BSE Mid-Cap, Small-Cap indices score gains

The market corrected, last week, after selling activity intensified in the last two trading sessions of the week. The momentum of foreign fund buying maintained the strong pace. However, concerns of stretched valuations and caution ahead of the Q2 September 2010 result season triggered selling by domestic funds and retail investors. Investors also sold shares to make room for investment in the initial public offer (IPO) of Coal India, billed as the country's largest issue ever. The IPO of Coal India opens for bidding on 18 October 2010.



The BSE Sensex fell 194.78 points or 0.95% in the week ended Friday, 8 October 2010, to settle at 20,250.26. The S&P CNX Nifty fell 39.95 points or 0.65% to 6,103.45.

The BSE Mid-Cap index rose 116.90 points or 1.42% to 8,330.57. The BSE Small-Cap index rose 108.88 points or 1.05% to 10,512.53. Both these indices outperformed the Sensex.

Foreign funds continue to aggressively mop up Indian stocks. Net equity inflow in 2010 now stands at a record $21.42 billion, above last year's $17.45 billion, as per data from the Securities & Exchange Board of India (Sebi). The Sebi data includes FII inflow through primary and secondary market route. A sizable chuck of FII inflow this year is from India-focused exchange traded funds as well as long-only funds.

But, a section of the market is concerned that a strong equity issuance pipeline over the next six months will soak liquidity from the secondary equity markets. Indian companies are estimated to raise about Rs 36000 crore from share sales over the next three to six months. This includes a large initial public offer (IPO) from Coal India this month. The government plans to raise about Rs 15000 crore to Rs 16000 crore from divestment of 10% stake in Coal India. The Coal India IPO is billed as the country's largest issue ever. The IPO of Coal India opens for bidding on 18 October 2010.

Reserve Bank of India deputy governor Subir Gokarn on Tuesday, 5 October 2010, said the central bank is considering measures to deal with an influx of foreign fund flows. The rupee hit a two-year high against the dollar on Thursday, 7 October 2010. A rising rupee is a bad news for exporters, particularly the labour-intensive segments such as textiles and leather. The government has recently extended sops to some of the labour intensive export sectors.

On Monday, 4 October 2010, Finance Minister Pranab Mukherjee said there was no need to intervene in the foreign exchange market or cap foreign portfolio inflows. "As long as the capital flows are in excess of the current account deficit the pressure to appreciate will continue and it could potentially disrupt," RBI's Gokarn said on Tuesday.

India requires sustained foreign investment to plug its widening current account deficit, which has been worsened by a yawning trade deficit.

Mukherjee said on Thursday, 7 October 2010, that huge surpluses in some countries and large deficits in others are "unsustainable" and should be addressed in multilateral discussions. He also called for an early conclusion to the stalled Doha Round of world trade talks.

The next major trigger for the stock market is Q2 September 2010 results. Brokerage earnings estimates will now roll over to FY 2012 (year ending March 2012). The Q2 September 2010 earnings season kick-starts next week.

The International Monetary Fund (IMF) on Wednesday, 6 October 2010, raised its India growth forecast for 2010. Indian economy will grow 9.7% in 2010, up from July forecast of 9.4%, the IMF said. IMF has forecast 8.4% growth for India in 2011. The world economy, led by emerging markets, is forecast to grow by 4.8% in 2010 and 4.2% in 2010 and a sharper global slowdown is unlikely, the IMF said.

Annual food inflation eased in late September 2010 on improved supplies, which could soothe the Reserve Bank of India's concerns high food prices could spill over to other parts of the economy. The food price index rose 16.24% while the fuel price index climbed 10.73% in the year to 25 September 2010, government data released on Thursday, 7 October 2010, showed. In the prior week, annual food and fuel inflation stood at 16.44% and 10.73% respectively.

The primary articles index was up 18.53% in the latest week compared with an annual rise of 18.31% in the previous week, both under a new series of data with a different base year of 2004-05, new components and weightings. The wholesale price index, the most widely watched gauge of prices in India, rose 8.5% in August 2010.

Trading for the week began on a dull note. Profit booking at higher level wiped off most of the strong initial gains on Monday, 4 October 2010, as the key benchmark indices ended just a tad higher. Weakness in European stocks and US index futures, triggered profit taking. The BSE 30-share Sensex rose 30.69 points or 0.15% to 20,475.73. The S&P CNX Nifty was up 16.05 points or 0.26% at 6,159.45.

