Nifty falls below 5,500 in broad-based decline

The key benchmark indices edged lower, extending Tuesday's slide, in what was a choppy trading session. Volatility surged as traders rolled over positions in the derivatives segment from the near-month August 2010 series to the September 2010 series ahead of the expiry of the August 2010 contracts tomorrow, 26 August 2010. The BSE 30-share Sensex was down 131.95 points or 0.72%, off close to 130 points from the day's high and up close to 25 points from the day's low. Concerns over the pace of the global economic recovery continued to hurt sentiment.



The 50-unit S&P CNX Nifty fell below the 5,500 level. Except the BSE IT index, all the other sectoral indices on BSE declined. The market breadth was weak. Metal stocks declined for second day in a row, as LMEX a gauge of six metals traded on the London Metal Exchange fell 1.56% on Tuesday, 24 August 2010. Telecom pivotals declined, reversing Tuesday's gains, on profit booking. Realty shares declined with the sentiment taking a hit on worries about the global economic recovery.

IT shares were mixed after a string of downbeat economic data from the US, the biggest market for Indian IT firms. Shares of the Vedanta Group were mixed. Index heavyweight Reliance Industries (RIL) ended slightly lower.

The market edged lower at the onset of the trading session, as Asian stocks fell. The Sensex hit a fresh intraday low in morning trade as the market extended initial losses. A strong intraday rebound was witnessed in afternoon trade. But, the intraday recovery proved short-lived. The market came off the higher level later. A sharp slide in late trade pushed the key benchmark indices to the day's lows at the fag end of the trading session.

Volatility may remain high ahead of the expiry of the near-month August 2010 derivatives contracts tomorrow, 26 August 2010. NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, jumped 11.36% to 18.92. 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.

The initial public offer (IPO) of Gujarat Pipavav Port was subscribed 7.23 times by 17:00 IST, on the last day of the bidding for the issue by the qualified institutional buyers today, 25 August 2010, NSE data showed. The bidding for the issue by retail investors and non-institutional bidders ends tomorrow, 26 August 2010.

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.

Bank credit to the infrastructure sector witnessed significant growth during last ten years, taking the share of bank finance to infrastructure in gross bank credit from about 2% to more than 12%. While banks continue to be a prime source of financing for infrastructure projects, alternative non-banking financing has to be attracted with appropriate policies to be able to address the financing constraint to growth in infrastructure, the RBI said.

India needs to channelise more pension and insurance funds into the infrastructure sector, Finance Minister Pranab Mukherjee said in a government statement released on 18 August 2010. India plans to spend $1.5 trillion between 2007 and 2017 to upgrade its infrastructure to support double-digit economic growth rates.

European stocks were trading with losses on Wednesday, 25 August 2010, as worries about the pace of global economic recovery resurfaced. The key benchmark indices in France, Germany and UK declined by between 0.4% to 0.72%.

The Ifo Institute's business sentiment index for Germany posted an unexpected rise in August 2010 to 106.70 from 106.20 in July 2010, news reports said. Economists had expected the index to slip to 106.

Global rating agency Standard and Poor's on Tuesday, 24 August 2010, lowered Ireland's long-term sovereign credit rating by a notch to AA minus from AA. S&P said the total cost of supporting the country's banking sector could now reach 90 billion euros, compared to its previous forecast of 80 billion euros

Asian stock markets fell on Wednesday, 25 August 2010, as worries over the pace of the global economic recovery continued to hurt sentiment. The key benchmark indices in Japan, South Korea, Taiwan, Hong Kong and China were down by between 0.11% to 2.56%. But, the key benchmark indices in Indonesia and Singapore were up 0.77% and 0.13%.

Japanese stocks fell in choppy trade after a government meeting concluded without any concrete measures to reverse the recent rally in the yen's soaring value. Japanese economy being majority exports driven is being impacted severely by stronger yen which surged to a 15-year high against the dollar Tuesday.

Japan's export growth slowed for a fifth straight month in July 2010 with the strong yen posing a threat, data released today showed. Exports climbed 23.5% to 5.98 trillion yen, less than June's 27.7%. Imports rose 15.7% to 5.18 trillion yen, the finance ministry said.

