IT, bank stocks lead rally as RBI announces measures to ease cash crunch

The key benchmark indices surged in choppy trade after the central bank announced measures to ease liquidity crunch in the banking system while keeping the key policy rates unchanged. Two IT giants -- TCS and Infosys hit record highs. Index heavyweight Reliance Industries (RIL) reversed initial losses. Metal stocks also reversed initial losses. The BSE 30-share Sensex jumped 217.08 points or 1.1%, up close to 310 points from the day's low and off close to 30 points from the day's high. Hero Honda Motors jumped close to 4%. The market gained in three out of four trading sessions in a truncated week.



The market witnessed immense volatility soon after the announcement of the mid-quarter monetary policy review by the central bank in early afternoon trade. The market breadth was positive, after swinging between positive and negative zone throughout the day.

The stock market remains closed on Friday, 17 December 2010, on account of Moharum.

The Reserve Bank of India (RBI) today 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.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, was down 5.51% at 20.24. 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.

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 for continued vigilance on the inflation 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 theReserve 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.

China and India today said they were aiming to raise bilateral trade to $100 billion by 2015 from $60 billion in 2010, partly driven by greater access for Indian firms to Chinese markets. "The two sides agreed to take measure to promote greater Indian exports to China with a view to reduce India's trade deficit," a joint statement said. Chinese Premier Wen Jiabao is on a three-day visit to India.

Meanwhile, corporate India has reportedly paid 15-20% higher tax for the third quarter of the current financial year. State Bank of India paid advance tax of Rs 1850 crore in Q3 December 2010 compared with Rs 1795 crore in Q3 December 2009. HDFC Bank paid Rs 750 crore versus Rs 400 crore, ICICI Bank paid Rs 450 crore versus Rs 301 crore. The tax outgo of HDFC saw a year-on year (y-o-y ) increase of 25% from Rs 320 crore to Rs 400 crore, Punjab National Bank paid Rs 640 crore versus Rs 618 crore, RIL paid Rs 1100 crore in Q3 December 2010 compared with Rs 830 crore in Q3 December 2009. TCS paid Rs 270 crore in Q3 December 2010 compared with Rs 177 crore in Q3 December 2009.

Hindalco Industries paid Rs 200 crore against Rs 148 crore. Tata Power Company paid Rs 58 crore versus Rs 81 crore. Larsen & Toubro paid Rs 270 crore, unchanged from previous year.

M&M paid Rs 236 crore versus Rs 195 crore, Tata Motors paid Rs 220 crore versus Rs 100 crore and Bajaj Auto paid Rs 370 crore in Q3 December 2010 compared with Rs 310 crore in Q3 December 2009. FMCG major Hindustan Lever paid Rs 225 crore, marking a yo-y increase of Rs 45 crore, an increase of over 25%. Petroleum major HPCL recorded a lower tax outgo, Rs 29 crore against Rs 48 crore, a 39% decline.

Punjab and Sind Bank's Rs 480-crore initial public offer (IPO) was subscribed 47.20 times by 16:00 IST on the last day of bidding for the issue today, 16 December 2010.

Foreign institutional investors (FIIs) put in bids for 35.16 crore shares compared with 1.9 crore shares reserved for the qualified institutional buyers (QIBs) category as a whole. Domestic institutions, other than mutual funds, put in bids for 51.76 crore shares. Mutual funds put in bids for 7.53 crore shares. The bidding for the issue by QIBs ended on Wednesday, 15 December 2010.

Investors in India are also closely watching political developments as the government struggles to contain the fallout from the sale of lucrative mobile phone licences at below-market prices in 2007-08. The Central Bureau of Investigation (CBI) on Wednesday, 15 December 2010, raided 34 offices and residences of corporate lobbyist Nira Radia, former TRAI Chairman Pradip Baijal, siblings of former telecom minister A Raja and an NGO linked to DMK MP and Tamil Nadu chief minister M Karunanidhi's daughter Kanimozhi. The CBI also swooped down on the premises of Raja's auditor Subramanyam and also auditor of Ms. Kanimozhi's mother.

