August beginning for the new month; Sensex settles above 18,000

The key benchmark indices jumped on the first trading day of August 2010, boosted by strong auto sales in July 2010 and after data showed manufacturing activity picked up pace in the month just gone by. Revival of the monsoon rains in the crucial sowing month of July, sustained buying by foreign funds, and firm global equities, also underpinned sentiments. The barometer index BSE Sensex settled above the psychological 18,000 mark. India's largest private sector bank by market capitalisation and index heavyweight ICICI Bank surged almost 4% after reporting good Q1 results. Other banking stocks also surged.



High beta realty and metal stocks rose. FMCG and consumer durables socks also gained. Index heavyweight Reliance Industries (RIL), too, edged higher. The market breadth was strong. All the sectoral indices on BSE were in green. The BSE 30-share Sensex rose 212.92 points or 1.19%.

Stocks surged at the onset of the trading session, tracking firm Asian equities. The market came off the higher level later. The market regained strength in morning trade -- the Sensex hit a fresh intraday high in morning trade. The market held firm near the day's high in early afternoon trade. The market hit a fresh intraday high in afternoon trade as European stocks rose in early trade. The uptrend continued in mid-afternoon trade as European stocks extended gains and as US index futures surged. 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, dropped 5.02% at 17.99. The index had risen 1.25% at 18.56 on Friday, 30 July 2010. The index had plunged 6.1% to 18.33 on Thursday, 29 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.

On the macro front, the manufacturing expansion picked up pace in July 2010, driven by new orders, stronger factory output and rising prices even as hiring stagnated, a survey showed on Monday, 2 August 2010. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, edged up to 57.6 in July 2010 from 57.3 in June 2010 when it slipped from a multi-year high.

The factory output index jumped to a four-month high of 62.3 in July from 60.5 in the prior month, pointing to a rate of expansion in production that was above the trend since the end of the financial crisis, according to survey compilers Markit. But Indian manufacturers shed jobs for the first time in four months in July.

Meanwhile, the week-long logjam in Parliament over the issue of spiralling prices ended today, 2 August 2010, with both the Lok Sabha and the Rajya Sabha resuming their normal functioning. The stalemate ended after the opposition gave up its demand for a motion to discuss the issue under rules that entail voting and agreed for passing a resolution after discussion in both Houses. The consensus was reached at an all-party breakfast meeting called by Leader of the Lok Sabha Pranab Mukherjee.

The Lok Sabha will discuss the issue of price rise on Tuesday, 3 August 2010. In the Rajya Sabha the discussion will take place on Wednesday, 4 August 2010.

If the opposition sticks to its pledge not to disrupt parliament, the government is expected soon to introduce changes to the income tax system and hopes to start discussions on the most ambitious indirect tax reform viz. a nationwide goods and services tax, which would streamline the country's complex revenue system.

European stock markets rose Monday 2 August 2010, after another round of positive economic data, strong earnings from some of the region's biggest banks and expectations of a big rise on Wall Street at the open later in the global day. The key benchmark indices in France, Germany and UK rose by between 1.65% to 2.11%.

The monthly manufacturing purchasing managers' index for the 16 countries that use the euro -- a closely watched gauge of business activity -- was revised up to 56.7 in July from the previous estimate if 56.5. Anything above 50 means the sector is expanding.

Asian stocks rose on Monday, 2 August 2010, after Chinese manufacturing gauge for July was not as weak as feared and South Korea's exports grew faster than expected. The key benchmark indices in China, Hong Kong, Singapore, Japan, Taiwan and South Korea were up by between 0.35% to 1.95%. But, Indonesia's Jakarta Composite index fell 0.34%.

China's official purchasing manager's index for July slipped to 51.2 from 52.1 in June, expanding at the slowest pace in 17 months.

South Korea's exports rose 29.6 % in July over a year earlier, better than expected.

