Market drifts lower on disappointing August industrial production data

The key benchmark indices edged lower in choppy trade as the latest data showed industrial production growth slowed in August 2010. Weak global stocks also weighed on investors sentiment. But, banking stocks and some auto shares came off lows as slowdown in industrial production growth in August 2010 could ease pressure on the central bank to again raise rates at a policy review early next month. Index heavyweight Reliance Industries (RIL), too, recovered from lower level.



The market breadth was negative, in contrast with positive breadth earlier in the day. Capital goods, realty and metal stocks fell. But, IT stocks rose on expectations of strong Q2 September 2010 results. The BSE 30-share Sensex was down 136.55 points or 0.67%, up close to 100 points from the day's low and off close to 165 points from the day's high.

Intraday volatility was high. The market edged lower in early trade tracking weak Asian stocks and lower US index futures. Stocks extended losses in morning trade. The market slumped to a fresh intraday low in early afternoon trade after the latest data showed industrial output growth slowed in August 2010. The market trimmed losses in early afternoon trade.

Bargain hunting continued in afternoon trade. The market weakened once again in mid-afternoon trade as European stocks and US index futures fell. The market once again trimmed losses in late trade as European stocks and US index futures recovered from a steep intraday slide.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, lost 3.25% to 20.51. The index had lost 0.93% to 21.20 on Monday, 11 October 2010. The index had lost 4.68% at 21.40 on Friday, 8 October 2010, a day after rising 3.31% to 22.45 on Thursday, 7 October 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.

Industrial production rose at a much slower-than-expected 5.6% in August 2010 from a year earlier, sharply lower than the previous month's revised 15.2% growth, the latest government data showed. Manufacturing output rose an annual 5.9% in August 2010, lower than a 10.6% rise in August 2009. Industrial production growth for July 2010 was revised upwards to 15.2% from 13.8% earlier.

Output in the mining sector rose 7% verses 11% rise in August 2009 and electricity generation rose just 1% from a 10.6% growth in August 2009. Intermediate goods production rose 10% verses a 10.4% rise in August 2009 and basis goods production rose 3.7% verses a 7.7% rise in August 2009. Capital goods production contracted 2.6% in August 2010 verses a 9.2% growth in August 2009.

Production of consumer goods rose 6.9%, lower than a 10.9% growth in August 2009. Within the consumer goods segment, the consumer durables sector put up a strong showing. Production of consumer durables jumped 26.5% verses a 24.7% growth in August 2009. But, production of consumer non-durables contracted 1.2% verses a 6.1% growth in August 2009.

Finance Minister Pranab Mukherjee said slower growth in industrial output in August 2010 was disappointing. But, finance secretary Ashok Chawla said the government is not worried about the slowdown in August's factory output growth. It is purely a cyclical movement, he said.

The yield on the most traded 8.13% 2,022 bond was hovering at 8.04%, lower than Monday's (11 October 2010)'s close of 8.07%. The yield on the benchmark 10-year bond was hovering at 8.01%, slightly higher than Monday's (11 October 2010)'s close of 8%.

The government will unveil data on wholesale price index for September 2010 on Friday, 15 October 2010. The wholesale price index, the most widely watched gauge of prices in India, rose 8.5% in August 2010.

European stocks fell on Tuesday, 12 October 2010, following overnight losses for Asian markets, with miners leading the decline as commodity prices weakened. The key benchmark indices in UK, France and Germany were down by 0.51% to 1.15%.

The latest data showed inflation in the UK remaining at a high level. Annual consumer-price inflation stood at 3.1% in September 2010, unchanged from a month earlier.

Asian stocks fell on Tuesday, 12 October 2010, with exporters weighing on Tokyo, and financials sending Hong Kong lower. The key benchmark indices in South Korea, Indonesia, Hong Kong, Singapore, Taiwan and Japan fell by between 0.04% to 2.09%.

Shares of exporters led the decline in Japanese stocks as the yen firms up against the dollar.

Chinese stocks defied the broad trend as rising commodity prices pulled metals shares higher, while power-sector shares extended gains on a proposed increase in tariffs. The Shanghai Composite rose 1.23%. Large Chinese banks dropped in Shanghai as well as Hong Kong, however, on reports China has temporarily raised reserve requirements on six banks to drain cash from the economy. Beijing hasn't confirmed the report, but such a move would mark the first hike in banks' deposit-reserve ratio since May 2010.

Trading in US index futures indicated that the Dow could fall 52 points at the opening bell on Tuesday, 12 October 2010. US index futures recovered from an earlier steep slide.

Earnings season in the US kicks off this week, with chip maker Intel Corp reporting later in the global day today, 12 October 2010. J.P. Morgan Chase & Co reports earnings on Wednesday, 13 October 2010, to be followed by Google Inc. on Thursday, 14 October 2010 and General Electric Co on Friday, 15 October 2010.

A slowdown in economic growth in the world's developed countries looks increasingly likely, the Organisation for Economic Co-operation and Development (OECD) said on Monday, highlighting signs the recovery may now have peaked in the United States. The OECD said its August composite leading indicator (CLI) for the 32-nation OECD area fell for the fourth month in a row, shedding 0.1 point to 102.9. The outlook given by the CLIs for Canada, France, Italy, the United Kingdom, Brazil, China and India points strongly to a downturn, the Paris-based OECD said.

