Sensex gains nearly 2% on strong initial batch of Q2 earnings

Strong initial batch of Q2 September 2010 results, and gains in European stocks and US index futures sent Indian stocks surging today, 21 October 2010. The barometer index BSE Sensex regained the psychological 20,000 level and the 50-unit S&P CNX Nifty recaptured the psychological 6,000 mark, as heavy bidding by foreign funds in the initial public offer of Coal India, boosted sentiments. Index heavyweight Reliance Industries (RIL) gained 3%. All the sectoral indices on BSE rose. Data showing easing of food inflation index also supported stock prices. The market breadth was strong. FMCG, banking, metal and realty stocks rose.



The BSE 30-share Sensex jumped 388.43 points or 1.95%, off close to 30 points from the day's high and up close to 375 points from the day's low. Asian stocks were mixed.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, lost 6.76% to 22.19. The index had risen 2.45% to 23.80 on Wednesday, 20 October 2010. The index had risen 3.94% to 23.23 on Tuesday, 19 October 2010. The index had lost 1.32% to 22.35 on Monday, 18 October 2010. The index had jumped 9.95% to 22.65 on Friday, 15 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.

The market edged higher in early trade. Stocks extended gains in morning trade. The market held positive zone in mid-morning trade. The Sensex hit a fresh intraday high in early afternoon trade as index heavyweight RIL extended initial gains. The market surged in afternoon trade, with the Sensex scaling fresh intraday high as European stocks recouped initial losses. The market came off the higher level after hitting a fresh intraday high in mid-afternoon trade. The market once again trimmed gains, soon after hitting a fresh intraday high in late trade.

Investors have made a beeline for Coal India shares as the initial public offer (IPO) of the state-run coal giant was subscribed 15.12 times by 16:00 IST on the last of the issue today, 21 October 2010. Foreign institutional investors (FIIs) put in bids for a staggering 493.38 crore shares, compared with 28.42 crore shares reserved for the qualified institutional bidders category as a whole, data on NSE website showed. Bidding for the Coal India IPO by the qualified institutional bidders (QIBs) ended on Wednesday, 20 October 2010.

Bidding for the Coal India IPO by non-institutional investors, which mainly consists of high networth individuals and corporates, and retail investors ends today, 21 October 2010. The government plans to raise about Rs 15,000 crore from divestment of 10% stake in Coal India. The government has set Rs 225-245 per share price band for the Coal India IPO, which is billed as the country's largest issue ever.

Meanwhile, the Securities and Exchange Board of India (SEBI) is reportedly unlikely to accept a proposal to lift the size of mandatory open offer arising from mergers and acquisitions to 100% from 20%. A panel set up by the SEBI had proposed changes to takeover rules, including raising the open offer size to make it easier for minority shareholders to participate in open offers. The SEBI board is scheduled to meet on Monday, 25 October 2010.

Bond yields declined as food price inflation eased early this month. The yield on the most traded 8.13% 2022 bond was hovering at 8.09%, compared with Wednesday's (20 October 2010) close of 8.12%. The yield on benchmark ten-year bonds was hovering at 8.13%, compared with Wednesday's (20 October 2010) close of 8.14%.

The food price index rose 15.53% while the fuel price index climbed 11.14% in the year to 9 October 2010 government data on Thursday showed. In the prior week, annual food and fuel inflation stood at 16.37% and 11.14%, respectively. The primary articles price index was up 18.05% in the latest week compared with an annual rise of 18.54% a week earlier. The Reserve Bank of India next reviews monetary policy on 2 November 2010.

On Wednesday, 20 October 2010, the government raised the price to be paid to domestic farmers to buy new season wheat by 1.82%, the lowest increase in five years, signalling adequate stocks of the grain and to ensure minimum impact on retail food prices.

European stock markets turned around opening losses to trade higher Thursday, with support coming from mining and food and beverage sectors amid a heavy schedule of earnings. The key benchmark indices in France, Germany and UK rose by between 0.63% to 0.88%.

Asian stocks were mixed on Thursday after data showed China's growth slowed in third quarter. The key benchmark indices in China, Japan and Singapore fell by between 0.05% to 0.68%. But, the key benchmark indices in South Korea, Hong Kong, Indonesia and Taiwan rose by between 0.08% to 0.39%.