In Taiwan, the HSBC PMI fell from 53.8 in June to 50.5 in July as a result of slowing new export orders and a dip in output growth at the start of the second quarter. In South Korea, the HSBC PMI fell slightly to 53.2.

Trading in US index futures indicated that the Dow could jump 117 points at the opening bell on Monday, 2 August 2010.

US stocks ended little changed on Friday 30 July 2010 but Wall Street wrapped up its best month in a year after the earnings season rounded the final turn with a group of strong results that offset the impact of poor economic data. The Dow Jones Industrial Average dropped 1.22 points, or 0.01% to 10,465.94. The Standard & Poor's 500 Index gained 0.05 points to 1,101.58. The Nasdaq Composite Index gained 3.01 points, or 0.13% to 2,254.70.

The Commerce Department's first estimate of economic growth for the second quarter showed the US GDP expanded at a 2.4% annual rate, driven by capital investment, but the expansion was down from the first quarter's revised 3.7% rise. US consumer sentiment plunged in July to its lowest level since November 2009 on bleak prospects for jobs and income. The Institute for Supply Management-Chicago business barometer, however, showed businesses boosted employment and orders.

Back home, foreign funds continue to mop up Indian stocks. Foreign funds have bought shares worth a net Rs 8320.50 crore in July 2010 absorbing selling by domestic institutional investors. Domestic funds have sold shares worth a net Rs 6323.13 crore in July month, as per data from the stock exchanges.

Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010, absorbing selling by domestic funds in that month. Domestic funds had dumped shares worth a net Rs 4777.05 crore in June 2010.

Asia ex-Japan equity funds absorbed more than $1 billion in the week ended 28 July 2010, their biggest inflow in 14 weeks, according to data from global fund tracking firm EPFR Global. Indian equity funds posted an eighth consecutive week of inflows and China stock funds recorded the biggest weekly intake since mid-April, EPFR said.

On the corporate front, the combined net profit of a total of 1,655 companies fell 11.3% to Rs 53530 crore on 20.8% rise in sales to Rs 678017 crore in Q1 June 2010 over Q1 June 2009.

The revival of monsoon rains in the crucial sowing month of July 2010 augurs well for the Indian economy which is driven by strong domestic demand. The annual monsoon rains were 38% above normal in the week to 28 July 2010, bouncing back from a 17-percent deficit in the previous week, the weather office said on Thursday, 29 July 2010. The cumulative rainfall during the period from 1 June 2010 to 1 August 2010 was 3% below normal.

The southwest monsoon was vigorous over East Rajasthan and Saurashtra & Kutch and active over Arunachal Pradesh, West Bengal & Sikkim, West Uttar Pradesh, Haryana, Chandigarh & Delhi, West Rajasthan, Gujarat region, West Madhya Pradesh, Konkan & Goa, Madhya Maharashtra and South Interior Karnataka during past 24 hours, India Meteorological Department (IMD) said in its daily updated on Sunday, 1 August 2010.

The weather office expects fairly widespread rainfall over plains of northwest India, east, northeast and Peninsular India this week. A low pressure area is likely to form over northwest Bay of Bengal and neighbourhood around 4 August, 2010, the IMD said in its daily update on Sunday.

Rainfall over the country as a whole for the second half (August to September) of the 2010 southwest monsoon season is likely to be normal, the IMD said late last week. Quantitatively, rainfall for the country as a whole during the period August-September 2010 is likely to be 107% of long period average (LPA) with a model error of ±7%, it said.

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.

Water level in main reservoirs was at 27% of capacity in the week to 29 July 2010, up from 19% in the previous week. Reservoirs are important for hydropower, which accounts for a quarter of the nation's generation capacity. They also provide water to irrigate winter crops such as wheat and rapeseed.

The Reserve Bank of India (RBI) at its Q1 monetary policy on Tuesday, 27 July 2010, raised its key short term interest rates for the fourth time this year to curb surging inflation. The central bank also raised its economic growth and inflation forecasts.

