Sensex, Nifty scale 2-1/2-year highs; cement shares lead rally

Bulls were in command as the key benchmark indices achieved highest closing levels in more than 2-1/2-year highs, as the latest data showed easing of food and fuel inflation in early August 2010, which may reduce the pressure on the central bank for further monetary action to rein in inflation. The BSE 30-share Sensex jumped 197.82 points or 1.08%, up close to 180 points from the day's low and off close to 20 points from the day's high. Data showing sustained buying by foreign funds, underpinned sentiments. Firm Asian stocks also supported domestic bourses.



The market opened on a firm note, with the key benchmark indices hitting 2-1/2-year highs. Stocks extended gains in morning trade on firm Asian equities. The market struck a fresh 2-1/2-year high in mid-morning trade as pivotals extended early gains. The market extended gains in early afternoon trade after the latest data showed the pace of rise in inflation slowed early this month. The market pared gains in afternoon trade as European stocks slipped into the red, soon after a firm opening. Frenzied buying in index pivotals pushed the key benchmark indices to fresh 2-1/2-year highs in mid-afternoon trade. Stocks held firm in late trade.

The market breadth was positive. Banking and financial shares rallied on fresh buying, with HDFC Bank hitting a record high and HDFC and ICICI Bank scaling 52-week highs. Among PSU banks, Union Bank of India and Canara Bank struck record highs. ITC and Bajaj Auto registered lifetime highs. Index heavyweight Reliance Industries (RIL) gained over 1%. But, IT stocks were subdued ahead of a key US economic data on the initial jobless claims due later in the global day. Auto stocks declined on profit booking.

Stock brokers had advised clients to refrain from selling shares today, 19 August 2010, which they had bought in the cash segment on Wednesday, 18 August 2010, so as to avoid auction of shares due to clubbing settlements on account of a bank holiday today, 19 August 2010.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, rose 0.79% at 16.53. The index had slumped 6.98% at 16.40 on Wednesday, 18 August 2010. The index had lost 2.65% at 17.63 on Tuesday, 17 August 2010. The index had jumped 8.18% to 18.11 on Monday, 16 August 2010, a day after it had lost 7% on Friday, 13 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 have made heavy purchases of Indian stocks over the past 2-1/2 months. Foreign funds today, 19 August 2010, bought shares worth a net Rs 821.18 crore, as per provisional data from the stock exchanges. Domestic funds bought shares worth a net Rs 215.09 crore.

Foreign funds have bought equities worth a net Rs 6365.98 crore so far this month, till 19 August 2010, absorbing selling of Rs 3047.42 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 market regulator Securities & Exchange Board of India (Sebi) on Wednesday, 18 August 2010, proposed to double the investment limit for retail investors to Rs 2 lakh for each application from the current limit of Rs 1 lakh, to help them get more chance in initial public offerings.

Meanwhile, Sebi has barred mutual funds from writing options or purchasing instruments with embedded written options, as the market regulator put curbs on mutual funds' exposures to derivatives. Sebi in a circular issued on Wednesday said fund houses' exposure to equity, debt and derivatives should not exceed 100% of the net assets of the scheme. Earlier they could go beyond 100%

The norms will be applicable to new mutual fund schemes. For all existing schemes, the new norms will be effective from 1 October 2010. Sebi said the total exposure in option trade must not exceed 20% of the net assets of the scheme.

On the macro front, the latest data 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%.

Chief Statistician T.C.A. Anant today, 19 August 2010, said the headline inflation is expected to ease further in coming months. Data early this week showed that the headline inflation eased in July 2010, fuelling expectations that the central bank may lessen the scale and pace of increase in interest rates. The wholesale price index (WPI) rose an annual 9.97% in July 2010, slower than expectations. The annual food inflation rate fell to 10.29% in July 2010 from 14.6% rise in June 2010, with prices of vegetables and sugar falling on the month. Manufacturing inflation, which the RBI uses as a proxy for assessing demand, cooled to 6.15% from 6.66% in June 2010. On the flip side, the headline inflation for May 2010 was revised upwards to 11.14% from 10.16%.

Saumitra Chaudhuri, a Planning Commission member in charge of economic development, told a news agency, early this week, that 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.

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 on Thursday after confidence was boosted by Germany's Bundesbank raising its forecast for the country's economic growth this year, with banks and miners among the biggest gainers. The key benchmark indices in France, Germany and UK rose by between 0.17% to 0.56%.

Asian markets edged higher on Thursday, 19 August 2010, led by technology and industrial companies. The key benchmark indices in Japan, South Korea, Indonesia, Singapore, Hong Kong, Taiwan and China rose by between 0.06% to 1.32%.

