Hero Honda soars as fears of higher royalty payment ebb

Volatility was the order of the day as the key benchmark indices gave up almost all the intraday gains after striking two-week highs. The barometer index BSE Sensex closed with small gains while S&P CNX Nifty closed a tad lower. The Sensex fell below the psychological 20,000 mark, soon after crossing that level in mid-afternoon trade. Interest rate sensitive banking and realty stocks declined. IT, auto and metal stocks gained. Infosys and TCS hit record highs. Index heavyweight Reliance Industries (RIL) pared gains in volatile trade. The market breadth was positive.



Two-wheeler major Hero Honda Motors jumped 18% after the company said that royalty payment to Japan's Honda Motor will go down from January 2011. The BSE 30-share Sensex was up 24.03 points or 0.12% up close to 180 points from the day's low and off close to 115 points from the day's high.

The market edged lower in early trade as Asian stocks fell on geopolitical in tension in the Korean peninsula and on continued worries over Europe's sovereign debt woes. The market cut losses in morning trade on reports North Korea has agreed with US troubleshooter Bill Richardson to allow United Nations' nuclear inspectors to return to North Korea as part of a package of measures to ease tensions on the Korean peninsula. The Sensex hit a fresh intraday high in mid-morning trade. The recovery gathered further steam in early afternoon trade. The market moved into positive zone later. The market extended gains to hit fresh intraday high in mid-afternoon trade. The market gave up most of the intraday 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, was up 2.67% at 20.78. The index had lost 5.51% to 20.24 on Thursday, 16 December 2010. The index had lost 0.19% to 21.42 on Wednesday, 15 December 2010. The index had lost 4.92% to 21.46 on Tuesday, 14 December 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.

Reports of higher advance tax payment by Indian firms for the third installment of 15 December, supported stocks. As per reports, top Indian firms have paid 15-20% higher tax for the third quarter of the current financial year. Except for cement companies, firms in all the sectors such as banking, auto and pharma have paid more advance tax than last year. Top private sector players such as Reliance Industries, the Tata group companies and the AV Birla group saw a sharp surge in the third installment of advance taxpayment.

Meanwhile, the initial public offering (IPO) of state-run Punjab & Sind Bank was subscribed a staggering 50.75 times. The IPO got bids for 202.98 crore shares, compared with 4 crore shares on offer. The issue closed on Thursday, 16 December 2010.

Prime Minister Manmohan Singh today, 10 December 2010, predicted that the annual headline inflation would ease to 5.5% by end-March 2011. The headline inflation eased to a 12-month low of 7.48% in November 2010. In an address to the ruling Congress party, Singh said he expected economic growth to reach 9-10% in 2011, as per agency reports.

Investors are closely watching political developments after reports of a strain in relations between the Congress party and Mamata Banerjee's Trinamul Congress, a regional party in West Bengal. The Trinamul Congress has called a meeting of party's core committee on Monday, 20 December 2010, to discuss relations with the West Bengal state Congress after Congress leaders stayed away from a railway programme in Murshidabad last week. Reports suggest that Trinamul Congress chief Mamata Banerjee wants to hold talks with Congress chief Sonia Gandhi before taking any final decision on the alliance. Trinamul Congress is a part of the Congress-led United Progressive Alliance (UPA) government at the Centre.

While addressing a media conference on late last week, Mamata had expressed her dissatisfaction over the fact that the Congress has made no effort to contain the ongoing political violence in Bengal despite several nudges from the Trinamool Congress. Assembly elections will held in West Bengal next year.

Emerging market equity funds extended their inflow streak to 29 weeks, but they took in just $792.9 million, much less than the year-to-date weekly average of $1.8 billion, the latest data from global fund tracker EPFR Global showed. The latest figures are for the week ended 15 December 2010. China equity funds posted their biggest weekly outflow since early May 2010, according to the fund tracker. South Korea equity funds posted their third straight week of outflows oncontinued uneasiness about geopolitical tensions in the region.

European stocks extended their gains on Monday, with a key index hitting a two-year high, led by mining stocks on the back of buoyant metal prices. The key benchmark indices in France, Germany and UK were up by between 0.54% to 1.08%.

European stocks shrugged euro-zone debt worries. Moody's Investors Service on Friday, 17 December 2010, downgraded Ireland's rating to Baa1 from Aa2.

Asian stocks came off lows on reports North Korea has agreed with US troubleshooter Bill Richardson to allow United Nations' nuclear inspectorsto return to North Korea as part of a package of measures to ease tensions on the Korean peninsula. South Korea's Kospi ended 0.3% lower at 2,020.28, well off the day's lowest point at 1,996.44. The key benchmark indices in Hong Kong, Indonesia, Japan, Singapore and Taiwan were down by between 0.33% to 0.85%. China's Shanghai Composite ended 1.41% lower.

