Diwali bonanza for investors as Sensex strikes record closing high, Coal India soars on debut

It was a double dhamaka for stock market investors on Diwali eve. The barometer index BSE Sensex struck a record closing high and shares of state-run Coal India jumped on debut as stocks rose across the globe after the US Federal Reserve's decision to buy $600 billion in government bonds to stimulate the US economy. Good Q2 September 2010 results, sustained buying by foreign funds, and data showing easing food inflation in late October 2010, underpinned sentiment. Index heavyweight Reliance Industries (RIL) surged.



A large pent up demand in its initial public offer (IPO) sent shares of Coal India (CIL) surging on its debut on the secondary equity market today, 4 November 2010. The stock settled at Rs 342.35 on BSE, a 39.73% premium over the IPO price of Rs 245. The stock debuted at Rs 287.75, a 17.45% premium over the IPO price. The strong debut helped Coal India emerge as the fourth largest firm, with a market capitalization of Rs 216240.58 crore.

Barring the BSE Consumer durables index, all the other sectoral indices on BSE rose. The BSE 30-share Sensex was up 427.83 points or 2.09%, up close to 290 points from the day's low and off close to 20 points from the day's high. Metal, banking and auto stocks led the rally. M&M, Tata Motors and State Bank of India hit record highs. Hindalco Industries, L&T and ICICI Bank hit 52 week high. Small-cap and mid-cap indices on BSE underperformed the Sensex.

The market jumped in early trade on firm Asian stocks. The market extended gains to hit fresh intraday high in morning trade. Stocks remained firm in mid-morning trade. Firmness continued in early afternoon. The market held near the day's high in afternoon trade. The market surged to 33-1/2-month high in mid-afternoon trade as European stocks jumped in early trade. The market extended gains 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, plunged 10.08% to 19.36. 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 stock market remains closed tomorrow, 5 November 2010, on account of Diwali. But, there will be a special one hour Muhurat trading session on that day between 18:00 IST To 19:00 IST, to mark the begging of the Samavat Year 2067.

Chief Economic Adviser to the Finance Ministry Kaushik Basu today, 4 November 2010, said India needs all its options to handle a surge and volatility in inflows.

Food inflation eased for a third week in late October 2010, the latest government data showed. The food price index in the year to 23 October rose 12.85% compared with 13.75% rise in the previous week, as the prices of vegetables and pulses fell. Fuel inflation for the same period was at 10.67%, slowing from 11.25% the prior week. The primary articles price index was up 15.43%, compared with an annual rise of 16.62% a week earlier. Food makes up a little over 14% of the wholesale price index (WPI) while fuel contributes about 15%.

European shares surged on Thursday to their highest level since April 2010 after the US Federal Reserve unveiled a plan to buy government bonds to stimulate the US economy. The key benchmark indices in France, Germany and UK rose by between 1.5% to 1.81%. Banks and miners were taking the lead.

Asian stocks surged as investors took heart from the Federal Reserve's plan to buy $600 billion in government bonds in an effort to inject life into the faltering US economy. The key benchmark indices in China, Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan rose by between 0.34% to 2.17%.

Hong Kong's monetary policy chief said Thursday the Federal Reserve's fresh round of quantitative easing will add to inflationary pressures in Asia and compound difficulties in heading off price bubbles in Hong Kong's real-estate market. "The launch of QE2 would definitely add pressure to the asset markets in the emerging-market economies, including Hong Kong," Hong Kong Monetary Authority head Norman Chan told reporters. Chan said his agency would consider measures specific to the housing market, without elaborating. He said he would monitor market conditions and weigh additional measures "as appropriate."

US markets edged higher in volatile trade on Wednesday, 3 November 2010, boosted by Fed's move to buy $600 billion in bonds to stimulate the economy. The aim is to drive interest rates lower in an effort to spark spending and lending. The US central bank said it would buy about $75 billion in longer-term Treasury bonds per month through the end of June 2011 and could adjust purchases depending on the recovery.

The Fed's announcement came a day after American voters frustrated by persistent unemployment and the limp housing market handed control of the House to Representatives to Republicans and gave the party a bigger voice in the Senate. The split will probably make it harder for President Barack Obama to enact any major economic initiatives and could put more pressure on the Fed to get the wobbly economy back on firmer footing.

The Bank of Japan, which meets on Thursday and Friday, is also poised to launch a new round of bond buying. The European Central Bank and Bank of England also meet on Thursday, 4 November 2010, but are expected to leave policy on hold.

Trading in US index futures indicated that the Dow could gain 61 points at the opening bell on Thursday, 4 November 2010.

Back home, the Q2 September 2010 corporate results have been encouraging. The combined net profit of a total of 1886 firms surged 38.7% to Rs 80732 crore on 18.5% growth in sales to Rs 584998 crore in Q2 September 2010 over Q2 September 2009.