China's annual gross domestic product growth slowed to 9.6% in the third quarter from 10.3% in the second quarter, the National Bureau of Statistics (NBS) said on Thursday. Other indicators such as September inflation data suggested that China's economy is still heading for a soft landing. Consumer prices in September rose 0.6% from August, while producer prices climbed 0.6%, the NBS said.

Trading in US index futures indicated that the Dow could rise 45 points at the opening bell on Thursday, 21 October 2010. US index futures reversed initial losses.

Wall Street bounced back on Wednesday as a fall in the dollar spurred buying in industrial and commodity-linked shares, while another batch of strong corporate earnings added to gains. The Dow Jones Industrial Average gained 129.35 points, or 1.18% to 11,107.97. The Standard & Poor's 500 Index rose 12.27 points, or 1.05% to 1,178.17. The Nasdaq Composite Index added 20.44 points, or 0.84% to 2,457.39.

Closer home, investors are keenly watching Q2 September 2010. The initial batch of Q2 results announced so far have been good with net profit of 236 companies rising 28.5% on 21.3% rise in sales in the quarter ended September 2010 over the quarter ended September 2009.

Tier-1 IT firms 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. 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.

Market men are worried 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 80000 crore from equity and debt issue over the next three to six months. State-run Power Grid Corp, Steel Authority of India and Indian Oil Corp are some of the companies that are planning large share sales in coming months.

Foreign funds have made heavy purchases of Indian equities this year. Net equity inflow in 2010 now stands at a record $23.95 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.

The BSE 30-share Sensex jumped 388.43 points or 1.95% to 20,260.58. The Sensex rose 420.95 points at the day's high of 20,293.10 in late trade. The index rose 13.97 points at the day's low of 19,886.12 in early trade.

The S&P CNX Nifty was up 119.40 points or 2% to 6,101.50. Nifty hit a high of 6,113.50.

The BSE Mid-Cap index rose 1.37% and the BSE Small-Cap index rose 1.04%. Both these indices underperformed the Sensex.

All the sectoral indices on BSE rose. The BSE FMCG index (up 3.19%), banking sector index Bankex (up 2.09%), Oil & Gas index (up 2.03%), and Metal index (up 2.01%), outperformed the Sensex. The BSE Realty index (up 1.87%), Healthcare index (up 1.76%), Capital Goods index (up 1.57%), PSU index (up 1.51%), Consumer Durables index (up 1.5%), Power index (up 1.26%), Auto index (up 0.99%), and IT index (up 0.89%), underperformed the Sensex.

The market breadth, indicating the health of the market was strong. On BSE, 1898 shares advanced while 1083 shares fell. A total of 109 shares remained unchanged.

Among the 30-share Sensex pack, 29 rose while only one declined.

The BSE clocked turnover of Rs 4786 crore, lower than Rs 4878.01 crore on Wednesday, 20 October 2010.

Index heavyweight Reliance Industries (RIL) rose 2.91% to Rs 1079.25, with the stock gaining for the second straight day. RIL has reportedly indicated that it may actively bid for oil and gas exploration blocks, including nine new areas, being auctioned by the Government. Out of 34 blocks being offered under NELP-IX, 19 blocks are new areas -- seven are in deep sea, two in shallow waters and ten onland blocks. The rest 15 (one in deep water, five in shallow water and nine onland blocks) are recycled blocks.

ONGC rose 0.56% after company said on Thursday it has the option of exercising its pre-emptive rights in Cairn Energy's plans to sell a controlling stake in its Indian unit to Vedanta Resources. Cairn Energy Plc agreed in August 2010 to sell a stake of 40% to 51% in Cairn India to London listed miner Vedanta Resurces. ONGC said in a statement its consent would need to be sought for the transaction.

The explorer said it had asked Cairn Energy to provide full details of the deal. The company has also sought details of Vedanta's financial strength, technical capability and experience in the oil and gas sector.

Consumer durables stocks rose on expectations of healthy sales in ongoing festive season that lasts till Diwali early next month. Videocon Industries, Titan Industries, Gitanjali Gems and Rajesh Exports rose by between 1.09% to 3.35%.

