RIL, auto stocks edge higher in volatile market

The key benchmark indices edged lower in a volatile trading session, underperforming mostly higher global stocks, with bank stocks losing ground for the second day in a row. The BSE 30-share Sensex was down 46.67 points or 0.23%, up close to 110 points from the day's low and off close to 75 points from the day's high. Index heavyweight Larsen & Toubro reversed initial losses while another index heavyweight Reliance Industries (RIL) pared intraday gains. Metal and auto stocks bucked the weak market.



The market breadth was weak. Reports that the introduction of the nationwide Goods and Services Tax (GST), a major indirect tax reform proposal, could be delayed further, marred sentiment. The barometer index BSE Sensex closed below the psychological 20,000 mark after regaining that mark for a short while in early trade. The 50-unit S&P CNX Nifty also closed below the psychological 6,000 mark, after moving a tad above that mark in early trade. World stocks rose as risk appetite improved after US President Barack Obama announced an extension of Bush-era tax cuts.

Closer home, intraday volatility was high right from the onset of the trading session. The key benchmark indices swung between gains and losses in early trade. Volatility continued as key benchmark indices weakened once again, soon after recouping entire initial losses in early trade. The market held negative zone in mid-morning trade. The market came off lows in early afternoon trade, soon after hitting a fresh intraday low. The market once again came off lows in afternoon trade after hitting a fresh intraday low. The market lost ground after recovering sharply from the day's low to turn positive for a brief period in mid-afternoon trade. The market came off lows 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 down 0.67% at 19.24. The index had risen 4.14% to 19.37 on Monday, 6 December 2010. The index had lost 1.06% to 18.60 on Friday, 3 December 2010. The index had lost 2.08% to 18.80 on Thursday, 2 December 2010. The index had lost 7.29% to 19.20 on Wednesday, 1 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.

Large capital flows into India are not a matter of concern, according to a mid-year review of the Indian economy tabled by Finance Minister Pranab Mukherjee in parliament on Tuesday. Inflow of foreign funds into equities slowed sharply at the beginning of the week. Foreign funds bought shares worth a net Rs 76.90 crore on Monday, 6 December 2010, much lower than an inflow of Rs 542.20 crore on Friday, 3 December 2010.

Foreign institutional investors (FIIs) bought shares worth a net Rs 2719.70 crore in early December 2010 (till 6 December 2010). FIIs had bought shares worth a net Rs 18293.10 crore in November 2010, which was lower than an inflow of Rs 28562.90 crore in October 2010.

According to mid-year review of the Indian economy tabled by the Finance Minister Pranab Mukherjee in parliament on Tuesday 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.

Meanwhile, the introduction of the nationwide Goods and Services Tax (GST) could be delayed further with the Centre and the states failing to reach common ground at the meeting of the Empowered Committee of State Finance Ministers on Monday, 6 December 2010. The meeting was attended by only eight state finance ministers. Finance ministers of the Bhartiya Janata Party (BJP)-ruled states were not present. The issue of a constitutional amendment was not discussed and there was no headway on the GST structure, reports suggest.

The Empowered Committee will meet Finance Minister Pranab Mukherjee after the Winter Session of Parliament to discuss a constitutional amendment. The states have not reached a consensus among themselves on this issue. On the GST structure, the states seemed to lack a clear picture on issues such as threshold, exemptions, GST on inter-state movement of goods and rates, reports suggest.

European shares rose on Tuesday as US President Barack Obama's deal to extend expiring tax cuts was seen helping the US economy. Hopes that Ireland's budget plan will scrape through a crucial parliamentary vote, also aided the rally. The key benchmark indices in France, Germany and UK rose by between 1.06% to 1.92%.

Investors are keeping a close watch on whether Ireland's budget for fiscal 2011 passes smoothly later in the global day, a necessary condition to secure a bailout from the European Union and the International Monetary Fund. If Ireland's budget fails to pass for some reason, concerns over European sovereign debt may intensify again.

German Chancellor Angela Merkel on Monday dismissed calls to increase the size of the European Union's bailout fund or create European sovereign bonds.