The RBI raised GDP forecast to 8.5% for the year ending March 2011 (FY 2011), from 8% with an upside bias earlier. The central bank said the upward revision in growth forecast is primarily based on better industrial production and its favourable impact on the services sector and also giving due consideration to the global scenario.

The RBI also signaled its strong preference for tight liquidity, saying it would ensure that excess liquidity in the system doesn't dilute the effectiveness of policy-rate actions.

The RBI also raised the baseline projection for inflation based on wholesale price index for March 2011 to 6% from 5.5% indicated in the April 2010 policy statement, taking into account the emerging domestic and external scenario. The RBI said its outlook on inflation will partly be shaped by the distribution of monsoon rains and their impact, as the agricultural harvest will be crucial to easing currently high food prices in the country.

The Reserve Bank of India said the economy could face a significant risk in the form of a slowdown in capital flows, at a time when the current account deficit is widening. In its first quarterly review of monetary policy, the Reserve Bank of India said that a potential slowdown in capital inflows could impact the current and trade deficit. The current deficit is already widening as imports continue to rise with the rebound in economic growth.

RBI has said that the risk of capital flows runs both ways. Given the present state of the global economy, central banks in advanced economies are likely to maintain accommodative monetary policies for an extended period. With the strong growth potential of emerging market economies, including India, this is likely to trigger large capital inflows. Large capital inflows above the absorptive capacity of the economy will pose a challenge for monetary and exchange rate management. This also has implications for asset prices. In this scenario, a widening current account deficit will help absorb a larger proportion of the inflows.

The BSE 30-share Sensex rose 212.92 points or 1.19% to 18,081.21. The Sensex rose 235.95 points at the day's high of 18,104.24 in late trade. The index rose 43.02 points at the day's low of 17,911.31 in early trade.

The S&P CNX Nifty rose 64.05 points or 1.19% to 5,431.65.

The BSE Mid-Cap index rose 1.15%. The Small-Cap index rose 0.92%. Both these indices underperformed the Sensex.

All the sectoral indices on BSE rose. BSE's banking sector index Bankex (up 2.4%), Consumer Durables index (up 1.63%), and Metal index (up 1.39%), outperformed the Sensex. The BSE FMCG index (up 1.1%), Realty index (up 1.08%), Oil & Gas index (up 0.98%), Capital Goods index (up 0.67%), PSU index (up 0.65%), Auto index (up 0.35%), Power index (up 0.28%), IT index (up 0.26%), and Healthcare index (up 0.13%), underperformed the Sensex.

The market breadth indicating the health of the market was strong. On BSE, 1781 shares advanced while 1176 shares declined. A total of 94 shares remained unchanged.

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

BSE clocked turnover of Rs 3947 crore, lower than Rs 4559.21 crore on Friday, 30 July 2010.

Index heavyweight Reliance Industries (RIL) rose 0.49%. The stock had dropped during the last three days of the week ended Friday, 30 July 2010, on worries about stagnant gas production. Gas production is likely to stagnate at 60 million standard cubic metres of gas a day for a while. Reliance Industries will be able to pump natural gas at full capacity from its deep-sea field during the year to March 2013, Oil Secretary S. Sundareshan said last week.

RIL's net profit jumped 32.3% to Rs 4851 crore on 86.7% increase in net turnover to Rs 58,228 crore in Q1 June 2010 over Q1 June 2009. The results were announced after trading hours on 27 July 2010.

GAIL (India) rose 2.05% as net profit rose 35.22% to Rs 886.88 crore in Q1 June 2010 over Q1 June 2009. The company announced the result during trading hours today.

Consumer durables stocks rose on renewed buying. Videocon Industries, Gitanjali Gems, Rajesh Exports and Titan Industries rose by between 0.17% to 7.89%.

India's largest FMCG maker by sales Hindustan Unilever (HUL) rose 0.98%, as revival of monsoon rains in July 2010 could boost rural sales. HUL's net profit fell 1.84% to Rs 533.21 crore on 8.42% increase in total income to Rs 4918.34 crore in Q1 June 2010 over Q1 June 2009. The result was announced during market hours on 27 July 2010.

