Sensex, Nifty hit 2-1/2-year highs as FIIs continue buying

Bulls are on a rampage. Media reports that the government has relaxed the requirement of minimum 25% public shareholding for listed state-run firms send the key benchmark indices surging to 2-1/2-year highs. A further improvement in the southwest monsoon rains, sustained buying by foreign funds and firm global stocks, also underpinned sentiments. Eleven out of 13 sectoral indices on BSE closed in the green. The market breadth was strong as mid-cap and small-cap indices on BSE outperformed the Sensex. The barometer index BSE Sensex jumped 143.51 points or 0.79%, up close to 148 points from the day's low and off close to 22 points from the day's high.



The market edged higher in early trade. The barometer index BSE Sensex hit a fresh intraday high in morning trade. Stocks extended gains mid-morning trade. The market held firm near the day's high in early afternoon trade. The Sensex hit a fresh intraday high in afternoon trade as European stocks opened on a firm note. The market hit a fresh intraday high in mid-afternoon trade. The market extended gains in late trade after reports filtered in that the government has exempted listed state-run firms from a rule that mandates a minimum 25% public shareholding.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, declined 2.13% at 17. The index had lost 1.92% at 17.37 on Friday, 6 August 2010. The index had risen 3.93% to 17.71 on Thursday, 5 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 institutional investors (FIIs) continue to mop up Indian equities. As per provisional figures released by the stock exchanges, foreign funds today, 9 August 2010, bought shares worth Rs 522.12 crore. Domestic funds sold shares worth Rs 45.51 crore.

Foreign funds have bought equities worth a net Rs 3284.32 crore in the first six trading days this month, till 9 August 2010, absorbing selling of Rs 1175.12 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.

As per media reports, the government has relaxed the requirement of minimum 25% public shareholding for listed state-run firms. It may be recalled that the government in early June 2010 had announced changes in the Securities Contracts (Regulation) Rules 1957, so as to ensure that all listed companies maintain a minimum public float of 25%. Existing listed companies having less than 25% public holding have to reach the stipulated level by an annual addition of not less than 5% to public holding, the government had said at that time. The new rule had raised concerns there will be a deluge of share sales from government-owned firms to meet the minimum 25% public shareholding requirement.

As per the relaxed norms for state-run listed companies, such firms must maintain at least a 10% public shareholding, reports suggest. State-run firms with a public holding of less than 10% will be required to scale up the public holding to a minimum 10% within a period of three years, reports suggest.

Earlier in November 2009, the government had approved a proposal wherein all unlisted profitable state-owned entities will go public and all listed central public sector enterprises (CPSEs) will increase the public holding to at least 10%.

Meanwhile, the finance ministry is reportedly redrafting the Constitution Amendment Bill for rolling out Goods and Services Tax (GST) from next fiscal after states objected to the proposed veto power of the Union finance minister on state taxation issues. The proposed rollout of the GST from the next fiscal received a setback after states rejected the draft Constitution Amendment Bill in its present form, as it seeks to provide veto powers to the Centre over indirect taxation matters pertaining to the states.

European shares surged on Monday, 9 August 2010, with miners gaining on the back of firmer metal prices. Growing speculation the US Federal Reserve will have to buy bonds soon to bolster the sagging economy also lent support. The key benchmark indices in UK, France and Germany were up by 1.23% to 1.51%.

The Federal Statistical Office said Monday that Germany exported goods and services worth euro 86.5 billion ($115 billion) in June 2010 up 28.5% compared with June 2009 and the highest level since October 2008.

Latvia's economy, one of Europe's most troubled, posted its second straight quarter of growth in the April to June period, the nation's statistics office announced Monday. Economic activity in the second quarter increased a slight 0.1% compared with the first three months of the year, according to Latvia Statistics' flash estimate. However, on an annual basis the economy fell 3% as the construction and services sectors continue to languish, the statistics office said.

Most Asian stocks rose on Monday, 9 August 2010, on growing speculation the Federal Reserve will have to buy bonds sooner rather than later to bolster the sagging economy, which is keeping the US dollar under pressure. The key benchmark indices in China, Taiwan, Indonesia, Hong Kong, South Korea were up by between 0.36% to 0.89%. But, Japan's Nikkei Average fell 0.72%. Singapore markets were shut for a holiday.

Trading in US index futures indicated that the Dow could gain 33 points at the opening bell on Monday, 9 August 2010.

US stocks fell on Friday 6 August 2010 after government data showed a larger-than-expected drop in July payrolls, giving investors a stark reminder the economic recovery remains slow. But, the stocks sharply pared back losses that had driven the major indexes down 1% or more to their session lows. The US economy lost 131,000 jobs in July more than twice the market expectations. The Labor Department also said Friday the US unemployment rate in July was stuck at 9.5%. And the closely watched private employment number rose less than expected.

The Dow Jones Industrial Average dropped 21.42 points, or 0.20% to 10,653.56. The Standard & Poor's 500 Index shed 4.17 points, or 0.37% to 1,121.64. The Nasdaq Composite Index lost 4.59 points, or 0.20% to 2,288.47.

Focus is now on the Federal Reserve's policy meeting on Tuesday, 10 August 2010 and whether the central bank will consider new stimulus measures in the wake of weak jobs data.

Back home, the combined net profit of a total of 2282 Indian companies fell 8.6% to Rs 58,789 crore on 20.6% rise in sales to Rs 7,21,721 crore in Q1 June 2010 over Q1 June 2009.

The government will announce industrial output data for the month of June 2010 on 12 August 2010.

Analysts expect the Reserve Bank of India 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.

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 4 August 2010.

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 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.

