RIL, bank stocks lead rally

Robust July 2010 industrial production growth, good monsoon rains this year, data showing sustained buying by foreign funds and firm global stocks, helped domestic bourses kick off the new trading week with a bang. The two key benchmark indices, the BSE Sensex and the 50-unit S&P CNX Nifty, struck their highest levels in nearly 32 months. The market gained for the fifth straight trading session. The BSE 30-share Sensex was up 408.67 points or 2.17%, up close to 360 points from the day's low and off close to 35 points from the day's high.



All the sectoral indices on BSE were in the green, with banking, realty, metal and oil & gas leading the gains. Index heavyweight Reliance Industries (RIL) surged. The barometer index BSE Sensex today, 13 September 2010, crossed the psychological 19,000 mark. Shares of a number of banks and housing finance major HDFC scaled record high.

The market surged at the onset of the trading session on firm Asian stocks. The key benchmark indices, the BSE Sensex and the 50-unit S&P CNX Nifty, scaled their highest level in nearly 32 months. The market held firm in morning trade. Stocks extended gains in mid-morning trade. The market continued its uptrend to hit fresh intraday high in early afternoon trade. The market hit a fresh intraday high in afternoon on positive start from European markets. Stocks further extended gains 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, jumped 13.94% at 18.14. The index had lost 0.31% to 15.92 on Thursday, 9 September 2010. The index had risen 0.88% to 15.97 on Wednesday, 8 September 2010. The index had surged 4.01% to 15.83 on Tuesday, 7 September 2010, a day after sliding 4.04% to 15.22 on Monday, 6 September 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 government has proposed to do away with the need for foreign investors having joint ventures in the country to get prior approval from their local partners before making fresh investments in the same area. This 12-year-old regulation has been a major irritant to foreign investors wanting to step up their investment in India and its removal can potentially speed up FDI inflows. The regulation, known as Press Note 1 of 2005, a reworked version of the vintage 1998 Press Note 18, aimed at protecting the interest of Indian companies by putting a brake on foreign companies changing local partners to suit their business interests.

The Department of Industrial Policy and Promotion (DIPP) on Friday, 10 September 2010, released a discussion paper making a case for allowing foreign investors to bring in fresh money and technology to India irrespective of the impact on local partners in any existing joint venture.

On the macro front, India's industry began the second quarter on a strong footing, clocking 13.8% growth in July. The growth rate, the highest in two months, exceeded market expectations. The growth was driven by a strong showing by the manufacturing sector, particularly the capital goods segment.

Meanwhile, the government revised downwards the industrial production growth for June 2010 to 5.76% from earlier 7.1%

Bond yields surged as the strong industrial production growth for July 2010 raised the changes of a hike in policy rates by the central bank of India at a mid-term policy review on Thursday, 16 September 2010. The yield on the benchmark 10-year 2020 bond was hovering at 7.98%, compared with Thursday's (9 September 2010) close of 7.91%. The yield on the second most traded, 8.13% 2022 bond was hovering at 8.10%, compared with Thursday's (9 September 2010) close of 8.04%

The Reserve Bank of India (RBI) is seen raising short-term interest rates by 25 basis points at a mid-term policy review on Thursday, 16 September 2010.

European stocks rose on Monday, 13 September 2010, with banks leading the gainers in the wake of clarity over capital adequacy rules. Mining stocks rose after strong economic data out of China. The key benchmark indices in UK, Germany and France were up by between 0.89% to 1.12%.

The European Union on Monday raised its forecast for economic growth in the 16-nation euro zone, in part reflecting stronger-than-expected growth in the second quarter. The interim economic forecast released by the European Commission, the EU's executive arm, estimates gross domestic product will grow by 1.7%, up from its spring forecast of 1%. The EU also lifted its growth forecast for Great Britain, projecting 2010 GDP growth of 1.7%, up from its spring estimate of 1.2%.