Cigarette maker ITC rose 1.3%. The scrip hit all-time high of Rs 313.30 today ahead of 4 August 2010 record date for 1:1 bonus issue. The stock turns ex-bonus from Tuesday, 3 August 2010.

Among other FMCG stocks, United Spirits, Nestle India and Britannia Industries rose by between 0.13% to 6.26%.

India's largest thermal power producer by sales NTPC fell 0.3% and was the top loser from the Sensex pack.

India's largest mobile services provider by sales Bharti Airtel rose 3.75%. It was the second biggest gainer from the Sensex pack.

Banking stocks rose on expectations of a strong growth in lending in a fast rebounding economy. Bank lending to companies and individuals grew more than 21% in the year through 2 July 2010, the fastest pace since January 2008.

India's biggest commercial bank in terms of branch network, State Bank of India (SBI) rose 3.09% to Rs 2,581.10, with the stock gaining for the fifth straight day. The stock today, 2 August 2010, scaled a record high of Rs 2,599.90. State Bank of India after market hours on Wednesday, 28 July 2010, announced the acquisition of its affiliate bank State Bank of Indore. The acquisition is effective from 26 August 2010.

Bank of Baroda rose 1.53%. The stock hit a record high of Rs 770 today. Bank of India jumped 7.08% to Rs 439.45 on good Q1 results. Punjab National Bank rose 4.55%.

India's largest dedicated housing finance firm by revenue HDFC rose 1.43%. HDFC has fixed 20 August 2010 record date for a 5-for-1 stock split.

India's second largest private sector bank by market capitalisation HDFC Bank rose 0.42%. The stock hit record high of Rs 2,140.90 today. HDFC Bank raised deposit rates for various maturities by 0.25% to 0.75%, with effect from 30 July 2010.

For deposits with maturity between 91 days and 6 months, the rate would be raised by 75 basis points to 5.25% from the existing 4.5%. For fixed deposit between 9 months and one year, the new rates would be higher by 50 basis points at 6.25% while for 1 year 16 days category it will be 7%, 25 basis points more than the existing rate of 6.75%.

India's largest private sector bank by market capitalisation ICICI Bank jumped 3.9% as net profit rose 17% to Rs 1026 crore in Q1 June 2010 over Q1 June 2009. The stock was the top gainer form the Sensex pack. Net interest income rose 0.3% to Rs 1991 crore. Non-interest income declined 19.6% to Rs 1,680 crore. Within non-interest income category, fee income rose 7.12% to Rs 1413 crore. The treasury income declined sharply to Rs 104 crore from Rs 714 crore in Q1 June 2009. Lease and other income surged to Rs 163 crore from Rs 57 crore in Q1 June 2009.

The ratio of low-cost current & savings accounts (CASA) deposits to total deposits surged to 42.1% at end June 2010 from 30.4% at end June 2009. The ratio of net non-performing assets declined to 1.62% at end June 2010 from 2.19% at end June 2010. The bank announced the result on Saturday, 31 July 2010.

Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange rose 1.72% on Friday, 30 July 2010. Hindustan Zinc, Steel Authority of India, Tata Steel, Jindal Steel & Power rose by between 0.24% to 2.63%.

Aluminum maker Hindalco Industries rose 2.53% ahead of its Q1 result on Tuesday, 3 August 2010.

Rate sensitive realty rose on renewed buying. Ackruti City, Unitech, Indiabulls Real Estate, Ackruti Properties, DLF and Phoenix Mills rose by between 0.3% to 5.62%.

IT pivotals though up, they underperformed the benchmark index BSE Sensex on weak economic data in US, the biggest market for Indian IT firms. India's second largest software services exporter Infosys Technologies rose 0.38%. India's third largest software services exporter Wipro rose 0.77%. India's largest software services exporter TCS fell 0.3%, with the stock falling for the third straight day.

