Market snaps two-day slide

The key benchmark indices eked out small gains amid high volatility, as reports of above-normal rains in the week ended Wednesday, 25 August 2010, triggered bargain hunting after a two day slide. Volatility was high as traders rolled positions in the derivatives segment from the near-month August 2010 series to September 2010 series as August 2010 derivatives contracts expired today, 26 August 2010. The BSE 30-share Sensex was up 46.71 points or 0.26%, off close to 35 points from the day's high and up close to 65 points from the day's low.



Banking, FMCG and auto stocks rose. But, index heavyweights Reliance Industries (RIL) edged lower. Realty stocks fell.

Intraday volatility was high. The market edged higher in early trade as Asian stocks and US index futures rose. The market pared gains in morning trade as index heavyweight Reliance Industries (RIL) edged lower. The market moved in a narrow range in mid-morning trade. Stocks held positive zone in early afternoon trade on reports of good rains last week. The key benchmark indices pared gains in afternoon trade, soon after hitting fresh intraday highs.

The market erased almost the entire intraday gains in mid-afternoon trade. The market came off the lower level later. The market once again slipped into the red in late trade. The market soon regained positive zone.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, lost 9.67% at 17.09, a day after it had risen 11.36% to 18.92 on Wednesday, 25 August 2010. The index had lost 0.88% to 16.99 on Tuesday, 24 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.

On macro front, food inflation declined further in the middle of this month even as prices of fuels remained steady, the latest data showed. Inflation in the Food Articles group stood at 10.05% for the week ended 14 August 2010, versus 10.35% in the previous week, the Commerce & Industry Ministry said. Inflation in the Primary Articles group stood at 14.75% in the week under review as against 14.85% in the week ended 7 August 2010. Inflation in the Fuel & Power group was unchanged at 12.57%. But, inflation in the Non-food Articles group rose to 22.20% from 21.70% in the preceding week.

Investors are keenly watching data on sowing for the kharif harvest. Overall, nearly 90% of the total normal kharif acreage was seeded till 20 August 2010 and the standing crops are reportedly in good shape. Water status of most reservoirs is also getting better rapidly and is now just three per cent short of normal, reports suggest.

There were good showers over the rain-deficit eastern region in the week ended 25 August 2010, reports suggest. The India Meteorological Department (IMD), had late last week, predicted widespread showers in eastern Uttar Pradesh, Bihar, sub-Himalayan West Bengal, Sikkim, Assam and Meghalaya in the rest of this month. That will help farmers in this region grow coarse cereals, pulses and fodder.

The cumulative rainfall during the period from 1 June 2010 to 25 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, according to the India Meteorological Department (IMD). 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%, according to the weather office.

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. If the southwest monsoon for the June-September monsoon season turns out good and if it is well distributed, it will help raise farm output, boost rural incomes and lower food inflation.

Planning Commission Deputy Chairman Montek Singh Ahluwalia on Wednesday, 25 August 2010, said that Rs 50,000-crore Infra Debt Fund for financing infrastructure projects will become operational by beginning of next fiscal. A panel constituted by the Commission to look into the changes required in the regulatory framework for facilitating the setting of the Infra Debt Fund (IDF) is expected to give its report by next week. Earlier in June this year, an expert panel headed by HDFC chief Deepak Parekh had recommended setting up of the IDF of Rs 50000 crore for financing projects in this crucial sector.

European stocks rose on Thursday, buoyed by a late-session rally on Wall Street on Wednesday, 25 August 2010. The key benchmark indices in France, Germany and UK were up by between 0.28% to 0.59%.

Asian stocks fell in volatile trade on Thursday as market players remained cautious about the outlook for the global economy. The key benchmark indices in South Korea, Indonesia, Hong Kong and Taiwan fell by between 0.02% to 0.61%. But, the key benchmark indices in China, Singapore and Japan were up by between 0.2% to 0.69%.

Japan's finance minister Yoshihiko Noda slightly tightened the tone of his remarks on the foreign exchange markets Wednesday, saying the government must take proper steps against the rising yen if necessary. Although he left it unclear whether he is considering intervention in the currency market, investors took his comments as a sign that the administration is ready to act soon.

Trading in US index futures indicated that the Dow could rise 5 points at the opening bell on Thursday, 26 August 2010.

US stocks staged a comeback on Wednesday, breaking a four-day losing streak by major indexes, as key technical support triggered bargain hunting that offset weak economic data. The market had sagged as much as 1% after data showed new single-family home sales slumped to a record slow pace in July and orders for manufactured durable goods rose far less than anticipated. Buying interest picked up steadily in the afternoon as traders hunted for beaten-down stocks. The Dow Jones Industrial Average rose 19.61 points, or 0.20% to 10,060.06. The Standard & Poor's 500 Index added 3.46 points, or 0.33% to 1,055.33. The Nasdaq Composite Index gained 17.78 points, or 0.84% to 2,141.54.