Tensions on the Korean peninsula had heightened after South Korea said on Monday that it will push ahead with artillery exercises. The drill was to be conducted from an island in the Yellow Sea thatNorth Korea shelled last month. North Korea has said it would retaliate against any such South Korean exercise. The United Nations Security Council failed Sunday to reach agreement on a statement to tamp down tensions and avert further conflict.

The South Korean defense ministry said that the drills had begun. The tests began at 2:30 p.m. local time, according to reports, which said there was no immediate response by North Korea to the test firing. North Korea had previously warned South Korea against such an action, saying that it would react with a self-defensive response that would be stronger than its attack on the South Korean island on 23 November 2010.

Trading in US index futures indicated that the Dow could gain 23 points at the opening bell on Monday, 20 December 2010.

The latest data showed US jobless claims dipped for a second week, suggesting growth in the labor market, but data on home construction showed that the sector remains stressed even as the economy shows signs of a pick up.

Back home, the Reserve Bank of India (RBI) on Thursday, 16 December 2010 announced measures to ease liquidity crunch in the banking system while keeping the key policy rates unchanged after a mid-quarter policy review. The RBI reduced the statutory liquidity ratio (SLR) of scheduled commercial banks (SCBs) from 25% of net demand and time liabilities (NDTL) to 24%, with effect from 18 December 2010. The central bank also said it will conduct open market operation (OMO) auctions for purchase of government securities for an aggregate amount of Rs 48000 crore in the next one month. These two measures are expected to inject liquidity on an enduring basis of the order of Rs 48000 crore, the RBI said after the mid-quarter policy review.

The RBI said the underlying growth momentum of the Indian economy remains strong. Even as inflation has moderated, it remains significantly above the comfort level of the RBI, the RBI said in a statement. Moreover, risks to inflation remain on the upside, both from domestic demand and higher global commodity prices, the RBI said. There is, therefore, a need forcontinued vigilance on theinflation front against the build-up of demand side pressures. The RBI had earlier projected 5.5% inflation by March 2011.

A major challenge for the RBI in the recent period has been liquidity management. It is the RBI's endeavour to alleviate the liquidity pressure in a manner consistent with themonetary policy stance of containing inflation and anchoring inflationary expectations, the RBI statement said.

The RBI said its latest measures will release sizable primary liquidity into the system. These measures will reduce the liquidity deficit in the system close to the comfort zone of the Reserve Bank of India , it said. The liquidity easing measures will help stabilise interest rates in the overnight inter-bank market closer to the operative policy rate of the Reserve Bank of India, it said.

The BSE 30-share Sensex was up 24.03 points or 0.12% to 19,888.88. The Sensex rose 141.31 points at the day's high of 20,006.16 in mid-afternoon trade, its highest since 7 December 2010. The index lost 153.73 points at the day's low of 19,711.12 in early trade.

The S&P CNX Nifty was down 1.70 or 0.03% to 5,947.05. The Nifty hit high of 5,985 in mid-afternoon trade, its highest since 7 December 2010.

The BSE Mid-Cap index underperformed the Sensex, falling 0.13%. The BSE Small-Cap index outperformed the Sensex, rising 0.4%.

Sectoral indices on BSE were mixed. The BSE Auto index (up 2.3%), IT index (up 1.73%) and Teck index (up 0.85%), outperformed the Sensex.

Banking sector index Bankex (down 1.39%), Realty index (down 1.37%), Healthcare index (down 0.85%), PSU index (down 0.8%), Power index (down 0.71%), Consumer Durables index (down 0,53%), Oil & Gas index (down 0.27%), Capital Goods index (down 0.13%), FMCG index (up 0.04%), Metal index (up 0.11%) underperformed the Sensex.

The market breadth, indicating the overall health of the market was positive. On BSE, 1,531 shares rose while 1,369 shares fell. A total of 90 shares remained unchanged. The breadth was much stronger in early afternoon trade.

Among the 30-member Sensex pack, 18 fell while the rest rose.

BSE clocked turnover of Rs 3136 crore, lower than Rs 4093.41 crore on Friday, 16 December 2010.

Index heavyweight Reliance Industries (RIL) gained 0.16% at Rs 1057.45. The stock was volatile. It hit high of Rs 1068 and low of Rs 1041.05. As per reports, the company has paid advance tax Rs 1100 crore in Q3 December 2010 compared with Rs 830 crore in Q3 December 2009.