Thailand's central bank today, 25 August 2010, lifted its base lending rate by a quarter-point to 1.75%, noting that the domestic economy continues to power ahead and that core inflation will rise throughout 2011 and may even breach the upper level of its target band.

US markets closed sharply lower on Tuesday, 24 August 2010, after another disappointing report on housing renewed worries about the economy. The Dow Jones industrial average fell 133.96 to 10,040.45. The Dow dipped below the psychological 10,000 for the first time in seven weeks in intraday trade, but ended the day above that mark. The S&P 500 index lost 15.49 points to 1,051.87 and the Nasdaq Composite index declined 35.87 points to 2,1,23.76.

The fall came after the report of a 27.2% plunge in US home resales in July 2010 to their lowest level in 15 years. The housing data represented the latest in a string of disappointing economic reports that have pointed to a weakening economy.

Among global economic data, investors are keenly awaiting the revised US GDP data due on Friday, 27 August 2010.

Trading in US index futures indicated that the Dow could slide 6 points at the opening bell on Wednesday, 25 August 2010. US index futures swung between gains and losses.

Closer home, the government is reportedly likely to introduce the Direct Taxes Code (DTC) bill in the current monsoon session of the Parliament, but the constitution amendment bill on the goods and services tax (GST) will be delayed. DTC aims at reducing tax rates, but expanding the tax base by minimising exemptions.

Finance Minister Pranab Mukhejee said last week that he will not introduce the constitutional amendments required for the rollout of the indirect tax reform viz. the GST in Parliament until there is wide consensus on the matter. The GST is expected to bring down the incidence of total indirect taxes on goods and services as it prevents levy of tax on tax, or what is called cascading, and would provide for set-off of tax paid on a wider set of inputs including services.

Trade Secretary Rahul Khullar on 24 August 2010, said India's trade deficit for the current fiscal year that ends in March 2011 is expected to be at least $120 billion. Any deficit of the order of $120 billion is serious, but as long as it does not go over the top it can be financed, Khullar said. The trade deficit for July 2010 is seen at $12.93 billion.

The Indian government on Monday, 23 August 2010, announced a bagful of stimulus measures in the latest review of the Foreign Trade Policy. To spur exports, Commerce and Industry Minister Anand Sharma announced a six-month extension of the Duty Entitlement Pass Book scheme (DEPB). The DEPB, which neutralises the incidence of duties, was supposed to expire on 31 December 2010. It will now expire on 30 June 2011. The additional export incentives will cost the government over Rs 1000 crore, Sharma said.

Coming back to stocks, foreign funds today, 25 August 2010, sold shares worth a net Rs 364.96 crore, as per provisional data from the stock exchanges. Domestic funds sold shares worth a net Rs 266.77 crore.

Foreign funds have made heavy purchases of Indian stocks over the past 2-1/2 months. Foreign funds have 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.

All emerging market funds combined extended their year-to-date inflow gains to $34.5 billion after attracting $2.2 billion of fresh money in the week ended 18 August 2010, as per data from global fund tracker EPFR Global.

Amid growing hopes of a bumper kharif harvest thanks to further improvement in monsoon rainfall, worries persist over the unabated poor crop sowing in some parts rain-starved eastern region. Overall, nearly 90% of the total normal kharif acreage has already been 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.

A ray of hope for the drought-hit eastern region has emerged from the India Meteorological Department (IMD) which has 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 24 August 2010 was 3% below normal. The Southwest monsoon was vigorous over Rayalaseema and South Interior Karnataka and active over Jammu & Kashmir, Uttar Pradesh, Bihar, Sub-Himalayan West Bengal & Sikkim, Telangana and North Interior Karnataka during past 24 hours, the India Meteorological Department (IMD) said in its daily update on Tuesday, 24 August 2010.

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.

