Market drifts lower for the second straight day

The key benchmark indices reversed initial gains as investors preferred profit taking ahead of the weekend. Index heavyweight Reliance Industries (RIL) dropped. But, media and consumer durables stocks rose. Realty stocks reversed initial gains. Bank stocks fell on profit taking after a sustained rise over the past days. Commercial vehicles maker Tata Motors surged close to 4% on expectations of strong Q1 June 2010 result which is due early next week. Other auto stocks were mixed. The BSE 30-share Sensex shed 28.84 points or 0.16%, off about 100 points from the day's high and up close to 25 points from the day's low.



The market edged lower for the second straight day today. The Sensex had declined 44.61 points or 0.24% to 18,172.83 on Thursday, 5 August 2010. The Sensex had jumped 349.15 points or 1.9% in three trading sessions to 2-1/2-year closing high of 18,217.44 on Wednesday, 4 August 2010, from a recent low of 17,868.29 on 30 July 2010.

Coming back to today's trade, the market edged higher at the onset of the trading session. The Sensex hit a fresh intraday high in morning trade. The market moved in a narrow range in mid-morning trade. The Sensex hit a fresh intraday high in early afternoon trade after the Reserve Bank of India (RBI) deputy governor Subir Gokarn said RBI has taken adequate measures to manage inflation and expects food inflation to ease on good monsoon rains. The market came off the higher level in afternoon trade. The Sensex slipped into the red in mid-afternoon trade.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, declined 1.92% at 17.37. The index had risen 3.93% to 17.71 on Thursday, 5 August 2010. The index had declined 2.91% to 17.04 on Wednesday, 4 August 2010. 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.

The OECD said on Friday its leading indicator for June pointed to a possible peak in growth in developed economies, with the index for the United States turning negative for the first time since February 2009. The 32-member Organisation for Economic Co-operation and Development (OECD) said that indicators for China, India, France and Italy also pointed to below trend growth in coming months.

Back home, RBI's Gokarn today, 6 August 2010, said he expects global commodity and energy markets to remain moderate-to-soft. He also expects easing of supply constraints towards the end of the current fiscal year. But, demand-side capacity constraints are still seen, Gokarn told reporters in Chennai. Capacity constrains are beginning to show in indicators of demand-side inflation, Gokarn said adding the central bank was trying to address demand pressures through rate actions.

Global growth is looking a little more fragile than earlier and this may impact on capital flows as investors remain risk averse, Gokarn said. If global growth is slow, the commodity prices tend to soften and that will act to contribute to inflation management, he said..

Gokarn's comments come a day after Reserve Bank of India governor D Subbarao on Thursday, 5 August 2010, reiterated a hawkish monetary stance when he said policy action is needed to fight inflation.

Analysts expect the central bank to raise interest rates by 25 basis points at a mid-quarter monetary policy review on 16 September 2010, to rein in inflation and inflation expectations. The latest data showed the food price index rose 9.53% in the year to 24 July 2010 while the fuel price index climbed 14.26%. Food inflation eased from the week-ago figure of 9.67% and fuel inflation also eased from the previous week's reading of 14.29%. The primary articles index rose 14.36%, compared with the week-ago reading of 14.5%.

The Reserve Bank of India (RBI) at its Q1 monetary policy on 27 July 2010 raised a key lending rate by 25 basis points to curb surging inflation. With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation and anchoring inflationary expectations, the RBI said at that time. 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.

European shares rose ahead of US non-farm payrolls data, which is likely to set the market's near term direction, while strong company results provided some support. Key indices in UK, France and Germany were up by 0.39% to 0.66%.

Most Asian stocks turned positive after a weak start on Friday, 6 August 2010, ahead of the influential US non-farms payrolls data for July 2010 due later later in the global day. The key benchmark indices in China, Taiwan, Hong Kong and Indonesia were up by between 0.33% to 1.44%. But, the key benchmark indices in Singapore and Japan were down by between 0.12% to 0.39%. South Korea's Seoul Composite was flat.

China's banking regulator sought to reassure markets following reports it had ordered lenders to do stress tests assuming a 60% drop in housing prices, even as separate reports on Friday, 6 August 2010, said such tests were being expanded to include credit risks from the cement and steel sectors.