Back home, foreign funds continue to aggressively mop up Indian stocks. Net equity inflow in 2010 now stands at a record $21.85 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 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 and closes on 21 October 2010.

The government today, 12 October 2010, set Rs 225-245 per share price band for the Coal India IPO. Retail investors will get shares at 5% discount on the final issue price to be discovered through the book-building route. The IPO opens for bidding on 18 October 2010 and closes on 21 October 2010. The Indian government is selling roughly 63.16 crore Coal India shares, or 10% of the company.

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).

Tier-I IT firms viz. Infosys, TCS, Wipro, and HCL Tech are seen reporting strong earnings growth in Q2 September 2010 as high volumes will boost operating margins. However, the IT sector faces headwind of a firm rupee in Q3 December 2010. The rupee hit a 2-year high against the dollar on Thursday, 7 October 2010. Higher volumes and price hike will aid earnings growth of most auto firms in Q2 September 2010 though analysts will closely eye operating profit margins and outlook on margins in the face of rising metal prices

Banks are seen reporting decent-to-strong earnings growth on the back of pick-up in credit offtake. Manufacturers of base metals are also seen reporting strong Q2 results on the back of higher metal prices. Increase in product prices will offset higher input costs for consumer staples firms in Q2 September 2010. But, cement firms will report dismal results due to a sharp fall in cement prices during the monsoon season.

The BSE 30-share Sensex fell 136.55 points or 0.67% to 20,203.34. The index rose 28.51 points at the day's high of 20,368.40 in early trade. The Sensex fell 232.64 points at the day's low of 20,107.25 in mid-morning trade soon after the industrial production data.

The S&P CNX Nifty was down 44.95 points or 0.73% to 6,090.90.

The BSE Mid-Cap index fell 0.51%. The BSE Small-Cap index was flat. Both these indices outperformed the Sensex.

Most sectoral indices on BSE declined. The BSE Realty index (down 1.8%), Capital Goods index (down 1.58%), Metal index (down 1.43%), Consumer Durables index (down 1.42%), FMCG index (down 1.01%), Power index (down 0.98%), Oil & Gas index (down 0.9%), and PSU index (down 0.81%), underperformed the Sensex. The BSE IT index (up 0.22%), Healthcare index (up 0.18%), Auto index (down 0.1%), and banking sector index Bankex (down 0.38%), outperformed the Sensex.

The market breadth was negative, in contrast to a positive breadth earlier in the day. On BSE, 1820 shares declined while 1171 shares advanced. A total of 105 shares remained unchanged.

From 30 share Sensex pack, 22 fell and rest rose.

BSE clocked turnover of Rs 4400 crore, lower than Rs 4786.08 crore on Monday, 11 October 2010.

Index heavyweight Reliance Industries (RIL) fell 1.41% to Rs 1053.90. The stock came off the day's low of Rs 1046.05. 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 chief executive officer of Canada-based Niko Resources, told investors in a conference recently that he 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.

IT stocks rose ahead of Q2 results of IT bellwether Infosys later this week. India's largest IT exporter by sales TCS rose 0.89%. India's second largest IT exporter by sales Infosys rose 0.12%. Infosys announces its Q2 result on Friday, 15 October 2010. India's third largest IT exporter by sales Wipro fell 0.18% reversing initial gains.

FMCG stocks fell on profit taking. ITC, Dabur India, Hindustan Unilever and United Spirits fell by between 0.87% to 3.11%.

Consumer durables stocks also fell on profit taking. Blue Star, Lloyd Electric, Videocon Industries and Titan Industries fell by between 1.46% to 2.24%.

High beta realty stocks, too, fell on profit taking. Omaxe, Unitech, Ackruti City, DLF, Indiabulls Real Estate, Phoenix Mills and Lok Housing fell by between 0.75% to 2.95%.

Metal stocks fell as commodity prices weakened. Sterlite Industries, Sesa Goa, Hindalco Industries and National Aluminum Company fell by between 0.25% to 2.59%.

Steel stocks fell after POSCO the world's No.3 steelmaker cut 2010 profit forecast by 7% after reporting the first decline in earnings in four quarters. Jindal Steel & Power, Steel Authority of India, Bhushan Steel and JSW Steel fell by between 1.71% to 2.59%.

Tata Steel, the world's seventh-largest steelmaker, fell 1.08%. The company, last week, 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.

India's largest engineering and construction firm by sale Larsen & Toubro (L&T) fell 1.94%, with the stock falling for the second straight day. The company said during market on Friday, 8 October 2010, it has bagged new orders worth Rs 1585 crore in buildings & factories segments.

Among other capital goods stocks, Siemens, SKF India, ABB, BEML, BHEL and Praj Industries fell by between 0.63% to 3.5%.

Banking stocks fell on profit taking. India's largest commercial bank by net profit and branch network State Bank of India (SBI) fell 0.84%, with the stock snapping two-day gains. The stock hit a record high of Rs 3299 on Monday, 4 October 2010.