Chinese stocks reversed initial losses after a Chinese government think-tank said on Tuesday that China's economy will probably grow about 10% in 2011, roughly level with a 9.9% pace this year even as investment slows. Hong Kong's Hang Seng ended 0.82% higher and the Shanghai Composite index ended 0.65% higher.

China's central bank may raise interest rates around the weekend to combat surging prices, the state-run China Securities Journal cited analysts as saying. China plans to release November's consumer price index on Monday, 13 December 2010. Higher rates in China could damp global share prices and increase the downside risk to economies elsewhere.

Japanese stocks fell a stronger yen weighed on exporters. The Nikkei 225 average ended 0.26% lower. In other Asian markets, the key benchmark indices in Singapore, South Korea and Taiwan rose by between 0.02% to 0.45%.

Taiwan's exports surged 22% to $24.4 billion in November amid strong demand for the island's computers and other high-tech goods. Imports for the month rose 34% from a year earlier to $24 billion, the Finance Ministry said Tuesday.

The Asian Development Bank Tuesday retained its growth estimate for 45 developing Asian economies at 7.3% in 2011, while raising its forecast for this year to 8.6%. In a report released Tuesday, the Manila institution raised its 2010 growth estimate for 45 developing nations across Asia and the Pacific from the 8.2% forecast made in September. But the ADB said the expansion rate will ease in 2011. The weaker outlook for the global economy, coupled with the phasing out of fiscal and monetary stimulus within the region, means economic growth in the region should moderate next year, it said.

Worries about Europe's debt crisis frustrated investors looking for a reason to take stocks to new highs for the year as the major indexes ended flat on Monday, 6 December 2010.

Trading in US index futures indicated that the Dow could gain 80 points at the opening bell on Tuesday, 7 December 2010.

Back home, the next major trigger for the equity market is the advance tax payment of corporates for the third installment, which falls due on 15 December 2010. The advance tax figures will provide a cue on Q3 December 2010 corporate earnings.

The recent macro economic data has been strong. 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 Friday, 3 December 2010. The HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 60.1 in November from 56.2 in October. It was the best showing for the index since July, and the 19th straight month it has remained above the 50 mark that divides growth from contraction.

The manufacturing activity strengthened further in November 2010 and the strong growth momentum is showing up in rising inflation pressures, according to an HSBC survey released on Wednesday, 1 December 2010. The HSBC Manufacturing Purchasing Managers' Index rose to 58.4 in November from 57.2 in October, the survey said.

The Indian economy grew a robust 8.9% year-on-year in Q2 September 2010, maintaining the same pace of expansion as the previous quarter, boosted by farm output and manufacturing, government data released Tuesday, 30 November 2010 showed. The manufacturing sector grew an annual 9.8% and farm output grew an annual 4.4% in Q2 September 2010. The government revised upwards the Q1 June 2010 GDP growth to 8.9% from 8.8% earlier.

Finance Minister Pranab Mukherjee recently said GDP growth would be between 8.5% to 8.75% in the current fiscal that ends in March 2011 (FY 2011). Chairman of the Prime Minister's Economic Advisory Council C. Rangarajan said the economy is expected to grow 9% in the year to March 2012 (FY 2012). Rangarajan also said the government may reassess FY 2011 growth expectations and that it was "not impossible" to reach 9% growth in the financial year.

The output of key infrastructure industries surged by a robust 7% in October 2010, against a 3.9% growth recorded in the same month last year, helped by a strong showing by the electricity, crude oil and the finished steel sectors. The latest data for the six core sector showed a sharp rebound from the output in September 2010, when growth in these sectors had slipped to 2.7%.

The latest data showed a continuation of the recent trend of easing of food inflation. The food price index rose 8.60% while the fuel price index climbed 9.99% in the year to 20 November 2010, government data on Thursday, 2 December 2010 showed. In the prior week, annual food and fuel inflation stood at 10.15% and 10.57% respectively. The primary articles price index was up 12.72% in the latest week compared with an annual rise of 13.38% a week earlier.

The BSE 30-share Sensex was down 46.67 points or 0.23% to 19,934.64. The Sensex rose 27.05 points at the day's high of 20,008.36 in early trade. The index fell 156.87 points at the day's low of 19,824.44 in afternoon trade.