Asian shares rose on Monday, 13 September 2010, on encouraging economic data out of China and the United States, and as a deal on global bank rules gave lenders some respite before having to raise hundreds of bilions of dollars in fresh capital. The key benchmark indices in Hong Kong, South Korea, Taiwan, China, Japan and Singapore were up by between 0.89% to 2.55%.

Chinese data released over the weekend reaffirmed market hopes for a soft-landing for the mainland economy and strengthened expectations of a delayed interest rate hike by the Chinese central bank. China's industrial production rose 13.9% in August from a year earlier, a statistics bureau report showed on 11 September 2010. Consumer prices jumped 3.5% the most in 22 months, as food costs climbed, and retail sales rose 18.4%.

Banking stocks rose across the Asia-Pacific region and in Europe on Monday, 13 September 2010, as the new capital norms agreed by global regulators were less stringent than feared. The Basel Committee on Banking Supervision, representing regulators from 27 nations, more than doubled its capital requirements for banks, giving lenders as long as eight years to comply in full, as part of efforts to prevent financial crises.

Trading in US index futures indicated that the Dow could surge 88 points at the opening bell on Monday, 13 September 2010.

Closer home, foreign institutional investors (FIIs) are in a buying spree in India. FIIs bought share worth a net Rs 987.99 crore on Thursday, 9 September 2010, as per provisional data from the stock exchanges. Domestic funds sold shares worth a net Rs 201.53 crore on that day.

Foreign funds have bought shares worth a net Rs 2920.73 crore in the first few days this month, as per data from the stock exchanges. The inflow has reached Rs 22415.83 crore in calendar 2010.

On the macro front, good monsoon rains this season will raise farm output, boost rural incomes and lower food inflation. As a result of the intensification of monsoon since the last week of August 2010, the drought-hit areas of the east and the north-east have received adequate moisture to facilitate planting of alternative, short-duration crops, especially of pulses and fodders, in the fields that had remain unsown so far. This is likely to mitigate the losses due to persistent paucity of rains in this region.

Countrywide, the crop coverage this season has been far better compared to not only the rain-starved 2009 but also to the good rainfall year of 2008. The total area sown under kharif crops till the end of August was 8.3 million hectares higher than in 2009 and 1.15 million hectares more than in 2008 when the country had reaped a record kharif foodgrain harvest of 118.14 million tonnes.

There has been a considerable expansion in acreage under those commodities that have witnessed a perceptible spurt in prices, such as pulses, coarse cereals like bajra and maize, and commercial crops like cotton and sugarcane. On other hand, the area planted with rice and oilseed, the commodities whose prices have remained more or less stable, has come down this year by nearly two million hectares and 700,000 hectares, respectively, compared to that in 2008.

The total water stock in the country's 81 major reservoirs has risen by 9 September 2010 to 103.156 billion cubic metres, some 32% higher than last year's corresponding level and 11% above normal for this time of the season. Many dams have their flood gates opened due to unabated water inflows.

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 BSE 30-share Sensex was up 408.67 points or 2.17% to 19,208.33, its highest closing level since 17 January 2008. The index rose 443.78 points at the day's high of 19,243.44 in late trade. The index rose 45.65 points at the day's low of 18,845.31 in early trade.

The S&P CNX Nifty was up 119.95 points or 2.13% at 5,760, its highest closing level since 17 January 2008. The index hit high of 5,770.60 in late trade.

The BSE Mid-Cap index rose 0.77% and the BSE Small-Cap index rose 0.22%. Both these indices underperformed the Sensex.

All the sectoral indices on BSE rose. Banking sector index Bankex (up 3.62%), Oil & Gas index (up 2.57%), and Realty index (up 2.46%), outperformed the Sensex. Metal index (up 1.59%), PSU index (up 1.55%), Power index (up 1.34%), Healthcare index (up 1.02%), IT index (up 1.01%), Capital Goods index (up 0.85%), Consumer Durables index (up 0.76%), Auto index (up 0.63%) and FMCG index (up 0.48%), underperformed the Sensex.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,518 shares advanced while 1,469 shares fell. A total of 97 shares remained unchanged. The breadth was much stronger earlier in the day.

