Banking stocks on a roll ahead of RBI policy meet

The key benchmark indices started the week and the month on a buoyant note logging strong gains as latest data showing surge in manufacturing activity in October 2010, good Q2 September 2010 results, and firm global stocks boosted investor sentiments. The BSE 30-share Sensex jumped 323.29 points or 1.51%.



Trading remained suspended on BSE for about two-and-a-half hours between 12:00 IST and 14:30 IST due to a technical snag. Trading continued on NSE as usual during that period. Due to closure of trading for more than two hours, turnover on BSE declined sharply to Rs 1957 crore from Rs 5,018.07 on Friday, 29 October 2010.

Banking stocks were on a roll with sector heavyweight ICICI Index striking 52-week high near the Rs 1,250 mark on decent Q2 results. Index heavyweight Reliance Industries (RIL) dipped in the red after a firm start triggered by good Q2 results. Hero Honda Motors and Maruti Suzuki India declined as their earnings missed market expectations. Mahindra & Mahindra spurted close to 5% on strong October 2010 auto sales data. Software stocks rose on fresh buying, reversing Friday's fall. Metal stocks staged a comeback on bargain hunting after a two-day slide, with strong Chinese manufacturing data triggering the rebound.

The market opened on a firm note, tracking gains in Asian stocks. The market extended gains in mid-morning trade. The market held firm in early afternoon trade. The 50-unit S&P CNX Nifty scaled fresh intraday high in afternoon trade. The market held firm in mid-afternoon trade. The market pared gains on profit booking in late trade.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, rose 0.77% at 20.92. The index had risen 1.17% to settle at 20.76 on Friday, 29 October 2010. The index had lost 2.38% to 20.52 on Thursday, 28 October 2010, a day after it had risen 2.29% to 21.02 on Wednesday, 27 October 2010. The index had lost 3.79% to 20.55 on Tuesday, 26 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 focus of the market is currently on the second quarter September 2010 results. The results announced so far have been encouraging. The combined net profit of a total of 1532 firms surged 40.7% to Rs 77630 crore on 18.5% growth in sales to Rs 547594 crore in Q2 September 2010 over Q2 September 2009.

Foreign funds have made heavy purchases of Indian stocks this year. Net equity inflows in 2010 now stands at a record $25.01 billion, above last year's $17.45 billion.

The manufacturing sector expanded in October 2010 at a much faster pace than in September 2010, supported by strong output and a sharp rise in new business, a purchasing managers' index (PMI) showed on Monday, 1 November 2010. The HSBC Markit PMI, based on a survey of 500 Indian companies, rose to 57.2 in October 2010 from 55.1 in September 2010 and 57.2 in August 2010. New orders climbed for the 19th month in a row and at a faster rate than in September 2010.

The report said input prices for manufacturers increased substantially in October 2010 and at their fastest pace in five months, while output prices rose modestly. "Price pressures, however, are still too strong for comfort, possibly prompting the central bank to hike again before the end of the year," Frederic Neumann, co-head of Asian Economics Research at HSBC, said in a statement

The Reserve Bank of India (RBI) on Sunday, 31 October 2010, extended liquidity support measures to ease tight cash conditions. The Reserve Bank of India (RBI) said it was extending the special liquidity measures unveiled last week up to 4 November 2010. The RBI also allowed lenders to temporarily lower holdings of debt below regulatory requirements to raise cash.

The RBI is widely expected to raise its key lending rate by 25 basis points, the sixth such hike since March 2010, when it meets to review policy on 2 November 2010, as it looks to achieve its end-March 2011 projection of headline inflation at 6%. Rate hikes by the RBI have a direct impact on interest rates offered by banks on loans to Indian companies.

The RBI has hiked the key rates at which it lends to (repo) and borrows from banks (reverse repo) five times this year as the ripples caused by the global economic slowdown died out and headline inflation numbers kept increasing.

The Reserve Bank of India (RBI) today, 1 November 2010, said the uncertain global outlook, and the dominance of supply rigidities in certain sectors that impart rigidity to the inflation path, pose greater challenge for monetary policy in its objective of anchoring inflationary expectations without hurting growth. In a report on Macroeconomic and Monetary Developments: Second Quarter Review 2010-11, the central bank said a normal monsoon, following a severely deficient monsoon last year, is expected to lift the agriculture sector growth to above the trend rate of growth in 2010-11. Lead indicators of services activities suggest continuation of the momentum, the RBI said.

