IT stocks lead rally; TCS scales record high

The key benchmark indices scaled 2-1/2-year highs on strong services sector data and on revival of monsoon rains in the crucial sowing month of July 2010. Data showing sustained buying by foreign funds over the past two months, underpinned sentiments. European stocks and US index futures fell. Asian stocks were mixed. IT stocks surged after IT major Cognizant reported stellar results and raised its guidance significantly.



Realty stocks also rose. Banking and metal stocks fell. Index heavyweight Reliance Industries (RIL) edged lower. The market breadth was positive. The BSE 30-share Sensex jumped 102.61 points or 0.57%, off close to 30 points from the day's high and up close to 125 points from the day's low.

The Sensex has risen 349.15 points or 1.9% in three trading sessions from a recent low of 17,868.29 on 30 July 2010.

Coming back to today's trade, the market edged higher in early trade on data showing sustained buying by foreign funds over the past two months and on revival of monsoon rains in the crucial sowing month of July 2010. The market reversed initial gains and slipped into the red in morning trade as Asian stocks declined. The market regained positive zone in mid-morning trade after the latest data showed the services sector expanded for the 15th month in July 2010. The market moved in a narrow range in early afternoon trade.

The movement was confined to a narrow range in afternoon trade. The market once again slipped into the red in mid-afternoon trade as European stocks and US index futures fell. The market surged 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, extended a recent steep slide. The index shed 2.91% at 17.04. The index had lost 2.45% at 17.55 on Tuesday, 3 August 2010. The index had lost 5.02% at 17.99 on Monday, 2 August 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.

Foreign funds continue to mop up Indian stocks. Foreign funds today, 4 August 2010, bought shares worth a net Rs 688.69 crore, as per the provisional data from the stock exchanges. Domestic funds sold shares worth a net Rs 275.89 crore.

Foreign funds have bought equities worth a net Rs 2024.24 crore in the first three trading days this month, absorbing selling of Rs 601.22 crore from domestic funds, as per data from the stock exchanges.

Foreign funds bought shares worth a net Rs 8320.50 crore in July 2010, absorbing selling by domestic institutional investors. Domestic funds sold shares worth a net Rs 6323.13 crore in July 2010.

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.

The government is aiming to introduce the Goods and Service Tax (GST) amendment bill in the ongoing parliament session, Asim Dasgupta, the head of the panel of state finance ministers on GST said on Wednesday. He also said states have raised objections about infringement on fiscal autonomy. The government intends to implement GST from 1 April 2011.

The GST is India's most ambitious indirect tax reform that would replace existing state and federal levies such as excise duty, service tax, and value-added tax and is expected to shore up the government's coffers by $15 billion a year.

India's high economic growth is leading to inflationary pressures, Finance Minister Pranab Mukherjee said in parliament on Wednesday, 4 August 2010.

The surging services industry expanded for the 15th month in July, but at a slower pace than the two-year peak in June, with only growth in input prices picking up speed, a survey showed on Wednesday, 4 August 2010. The HSBC Markit Business Activity Index, based on a survey of 400 Indian firms, eased to 61.7 in July from 64 the previous month, staying comfortably above the 50 mark that divides growth from contraction.

The prices charged index saw a negligible fall from last month's levels, but the survey said it still pointed to another solid increase in rates charged by Indian service providers. Employment and outstanding business growth nearly ground to a halt, the survey showed.

European shares fell as worries over the economic recovery persisted. The key benchmark indices in UK, France and Germany were down by 0.07% to 0.97%.

Chinese stocks led recovery in Asian equities on Wednesday, 4 August 2010, as China's service-sector growth accelerated in July 2010. The key indices in China, Hong Kong, Indonesia and Taiwan were up by 0.19% to 0.44%. But, the key benchmark indices in Singapore, Japan, and South Korea were down by between 0.07% to 2.11%.

China's service-sector growth accelerated in July 2010, marking the fastest pace of expansion in three months, according to HSBC's Purchasing Managers' Index. The PMI came in at 56.3 in July, up from 55.6 in June

China's gross domestic product is forecast to grow at a slower pace of 9.2% in the third quarter ending September 2010, the State Information Centre said on Wednesday, 4 August 2010. China's GDP grew at an annual rate of 10.3% in the second quarter ended June 2010. The country's consumer price index is forecast to rise 3% in the third quarter from a year earlier, it said in a report published on Wednesday.

Trading in US index futures indicated that the Dow could fall 20 points at the opening bell on Wednesday, 4 August 2010.

US stocks slipped on Tuesday, 3 August 2010, as Dow component Procter & Gamble Co.'s lackluster results, coupled with weaker-than-estimated data on consumer spending and housing, prompted investors to exercise caution a day after Monday's (2 August 2010) rally. The Dow Jones Industrial Average dropped 38.00 points, or 0.36% to 10,636.38. The Standard & Poor's 500 Index shed 5.40 points, or 0.48% to 1,120.46. The Nasdaq Composite Index lost 11.84 points, or 0.52% to 2,283.52.

