Small-cap, mid-cap indices outperform Sensex

Largely strong initial batch of Q1 results, sustained buying by foreign funds and stock market regulator Sebi's decision to allow physical settlement of stock derivatives boosted the market last week, with the Sensex advancing in three out of the five trading sessions. Stock-specific buying was witnessed based on expectations of first quarter results of individual companies.



In a major development, the stock market regulator Securities & Exchange Board of India (Sebi) on Thursday, 15 July 2010, allowed physical settlement of both stock options and stock futures. At present only cash settlement of derivatives is allowed. Sebi said stock exchanges will also have flexibility to offer a combination of cash settlement for stock options and physical settlement for stock or physical settlement for stock options and cash settlement for stock futures. A stock exchange may introduce physical settlement in a phased manner, it said in a circular.

On the macro front, the latest data showed the headline inflation rose lower-than-expected 10.55% in June 2010. The rate of increase was higher than May's rise of 10.16%. Inflation for April 2010 was revised upwards to 11.23% from 9.59%.

The 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 8 July 2010 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.

Weak monsoon rains in the past week will not significantly hurt crop output in the country and the weather outlook is encouraging, Farm Minister Sharad Pawar said on Friday, 16 July 2010. Agency reports on Thursday, 15 July 2010, said monsoon rains were 24% below normal in the past week. Earlier, a revival of monsoon rains had helped accelerate the planting of rice, oilseeds and cotton. The area under rice cultivation jumped 56% to 7.2 million hectares on 9 July 2010 while cotton planting rose by half, last week, compared with a week before. Rainfall was 16% below average in June 2010. The shortfall had narrowed to 10% later.

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 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 BSE Sensex rose 122.28 points or 0.69% to 17,955.82 in the week ended 16 July 2010. The 50-unit S&P CNX Nifty rose 41.45 points or 0.77% to settle at 5,393.90.

The BSE Mid-Cap index rose 1.10% and the BSE Small-Cap index jumped 1.86%. Both these indices outperformed the Sensex.

Trading for the week began an upbeat note. The market edged higher for the third straight day, on Monday, 12 July 2010, with stepping up of buying by foreign funds lifting spirits. Expectations of strong Q1 June 2010 results, also aided the rally. The BSE 30-share Sensex rose 103.66 points or 0.58% at 17,937.20. The S&P CNX Nifty rose 30.55 points or 0.57% at 5,383.

The market drifted higher again on Tuesday, 13 July 2010. The BSE 30-share Sensex rose 48.70 points or 0.27% at 17,985.90. The S&P CNX Nifty rose 17.65 points or 0.33% at 5,400.65.

The key benchmark indices reversed gains on Wednesday, 14 July 2010, after hitting 29-month highs at the onset of trading session as lower European stocks and an upward revision in inflation for April 2010 triggered profit taking. The BSE Sensex moved past the psychological 18,000 mark in early trade, but profit booking pulled it below that key level later. The Sensex fell 47.74 points or 0.27% at 17,938.16. The S&P CNX Nifty fell 14.50 points or 0.27% at 5,386.15.

The key benchmark indices ended a tad lower on Thursday, 15 July 2010 amid volatility in European stocks and US index futures. The BSE 30-share Sensex fell 28.70 points or 0.16% at 17,909.46. The S&P CNX Nifty fell 7.40 points or 0.14% at 5,378.75.

On Friday, 16 July 2010, the key benchmark indices rose as sustained buying by foreign funds and stock market regulator Sebi's decision to allow physical settlement of stock derivatives, boosted sentiment. Stock-specific buying continued based on expectations regarding Q1 results of individual firms. The BSE 30-share Sensex rose 46.36 points or 0.26% at 17,955.82. The S&P CNX Nifty rose 15.15 points or 0.28% at 5,393.90.

From the 30-share Sensex, 17 stocks rose and the rest fell last week.

India's largest realty developer by market capitalisation, DLF was the biggest Sensex gainer last week. The stock rose 8.10% to Rs 319.65. Realty sector shares were in demand on speculation the government will soon announce a hike in foreign direct investment (FDI) in the real-estate sector.

India's largest truck maker by sales, Tata Motors was the second biggest Sensex gainer last week. The stock rose 7.92% to Rs 831.6 after its global vehicles sales rose 46% to 91,608 units in June 2010 over June 2009. The figure includes its British luxury unit Jaguar Land Rover, whose sales rose 47% to 20,189 units in June 2010 over June 2009.

India's largest software exporter by sales, TCS jumped 7.48% to Rs 832.4. TCS' consolidated net profit as per US accounting standards declined 5.31% to Rs 1844.30 crore on 6.21% growth in revenue to Rs 8217.30 crore in Q1 June 2010 over Q4 March 2010. The results beat market expectations. The company raised its gross employee-hiring target to 40,000 for the current financial year from earlier 30,000, exhibiting positive demand environment.

TCS chief executive officer and managing director N Chandrasekaran said Q1 June 2010 was a quarter of complete outperformance at TCS. He said TCS' balance growth in Q1 June 2010 was driven by disciplined execution and strong demand across markets and industry sectors. He said while the management is alert about changing macro dynamics in many markets, TCS' customer-centric business model is very relevant and helps TCS participate in the ongoing recovery.

TCS' chief financial officer and executive director S Mahalingam said TCS' investments in building an extensive front office presence in new markets is helping support and sustain higher growth.

Jaiprakash Associates (up 3.98%), ICICI Bank (up 3.55%), State Bank of India (up 3.05%), Larsen & Toubro (up 2.84%) and Tata Steel (up 2.68%), were the other prominent gainers from the Sensex pack.

Index heavyweight, Reliance Industries (RIL) inched up 0.67%. RIL reportedly has approached the Competition Commission of India (CCI) alleging that state-run oil companies have formed a cartel to supply aviation turbine fuel to national carrier Air India.

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.

Housing finance major, Housing Development Finance Corporation (HDFC) rose 1.79%. The company's net profit rose 23% to Rs 694.59 crore on 1.7% decline in operating income to Rs 2801.95 crore in Q1 June 2010 over Q1 June 2009.

India's largest tractor maker by sales, Mahindra & Mahindra was the biggest Sensex loser last week. The stock fell 5.38% to Rs 604.10.

India's second largest software exporter by sales, Infosys Technologies was the second biggest Sensex loser. The stock declined 3.26% to Rs 2778.3 as the company's Q1 June 2010 earnings lagged analyst estimates.

Infosys Technologies' consolidated net profit as per International Financial Reporting Standards declined 7% to Rs 1488 crore on 4.3% rise in revenue to Rs 6198 crore in Q1 June 2010 over Q4 March 2010. The result was announced just before market hours on Tuesday, 13 July 2010.

The company's 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

Infosys said 38 clients were added during the quarter by Infosys and its subsidiaries. The company said there was a gross addition of 8,859 employees during the quarter, but the net addition was much lower at 1,026 employees

Infosys officials warned that the global economic environment continues to be uncertain even as the IT bellwether revised upwards its earnings and revenue guidance in both rupee and dollar terms for the year ending March 2011 (FY 2011).

India's second largest listed telecom operator by sales, Reliance Communications fell 3.18% to Rs 187.10. It was the third biggest loser in from the Sensex pack.

Maruti Suzuki India (down 3.06%), Bharti Airtel (down 3.05%), ONGC (down 2.99%), ACC (down 2.86%) and Cipla (down 2.22%), were the other major Sensex losers.