The current data on indicators of economic performance remain consistent with the 8.5% growth projected in the July 2010 Monetary Policy Statement, the central bank said. Given the weakening external demand conditions and the need for fiscal consolidation, sustained growth will hinge increasingly on private consumption and investment demand, the RBI said. Trends in production of capital goods, capital expenditure plans of corporates, non-oil imports and growth in credit as well as financing from non-banking sources during 2010-11 so far suggest strong conditions for investment activities.

The current account deficit, as percentage of GDP, could be expected to be higher in 2010-11 than 2.9% recorded in 2009-10. While the deficit may be fully financed by capital inflows, the potential volatility in such flows poses some risk, the RBI said. The higher inflation differential between India and major trading partners is a source of pressure on the competitiveness of Indian exports. Containing inflation, thus, is important even for improving the external balance position, the central bank said. Despite moderation in recent months, elevated inflation remains a challenge for monetary policy.

Inflation in India is a matter of concern, but is expected to moderate to acceptable levels, Finance Minister Pranab Mukherjee said on Monday, 1 November 2010, without specifying any time frame. Earlier, Finance Secretary Ashok Chawla said that the special liquidity measures announced by the Reserve Bank on India Friday was "very temporary" and will not have a bearing on monetary action.

The yield on the most traded 8.13% 2,022 bond was hovering at 8.07%, compared with Friday's (29 October 2010) close of 8.09%. The yield on the second most traded 7.99% 2017 bond was was almost unchanged at Friday's (29 October 2010) close of 7.96%

The latest trade data showed exports rose 23% to $18.02 billion in September 2010 and imports rose 26% to $27.14 billion, narrowing the country's trade deficit to $9.12 billion, its lowest in six months. Exports during the April-September period, the first half of the current financial year, rose 28% to $103.65 billion. The government expects 15% growth in exports in the current fiscal year.

European stocks edged higher on Monday, 1 November 2010, as investors eagerly awaited the results of mid-term elections in the US and the verdict of the Federal Reserve on a new round of quantitative easing. The key benchmark indices in Germany, France and UK were up by between 0.01% and 0.31%.

Most Asian shares edged higher on Monday on strong manufacturing data from China. The key benchmark indices in China, Indonesia, Hong Kong, Singapore, Taiwan and South Korea rose between 1.12% and 2.52%. But, Japan's Nikkei 225 index fell 0.52% as the yen's strength weighed on exporters.

US stocks ended mixed on Friday, 29 October 2010, in light trading as investors bid their time before the parliamentary elections on Tuesday and the meeting of the Federal Reserve. The Dow Jones Industrial Average closed up 4.54 points, or 0.04%, to 11118.49. The Nasdaq Composite rose 0.04 point to 2507.41. The Standard & Poor's 500 stock index edged down 0.52, or 0.04%, to 1183.26.

The US gross domestic product grew at an annual rate of 2% in the third quarter, up from 1.7% the previous quarter. Consumer spending increased 2.6% in the third quarter, accelerating from a 2.2% rise in the second.

The US Federal Reserve is likely to renew its asset purchasing policies, known as quantitative easing, following a Federal Open Market Committee policy-setting meeting that ends on Wednesday, 3 November 2010. Economists expect the Federal Reserve to buy between $500 billion and $750 billion of government bonds and say the impact of such purchases already is baked into markets, according to a survey released Monday, 1 November 2010. A survey conducted by Blue Chip Financial Forecasts of leading economists showed 47.9% expect the central bank to buy between $500 billion and $750 billion, 29.2% see it purchasing between $750 billion to $1 trillion, 14.6% see it purchasing less than $500 billion and 8.3% see it purchasing more than $1 trillion.

Trading in US index futures indicated that the Dow could gain 51 points at the opening bell on Monday, 1 November 2010. Dow futures were off highs.

Closer home, RBI governor D Subbarao, last week, said managing the exchange rate in the face of volatile flows contains a cost, and the challenge was to minimise that cost. Buying dollars adds liquidity to the banking system, which aggravates inflation. Sterilising resultant liquidity can push up interest rates, which in turn attracts further inflows, the Reserve Bank of India governor said.

Managing currency tensions will require a shared understanding on keeping exchange rates aligned to economic fundamentals, and an agreement that currency interventions should be resorted to not as an instrument of trade policy but only to manage disruptions to macroeconomic stability, Subbarao said. The Group of 20 advanced and emerging economies agreed recently to move towards market-determined exchange rates and to pursue the full range of policies needed to reduce excessive external imbalances.