From the 30 share Sensex pack, 26 rose and the rest fell.

The BSE clocked turnover of Rs 4947 crore, lower than Rs 5160.40 crore on Thursday, 9 September 2010. The stock market was closed on Friday, 10 September 2010, for a public holiday.

Index heavyweight Reliance Industries (RIL) surged 3.58% to Rs 992.20. Carrizo Oil & Gas over the weekend announced that it has closed its previously announced joint venture transaction in Marcellus Shale with a subsidiary of RIL. RIL has acquired a 20% interest in about 52,200 net Carrizo acres in Pennsylvania, which is considered as a highly prospective area for Marcellus Shale natural gas, for $ 65 million.

Closer home, RIL, early this month, said it bought additional 26.7 lakh shares or about 0.68% stake in EIH, raising its stake in the hotel chain to 14.8%. RIL had earlier bought a 14.12% stake in EIH from EIH promoters in an off-market deal valued at Rs 1,021 crore, or an average price of Rs 184 a share.

High beta realty stocks rose on expectations of a surge in housing demand during the upcoming festive season. Indiabulls Real Estate, DLF, Unitech, Ackruti City, Phoenix Mills, Omaxe and HDIL rose by between 0.2% to 3.54%.

High beta metal and mining stocks rose on strong economic data from China. China is the world's largest consumer of copper and aluminum. Sesa Goa, JSW Steel, National Aluminum Company, Sterlite Industries, Tata Steel, Hindalco Industries, Steel authority of India, Jindal Steel & Power, Hindalco Industries, Tata Steel rose by between 0.33% to 4.53%.

LMEX, a gauge of six metals traded on the London Metal Exchange fell 0.79% on Friday, 10 September 2010.

Banking stocks surged in line with their regional peers, after global regulators announced new capital rules that weren't as harsh as some had expected. Sentiment toward lenders also improved as the rules, which won't be introduced for years, took away a key element of uncertainty by easing any immediate pressure on banks to sell new shares to raise capital.

India's largest bank by net profit and branch network State Bank of India (SBI) rose 5.52% to Rs 3,147.25. The stock hit record high of Rs 3,175 today. State Bank of India recently said the executive committee of the central board of the bank has accorded approval for raising tier II capital by way of public issue of lower tier-II bonds for an amount of Rs 500 crore, with an option to retain 100% oversubscription (green shoe option).

India's second largest private sector bank by net profit HDFC Bank rose 1.86%. The stock hit a record high Rs 2,294 today. The bank on Monday, 6 September 2010, raised its benchmark prime lending rate (BPLR) by 50 basis points to 16.25%.

Bank of Baroda, Punjab National Bank and Bank of India rose by between 1.93% and 3.09%. Shares of all these three state-run banks scaled record highs.

India's largest private sector bank by net profit ICICI Bank rose 4.43% to Rs 1097.30. The stock hit a 52-week high of Rs 1,102.30 today.

India's largest dedicated housing finance firm by revenue HDFC jumped 5.32% to Rs 664.15. The stock hit a record high of Rs 667.95 today.

On Sunday, 12 September 2010, global regulators agreed to new capital rules for the banking and financial services sector. The new regulations will require a total common equity ratio of 7% for banks. The minimum common equity level requirement was lifted to 4.5%, from 2%, and banks will also now be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress, the group of governors and supervisory heads in the Basel Committee on Banking Supervision announced.

The new rules requiring higher capital levels for lenders are designed to provide a cushion to absorb losses and thus help prevent the kind of problems seen in the recent global financial crisis. Banks will be required to have a tier 1 capital ratio of 6%, up from the current 4% level. The key element of tier 1 capital is common shareholder funds and disclosed reserves or retained earnings, according to the Basel Committee.

Although the sector's capital requirements have increased, the rise wasn't as bad as some had expected and banks will have time to introduce the new rules, with higher capital levels required to be in place by the start of 2019.