Data on 19 August 2010 showed the primary articles index rose 14.85% in the year to 7 August 2010, lower than previous week's annual rise of 15.66%. The food price index rose 10.35%, lower than previous week's annual rise of 11.4%, as prices of vegetables, potatoes and onions fell. The fuel price index rose 12.57%, lower than previous week's annual rise of 12.66%.

The liquidity situation in the financial markets has improved, a senior Reserve Bank of India (RBI) official said on 20 August 2010. The Reserve Bank of India (RBI) is also keeping a close watch on the liquidity situation, said Janak Raj, an adviser at the RBI's monetary policy division.

Chief Statistician T.C.A. Anant on 19 August 2010 said the headline inflation is expected to ease further in coming months. The headline inflation eased in July 2010, fuelling expectations that the central bank may lessen the scale and pace of increase in interest rates.

Saumitra Chaudhuri, a Planning Commission member in charge of economic development recently said inflation has peaked and would start easing at a faster rate from September 2010. The Reserve Bank of India will undertake a mid-quarter monetary policy review on 16 September 2010, as per the schedule. Finance Minister Pranab Mukherjee said this month rising prices were a cost of rapid economic growth.

Bond yields edged higher, extending recent gains. The yield on the most traded, 8.13% 2022 bond was hovering at 8%, higher than Tuesday's (24 August 2010) close of 7.98%. The yield on the second most traded benchmark 10-year 2020 bond was hovering at 8.07%, higher than Tuesday's (24 August 2010) close of 8.01%.

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.

India's exports in July grew an annual 13.2% to $16.24 billion, Trade Secretary Rahul Khullar said on 17 August 2010, the ninth straight month of expansion. Imports for the month rose 34.3% to $29.17 billion, he said.

The industrial output rose 7.1% in June 2010 compared with revised 11.3% rise in May 2010, the latest data showed. Manufacturing grew 7.3%, mining sector grew 9.5%, consumer goods sector rose 8.3%, capital goods sector expanded 9.7% and electricity generation rose 3.5%.

The industrial production growth rate for May 2010 was revised marginally down to 11.3% from 11.5% reported earlier. The growth rate for March 2010 was revised upward to 14.5% from 13.9% reported earlier.

The BSE 30-share Sensex lost 131.95 points or 0.72% to 18,179.64. The Sensex fell 155.59 points at the day's low of 18,156 in late trade. The index rose 0.84 points at the day's high of 18,312.43 in early trade.

The S&P CNX Nifty was down 42.75 points or 0.78% to 5,462.35.

The market breadth, indicating the health of the market was weak. On BSE, 2,133 shares declined while 850 shares advanced. A total of 84 shares remained unchanged.

The total turnover on BSE amounted to Rs 5032 crore, higher than Rs 4979.40 crore on Tuesday, 24 August 2010.

From the 30-share Sensex pack, 23 stocks declined while the rest of them gained.

The BSE Mid-Cap index fell 1.49% and the BSE Small-Cap index fell 1.42%. Both the indices underperformed the Sensex.

Except the BSE IT index, all the other sectoral indices on BSE declined. The BSE Realty index (down 3.16%), Consumer Durables index (down 1.63%), Auto index (down 1.44%), Healthcare index (down 1.31%), Metal index (down 1.23%), and banking sector index Bankex (down 0.97%), underperformed the Sensex. The BSE IT index (up 0.01%), FMCG index (down 0.02%), Capital Goods index (down 0.52%), Oil & Gas index (down 0.56%), PSU index (down 0.64%), and Power index (down 0.68%), outperformed the Sensex.

Index heavyweight Reliance Industries (RIL) fell 0.42% to Rs 968.10, after moving in a narrow range of Rs 965.10- 977 during the day. Reportedly the legal dispute between RIL and NTPC over D6 gas may be heading for a truce, with Solicitor General Gopal Subramanium recommending that NTPC be given gas at a concessional rate under a provision of the production sharing contract.

India's largest bank by net profit and branch network State Bank of India fell 0.82%. Chairman O.P. Bhatt said 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 fell 1.67% after its ADR declined 1.34% on the NYSE on Tuesday, 24 August 2010.