A firm rupee also weighed on IT stocks. The rupee strengthened to its highest level in more than a month on Monday, 2 August 2010, as banks sold dollars on the back of early gains in local shares, with stronger regional currencies also boosting sentiment. The partially convertible rupee was at 46.23/24, after touching 46.11, its highest since 28 June 2010 and above its 46.40/41 close on Friday, 30 July 2010. A firm rupee adversely impacts operating profit margin of IT firms as the sector derives a lion's share of revenue from exports.

Auto stocks rose as most auto companies reported jump in July vehicle sales. India's second largest bike maker by sales Bajaj Auto rose 1.48% as total vehicle sales jumped 65% at 3.18 lakh units in July 2010 over July 2009.

India's biggest commercial vehicles maker in terms of market share, Tata Motors rose 0.17% as its total vehicle sales jumped 41% at 67,799 units in July 2010 over July 2009.

India's largest motorbike maker by sales Hero Honda Motors rose 0.55%. The stock had fallen 2.95% on Friday, 30 July 2010 on weak Q1 results. Net profit declined 1.6% to Rs 491.69 crore on 12% growth in turnover to Rs 4296.61 crore in Q1 June 2010 over Q1 June 2009. The company announced the result after trading hours on Thursday, 29 July 2010.

Hero Honda said a sharp rise in commodity prices in the first half of the quarter and additional expenditure incurred on account of conversion to new emission norms negatively impacted profit margins in Q1 June 2010. Managing Director and CEO Pawan Munjal said the company is striving to meet continuously rising demand for its products. He added that the company is scaling up production at its existing plants to meet expected market demand.

India's largest car maker by sales Maruti Suzuki rose 0.86%, with the stock gaining for the second straight day, on strong sales in the month just gone by. Total sales rose 29.2% to 1,00,857 units in July 2010 over July 2009. The company announced the sales figures during market hours today.

The Maruti Suzuki stock had slumped 12.31% in a single trading session on Monday, 26 July 2010, on weak Q1 results. Net profit fell 20.2% to Rs 465.40 crore on 27% growth in net sales to Rs 8050.70 crore in Q1 June 2010 over Q1 June 2009. Maruti said the fall in net profit was due to higher commodity prices, increase in royalty and lower 'other income'. The company said income from exports to Europe declined due to weakening of the euro.

India's largest engineering and construction firm by sales Larsen & Toubro rose 0.84% after the company announced during market hours today it won a Rs 6500 crore mega power plant order from a Jaiprakash Group firm.

Among other capital goods stocks, Punj Lloyd, Praj Industries, SKF India, Bharat Heavy Electricals rose by between 0.13% to 4.66%.

Reliance Infrastructure rose 0.8% as consolidated net profit rose 6% to Rs 375 crore on 4% increase in total operating income to Rs 3824 crore in Q1 June 2010 over Q1 June 2009. The company announced the result after market hours on Friday, 30 July 2010.

The company said it is developing 25 projects aggregating about Rs 40000 crore in segments such as road, metro rail, transmission, sea link, and airport, excluding distribution business. It is also developing two specialty real estate projects. Reliance Infrastructure said there will be 11 revenue generating projects during the year ending March 2011 (FY 2011), having project outlay of about Rs 19200 crore.

Cals Refineries clocked the highest volume of 5.41 crore shares on BSE. Karuturi Global Solutions (2.41 crore shares), FCS Software (1.12 crore shares), Ememi Infrastructure (66.71 lakh shares) and REI Agro (63.45 lakh shares) were the other volume toppers in that order.

State Bank of India clocked the highest turnover of Rs 102.63 crore on BSE. ARSS Infrastructure (Rs 99.98 crore), ICICI Bank (Rs 86.32 crore), Reliance Industrial Infrastructure (Rs 75.97 crore) and Future Capital (Rs 70.56 crore) were the other turnover toppers in that order