Growth in world trade slowed in the second quarter, as a faster expansion in advanced countries failed to outweigh slowing growth in most emerging economies, the Dutch CPB economics institute said on Wednesday.

Closer home, the lower house of parliament on Wednesday, 25 August 2010, approved a landmark bill to open up the country's $150 billion nuclear power market, after the government agreed to tougher provisions that an industry group said would hamper the sector's growth. The bill was initially opposed by the opposition Bharatiya Janata Party as inadequate in terms of accident compensation and too soft on private firms. But, the party came around after the Congress party-led coalition agreed to several amendments.

The Reserve Bank of India (RBI) said in its annual report for 2009-2010 released on Tuesday, 24 August 2010, that the relative price variability has declined since November 2009 despite inflation remaining high, which indicates that the inflation has become increasingly generalised, and hence, requiring appropriate monetary policy actions to anchor inflation expectations. Persistent large fiscal deficit has several adverse macroeconomic risks, ranging from higher inflation to lower savings, crowding-out pressures on private investment, decline in potential output, and worsening of external imbalances, the RBI said in the report.

In a globalised world, a congenial global economic environment and a sustainable balance of payments position are critical for achieving the policy goal of stable growth, the RBI said in the annual report. Despite lower trade deficit, the decline in invisibles surplus led to a higher current account deficit of 2.9% of GDP during 2009-10 as compared with 2.4% of GDP a year ago. A higher current account deficit led to stronger absorption of foreign capital, the RBI said.

Given the stronger growth outlook of India and the probability of monetary exit being delayed by the advanced economies, capital inflows could be expected to accelerate, which will have to be managed, as in the past, the central bank said. The government's borrowing programme for 2010-11 has to be managed, keeping in view the pressure on yield from the elevated inflation, gradual withdrawal of excess liquidity and stronger pick-up in the private sector credit demand, the RBI said.

Going forward, as the monetary position is normalised, addressing structural constraints in several critical sectors is necessary to sustain growth and also contain supply side risks to inflation. The Reserve Bank of India has stated its commitment to containing inflation through its calibrated monetary policy normalisation, with clarity on the direction of the policy rates in the near-term as well as timely actions in cautious steps based on careful assessment of risks to both inflation and growth.

The conduct of monetary policy of the Reserve Bank of India, while being driven by the domestic outlook, will have to recognise the possibility of sudden changes in the global outlook, the central bank said. While managing global shocks, India will also have to increase its resilience and productivity levels so as to strengthen its position in the global economy, the RBI annual report said.

The infrastructure gap of India, both in relation to other major countries and its own growing demand, has been a key factor affecting the overall productivity of investments. The requirement of high initial capital outlay, that too over longer terms, necessitates measures to address the financing constraint to capacity expansion in infrastructure, the central bank said.

The yield on the most traded, 8.13% 2022 bond was unchanged at Wednesday's (25 August 2010) close of 8%. The yield on the second most traded benchmark 10-year 2020 bond was hovering at 8.03%, lower than Wednesday's (25 August 2010) close of 8.07%.

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 at that time 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.

Coming back to stocks, foreign funds have made heavy purchases of Indian stocks over the past 2-1/2 months. Foreign funds bought equities worth a net Rs 7173.16 crore so far this month, till 25 August 2010, absorbing selling of Rs 4265.67 crore from domestic funds, as per data from the stock exchanges.

Foreign funds had 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 BSE 30-share Sensex was up 46.71 points or 0.26% to 18,226.35. The Sensex rose 81.42 points at the day's low of 18,261.06 in afternoon trade. The index fell 20.51 points at the day's high of 18,159.13 in late trade.

The S&P CNX Nifty was up 15.55 points or 0.28% to 5,477.90.

The market breadth, indicating the health of the market, turned negative in mid-afternoon trade. The breadth was positive earlier in the day. On BSE, 1605 shares declined while 1339 shares advanced. A total of 90 shares remained unchanged.

From the 30-share Sensex pack, 18 stocks advanced while the rest of them declined.

The BSE Mid-Cap index fell 0.09%. The BSE Small-Cap index rose 0.08%. Both these indices underperformed the Sensex.

Sectoral indices on BSE were mixed. The BSE FMCG index (up 1.16%), Power index (up 0.89%), Capital Goods index (up 0.66%), PSU index (up 0.52%), and banking sector index Bankex (up 0.48%), outperformed the Sensex. The BSE Auto index (up 0.21%), IT index (down 0.02%), Metal index (down 0.02%), Healthcare index (down 0.04%), Consumer Durables index (down 0.43%), Realty index (down 0.5%) and Oil & Gas index (down 0.61%), underperformed the Sensex.

BSE clocked turnover of Rs 4839 crore, lower than Rs 5751.03 crore on Wednesday, 25 August 2010.