The S&P CNX Nifty was down 15.70 points or 0.26% to 5,976.55. The Nifty hit high of 6,001 in early trade.

The BSE Mid-Cap index fell 1.04% and the BSE Small-Cap index fell 1.7%. Both these indices underperformed the Sensex.

BSE Oil & Gas index (up 0.91%), Metal index (up 0.69%), IT index (up 0.31%), Power index (up 0.29%), Healthcare index (up 0.28%), Teck index (up 0.27%), Capital Goods index (up 0.08%), Auto index (up 0.08%) outperformed the Sensex.

Banking sector index Bankex (down 2.86%), Realty index (down 0.93%), PSU index (down 0.68%), FMCG index (down 0.46%) and Consumer Durables index (down 0.39%) underperformed the Sensex

The market breadth, indicating the overall health of the market, was weak. On BSE, 2088 shares fell while 872 shares rose. A total of 68 shares remained unchanged.

Among the 30-member Sensex pack, 19 rose while the rest fell.

BSE clocked turnover of Rs 3612 crore, lower than Rs 3684.68 crore on Monday, 6 December 2010.

Index heavyweight Reliance Industries (RIL) gained 1.05% to Rs 1030.50, with the stock gaining for the second straight day. But, the stock came off the day's high of Rs 1039.40. The stock, however, shrugged off recent reports that the natural gas production from its East Coast block has dropped by about 15% to about 45-46 million standard cubic metres per day (mscmd) from 53-54 mscmd. The production from D-1 and D-3 gas fields in the KG-D6 block has dropped due to reservoir complexities, reports suggest.

Banking stocks fell for the second day in a row on profit taking. Among PSU banks, Bank of India, Punjab National Bank, Bank of Baroda, Union Bank of India fell by between 2.63% to 4.96%.

India's largest bank by net profit and branch network State Bank of India (SBI) fell 2.96%, with the stock falling for the fourth straight day on worries higher cost of deposits will hit net interest margins. SBI during trading hours on Monday said it has raised deposit rates by 50 to 150 basis points across various maturities with effect from Tuesday, 7 December 2010. Among all slabs, the sharpest hike is in the 46 to 90-day slab, where the bank would offer 5.50% as against 4% earlier. In case of deposits with a maturity of 181 days to less than one year, the bank will now offer 7.25% as against 6% earlier. The bank will offer 8.5% for 555-day and 1,000-day deposits.

India's largest private sector bank in terms of operating income ICICI Bank fell 3.5%, with the stock falling for the third straight day. The bank has hiked its benchmark prime-lending rate and Floating Reference Rate (FRR) for consumer loans (including home loans) by 50 basis points with effect from 6 December 2010. It has also announced an increase in interest rates for various tenors of retail fixed deposits by 25-50 basis points with effect from 6 December 2010.

India's second largest private sector bank by net profit HDFC Bank fell 1.39%, with the stock falling for the second straight day. India's top mortgage lender by total income, Housing Development Finance Corporation (HDFC), fell 0.41%. On Friday, 3 December 2010 HDFC, hiked its benchmark lending rate by a steep 75 basis points, making home loan dearer for both existing and new borrowers. With this revision, the retail prime lending rate (RPLR) goes up from 14.25% to 15%.

Microfinance institutions (MFI) are an integral part of financial inclusion in India but are currently under some stress, Reserve Bank of India Deputy Governor Subir Gokarn said on Tuesday. The MFI industry might be under little stress as the banks are finding it difficult to lend to them at this moment. But, the system as a whole is not under threat, Gokarn told reporters on the sidelines of an outreach programme on the outskirts of Kolkata.

India's largest engineering and construction firm by sales Larsen & Toubro rose 0.36% to Rs 2017.75. The stock came off the day's low of Rs 1980. The company's information technology unit L&T Infotech on Monday said it is partnering with US software major International Business Machines Corp. to offer business process management solutions. L&T Infotech will use the solutions in banking and financial services. It didn't give any financial details of the partnership.