Bank of India and Punjab National Bank fell by between 0.86% to 2.04%. But, Bank of Baroda rose 0.44%.

India's second largest private sector bank by net profit HDFC Bank fell 0.12%, with the stock falling for the fourth straight day. 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.

But, India's largest private sector bank by net profit ICICI Bank rose 0.65%. ICICI Bank, recently, hiked base rate by 25 basis points to 7.75%. ICICI Bank has also increased interest rates on its special home loan scheme by 25 basis points. The scheme now offers loans at the rate of 8.5% for the first year and 9.5% for the second year. From the third year onwards, home loans will be priced at 175 basis over the base rate.

All banks had to review their base rate in the first week of October 2010 as RBI has mandated that the base rate has to be reviewed every quarter. The new benchmark rate came into effect from 1 July 2010, replacing the prime lending rate and banks have to price all new loans in reference with base rate.

Cement stocks fell on profit taking. ACC, UltraTech Cements, Ambuja Cements and India Cements fell by between 0.94% to 1.68%.

Most auto stocks rose on expectations of pick-up in sales in the upcoming festive season that begins with Dasara on 17 October 2010. Commercial vehicles maker Tata Motors rose 0.61% after company before market hours today announced successful completion of its issue of shares aggregating $750 million, comprising 'A' ordinary shares aggregating $550 million and ordinary shares aggregating $200 million. The stock hit record high of Rs 1165 today.

The company said it received strong response to the issue from investors across India and internationally with a book size aggregating $1.85 billion.

Tata Motors on Monday, 11 October 2010, launched the first Indian crossover four-wheeler called the Tata Aria. The crossover combines the features of a sports utility vehicle, a sedan and a multi utility vehicle in one package. Tata Aria is likely to compete with the Toyota Innova and Mahindra Xylo and is priced in the range of Rs 13-16 lakh. Analysts reckon that the Aria will help Tata Motors sustain its sales momentum going forward.

Meanwhile, Tata Motors is reportedly planning to launch a new car that would be positioned between the Nano and Indica. The move is aimed at taking on India's largest selling car Alto, manufactured by Maruti Suzuki India.

India's largest tractor and utility vehicles maker Mahindra & Mahindra (M&M) rose 1.31%, with the stock gaining for the second straight day. The stock had hit all-time high of Rs 758.70 on Wednesday, 6 October 2010. The company said on Friday, 8 October 2010 that it has decided to issue a notice of early redemption on the outstanding foreign currency convertible bonds (FCCBs) aggregating $141.2 million. The bondholders will have the right to convert the FCCBs on or before 29 October 2010 and the balance outstanding FCCBs after the conversions, if any during this period, will be redeemed on 8 November 2010, M&M said in a statement.

The bondholders have in the last three months opted for conversion of FCCBs aggregating $48.30 million into equity shares/GDRs, M&M said. Each GDR represents one underlying equity share of the company.

M&M on Friday, 1 October 2010, said it sold 35,177 vehicles in September 2010, nearly 24% more from a year earlier.

India's leading bike maker by sales Hero Honda Motors rose 0.17%, with the stock gaining for the second straight day. Sales rose 8.1% to 4.33 lakh units in September 2010 over September 2009.

India's top car maker, Maruti Suzuki fell 0.12%, with the stock snapping last two days' gains. Total vehicle sales rose 29.6% to 1,08,006 units in September 2010 over September 2009. This is a record monthly sale from the car major.

Bajaj Auto fell 1.87%. The stock had hit all-time high of Rs 1,611.45 on Wednesday, 6 October 2010. The company's total sales rose 26% to 3,52,769 units in September 2010 over September 2009.

Car sales rose an annual 30.4% to 169,082 cars in September 2010, an industry body said on Friday, 8 October 2010. The Society of Indian Automobile Manufacturers (SIAM) said sales of trucks and buses, a barometer of economic activity, rose 29.6% to 59,455 units in September 2010.

Some tyre stocks rose on expectations of higher demand from the replacement market as well as from auto original equipment manufacturers. MRF, CEAT and Apollo Tyres rose by between 2.27% to 6.57%.

Tecpro Systems clocked highest volume of 1.68 crore shares on BSE. Cantabil Retail (1.46 crore shares), Cals Refineries (1.44 crore shares), REI Agro (1.32 crore shares) and IFCI (1.2 crore shares) were the other volume toppers in that order.

Tecpro Systems clocked highest turnover of Rs 686.87 crore on BSE. Jindal Poly Films (Rs 158.97 crore), Cantabil Retail (Rs 153.03 crore), IFCI (Rs 91.26 crore) and SKS Microfinance (Rs 82.89 crore) were the other turnover toppers in that order.

Apparel maker Cantabil Retail India settled at Rs 104.75 on BSE, a 22.41% discount to the initial public offering price of Rs 135. The he stock debuted at Rs 133.80, a 0.89% discount to the initial public offering (IPO) price.

Tecpro Systems settled at Rs 407.85 on BSE, a 14.89% premium over the initial public offering price of Rs 355. The stock debuted at Rs 399.40, a 12.51% premium over the initial public offering (IPO) price.