Reports earlier in the week said the China Banking Regulatory Commission (CBRC) had ordered commercial banks to conduct a round of stress tests to gauge the impact of a fall in house prices of about 50% to 60% in cities that have seen sharp gains. But in a statement dated Thursday, 5 August 2010, the CBRC said that the stress tests, requested in May, involved three scenarios of a nationwide average property-price drop of 10%, 20% and 30%, respectively.

US index futures moved between gains and losses. Trading in US index futures indicated that the Dow could gain 17 points at the opening bell on Friday, 6 August 2010.

US stocks edged lower on Thursday 5 August 2010 as an unexpected rise in initial jobless claims and unimpressive July retail sales dimmed optimism ahead of the monthly payrolls report. The Dow Jones Industrial Average slipped 5.45 points or 0.05% to 10,674.98. The Standard & Poor's 500 Index dropped 1.43 points, or 0.13% to 1,125.81. The Nasdaq Composite Index lost 10.51 points, or 0.46% to 2,293.06.

Thursday's data showed initial claims for jobless benefits rose to 479,000, the highest level since early April. Weakness in consumer spending trends also stayed in focus as the 28 retailers tracked by Thomson Reuters reported July same-store sales that rose only 2.9%, falling short of expectations.

Back home, the gross domestic product (GDP) may grow 8.4% in the 2010/11 year, a Reserve Bank of India quarterly survey of economists showed, raising their forecast from 8.2% in the last survey. The median forecast for WPI inflation in the first quarter of 2010/11 is at 10.4% according to RBI's survey, higher than 9.5% in the previous survey. The forecasters have assigned highest 25.8% chance that it will fall in 6% to 6.9% range in end-March 2010-11, it added. Central government's fiscal deficit is seen at 5.2% of GDP in the FY 2011, as against its previous forecast of 5.6% according to the survey.

GDP growth in the April-June 2011 quarter is seen at 8.7% up from 8.1% in the last survey. For the July-September quarter, GDP growth is placed at 8.2% compared with 8.3% in the last quarterly survey.

The vital monsoon rains were 16% above normal in the week to Wednesday, 4 August 2010, the second highest in the current season, the weather office said on Thursday, 5 August 2010. Rains were 38% above normal in the week to 28 July 2010, the highest in this season.

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. 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 cumulative rainfall during the period from 1 June 2010 to 5 August 2010 was 2% below normal. 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 India Meteorological Department (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 southwest monsoon was active over West Rajasthan, Gujarat Region, Chhattisgarh and Orissa during past 24 hours, the India Meteorological Department (IMD) said in its daily update on Thursday, 5 August 2010. The weather office expects fairly widespread rainfall over west coast, Gujarat region, northwest India and northeastern states, over the next few days.

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.

Back home, foreign funds continue to mop up Indian equities. As per provisional figures on NSE, foreign funds bought shares worth Rs 73.02 crore on Thursday, 5 August 2010. Domestic funds sold shares worth Rs 187.81 crore that day.

Foreign funds bought equities worth a net Rs 2097.26 crore in the first four trading days this month, till 5 August 2010, absorbing selling of Rs 789.03 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.

On the corporate front, the combined net profit of a total of 2080 companies fell 9.2% to Rs 57,560 crore on 20.7% rise in sales to Rs 7,07,925 crore in Q1 June 2010 over Q1 June 2009.

On the macro front, 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.

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 Reserve Bank of India (RBI) at its Q1 monetary policy on 27 July 2010 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 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.

The 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 fell 28.84 points or 0.16% to 18,143.99. The Sensex rose 71.73 points at the day's high of 18,244.56 in early afternoon trade. The index lost 54.64 points at the day's low of 18,118.19 in late trade.

The S&P CNX Nifty fell 7.85 points or 0.14% to 5439.25.

The BSE Mid-Cap index rose 0.16%. The Small-Cap index rose 0.24%. Both these indices outperformed the Sensex.

The market breadth, indicating the health of the market, turned negative in contrast to a strong breadth earlier in the day. On BSE, 1547 shares declined while 1431 shares advanced. A total of 86 shares remained unchanged.

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

BSE clocked turnover of Rs 4786 crore, lower than Rs 4876.72 crore on Thursday, 5 August 2010.

Index heavyweight Reliance Industries (RIL) fell 0.66%, with the stock falling for the second straight day, after company said before market hours on Thursday, 5 August 2010, one of its units had signed definitive agreements to enter into a Marcellus Shale gas joint venture with United States-based Carrizo Oil & Gas Inc. RIL will pay a total $392 million, comprising $340 million of cash and $52 million of drilling carry obligations, the company said.