Realty stocks fell as higher interest rates may affect demand for residential and commercial properties. Ackruti City, DLF, Indiabulls Real Estate, and HDIL fell by between 1.52% to 4.51%. But, Unitech bucked the weak trend in realty stocks, with the scrip surging 5.07% to settle at Rs 66.35.

Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange rose 0.2% on Monday, 6 December 2010. Hindalco Industries, National Aluminum Company, Hindustan Zinc, Sterlite Industries, JSW Steel rose by between 0.17% to 2.51%.

Tata Steel rose 0.73%, extending Monday's 3.38% surge after company said on Monday it viewed its stake in Africa-focused Riversdale Mining as a strategic investment and will take appropriate action as per the situation. The world's No. 7 steelmaker was responding to global miner Rio Tinto's $3.5 billion bid approach for Riversdale on Monday. Tata Steel is one of the major shareholders in Riversdale, owning about 24% in the company. Other major shareholders include Brazilian steelmaker CSN and U.S. investment firm Passport Capital.

Software stocks were mixed. India's largest software company by sales TCS fell 1.18%, with the stock snapping last three days' gains. The company announced during market hours on Friday, 3 December 2010 that the Uttar Pradesh state government has selected the company for its State Data Center project.

India's second largest software company by sales Infosys rose 0.71%, extending four-day 3.14% advance. Infosys Technologies is reportedly looking for an acquisition in the legal process outsourcing business and will consider domestic firms with a strong client base or US firms with technologies in the business.

India's third largest software company by sales Wipro rose 0.91%, extending three-day 3.93% gain.

Telecom pivotals saw divergent trend. India's largest listed cellular services provider by sales Bharti Airtel rose 1.07%. India's second largest listed cellular services provider by sales Reliance Communications fell 1.11%.

Most auto stocks rose on reports car companies plan to hike prices from 1 January 2011, which will help boost sales in December 2010. India's top small car maker by sales Maruti Suzuki India rose 1.61%.

India's largest tractor and utility vehicles maker Mahindra & Mahindra (M&M) rose 1.09%. The company, last week, announced strong sales in November 2010.

Bajaj Auto rose 1.11%. The company's total sales rose 8% to 2,99,231 units in November 2010 over November 2009. The figures were announced on Thursday, 2 December 2010.

Hero Honda Motors rose 0.76% on bargain hunting after stock fell 3.2% on Monday, 6 December 2010 on reports Honda Motor Co. has reached a basic agreement to dissolve its partnership in Hero Honda Motors. Honda will sell its entire stake in the motorcycle maker to the Hero Group's founding family -- the Munjals and investment funds by as early as March 2011, reports suggest.

An agreement whereby Honda provides technical to Hero Honda for development and production will not be renewed once the agreement ends in 2014, reports suggest. Honda and its Indian partner Hero Group will seek approval for the breakup from their respective boards of directors later this month, the report said. Honda will focus its resources on wholly owned subsidiary Honda Motorcycle & Scooter India (HMSI), reports suggest.

But, India's largest truck maker by sales Tata Motors fell 1.96%. The stock had struck a record high of Rs 1381.40 on Monday, 6 December 2010. Tata Motors reportedly plans to set up a commercial vehicles and bus building facility either in Thailand or Indonesia at a cost of about Rs 1000-1500 crore. Tata Motors' total vehicle sales rose 1% to 54,622 units in November 2010 over November 2009. The figures were announced on Wednesday, 1 December 2010.

FMCG stocks fell on profit taking. Marico, ITC, Hindustan Unilever and Dabur India fell by between 0.44% to 1.88%.

Cals Refineries clocked the highest volume of 3.68 crore shares on BSE. Karuturi Global (2.26 crore shares), Resurgence Mines (1.63 crore shares), Sanraa Media (91.60 lakh shares) and Ispat Industries (79.89 lakh shares) were the other volume toppers in that order.

State Bank of India clocked the highest turnover of Rs 305.62 crore on BSE. Tata Steel (Rs 107.56 crore), ICICI Bank (Rs 82.07 crore), Tata Motors (Rs 80.45 crore) and Reliance Industries (Rs 76.22 crore) were the other turnover toppers in that order.