IT stocks rose as strong economic data in US and Asia helped soothe worries over the global economic recovery. India's largest software services exporter by sales TCS rose 0.89%. India's second largest software services exporter by sales Infosys rose 1.53%, with the stock gaining for the sixth straight day.

But, India's third largest software services exporter Wipro fell 1.27% reversing initial gains. Wipro has appointed billionaire founder-chairman Azim Premji's oldest son Rishad Premji as chief strategy officer.

Capital goods stocks rose after the latest data showed robust growth in the capital goods sector in July 2010. Larsen & Toubro, ABB, SKF India, Bharat Electronics, Siemens, Bharat Heavy Electricals, rose by between 0.1% to 3.74%.

Some consumer durables stocks rose on renewed buying. Rajesh Exports and Gitanjali Gems rose by between 0.24% to 1.68%.

Some FMCG stocks rose as good rains will lift rural income, which in turn will boost demand for consumer goods. Rural market contributes substantially to the sales of FMCG firms. Godrej Consumer Products, ITC, United Spirits, Dabur India, Hindustan Unilever rose by between 0.18% to 4.53%.

Auto stocks rose on robust vehicle sales in the month of July 2010. India's top small car maker by sales Maruti Suzuki India rose 0.87%, with the stock gaining for the second straight day. The company on Tuesday, 7 September 2010, said it will invest Rs 1925 crore for setting up its second plant at Manesar, Haryana, to take annual production capacity to 1.75 million units from the present 1.2 million units. The expansion will be funded by internal accruals.

Maruti's total sales grew 23.6% to 1.04 lakh vehicles in August 2010 over August 2009. This is the highest ever monthly sales recorded by the company.

India's largest tractor and utility vehicles maker Mahindra & Mahindra (M&M) rose 0.79%, with the stock gaining for the third straight day. M&M's auto sales jumped 29% to 28,903 units in August 2010 over August 2009.

Bajaj Auto rose 0.72%, with the stock snapping last three days' losses. Total sales rose 55% to 329,364 units in August 2010 over August 2009. But, India's largest bike maker by sales Hero Honda Motors fell 0.28%, reversing initial gains. The company reported 2.16% rise in total vehicle sales to 4.24 lakh units in August 2010 over August 2009.

India's largest truck maker by sales Tata Motors rose 1.07%. Total sales rose 32% at 65,938 units in August 2010 over August 2009. However, on a month-month basis, the sales were down 2.7%.

Car sales in India rose an annual 33.2% in August, an industry body said late last week, as a rapidly expanding economy continues to pull buyers to showrooms. Car firms sold 1,60,794 cars in the month, data from the Society of Indian Automobile Manufacturers (SIAM) showed. Sales of trucks and buses, a barometer of economic activity, rose 28.1% to 52,030 units in August, SIAM said.

Oil exploration firms rose after crude oil prices surged nearly 3% on the New York Mercantile Exchange, on Friday, 10 September 2010. Cairn India rose 0.25%. Shares of India's biggest state-run oil exploration firm by revenue Oil & Natural Gas Corporation (ONGC) gained 1.5%. India's second biggest oil and gas exploration firm by revenue, Oil India, advanced 3.17%.

Higher crude oil prices would result in higher realization from crude sales for oil exploration firms. Light, sweet crude oil gained $2.2 or 2.96%, to $76.45 a barrel on the New York Mercantile Exchange, on Friday, 10 September 2010, after a shutdown of the biggest Canada-US crude pipeline raised expectations of declining inventories.

Cals Refineries clocked the highest volume of 3.75 crore shares on BSE. Shree Ashtavinayak Cine Vision (1.58 crore shares), Ispat Industries (1.54 crore shares), Gujarat Pipavav Port (1.09 crore shares) and Kohinoor Brodcasting Corporation (96.88 lakh shares) were the other volume toppers in that order.

State Bank of India clocked the highest turnover of Rs 291.09 crore on BSE. Reliance Industries (Rs 115.38 crore), VIP Industries (Rs 108.80 crore), Tata Steel (Rs 103.84 crore) and ICICI Bank (Rs 101.80 crore) were the other turnover toppers in that order.