India's largest engineering & construction firm by sales Larsen & Toubro rose 0.31%, with the stock gaining for the second straight day. The company recently won an order worth Rs 1449 crore from DB Power for balance of plant package

State-run Bhel rose 1.7% after company said on Wednesday it has bagged contracts worth Rs 35 crore to set up grid-interactive solar power plants of 1100 kW capacity at eight locations in the union territory of Lakshadweep.

Bank stocks rose on strong Q2 results/expectations of strong Q2 results where results are yet to be announced. India's largest private sector bank by net profit ICICI Bank rose 1.49%.

India's second largest private sector bank by net profit HDFC Bank rose 1.18%. The bank's net profit rose 32.68% to Rs 912.14 crore on 14.37% rise in total income to Rs 5770.70 crore in Q2 September 2010 over Q2 September 2009. The private sector bank announced the results after trading hours on Tuesday, 19 October 2010.

India's largest bank by net profit and branch network State Bank of India rose 3.29%. The bank said on Wednesday that it has revised the Benchmark Prime Lending Rate upwards by 25 basis points (bsp) from 12.25% per annum (p.a.) to 12.50% p.a. effective from 21 October 2010. The bank has also raised base rate by 10 bps from 7.50% p.a. to 7.60% p.a. effective from October 21, 2010.

FMCG stocks rose on renewed buying. Marico, ITC, Hindustan Unilever and United Spirits rose by between 1.18% to 3.95%.

Metal stocks as the LMEX, a gauge of six metals traded on the London Metal Exchange, rose 1.18% on Wednesday, 20 October 2010. Tata Steel, Steel Authority of India, Sesa Goa, National Aluminium Company, Hindalco Industries, Hindustan Zinc, JSW Steel rose by between 0.34% to 5.05%.

High beta realty stocks rose on renewed buying. Phoenix Mills, DLF, Lok Housing, Unitech and HDIL rose by between 0.5% to 3.3%.

ACC rose 1.45%, reversing initial losses. The company's consolidated net profit fell 79.22% to Rs 86.31 crore on 15.3% decline in sales turnover to Rs 1759.18 crore in Q3 September 2010 over Q3 September 2009. The result hit the market during trading hours today.

Healthcare stocks, too, rose. Dr Reddy's Laboratories, Sun Pharmaceutical Industries, Biocon, Ranbaxy Laboratories and Cipla rose by between 0.03% to 3.59%.

Telecom stocks also participated in the rally. Idea Cellular, Reliance Communications and Bharti Airtel rose by between 2.53% to 5.03%.

IT stocks reversed initial losses. India's third largest software services exporter by sales Wipro rose 1.46%. The company announces its Q2 September 2010 results on 22 October 2010.

India's second largest IT exporter by sales Infosys rose 0.46%. Infosys before market hours on Friday, 15 October 2010, reported a 16.7% rise in consolidated net profit as per International Financial Reporting Standards (IFRS) to Rs 1737 crore on 12.1% growth in revenue to Rs 6947 crore in Q2 September 2010 over Q1 June 2010. The core operating profit margin (OPM) surged to 30.2% in Q2 September 2010 from 28.31% in Q1 June 2010.

Infosys also raised its earnings as well revenue forecast for the year ending March 2011 in both dollar and rupee terms. But, the company's top management cautioned about the global economic environment.

India's largest IT exporter by sales TCS rose 2.03%. The company announces its Q2 September 2010 results today, 21 October 2010.

Auto stocks rose on expectations of strong Q2 results. Hero Honda Motors, M&M, Maruti Suzuki India and Tata Motors rose by between 0.82% to 2.24%.

Cals Refineries clocked the highest volume of 2.55 crore shares on BSE. Karuturi Global (1.77 crore shares), Shiva Cement (1.35 crore shares), Tulsi Extrusions (1.05 crore shares) and FCS Software (1 crore shares) were the other volume toppers in that order.

Reliance Industries clocked the highest turnover of Rs 165.56 crore on BSE. Oberoi Realty (Rs 161.29 crore), State Bank of India (Rs 117.98 crore), Tulsi Extrusions (Rs 98.31 crore) and Eros International Media (Rs 86.32 crore) were the other turnover toppers in that order.