Kanimozhi on Thursday, 16 December 2010, sought to dispel notions that the CBI raids in the 2G spectrum scam had strained relations between DMK and the Congress and described the raids as due process of law. Meanwhile, DMK chief Karunandhi has reportedly convened a meeting of the DMK executive on Saturday, 18 December 2010, to take stock of the political situation. DMK is a part of the Congress-led United Progressive Alliance (UPA) government at the Centre. DMK has 18 MPs in the current Lok Sabha.

European stock markets moved between gains and losses on Thursday, 16 December 2010, as political leaders gathered in Brussels for a summit on the region's sovereign-debt crisis. The key benchmark indices in France and Germany fell 0.15% to 0.1% respectively. UK's FTSE 100 was flat.

Moody's Investors Service said on Wednesday it may downgrade its ratings on Spanish government debt due to the country's high demand for refinancing and its problems meeting its borrowing needs next year.

Ireland's parliament approved a multi-billion euro EU/IMF bailout package on Wednesday in the face of opposition threats to renegotiate the deal to force losses on some senior bondholders in Irish banks.

EU leaders will meet over the next two days to discuss their response to the sovereign-debt crisis, including creating a permanent crisis-resolution mechanism and potentially increasing the current bailout fund.

Asian stock markets were mixed on Thursday, 16 December 2010, amid concerns about Europe's sovereign debt problems. The key benchmark indices in China, Hong Kong, South Korea, Singapore and Indonesia fell by between 0.41% to 2.37%. The key benchmark indices in Japan and Taiwan rose by between 0.01% to 0.29%.

Standard & Poor's Ratings Services said Thursday it lifted its assessment of China's long term foreign and sovereign credit rating to "AA-" from "A+", saying the move reflects a more upbeat assessment of the nation's macroeconomic and financial stability. S&P also said it believes, after observing Beijing's track record for the last two years, that Chinese authorities could respond to future threats to financial stability "with timely measures". S&P also said it was maintaining its stable outlook on China's long term credit rating, reflecting its view of China's strong capacity to absorb potential balance sheet losses, given its substantial foreign reserves and strong fiscal position

Trading in US index futures indicated a flat opening of US stocks on Thursday, 16 December 2010. Early gains in US stocks evaporated on Wednesday, 15 December 2010, after anxiety about Europe's debt crisis overshadowed signs of growth in the US.

The United States requires a "fundamental rethink" of its tax system, and many industrialised countries will have to raise taxes above pre-crisis levels to reduce their deficits, the Organisation of Economic Co-operation and Development (OECD) said on Wednesday.

Closer home, data announced on Friday, 10 December 2010, showed industrial output in October rose a faster-than-expected 10.8% from a year earlier, higher than the previous month's annual growth of 4.4%. Manufacturing output rose an annual 11.3% in October.

Business activity in India's services sector surged to a four-month high in November 2010, driven by robust growth in new orders, a survey showed on 3 December 2010. The manufacturing activity strengthened further in November 2010 and the strong growth momentum is showing up in risinginflation pressures, according to an HSBC survey released on 1 December 2010.

Exports rose an annual 26.8% to $18.9 billion in November 2010, while imports for the month grew 11.2% on the year to $27.8 billion, as the provisional data released byTrade Secretary Rahul Khullar showed on Wednesday.

According to a mid-year review, the economy may grow by 9% during the year ending March 2011 (FY 2011). Average headline inflation is seen at 8.98% for the year, it said. The report indicated that the country's fiscal deficit will not be more than 5.5% of its gross domestic product in FY 2011.

The BSE 30-share Sensex was up 217.08 points or 1.1% to 19,864.85. The Sensex rose 249.45 points at the day's high of 19,897.22 in late trade. The index lost 93.42 points at the day's low of 19,554.35 in afternoon trade.

The S&P CNX Nifty was up 56.45 points or 0.96% to 5,948.75.