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

Car sales in India rose an annual 38% in July 2010 to a record 1,58,764 unit, compared with 1,15,084 units a year ago, as per the latest data. Sales of trucks and buses, a barometer of economic activity, rose an annual 37% to 51,481 units in July 2010. Motorcycle sales in July 2010 rose to 7,10,621 units from 546,233 units a year earlier.

Meanwhile, a further improvement in monsoon rains has accelerated kharif planting. The total area brought under the crops is estimated to be higher than last year's level by good 8.4%, reports suggest. The overall rainfall in the whole country was 16% above normal in the week ended 4 August 2010.

The overall kharif prospects remain bullish as 85% of the country's total area has received normal or above normal rainfall, reports suggest. The area coverage is more than last year in the case of all crops, including rice, coarse cereals, pulses, oilseeds, sugarcane, cotton and jute, reports suggest. The crop stand is reported to be good and so far there has been no report of any major attack of disease or pests. Though white fly pest has appeared on cotton in some pockets of Punjab and Rajasthan, but the incidence is below the threshold level till now in most cases.

The improvement in rainfall has also resulted in a spectacular improvement in the water stock in reservoirs, reports suggest. The total water storage in the 81 major reservoirs stood at 52.09 billion cubic metres (BCM) as on 5 August 2010, against 28.65 BCM a fortnight ago. The present storage is a mere 6% short of normal, against 35% a fortnight ago, reports suggest. However, the water balance is still worrisome in reservoirs in the eastern region where the monsoon is yet to pick up full momentum.

The cumulative rainfall during the period from 1 June 2010 to 8 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. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

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 rose 143.51 points or 0.79% to 18,287.50, its highest closing level since 5 February 2008. The Sensex rose 165.26 points at the day's high of 18,309.25 in late trade. The index lost 4.09 points at the day's low of 18,139.90 in early trade.

The S&P CNX Nifty was up 46.90 points or 0.86% to 5486.15, its highest closing level since 18 January 2008. The Nifty hit high of 5492.30 in late trade.

The BSE Mid-Cap index rose 1.16%. The Small-Cap index rose 1.42%. Both these indices outperformed the Sensex.

The market breadth, indicating the health of the market was strong. On BSE, 1958 shares advanced while 1002 shares declined. A total of 112 shares remained unchanged.

BSE clocked turnover of Rs 4889 crore, higher than Rs 4816.47 crore on Friday, 6 August 2010.

The BSE Realty index (up 4.47%), Consumer Durables index (up 2.40%), Metal index (up 1.52%), banking sector index Bankex (up 1.28%) and Auto index (up 1.15%), outperformed the Sensex.

The BSE PSU index (up 0.76%), Power index (up 0.70%), IT index (up 0.59%), Capital Goods index (up 0.57%), FMCG index (up 0.30%), Healthcare index (down 0.01%) and Oil & Gas index (down 0.41%), underperformed the Sensex.

From 30 share Sensex pack, 27 rose and the rest fell.

Index heavyweight Reliance Industries (RIL) was down 0.66% to Rs 993.65. The stock came off the day's high of Rs 1,008.70. The 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.

Metal stocks rose on strong domestic demand. Hindustan Zinc, Sesa Goa, Jindal Steel & Power, Sterlite Industries, Hindalco Industries, Welspun Corp, Tata Steel, Steel Authority of India, JSW Steel, National Aluminum Company and Jindal Saw rose by between 0.15% to 2.47%.

LMEX, a gauge of six metals traded on the London Metal Exchange fell 0.073% on Friday, 6 August 2010.

Realty stocks rose as most realty companies reported strong Q1 June 2010 results. Anant Raj Industries, Sobha Developers, Ansal Properties, Unitech, Omaxe, Housing Development & Infrastructure, Parsvnath Developers, DLF, Peninsula Land, Indiabulls Real Estate, Orbit Corporation, Ackruti City, Mahindra Lifespace Developers and Phoenix Mills rose by between 0.59% to 9.20%.

Banking stocks rose on pick up in credit offtake. India's biggest commercial bank in terms of branch network, State Bank of India (SBI) rose 1.12%. 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 rose 3%. 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 31 July 2010.

But, India's second largest private sector bank by market capitalisation HDFC Bank fell 0.68%, with the stock falling for the fifth straight day. The stock had scaled a 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 1.52%, with the stock gaining for the second straight day. HDFC has fixed 20 August 2010 record date for a 5-for-1 stock split.

Consumer durables stocks rose on renewed buying. Gitanjali Gems, Videocon Industries, Rajesh Exports, Blue Star and Titan Industries rose by between 0.62% to 13.58%.

Bharat Heavy Electricals gained 0.74% on reports the company has secured an order worth Rs 2,525 crore for a power project from an independent power producer -- Abhijeet Infra.

Vascon Engineers jumped 8.28% after the company's board approved acquisition of 90% stake in a manufacturing company -- GMP Technical Solutions for Rs 62.63 crore.

KNR Constructions gained 3.03% after net profit surged 52.67% to Rs 16.32 crore on 53.94% rise in net sales to Rs 195.63 crore in Q1 June 2010 over Q1 June 2009.

Jubilant Foodworks clocked a highest turnover of Rs 182.89 crore on BSE. Midfield Industries (Rs 141.81 crore), Tide Water Oil (Rs 131.73 crore), Reliance Industries (Rs 101.14 crore) and Tata Motors (Rs 95.28 crore), were the other turnover toppers on BSE.

Cals Refineries reported a highest volume of 3.55 crore shares on BSE. Unitech (93.18 lakh shares), Andrew Yule & Company (81.05 lakh shares), Resurgere Mines & Minerals India (80.37 lakh shares) and Midfield Industries (74.62 lakhs shares), were the other volume toppers on BSE.