The key benchmark indices ended lower in choppy trade on Tuesday, 5 October 2010, as resistance emerged after a three-day rally, but sustained foreign fund buying helped the broader market score gains. The BSE 30-share Sensex fell 68.02 points or 0.33% to 20,407.71. The S&P CNX Nifty fell 13.65 points or 0.22% to 6,145.80.

The key benchmark indices -- the barometer index BSE Sensex and the 50-unit Nifty, attained their highest closing levels since since 14 January 2008 on Wednesday, 6 October 2010, led by rally in metal and realty stocks. Barring the BSE FMCG index, all the sectoral indices, rose. The BSE 30-share Sensex rose 135.37 points or 0.66% to 20,543.08. The S&P CNX Nifty rose 40.65 points or 0.66% to 6,186.45.

Profit taking after recent strong gains pulled the key benchmark indices more than 1% lower in what was a choppy trading session on Thursday, 7 October 2010. IT, metal, realty and banking stocks led the decline. The BSE 30-share Sensex fell 227.76 points or 1.11% to 20,315.32. The S&P CNX Nifty fell 66.15 points or 1.07% to 6,120.30.

Volatility was at the fore on Friday, 8 October 2010, as the key benchmark indices recovered in the last 40 minutes or so of trade, soon after hitting fresh intraday lows. Recovery in index heavyweights Reliance Industries (RIL) and Infosys, triggered rebound in the key benchmark indices in late trade. The BSE 30-share Sensex fell 65.06 points or 0.32% to 20,250.26. The S&P CNX Nifty fell 16.85 points or 0.28% to 6,103.45.

Among 30 Sensex shares, 21 fell and rest rose.

India's largest steel maker by sales Tata Steel was the biggest Sensex loser last week. The stock fell 6.11% to Rs 626.95. The company said sales from its Indian operations rose 14% to 1.66 million tonnes in Q2 September 2010 over Q2 September 2009. The growth was driven by the highest-ever quarterly sales of long products, primarily used in construction, the company said in a statement.

The Indian operations account for about a quarter of the group's total annual global capacity of about 30 million tonnes, which includes unit Corus, Europe's second-largest steelmaker. Tata Steel's crude steel production in India rose 5% to 1.73 million in Q2 September 2010 over Q2 September 2009.

FMCG major Hindustan Unilever tumbled 4.50% to Rs 295.85. The stock was the second biggest Sensex loser.

Private sector lender HDFC Bank declined 3.84% to Rs 2403.45. It was the third biggest Sensex loser. HDFC Bank raised its key lending rate or the base rate by 25 basis points to 7.50% effective Tuesday, 5 October 2010. HDFC Bank had raised its rates on some deposits by up to 50 basis points effective 24 September 2010.

Bharti Airtel (down 3.78%), ITC (down 3.78%), HDFC (down 3.24%), ONGC (down 3.13%) and Larsen & Toubro (down 2.71%), were the other major Sensex losers.

India's second largest telecom operator by sales Reliance Communications was the biggest Sensex gainer last week. The stock rose 7.22% to Rs 180.40.

Infrastructure developer Jaiprakash Associates rose 6.41% to Rs 131.95. The company's cement dispatches grew 61% to 1.17 million tonnes in September 2010 over September 2009, aided by huge capacity additions by the company.

India's largest aluminum maker by sales Hindalco Industries was the third biggest Sensex gainer. The stock rose 5.02% to Rs 214.5. Hindalco Industries's US unit -- Novelis Inc is reportedly in talks to buy BP Plc's 60% stake in its US joint venture, Logan Aluminium, for $600 million in an all-cash deal. For the Aditya Birla Group, it is an opportunity to tighten its hold over the fast growing world aluminium market in which Hindalco Industries is among the top five companies. If the deal goes through, it will reportedly increase Novelis' presence in aluminium sheet products in the North American market.

Index heavyweight Reliance Industries (RIL) jumped 4.15% to Rs 1048.25. RIL may reportedly be sitting on yet another gold mine -- its D4 block. RIL is the operator of the block with 85% stake. RIL's partner Niko Resources, which owns 15% in the block located on the east coast of India, has raised initial estimates of gas reserves in the D4 block.

Edward S Sampson, Chairman and CEO of Canada-based Niko Resources, told investors in a conference that it feels that reserves at the D4 block are twice the size of the D6 block and have prospectivity of up to an exceeding potential for 100TCF gas. RIL said that the appraisal process is presently being undertaken and, therefore, will not comment at this juncture.

Cipla (up 4.06%), Tata Power Company (up 2.36%), ACC (up 1.80%), Maruti Suzuki India (up 0.99%) and Wipro (up 0.27%), were the other Sensex gainers.