Shares in Tokyo got a boost from reports the Bank of Japan will consider taking additional policy-easing steps to cope with a rising yen and falling share prices. The Japanese currency's recent sharp rise to 15-year highs against the US dollar has been weighing on the Japanese stock market, particularly exporters' stocks.

US stocks ended little-changed on Wednesday, 18 August 2010, as investors looked in vain for clear economic and corporate signs amid a flagging economic recovery. The Dow Jones Industrial Average ended 1.14 points, or 0.01%, lower at 10,302.01. The Nasdaq Composite gained 0.39% to 2181.87, while the Standard & Poor's 500-stock index inched up 0.13 point to 1079.38.

In economic data, US mortgage applications soared last week on the strongest demand for home refinancing loans in 15 months. Meanwhile, the US government data showed crude inventories rose to the highest level since weekly records began in 1990. The data follows Tuesday's report from the American Petroleum Institute, which showed a surprisingly large build in supplies.

Trading in US index futures indicated Dow could rise 43 points at the opening bell on Thursday, 19 August 2010.

Back home, the Centre and states were unable to clinch a deal at a meeting of the empowered committee of state finance ministers on Wednesday on the constitutional amendments, clouding prospects for rollout of the most ambitious indirect taxes reform viz. the Goods and Services Tax (GST) -- next year.

Finance Minister Pranab Mukherjee on Wednesday, 18 August 2010, offered concessions on most major demands by states on the constitutional amendments needed to allow the ambitious tax reform to take effect from next April. After states objected to a clause in the draft GST bill giving the union finance minister veto power over state tax matters, the finance minister dropped this clause altogether. In a major concession to dissenting states, Mukherjee said decisions taken by a proposed GST council will be taken by consensus. Mukherjee also promised states another revised draft of the GST bill to reflect these concessions.

However, some states, especially those ruled by the opposition Bhartiya Janta Party, wanted one month to consider the draft GST bill which also needs approval from state legislatures before the new tax system can be introduced. Some media reports suggested that even if the GST bill is introduced in the next session of parliament starting towards the end of the year, the deadline for the rollout of GST from 1 April 2011, could be met.

India needs to channelise more pension and insurance funds into the infrastructure sector, Finance Minister Pranab Mukherjee said in a government statement released on Wednesday, 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.

India's exports in July grew an annual 13.2% to $16.24 billion, Trade Secretary Rahul Khullar said on Tuesday, 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.

Improved rainfall this year has helped farmers plant various crops over a larger area than last year. The cumulative rainfall during the period from 1 June 2010 to 18 August 2010 was 5% below normal. The Southwest monsoon was vigorous over Sub-Himalayan West Bengal & Sikkim and Konkan & Goa and active over Assam & Meghalaya and North Interior Karnataka during past 24 hours, the India Meteorological Department (IMD) said in its daily update on Wednesday, 18 August 2010. The IMD expects widespread rainfall activity over Sub-Himalayan West Bengal & Sikkim, Bihar, Uttar Pradesh, Uttarakhand, Himachal Pradesh and northeastern states over the next few days.

The weather office late last week said rainfall was likely to remain below normal for another week, but could revive soon, particularly in the soybean-growing central region. 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.

The BSE 30-share Sensex jumped 197.82 points or 1.08% to 18,454.94, its highest level since 5 February 2008. The Sensex jumped 218.15 points at the day's high of 18,475.27 in mid-afternoon trade. The index rose 19.38 points at the day's low of 18,276.50 in early trade.

The S&P CNX Nifty was up 61.05 points or 1.11% to 5,540.20 its highest level since 18 January 2008. Nifty struck day's high of 5,544.70 in mid-afternoon trade.

The BSE Mid-Cap index rose 0.91% and the BSE Small-Cap index rose 0.79%. Both the indices underperformed the Sensex.

Banking sector index Bankex (up 1.92%) and FMCG index (up 1.63%) and outperformed the Sensex. Realty index (down 0.67%), PSU index (down 0.05%), BSE IT index (up 0.03%), Auto index (up 0.21%), BSE Power index (up 0.32%), Consumer Durables index (up 0.47%), Oil & Gas index (up 0.52%), BSE Healthcare index (up 0.68%), Capital Goods index (up 0.85%), Metal index (up 0.97%), underperforming the Sensex.

The market breadth, indicating the health of the market was positive. On BSE, 1666 shares advanced while 1299 shares declined. A total of 109 shares remained unchanged. The breadth was much stronger earlier in the day.

The total turnover on BSE amounted to Rs 5241 crore, lower than Rs 5527.03 crore on Wednesday, 18 August 2010.

From the 30-share Sensex pack, 17 stocks advanced while rest declined.