Back home,

On the corporate front, the combined net profit of a total of 1,869 companies fell 9.7% to Rs 56476 crore on 20.8% rise in sales to Rs 6,98,148 crore in Q1 June 2010 over Q1 June 2009.

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.

Most automobiles firms including Tata Motors, Maruti Suzuki, Hero Honda and Bajaj Auto have reported strong sales in the month just gone by.

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 29 July 2010. The cumulative rainfall during the period from 1 June 2010 to 3 August 2010 was 2% below normal.

Over 64.7 million hectares had been brought under the crop cover by 22 July 2010. This is about 5.4 million hectares more compared with 59.3 million hectares planted last year till this date. An overall 1% above-normal rainfall in whole July has facilitated extensive crop sowing even in the traditionally arid tracks of Rajasthan, Gujarat and Maharashtra. This has facilitated higher area coverage under rain-dependent, but high priced crops like cotton, pulses and coarse cereals. Kharif sowing is expected to be largely over by the middle of this month in most parts of the country.

The southwest monsoon was vigorous over West Rajasthan and Saurashtra & Kutch and active over Andaman & Nicobar Islands, Himachal Pradesh, East Rajasthan, East Madhya Pradesh, Gujarat Region, Vidarbha and Chhattisgarh during past 24 hours, India Meteorological Department (IMD) said in its daily update on Tuesday, 3 August 2010. The IMD expects fairly widespread rainfall over plains of northwest India and north Peninsula and adjoining central India over the next few days.

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 plus/minus 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 government has asked Parliament for approval to spend Rs 54589 crore more this fiscal than it had budgeted for in February 2010. Part of the extra demand is for unforeseen expenditure such as a special police force for naxal areas, but much of it is for rural development, education and to compensate oil companies for selling fuel below market rates. The government had provided Rs 3108 crore for petroleum subsidy, but that will be topped up with Rs 14,000 crore to compensate oil companies for selling key fuels below cost.

The total supplementary demand for grants is pegged at Rs 68294.30 crore but the actual cash outgo will be Rs 54588.63 crore, because of Rs 13705.09 crore in internal savings. Of the extra money the government wants, it has set aside Rs 4000 crore for creation of capital assets to implement the Right to Education Act and Rs 7337.50 crore for rural roads and housing for the poor.

The government will require Rs 2860.11 crore for increasing India's quota in the International Monetary Fund and Rs 1900 crore for transferring RBI's shareholding in National Bank for Agriculture and Rural Development and National Housing Bank.

The government had got over Rs 1 lakh crore earlier this year through the sale of wireless spectrum, more than thrice its estimate, leading to expectations that borrowing and the fiscal deficit will be lower than the projected 5.5% of GDP. The financial market is now prepared for the government to borrow the budgeted amount. The government has budged a net borrowing of Rs 3.45 lakh crore for the year ending March 2011.

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 jumped 102.61 points or 0.57% to 18,217.44, its highest closing level since 5 February 2008. The Sensex rose 134.63 points at the day's high of 18,249.46 at the fag end of the trading session. The index fell 21.80 points at the day's low of 18,093.03 in mid-afternoon trade.

The S&P CNX Nifty rose 28.30 points or 0.52% to 5,467.85, its highest closing level since 5 February 2008. It hit high of 5481.90.

The BSE Mid-Cap index rose 0.03%. The Small-Cap index rose 0.53%. Both the indices underperformed the Sensex.

Most sectoral indices on BSE rose. The BSE IT index (up 3.26%), the BSE TECk index (up 2.18%), Capital Goods index (up 1.14%), Power index (up 0.83%), and Consumer Durables index (up 0.71%), outperformed the Sensex. The BSE Realty index (up 0.5%), FMCG index (up 0.33%), Auto index (up 0.27%), PSU index (down 0.03%), banking sector index Bankex (down 0.22%), Healthcare index (down 0.22%), Metal index (down 0.34%), and Oil & Gas index (down 0.77%), underperformed the Sensex.

The market breadth, indicating the health of the market, was positive. On BSE, 1570 shares advanced while 1391 shares declined. A total of 104 shares remained unchanged.

From 30 share Sensex pack, 20 rose and the rest fell.

BSE clocked turnover of Rs 4377 crore, lower than Rs 4441.89 crore on Wednesday, 4 August 2010.

Index heavyweight Reliance Industries (RIL) fell 1%, as 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 recently.

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.

IT stocks surged after IT major Cognizant reported stellar results and raised its guidance significantly. India's largest software services exporter TCS rose 4.43%. The stock today, 4 August 2010, hit a record high of Rs 871. India's second largest software services exporter Infosys Technologies rose 2.99%. India's third largest software services exporter Wipro rose 3.96%.