The RBI governor said managing capital flows is not a problem that should be managed only by emerging market economies. In as much as lumpy and volatile flows are a spillover from policy choices of advanced economies, the burden of adjustment has to be shared, Subbarao said.

Finance Minister Pranab Mukherjee, last week, said the government has no plan to put any cap on flow of funds from foreign institutional investors (FIIs), which have pumped in nearly $25 billion so far this year. He said a sharp increase in inflow of funds from FIIs has provided cushion in controlling current account deficit. "I am confident with the flow of FIIs and foreign exchange availability, I will be able to contain current account deficit at around 3% of the GDP," Mukherjee said. The Finance Minister admitted that inflows of foreign funds have put pressure on the Indian currency.

He added that said steps to mop-up liquidity in India, as part of inflation-fighting measures, must not affect economic growth. He said the economy is on the path to regaining the growth momentum seen before the global economic slowdown. The Reserve Bank of India has taken steps to moderate demand to levels which India's economy can support in the light of high inflation, Mukherjee said.

India's economy is seen growing by 8.5% to 9.7% in the 2010/11 fiscal year and monetary tightening should ensure the pace of recovery is not hit, the finance ministry said in a report released on 26 October 2010. The report also said measures to temporarily ease liquidity were consistent with the Reserve Bank of India's (RBI) policy stance of containing inflation and anchoring inflationary expectations. "It has to be ensured that monetary tightening does not adversely affect the pace of recovery at this stage," the Finance Ministry wrote in the report.

The government may lift controls on diesel pricing in a phased manner, instead of in one go, to cushion any blow on the poor, the oil ministry said in a report on 26 October 2010. "It is proposed that increase in prices of diesel will be staggered over time to minimise the overall impact on the poor and the vulnerable," the report said. It also said the government may intervene in the pricing of petrol and diesel in case of a sharp rise or volatility in global crude oil prices.

While global liquidity remains ample, a section of the market is 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.

But, the liquidity in secondary equity markets in the immediate short term could rise as Coal India begins to refund excess subscriptions received towards its initial public offering. The IPO of Coal India IPO was subscribed more than 15 times. Shares of Coal India will debut on the secondary equity markets on Thursday, 4 November 2010.

Meanwhile, flows pouring into emerging market funds slowed considerably in the fourth week of October 2010. EPFR Global-tracked emerging markets equity and bond funds took in $2.68 billion and $710 million, respectively, in the week ended 27 October 2010, around half the previous week's totals. Last week, global emerging markets equity funds took in $3.76 billion, topping the record of $3.74 billion set in the first week of October 2010, which had been the highest total since EPFR started compiling weekly flow data.

Brazil equity funds posted another solid week of inflows despite that market's recent efforts to control capital inflows via higher taxes, EPFR said. The Brazilian government recently raised the tax on foreign purchases of fixed income to 6% from 4%. It also raised the tax on margin deposits on futures markets to 6% from 0.38%.

The BSE 30-share Sensex was up 323.29 points or 1.51% to 20,355.63. The 50-unit S&P CNX Nifty was up 99.85 points or 1.66% to 6,117.55. Nifty moved between a high of 6,132.40 and a low of 6,084.75.

Among the 30-share Sensex pack, 26 advanced while rest of the stocks declined.

The market breadth was strong. On BSE, 1880 shares advanced while 1038 shares declined. 75 shares remained unchanged.

The BSE Mid-Cap index rose 1.69% and outperformed the Sensex.The BSE Small-Cap index rose 1.21% and underperformed the Sensex.

All the sectoral indices on BSE rose. The BSE Consumer Durables index (up 3.61%), Bankex (up 3.38%), Realty index (up 2.9%), Capital Goods index (up 2.18%) and Healthcare index (up 1.82%) outperformed the Sensex.

The BSE Oil & Gas index (up 0.35%), the BSE FMCG index (up 0.41%), IT index (up 0.71%), Power index (up 0.72%), PSU index (up 0.8%), Metal index (up 0.89%) and Auto index (up 0.96%) underperformed the Sensex.