Oil & Natural Gas Corporation fell 1.82% after the stock turned ex-dividend today, 20 December 2010, for a special interim dividend of Rs 32 for the year ending March 2011.

PSU OMCs fell on reports a ministerial panel to discuss a rise in diesel prices is unlikely to meet on 22 December 2010. PSU OMCs had, last week, raised petrol prices by almost Rs 3 per litre. BPCL, HPCL and Inian Oil Corporation fell by between 0.93% to 2.68%. The government has already decontrolled petrol prices but pricing of diesel, kerosene and LPG is still under government control.

IT stocks reversed initial losses on recent positive economic data in the US, the key market for Indian IT firms. India's third largest IT exporter by sales Wipro rose 1.75%, reversing initial losses. The company said on 10 December 2010, that it won a 5-year outsourcing contract from Vasan Eye Care. Financial details of the contract were not disclosed.

India's largest software company by sales TCS rose 2.27%, reversing initial losses. The stock hit record high of Rs 1174.50 today. The company announced during market hours on Thursday, 16 December 2010 that Indian Bank selected the company for its financial inclusion solution project. TCS paid Rs 270 crore in advance tax Q3 December 2010 compared with Rs 177 crore in Q3 December 2009.

India's second largest software company by sales Infosys rose 1.78%. The stock hit record high of Rs 3,363 today.

Two-wheeler major Hero Honda Motors jumped 17,99%, after the company said that royalty payment to Japan's Honda Motor will go down from January 2011. The stock was the top gainer from the Sensex pack. Currently, Hero Honda pays 2.6% of sales as royalty charges to Honda. Earlier unconfirmed reports had speculated that royalty payments could shoot up to 8% of sales, which caused the stock's recent underperformance.

The Hero Group, on 16 December 2010, announced that it will buyout the entire 26% stake of its Japanese partner Honda Motor Company Group in Hero Honda Motors. Without disclosing the size of the deal, Hero Honda Motors stated that the decision to restructure the equity has been reached in a cordial and amicable manner.

Hero Honda will continue to produce and sell the existing models, while new models would be also launched. However, all future products will be rolled out under the new licensing agreement between Hero Group and Honda. Hero Honda brand name will also be changed over time.

Other auto stocks were mixed. Tata Motors and Bajaj Auto fell 0.28% and 0.07% respectively. Maruti Suzuki India and M&M rose by between 1.8% to 2.37%

Metal stocks gained as LMEX, a gauge of six metals traded on the London Metal Exchange rose 1.01% on Friday, 17 December 2010. JSW Steel, National Aluminum Company, Steel Authority of India, JSW Steel and Jindal Steel & Power advanced by between 0.66% to 2.1%.

India's largest steel maker by sales Tata Steel added 0.86%, reversing initial losses. As per reports company is in talks to sell its South African plant and assets to raise $150 million in cash. Standard Chartered India's investment banking team has been mandated to select the buyer.

As per a separate report, Tata Steel is contemplating the possibility of bidding for Ispat Industries, as lenders to the ailing steel company attempt to recover their dues totalling about Rs 7000 crore.

Banking stocks fell as the central bank kept the door open for future interest rate increases at a policy review last week. State Bank of India, HDFC Bank, Bank of India, Punjab National Bank, ICICI Bank and Bank of Baroda shed by between 0.26% to 2.11%.

High beta realty stocks fell on continued worries that higher interest rates and higher property prices will dent demand. DLF, Indiabulls Real Estate, HDIL and Unitech fell by between 1.04% to 3.31%.

FMCG stocks declined on profit taking. ITC, Britannia Industries and Hindustan Unilever shed by between 0.07% to 1.48%.

Capital goods stocks also fell on profit taking. Larsen & Toubro, Thermax, ABB and Siemens lost by between 0.29% to 0.92%.

Shares of Claris Lifesciences settled at Rs 205.85 on BSE, a 9.71% discount to the initial public offer price of Rs 228. The stock debuted at Rs 224.40, a 1.58% discount to the initial public offer (IPO) price.

Ispat Industries clocked the highest volume of 4.84 crore shares on BSE. Claris Lifesciences (1.54 crore shares), IFCI (1.28 crore shares), Rashtriya Chemicals & Fertilisers (57.29 lakh shares) and Sanraa Media (50.23 lakh shares) were the other volume toppers in that order.

Claris Lifesciences clocked highest turnover of Rs 318.01 crore on BSE. Hero Honda Motors (Rs 298.78 crore), State Bank of India (Rs 137.13 crore), Ispat Industries (Rs 120.76 crore) and MOIL (Rs 108.27 crore) were the other turnover toppers in that order.