694 shares advanced while 1,188 shares declined. A total of 119 shares remained unchanged.

BSE clocked turnover of Rs 4337 crore, higher than Rs 3938.74 crore on Monday, 12 July 2010.

The BSE Realty index (up 4.03%), Consumer Durables index (up 2.41%), Oil & Gas index (up 1.28%), Metal index (up 1.16%), Capital Goods index (up 0.99%), banking sector index Bankex (up 0.84%), Power index (up 0.71%), PSU index (up 0.40%) and Auto index (up 0.30%), outperformed the Sensex.

The BSE Healthcare index (down 0.14%), FMCG index (down 0.29%) and IT index (down 2.68%), underperformed the Sensex.

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

Index heavyweight Reliance Industries (RIL) rose 1.80% after television reports suggested the company is in talks to buy its third shale gas asset in North America.

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.

Infosys fell 3.44% and was the top loser from the Sensex pack. The Infosys stock had hit a record high of Rs 2,911.55 on Monday, 12 July 2010, ahead of the first quarter results. The IT bellwether has revised upwards its earnings and revenue guidance in both rupee and dollar terms for the year ending March 2011 (FY 2011).

Infosys' consolidated net profit as per International Financial Reporting Standards (IRFS) declined 7% to Rs 1488 crore on 4.3% increase in revenue to Rs 6198 crore in Q1 June 2010 over Q4 March 2010. Operating profit declined 1.9% to Rs 1755 crore in Q1 June 2010 over Q4 March 2010. The operating profit margin (OPM) declined to 28.31% in Q1 June 2010 from 30.09% in Q4 March 2010. During the quarter, the company and its subsidiaries hired as many as 8,859 employees in total, but the net addition to its headcount was just 1,026.

Infosys now expects a between 6.1% to 10.5% growth in earnings per American depository share (ADS) at between $2.42 to $2.52 for the year ended March 2011 (FY 2011) over the year ended March 2010 (FY 2010). At the time of announcing Q4 March 2010 results in April this year, the IT bellwether had forecast a between 5.3% to 9.6% growth in earnings per American depository share (ADS) in FY 2011 over FY 2010.

Infosys now expects a between 3.7% to7.9% growth in EPS in rupee terms at between Rs 112.21 to Rs 116.73 for FY 2011. At the time of announcing Q4 March 2010 results in April this year, the IT bellwether had forecast a 1.2% decline to a growth of 2.9% EPS at between Rs 106.82 to Rs 111.28 for FY 2011.

As far as the top line is concerned, Infosys now expects a 19% to 21% growth on consolidated revenue in dollar terms at between $5.72 billion to $ 5.81 billion for FY 2011. At the time of announcing Q4 March 2010 results in early April 2010, Infosys had projected a between 16% to 18% growth in consolidated revenue in dollar terms at between $5.57 billion to $5.67 billion for FY 2011.

Infosys now expects 16.3% to 18.2% growth in revenue in rupee terms at between Rs 26441 crore to Rs. 26885 crore for FY 2011. At the time of announcing Q4 March 2010 results in early April 2010, Infosys had projected a between 9% to 11% growth in consolidated revenue at between Rs 24796 crore to 25239 crore for FY 2011.

The upward revision in guidance in earnings and revenue in rupee terms appears to be mainly due to weakness in the rupee when compared to the previous guidance. The previous guidance was based rupee dollar exchange rate at 44.50 whereas the current guidance is based on rupee dollar exchange rate of 46.45.

India's third largest IT exporter by sales Wipro fell 0.94%. India's largest IT exporter by sales TCS fell 2.08%. TCS will announce its Q1 result on Thursday, 15 July 2010.

Consumer durables stocks rose on bargain hunting. Gitanjali Gems, Videocon Industries and Titan Industries were up by between 0.03% to 5.64%.

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. Jyoti Structures, SKF India, Siemens, Crompton Greaves, Bharat Heavy Elecricals, Thermax, Punj Lloyd, Larsen & Toubro, ABB and Praj Industries rose by between 0.55% to 4.14%.

Interest rate sensitive realty stocks jumped on speculation that the government will soon announce a hike in foreign direct investment in the real-estate sector. Parsvnath Developers, Unitech, Omaxe, DLF, HDIL, Orbit Corporation, Sobha Developers, Ackruti City, Ansal Properties and Phoenix Mills rose by between 2.77% to 7.73%.

Some FMCG stocks fell on profit taking. Hindustan Unilever, Nestle India, Hindustan Unilever, Nestle India, United Spirits, ITC and United Spirits fell by between 0.04% to 0.80%. But, there were many gainers from the FMCG sector. Britannia Industries, Marico, Godrej Consumer Products, Colgate-Palmolive India, Ruchi Soya Industries and Dabur India rose by 0.17% to 1.07%.

Bank stocks rose on a pick up in credit offtake. India's second largest private sector bank by operating income HDFC Bank rose 1.03% with the stock gaining for the fourth straight day. The stock hit the record high of Rs 2,073 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 1.19%, with the stock gaining for the fourth straight day. SBI announced recently it has fixed the base rate at 7.5% per annum with effect from 1 July 2010.

Among other PSU stocks, Bank of India and Punjab National Bank rose by between 0.01% to 2.08%. But, Bank of Baroda fell 0.15%.

India's largest private sector bank by market capitalisation ICICI Bank rose 1.02%, with the stock gaining for the fourth 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.

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 2.02%, with the stock gaining for the fourth straight day. The stock today hit a 52-week high Rs 3,071.65. The lender will announce its Q1 result tomorrow, 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.

Spanco gained 2.07%, after the company won a contract to create information technology infrastructure and deploy library management systems for Anna Centenary Library at Chennai.

Infosys Technologies clocked a highest turnover of Rs 183.54 crore on BSE. Sesa Goa (Rs 112.29 crore), State Bank of India (Rs 104.02 crore), Tata Steel (Rs 99.03 crore) and Unitech (Rs 88.59 crore), were the other turnover toppers in that order.

Cals Refineries reported a highest volume of 2.47 crore shares on BSE. FCS Software (2.31 crore shares), Unitech (1.08 crore shares), LML (1.04 crore shares) and Suzlon Energy (1 crore shares), were the other volume toppers on BSE in that order.