Under the deal, Reliance will acquire a 60% interest in Marcellus Shale acreage in Central and Northeast Pennsylvania that is currently held in an equal joint venture between Carrizo and an affiliate of Avista Capital Partners. Reliance will acquire all of Avista's stake and 20% of Carrizo's stake in the existing joint venture, the statement said.

Some consumer durables stocks rose on renewed buying. Titan Industries, Rajesh Exports and Gitanjali Gems rose by between 0.49% to 9.97%.

Auto stocks were mixed. Maruti Suzuki, India's top car maker fell 0.37%, snapping last five days' gains. 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 on Wednesday 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 fell 0.4%, reversing initial gains. The stock had hit a record high of Rs 2767.35 on Thursday, 5 August 2010. Bajaj Auto's 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 3.89%, with the stock gaining for the second straight day. The stock hit 52 week high of Rs 900.90 today. The company's total vehicle sales jumped 41% at 67,799 units in July 2010 over July 2009. Tata Motors announces Q1 June 2010 consolidated results on Tuesday, 10 August 2010.

India's largest tractor maker by sales Mahindra & Mahindra rose 0.66%.

India's largest motorbike maker by sales Hero Honda Motors fell 1.41%, with the stock falling for the second straight day. 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.

Realty stocks reversed initial gains on worries higher interest rates may crimp property demand. DLF, HDIL, Indiabulls Real Estate, Anant Raj Industries fell by between 0.86% to 3.3%.

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 1%. The stock on Thursday, 5 August 2010, scaled a record high of Rs 2,663. 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 largest private sector bank by market capitalisation ICICI Bank fell 0.44%. 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 second largest private sector bank by market capitalisation HDFC Bank fell 0.21%. 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 dedicated housing finance firm by revenue HDFC rose 1.39%. 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 fell 0.45%, reversing initial gains. The company announced during market hours on Thursday, 5 August 2010 it bagged orders worth Rs 1749 crore from the metallurgical sector.

Among other capital goods stocks, Siemens, BEML, Crompton Greaves and Bharat Heavy Electricals, fell by between 0.45% to 1.42%.

Media shares rose after the Telecom Regulatory Authority of India said all cable operators in the country should switch from analogue to digital cable television systems by December 2013. Hathway Cable & Datacom, Den Networks, WWIL, Dish TV and Sun TV Network rose by between 0.89% to 10.27%.

IT stocks fell on weak economic data in the US, the biggest market for Indian IT firms. IT stocks had risen recently after IT major Cognizant reported stellar results and raised its guidance significantly.

India's largest software services exporter TCS fell 1.29%. The stock on Thursday, 5 August 2010, hit a record high of Rs 882. India's second largest software services exporter Infosys Technologies fell 0.33%. But, India's third largest software services exporter Wipro rose 0.63%, with the stock gaining for the third straight day.

India's largest FMCG maker by sales Hindustan Unilever (HUL) fell 0.14%. 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 1.86%, with the stock gaining for the third straight day. The stock hit record high of Rs 160 today.

Among other FMCG stocks, Nestle India, Marico and Britannia Industries rose by between 0.9% to 1.68%.

India's largest oil & gas exploration firm by sales ONGC fell 0.93%. The Comptroller and Auditor General of India (CAG) has reportedly said that state-owned Oil & Natural Gas Corp (ONGC) has incurred 'unfruitful expenditure' of Rs 2,136.45 crore in 37 exploration blocks and that despite spending over Rs 1,460 crore, it failed to discover oil and gas in 16 blocks won though competitive bidding after analyzing their prospectivity.

Metal stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange declined 1.21% on Thursday, 5 August 2010. JSW Steel, Sesa Goa, Sterlite Industries, Hindalco Industries, Hindustan Zinc, Steel Authority of India, Tata Steel, National Aluminum Company fell by between 0.28% to 1.56%.

IFCI clocked the highest volume of 1.79 crore shares on BSE. Cals Refineries (1.54 crore shares), Graphite India (95.26 lakh shares), Dish TV (87.62 lakh shares) and Birla Power Solutions (82.03 lakh shares) were the other volume toppers in that order.

Tata Motors clocked the highest turnover of Rs 138.59 crore on BSE. IFCI (Rs 106.12 crore), Graphite India (Rs 93.59 crore), Reliance Industries (Rs 93.22 crore) and LIC Housing Finance (Rs 75.21 crore) were the other turnover toppers in that order.