India's second largest private sector bank by net profit HDFC Bank shed 0.63% after its ADR fell 0.91% on the NYSE on Tuesday, 24 August 2010.

India's top tractor maker by sales Mahindra & Mahindra fell 0.31%. The company recently signed a memorandum of understanding to buy a majority stake in troubled South Korean automaker Ssangyong.

India's top truck maker by sales Tata Motors lost 1.82%. As per recent reports, the company plans to raise $700-750 million through issue of shares with differential voting rights to retire debt.

India's largest bike maker by sales Hero Honda Motors declined 2.32% while India's second largest bike maker by sales Bajaj Auto fell 1.78%.

India's largest pharma firm by sales Cipla lost 3.06% to Rs 307.55 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. It was the top loser from the Sensex pack.

Metal stocks declined as LMEX a gauge of six metals traded on the London Metal Exchange fell 1.56% on Tuesday, 24 August 2010.

India's largest private sector aluminium maker by sales Hindalco Industries dropped 2.97%, extending a three-day 6.26% fall.

However, shares of Vedanta group firms came off the day's lows after reports citing Oil Ministry official indicated that the valuation done by Vedanta for Cairn India was very high. Vedanta group recently proposed to acquire Cairn India from its parent firm in a deal worth upto $9.6 billion.

India's largest non-ferrous metal producer by sales Sterlite Industries gained 1.05% to Rs 154 and was the top gainer from the Sensex pack. Sesa Goa, too, recovered from day's low of Rs 317.10 to end 0.94% lower at Rs 322.20.

Among other metal stocks, Steel Authority of India, Sesa Goa, Tata Steel, Hindustan Zinc, JSW Steel, Hindustan Zinc, Bhushan Steel fell by between 0.94% to 3.22%.

Shares of Cairn India lost 2.82% to Rs 344.20, off the day's high of Rs 356.70, on reports state-run energy firms ONGC, GAIL India and Oil India will not counter Vedanta Resources' bid for a stake in Cairn India.

Telecom pivotals declined, reversing Tuesday's gains, on profit booking. India's largest cellular services provider by sales Bharti Airtel fell 1.61%. India's second largest cellular services provider by sales Reliance Communications (RCom) fell 1.36%.

Shares of software exporters were mixed following a string of downbeat economic data from the US, the biggest market for Indian IT firms. India's second largest software services exporter by sales Infosys rose 0.23%.

India's largest software services exporter by sales TCS advanced 0.24% on reports the company has bagged an e-governance contract worth Rs 150 crore from the state government of Madhya Pradesh.

India's third largest software services exporter Wipro lost 2.08% after its ADR slumped 2.93% on the NYSE on Tuesday, 24 August 2010.

Realty shares declined with the sentiment taking a hit on worries about the global economic recovery. Ackruti City, DLF, HDIL, Orbit Corporation, Unitech, Parsvnath Developers, Indiabulls Real Estate fell by between 0.38% to 3.78%.

Tyre stocks declined on reports the Commerce Ministry has accepted to review an application from China's Wei Fang Huadong Rubber Co to export Chinese radial bus and truck tyres into India. Apollo Tyres, Ceat, J K Industries, MRF, Goodyear India fell by between 2.33% to 2.73%.

Prakash Steelage settled at Rs 187.95 on BSE, at a premium of 70.8% over the initial public offer (IPO) price of Rs 110. The stock debuted at Rs 118.55, a 7.7% premium over the initial public offer price.

Prakash Steelage clocked the highest volume of 4.68 crore shares on BSE. Cals Refineries (1.59 crore shares), Piramal Healthcare (1.13 crore shares), Birla Cotsyn (97.79 lakh shares) and Karuturi Global Solutions (88.73 lakh shares) were the other volume toppers in that order.

Prakash Steelage clocked the highest turnover of Rs 880.78 crore on BSE. Piramal Healthcare (Rs 570.93 crore), Tata Steel (Rs 144.91 crore), State Bank of Bikaner (Rs 89.96 crore) and State Bank of India (Rs 86.80 crore) were the other turnover toppers in that order.