India's services sector expanded last month at a faster rate than in September 2010, bringing an end to a 3-month decline in the key business activity index, a survey showed on Wednesday, 3 November 2010. The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 56.2 in October from 55.6 in September, remaining above the 50 mark that divides growth from contraction for the 18th consecutive month.

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) at its second quarterly monetary policy review on Tuesday, 2 November 2010, hiked its lending and borrowing rates by a quarter point each, as expected, to tackle inflationary pressures. The RBI raised its repurchase or repo rate (at which it lends money to bank) to 6.25%, while increasing the reverse repurchase or reverse repo rate to 5.25%. It left the cash reserve ratio (the amount of deposits that commercial banks are required to keep with the RBI) unchanged at 6%. RBI Governor D Subbarao said that some controls on debt flows will be maintained.

The central bank signaled a pause in its policy tightening drive that began in October 2009. Based purely on current growth and inflation trends, the Reserve Bank of India (RBI) believes that the likelihood of further rate actions in the immediate future is relatively low, RBI governor D Subbarao said in a monetary policy statement on Tuesday. "However, in an uncertain world, we need to be prepared to respond appropriately to shocks that may emanate from either the global or domestic environment," he added.

The central bank said inflation is expected to moderate from the present elevated level, reflecting in parts, some easing of supply constraints and concerted policy action. The RBI said that under a new series of the wholesale price index, its projection now stands at 5.5% at end March 2011, which is equivalent to 6% under the old series. In July 2010, the RBI forecast that wholesale price index inflation was likely to ease to 6% by March 2011, under an old method of calculating price increases. The RBI also retained its gross domestic product forecast for the current financial year, ending in March 2011, at 8.5%

The central bank imposed stringent norms on housing loans by commercial banks such as increasing the risk weights, higher provisioning for teaser rate loans, among others. At present, there is no regulatory ceiling on the loan to value (LTV) ratio in respect of banks' housing loan exposures. In order to prevent excessive leveraging, RBI has proposed that the LTV ratio in respect of housing loans hereafter should not exceed 80%.

The RBI said it will continue to closely monitor both global and domestic macroeconomic conditions. "We will take action as warranted with a view to mitigating any potentially disruptive effects of lumpy and volatile capital flows and sharp movements in domestic liquidity conditions, consistent with the broad objectives of price and output stability", the policy statement said.

Demand side pressures in India have moderated due to the monetary actions that have been taken so far, Subbarao told analysts in a conference call on Wednesday, 3 November 2010. RBI deputy governor Subir Gokarn said rate actions taken so far by the Reserve Bank of India are consistent with achieving non-negative real interest rates by March 2011.

The RBI on Sunday, 31 October 2010, 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.

Foreign funds have made heavy purchases of Indian stocks this year. Net equity inflows in 2010 now stands at a record $26.75 billion, above last year's $17.45 billion.

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.

The BSE 30-share Sensex jumped 427.83 points or 2.09% to 20,893.57, a record closing high. At the day's high of 20917.03 hit in late trade, Sensex rose 451.29 points. The index rose 139.89 points at the day's low of 20,605.63 in early trade.

The S&P CNX Nifty was up 121.30 points or 1.97% to 6,281.80, its highest closing since 8 January 2008. The Nifty hit a high of 6,290.15 in late trade.

The BSE Mid-Cap index rose 0.83% and the BSE Small-Cap index rose 0.66%. Both these indices underperformed the Sensex.

Except the BSE Consumer Durables index, all the other sectoral indices on BSE rose. The BSE Oil & Gas index (up 2.77%), Metal index (up 2.27%), and banking sector index Bankex (up 2.12%), outperformed the Sensex. The BSE Auto index (up 1.67%), PSU index (up 1.66%), Realty index (up 1.59%), BSE IT index (up 1.45%), Power index (up 1.09%), Capital Goods index (up 1.07%), FMCG index (up 1.03%), Healthcare index (up 0.53%) and Consumer Durables index (down 0.1%), underperformed the Sensex.

The market breadth, indicating the health of the market was positive. On BSE, 1,555 shares rose while 1420 shares declined. A total of 107 shares remained unchanged. The breadth was much stronger earlier in the day.

Among the 30-member Sensex pack, 28 advanced while the rest of them declined.

Index heavyweight Reliance Industries (RIL) jumped 3.71% to Rs 1104.75. RIL's 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. The company announced the results late last week.

Realty stocks rose on renewed buying. Indiabulls Real Estate, Sobha Developers, HDIL, Omaxe, DLF, Unitech, and Phoenix Mills rose by between 0.59% to 3.42%.

Metal stocks gained on strong domestic demand. Sesa Goa, Nalco, Hindustan Zinc, JSW Steel, Sterlite Industries Steel Authority of India, Hindalco Industries, Jindal Steel & Power and Tata Steel rose by between 0.96% to 5.48%.