The BSE Mid-Cap index rose 0.33% and the BSE Small-Cap index rose 0.49%. Both these indices underperformed the Sensex.

The market breadth, indicating the overall health of the market was positive. The breadth swung between positive and negative terrain throughout the day. On BSE, 1,566 shares rose and 1,359 shares declined. A total of 88 shares were unchanged.

Among the 30-member Sensex pack, 21 rose while the rest fell.

BSE clocked turnover of Rs 4081 crore, lower than Rs 5085.87 crore on Wednesday, 15 December 2010.

Index heavyweight Reliance Industries (RIL) rose 0.37% to Rs 1055.80. The stock was volatile. It hit high of Rs 1059 and low of Rs 1041. 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.

ONGC rose 0.55% after the company's board approved a special interim dividend of Rs 32 per share of face value Rs 10 each for the financial year 2010-11. The board also cleared a proposal for a liberal 1:1 bonus and a 2-for-1 stock split of ONGC.

Interest rate sensitive banking stocks rose across the board, boosted by the central bank measures to ease liquidity crunch in the banking system. ICICI Bank, State Bank of India and HDFC Bank 1.8% to 2.44%.

Interest rate sensitive realty stocks rose as the central bank kept key interest rates unchanged. DLF, Ackruti City, HDIL and Unitech rose by between 1.21% to 1.98%.

IT stocks extended recent gains on positive economic data in the US, the key market for Indian IT firms. India's second largest software company by sales Infosys rose 2.77%, with the stock gaining for the fourth straight day. The stock hit record high of Rs 3,296.95 today.

India's third largest IT exporter by sales Wipro rose 2.71%, with the stock gaining for the third straight day. 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 3.56%, with the stock gaining for the third straight day. The stock hit record high of Rs 1143.40 today. The company announced during market hours today 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.

Metal stocks reversed initial losses on strong Chinese growth outlook. JSW Steel, National Aluminum Company, Hindustan Zinc, Hindalco Industries, Jindal Steel & Power, Tata Steel and Steel Authority of India rose by between 0.4% to 5.32%.

Capital goods stocks fell on profit taking. Bhel, Siemens, Larsen & Toubro, BEML and Thermax fell by between 0.41% to 1.16%.

Interest rate sensitive auto stocks were mixed after Reserve Bank of India kept interest rates unchanged. India's top small carmaker by sales Maruti Suzuki India fell 1.23%, with the stock falling for the third straight day.

Bajaj Auto fell 0.95%. As per reports, company will hike the prices of its motorcycles by up to Rs 1,000 per unit, with effect from 1 January 2011 due to rise in input costs.

India's largest tractor and utility vehicles maker Mahindra & Mahindra (M&M) fell 2.73%, with the stock falling for the fourth straight day. The company, early this month, announced strong sales for November 2010.

But, India's largest commercial vehicle maker by sales Tata Motors rose 2.1% with the stock gaining for the fourth straight day.

Hero Honda Motors jumped 3.57%. The company announced after market hours today it's board of directors approved a new licensing arrangement with Honda Motor Co, Japan concurrent with the Hero Group's proposed acquisition of Honda's 26% stake in Hero Honda Motors. This arrangement will ensure Hero Honda's growth and sustained competitiveness by giving it opportunity to develop its own R&D capabilities and exploit global export opportunities while Honda continues to provide new models. The board expressed confidence that this arrangement will provide a smooth and gradual transition to the new status of the company and additional avenues for growth.

Ispat Industries clocked highest volume of 2.54 crore shares on BSE. Sanraa Media (2.4 crore shares), Cals Refineries (1.07 crore shares), MOIL (1.01 crore shares) and Alok Industries (61.64 lakh shares) were the other volume toppers in that order.

MOIL clocked highest turnover of Rs 466.77 crore on BSE. Satte Bank of India (Rs 300.20 crore), Tata Steel (Rs 181.29 crore), ABG Shipyard (Rs 174.03 crore) and Hero Honda Motors (Rs 132.15 crore) were the other turnover toppers in that order.