Index heavyweight Reliance Industries (RIL) fell 1.18%, with the stock falling for the fourth straight day. Mukesh Ambani, chairman and promoter of Reliance Industries (RIL), has restructured his shareholding in the company by transferring his 34% stake to a set of investment firms, which include a large number of limited liability partnerships (LLPs). The company or its promoters did not disclose the reason behind the rejig in shareholding of the promoter group. Reports suggested the move is aimed at streamlining the holding of various promoter groups in a tax-friendly manner.

Meanwhile, Reliance Industries is reportedly close to inking a deal with global hedge fund DE Shaw to launch a $700-$800 million infrastructure fund.

Oil India rose 1.36%, after the company's chairman told the media that the firm is looking for shale gas opportunities in overseas markets.

India's second largest mobile services provider by sales Reliance Communications fell 2.35% and was the top loser from the Sensex pack.

Indian power utility NTPC rose 2.22% on reports the company has got four bids from consortiums including French, Japanese and Italian firms in its multi-billion dollar tender to buy boilers for five projects. The stock was the top gainer from the Sensex pack.

Realty giant DLF rose 2.14%. But, most other realty stocks fell. Omaxe, Ackruti City, HDIL, Omaxe, Unitech, Parsvnath Developers, Indiabulls Real Estate fell by between 0.27% to 3.06%.

Shares of software exporters were mixed. India's second largest software services exporter by sales Infosys was down 0.30% to Rs 2763.50. The stock came off the day's low of Rs 2748. India's largest software services exporter by sales TCS rose 0.36%, reversing initial losses. India's third largest software services exporter Wipro was down 0.06% to Rs 400. The stock came off the day's high of Rs 404.90.

Some FMCG stocks rose on good monsoon season. Rural market contributes substantial amount to the sales of FMCG firms. A good crop increases disposable income in the hands of farmers. ITC, Nestle India, Dabur India and Britannia Industries rose by between 0.38% to 3.69%.

Banking stocks edged higher on prospects of strong lending growth in a growing economy. India's largest bank by net profit and branch network State Bank of India rose 1.47%. Chairman O.P. Bhatt said on Wednesday, 25 August 2010, the bank has no plans to raise lending rates further in the short term.

India's largest private sector bank by net profit ICICI Bank rose 0.2% at Rs 986.10. But, the stock came off the day's high of Rs 991.75. India's second largest private sector bank by net profit HDFC Bank fell 0.74%, reversing initial gains.

Auto stocks rose on renewed buying. India's top tractor maker by sales Mahindra & Mahindra rose 0.67%. The company recently signed a memorandum of understanding to buy a majority stake in troubled South Korean automaker Ssangyong.

Maruti Suzuki, India's top car maker by sales rose 0.56%, after marketing and sales chief Mayank Pareek said the company is witnessing good sales this month. Maruti, in which Japan's Suzuki Motor Corp holds 54.2% stake, sold 3,33,001 cars in the April to July period this year, about a quarter up from a year earlier.

India's top truck maker by sales Tata Motors rose 0.59%. Chief Executive Carl-Peter Forster today, 26 August 2010, said Tata Motors may raise up to $1 billion through a mix of instruments. Tata Motors had said in June it would raise about Rs 4700 crore through shares, bonds, debentures and other equity-linked instruments to cut debt and grow its business

Two wheeler makers fell. India's largest bike maker by sales Hero Honda Motors fell 0.08%. India's second largest bike maker by sales Bajaj Auto fell 0.77%, with the stock falling for the second straight day.

India's largest engineering and construction firm by sales Larsen & Toubro rose 0.59%, on hopes of order flows from the nuclear sector after the lower house of parliament cleared the nuclear liability bill.

Among other capital goods stocks, Siemens, Bharat Heavy Electricals, ABB, SKF India and Crompton Greaves, rose by between 0.09% to 5.82%.

Most metal stocks fell after LMEX a gauge of six metals traded on the London Metal Exchange, fell 0.99% on Wednesday, 25 August 2010. Steel Authority of India, Sesa Goa, Sterlite Industries, Hindustan Zinc, National Aluminum Company, JSW Steel, Bhushan Steel fell by between 0.08% to 2.72%.

India's largest pharma firm by sales Cipla fell 0.57%, extending Wednesday's 3.06% fall after the company's announcement of a special interim dividend of 80 paise per share for the year ending March 2011, fell short of market expectations. Meanwhile, Cipla on Wednesday said it will acquire domestic pharmaceutical company Meditab Specialties for Rs 133.35 crore.

Sanraa Media clocked the highest volume of 3.39 crore shares on BSE. Cals Refineries (3.04 crore shares), Prakash Steelage (2.18 crore shares), Birla Power Solutions (1.4 crore shares) and Teledata Technologies (1.07 crore shares) were the other volume toppers in that order.

Piramal Healthcare clocked the highest turnover of Rs 527.37 crore on BSE. Prakash Steelage (Rs 401.23 crore), State Bank of India (Rs 148.33 crore), Reliance Industries (Rs 101.35 crore) and Tata Motors (Rs 96.41 crore) were the other turnover toppers in that order.