Copper maker Hindalco Industries rose 3.66% to Rs 226.30. The stock hit 52 week high of Rs 228.05 today.

Mining stocks also rose after strong listing from Coal India. Sesa Goa, NMDC, Gujarat NRE Coke and Ashapura Minechem rose by between 1.7% to 4.49%.

Auto stocks gained on expectation of strong sales during Diwali, the festival of lights. India's biggest commercial India's biggest commercial vehicles maker by sales Tata Motors rose 4.03% extending Wednesday's 2.72% surge. The stock hit record high of Rs 1240 today. Total sales rose 21.26% to 64,757 units during October 2010 compared to 53,404 units in the same month last year. The company unveils its Q2 September 2010 results on 9 November 2010.

India's largest tractor maker by sales Mahindra & Mahindra surged 2.39%. The stock hit record high of Rs 794 today. The company's auto sales rose 34% to 34,495 units in October 2010 as against 25,670 units during October 2009.

Bajaj Auto rose 1.41%. The company reported 32% surge in total sales to a 3.7 lakh units in October 2010 over October 2009. The company clocked record motorcycle and commercial vehicle sales in the recently concluded month.

Ashok Leyland rose 3.99%. The company's domestic sales fell 6.2% to 4,628 units in October 2010 over October 2009. Exports jumped 176.69% to 1,104 units.

India's top small car maker by sales Maruti Suzuki India rose 0.74%. The company's total sales rose 39.2% to 1.18 lakh vehicles in October 2010 over October 2009.

But, India's largest bike maker by sales Hero Honda Motors fell 1.32%. The company reported its highest ever monthly sales at 5,05,553 units in October 2010, registering a jump of 42.75% over the same month last year.

Bank stocks moved higher on optimism of a pick-up in credit offtake in a buoyant economy. India's largest private sector bank by net profit ICICI Bank advanced 2% with the stock gaining for the second straight day. The stock today, 4 November 2010, scaled a 52-week high of Rs 1,265.

India's largest bank by branch network and net profit State Bank of India rose 4.98%, with the stock gaining for the fourth straight day. The stock hit record high of Rs 3,450 today ahead of its Q2 result on Monday, 8 November 2010. India's second largest private sector bank by net profit HDFC Bank gained 1.14%, with the stock gaining for the fifth straight day.

PSU OMCs fell after oil prices settled higher Wednesday, hitting a fresh six-month high as the Federal Reserve's widely anticipated decision to stimulate the economy followed a bigger-than-expected decline in US fuel inventories. Light, sweet crude oil for December delivery rose 79 cents, or 0.9%, to settle at $84.69 a barrel on the New York Mercantile Exchange on Wednesday, 3 November 2010. BPCL, HPCL and Indian Oil Corporation fell by between 0.25% to 0.67%.

Higher crude oil prices will increase under-recoveries on domestic sale of diesel, kerosene and LPG at controlled prices. The Centre in June this year deregulated petrol prices. Pricing of diesel, kerosene and LPG remain under the government control.

Higher oil prices helped lift shares of oil exploration firms. Cairn India and ONGC rose 0.18% to 1.1%, respectively. Rise in crude oil prices would result in higher realizations from crude sales for oil exploration firms.

FMCG stocks rose on renewed buying. Nestle India, ITC, Hindustan Unilever, United Spirits and Dabur India rose by between 0.2% to 2.39%.

India's largest engineering and construction firm by sales Larsen & Toubro rose 1.12% to Rs 2171.25. The stock hit 52-week high of Rs 2212 today.

Among other capital goods stocks, Praj Industries, Bhel, BEML and Punj Lloyd rose by between 0.89% to 2.05%

Software stocks rose on Federal Reserve's second round of quantitative easing to stimulate US economy. US is the prime market for Indian IT firms. India's third largest software services exporter by sales Wipro gained 0.32%, with the stock gaining for the third straight day. India's largest software services exporter by sales TCS gained 1.57% with the stock gaining for the second straight day. India's second largest software services exporter by sales Infosys rose 1.73% with the stock gaining for the fourth straight day.

Coal India clocked highest volume of 19.28 crore shares on BSE. Cals Refineries (5.96 crore shares), Resurgence Mines (2.71 crore shares), Shree Ashtavinayak Cine Vision (93.48 lakh shares) and Karuturi Global (79.12 lakh shares) were the other volume toppers in that order.

Coal India clocked the highest turnover of Rs 6601.86 crore on BSE. State Bank of India (Rs 189.90 crore), Reliance Industries (Rs 116.94 crore), Tata Motors (Rs 81.68 crore) and Camson Bio Tech (78.99 crore) were the other turnover toppers in that order.