Cement stocks saw an across the board rally on optimism the upcoming festive season and conclusion of monsoon season will give a boost to cement demand. Cement stocks also played a catch-up with rest of the market after underperforming the Sensex recently. Among other cement stocks, Ambuja Cements, India Cements, UltraTech Cement rose by between 3.31% to 8.16%.

North India's largest cement firm by sales ACC galloped 4.86% extending two-day gains, on follow-up buying. It was the top gainer from the Sensex pack.

Index heavyweight Reliance Industries (RIL) advanced 1.25% to Rs 977 on 10.23 lakh shares. But, the stock came off the day's high of Rs 986.65. The company recently denied a media report that the company may sell treasury stocks worth more than $1 billion. The company has no such plans, RIL spokesman Manoj Warrier clarified to the media on Wednesday, 11 August 2010.

India's largest oil exploration firm by sales Oil & Natural Gas Corporation (ONGC) fell 1.39% and was the top loser from the Sensex pack. ONGC may reportedly seek management control of the giant Rajasthan oilfields in lieu of allowing UK's Cairn Energy to sell majority stake in its Indian arm Cairn India that now operates the field, to a non-oil firm, Vedanta Resources for $8.48 billion.

Banking and financial shares hogged limelight on optimism the sector will be the key beneficiaries of the economic expansion. India's largest private sector bank by net profit ICICI Bank vaulted 4.36% to Rs 1012.55. The stock scaled a 52-week high of Rs 1015 in intra-day trade today. The bank has recently announced a hike of 0.5% to 16.25% in its prime lending rate effective 18 August 2010.

India's second largest private sector bank by net profit HDFC Bank was up 1.95%. The stock today hit a record high of Rs 2240. Its ADR gained 4.47% on the NYSE on Wednesday, 18 August 2010.

However, India's largest bank by net profit and branch network State Bank of India fell 0.33%, extending three-day fall, on profit booking.

PSU banking stocks rallied across the board. Punjab National Bank, Union Bank of India, Canara Bank, Indian Bank rose by between 0.38% to 5.18%. All these banking stocks registered record highs today.

India's largest mortgage lender by total income HDFC spurted 3.69% to Rs 644.10 on momentum buying. It struck a 52-week high of Rs 648.50 in intra-day trade today, 19 August 2010. The stock had turned ex-split for a 5-for-1 stock split on Wednesday, 18 August 2010.

India's largest cigarette maker by sales ITC rose 1.54%. The stock today struck a lifetime high of Rs 165.95 in intra-day. As per recent reports, ITC may buy the de-merged cigarette division of Kolkata-based RDB Industries in a deal worth Rs 300-350 crore.

Among other FMCG stocks, Hindustan Unilever, Dabur India, United Spirits rose by between 0.56% to 2.04%, as good monsoon rains could boost rural sales.

India's top truck maker by sales Tata Motors lost 0.72%. As per reports, the company plans to raise $700-750 million through issue of shares with differential voting rights to retire debt. Tata Motors' ADR fell 1.06% on the NYSE on Wednesday, 18 August 2010.

Other auto stocks also took a breather after recent gains. India's largest tractor maker by sales Mahindra & Mahindra shed 0.31%. India's top car maker by sales Maruti Suzuki India fell 0.16%. India's top motorcycle maker by sales Hero Honda Motors fell 0.2%.

Shares of software exporters were subdued ahead of the key US economic data on the initial weekly jobless claims to be announced later today. US is the prime market for Indian software exporters. India's second largest software services exporter by sales Infosys fell 0.34%. India's third largest software services exporter by sales Wipro shed 0.24%. But, India's largest software services exporter by sales TCS rose 0.37%.

Some metal stocks rose, extending Wednesday's gains, on strong domestic demand for metals in a fast expanding economy. JSW Steel, Jindal Steel & Power, Hindalco Industries, Sterlite Industries, Hindustan Zinc rose by between 0.43% to 3.26%.

Capital goods stocks rose on renewed buying. Bharat Heavy Electricals, Larsen & Toubro, ABB, Punj Lloyd rose by between 0.04% to 1.39%.

Consumer durables stocks also rose. Blue Star, Rajesh Exports, Gitanjali Gems, Titan Industries and Videocon Industries rose by between 0.11% to 1.9%.

Thomas Cook India clocked the highest volume of 3.3 crore shares on BSE. Cals Refineries (2.41 crore shares), FCS Software (1.95 crore shares), KingFisher Airlines (1.17 crore shares) and Birla Power Solutions (1.14 crore shares) were the other volume toppers in that order.

Thomas Cook India clocked the highest turnover of Rs 240.38 crore on BSE. Midfield Industries (Rs 183.46 crore), Aban Offshore (Rs 119.70 crore), ICICI Bank (Rs 117.99 crore) and Jubilant Food Organosys (Rs 112.36 crore) were the other turnover toppers in that order.