Index heavyweight Reliance Industries (RIL) slipped 0.25% to Rs 1093.10 in volatile trade. The stock came off the day's high of Rs 1187. RIL on Saturday, 30 October 2010 said its net profit rose 27.80% to Rs 4923.00 crore on 22.69% rise in net sales to Rs 57479.00 crore in Q2 September 2010 over Q2 September 2009. Its gross refining margin (GRM) for quarter was at US$7.9 per barrel as against US$ 6 per barrel in the corresponding period of the previous year.

India's largest oil exploration firm by sales Oil & Natural Gas Corporation (ONGC) advanced 1.14% after Chairman R.S. Sharma said the company has suggested government for a two-for-one share split ahead of a follow-on share sale. Meanwhile, ONGC is reportedly negotiating with global energy giant ExxonMobil's Angolan arm to buy its 25% stake in an oil field for about $2 billion.

Banking stocks on a roll following robust earnings from ICICI Bank. India's largest private sector bank by net profit ICICI Bank jumped 5.97% to Rs 1231, after striking a 52-week high of Rs 1248 in intra-day trade today, 1 November 2010. It was the top gainer from the Sensex pack.

The stock extended Friday's 6.54% surge after reporting a 21.87% rise in consolidated net profit to Rs 1394.94 crore on 0.91% increase in total income to Rs 14595.85 crore in Q2 September 2010 over Q2 September 2009. The result was declared during market hours on Friday, 29 October 2010.

India's second largest private sector bank by net profit HDFC Bank surged 3.04%. 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 19 October 2010.

India's largest bank by net profit and branch network State Bank of India gained 1.42%. The bank raised its Base Rate by 10 basis points to 7.60% per annum (pa) effective 21 October 2010.

India's top small car maker by sales Maruti Suzuki India lost 2.74% and was the top loser from the Sensex pack. Net profit rose 4.95% to Rs 598.24 crore on 26.79% rise in net sales to Rs 8977.37 crore in Q2 September 2010 over Q2 September 2009. The result was declared on Saturday, 30 October 2010.

A foreign brokerage downgraded the Maruti Suzuki India stock to neutral from outperform, following a strong run-up in stock price over the past few months. The company during market hours today said total sales rose 39.2% to 1.18 lakh vehicles in October 2010 over October 2009.

India's largest bike maker by sales Hero Honda Motors slid 1.37% after net profit declined 15.33% to Rs 505.60 crore on 11.66% rise in net sales to Rs 4511.29 crore in Q2 September 2010 over Q2 September 2009. The result was declared after market hours on Friday, 29 October 2010.

India's largest tractor maker by sales Mahindra & Mahindra spurted 4.65% as auto sales rose 34% to 34,495 units in October 2010 as against 25,670 units during October 2009.

India's biggest commercial vehicles maker by sales Tata Motors gained 0.94%. The company unveils its Q2 September 2010 results on 9 November 2010.

Software stocks rose on fresh buying, reversing Friday's fall. India's largest software services exporter by sales TCS gained 0.21%. India's second largest software services exporter by sales Infosys rose 0.84%. India's third largest software services exporter by sales Wipro advanced 0.92%.

Metal stocks staged a comeback on bargain hunting after a two-day slide, with strong Chinese manufacturing data triggering the rebound. China is the world's largest consumer of copper and aluminum. Tata Steel, Hindalco Industries, Sterlite Industries, Sesa Goa and Hindusstan Zinc rose by between 0.45% to 2.5%.

State-run oil marketing firms gained on reports the government is offering them an additional Rs 3000 crore as subsidy for the six months ended 30 September 2010 for selling fuel below cost. HPCL (up 1.94%), BPCL (up 3.25%), and Indian Oil Company (up 0.97%), gained.

Realty stocks rose on optimism of higher sales in the ongoing festive season. DLF, Indiabulls Real Estate, Godrej Properties, Unitech and HDIL by between 2.71% to 4.2%.

Cement major ACC gained 3.06% after cement production rose 15.8% to 1.98 million tonnes in October 2010 over October 2009.

Cals Refineries clocked the highest volume of 1.07 crore shares on BSE. Shree Ashtavinayak Cine Vision (53.44 lakh shares), Alok Industries (52.58 lakh shares), IT People (50.35 lakh shares) and Avon Corporation (36.91 lakh shares) were the other volume toppers in that order.

ICICI Bank clocked the highest turnover of Rs 84.56 crore on BSE.Reliance Industries (Rs 79.65 crore), Bajaj Holdings (Rs 79.65 crore), BS TRanscomm (Rs 51.66 crore) and Tata Steel (Rs 31.68 crore) were the other turnover toppers in that order.