Cognizant has forecast revenue of at least $4.46 billion for the year ending December 2010, up at least 36% from a year ago. The revenue outlook, a key metric analysts look for in Cognizant, is up from the company's earlier forecast of at least 25%

Realty stocks rose on good Q1 June 2010 results reported by most realty companies. HDIL, DLF, Indiabulls Real Estate rose by between 0.67% to 1.53%.

Banking stocks fell on profit taking after a sustained rise over the past few days. India's biggest commercial bank in terms of branch network, State Bank of India (SBI) fell 0.33%, with the stock snapping last six days' gains. The stock on Tuesday 3 August 2010, scaled a record high of Rs 2,616.40. The Lok Sabha on Monday, 2 August 2010, approved a bill that will allow the State Bank of India (SBI) to reduce government holding in the bank to 51% from 55% and raise funds from the capital markets.

India's second largest private sector bank by market capitalisation HDFC Bank fell 0.49%, with the stock falling for the second straight day. The stock hit record high of Rs 2,140.90 on Monday, 2 August 2010. 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 rose 0.84%, on strong Q1 results. Net profit rose 17% to Rs 1026 crore in Q1 June 2010 over Q1 June 2009. 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.

India's largest dedicated housing finance firm by revenue HDFC rose 0.2%, reversing initial losses. HDFC has fixed 20 August 2010 record date for a 5-for-1 stock split.

India's largest engineering and construction firm by sales Larsen & Toubro rose 1.19% after company announced during market hours today it bagged new orders worth Rs 1025 crore in buildings & factories segment.

Among other capital goods stocks, Siemens, Thermax and Bharat Heavy Electricals rose by between 0.89% to 3.33%.

Metal stocks fell as LMEX, a gauge of six metals traded on the London Metal Exchange fell 0.99% on Tuesday, 3 August 2010. Hindustan Zinc, Sterlite Industries, Steel Authority of India, Tata Steel, Jindal Steel & Power, JSW Steel fell by between 0.2% to 1.29%.

Copper and aluminum maker Hindalco Industries was flat after gaining 0.64% on Tuesday. Net profit rose 11.2% to Rs 534.40 crore in Q1 June 2010 over Q1 June 2009. The results were announced during trading hours on Tuesday, 3 August 2010.

India's largest FMCG maker by sales Hindustan Unilever (HUL) rose 0.79%, as revival of monsoon rains in the crucial sowing month of July 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 on 27 July 2010.

Cigarette maker ITC rose 0.52%. The stock turned ex-bonus from Tuesday, 3 August 2010, for a liberal 1:1 bonus.

Auto stocks rose on strong vehicle sales in the month the just gone by. India's largest motorbike maker by sales Hero Honda Motors rose 1.59%, reversing initial losses. The company reported a jump of 16.60% in sales at 4,27,686 units in July 2010 over July 2009. The company has recorded dispatches of more than four lakh units in a single month for the third consecutive time.

Maruti Suzuki, India's top car maker was flat. Managing Director Shinzo Nakanishi said on Wednesday that the company is looking to advance its capacity expansion plans. Its second unit in Haryana is scheduled to come up by April 2012. Nakanishi said the company is working on ways to advance that to an earlier date.

Maruti today launched a new version of its best selling car Alto. The new version, Alto-K10 is powered by 998cc K10B engine and is priced between Rs 3.03 - Rs 3.16 lakh (ex-showroom Delhi).

Maruti's total vehicle sales rose 29.2% to 1,00,857 units in July 2010 over July 2009. The company announced the sales figures during market hours on Monday, 2 August 2010. Maruti Suzuki India has raised prices across models by 1% to 1.5% due to a sharp increase in input costs. The price rise would range between Rs 2,000 to Rs 7,500. The company has decided to keep prices of its best selling model Alto unchanged.

India's second largest bike maker by sales Bajaj Auto rose 0.46%, reversing initial losses. 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 0.15%. The company's total vehicle sales jumped 41% at 67,799 units in July 2010 over July 2009.

India's largest tractor maker by sales Mahindra & Mahindra rose 0.16%.

Midfield Industries settled at Rs 163.05 on BSE, a 22.59% premium over the initial public offer price of Rs 133. The stock debuted at Rs 159.40, a 19.85% premium over the initial public offer (IPO) price.

Midfield Industries clocked the highest volume of 2.38 crore shares on BSE. Cals Refineries (2.24 crore shares), Karuturi Global Solutions (1.7 crore shares), Jagran Prakashan (1.39 crore shares) and Shree Ashtavinayak Cine Vision (69.18 lakh shares) were the other volume toppers in that order.

Midfield Industries clocked the highest turnover of Rs 388.94 crore shares on BSE. VIP Industries (Rs 257.70 crore), Jagran Prakashan (Rs 167.25 crore), Talwalkar Better Value Fitness (Rs 84.65 crore) and ICICI Bank (Rs 80.89 crore) were the other turnover toppers in that order.