Market recovers from 4-month trough; ADAG stocks slump

Bargain hunting helped the market recover from a 4-month low struck in early trade even as market sentiment continues to remain edgy on sustained selling by foreign funds and fears of aggressive rate-hike by central bank to cool inflation. Caution among investors was evident in the weakness in the broader market. Engineering & construction major Larsen & Toubro skidded more than 2% as its operating margin in the third quarter this year declined to 10.8% from 12.4% in Q3 December 2009. Other capital goods stocks also declined.



Axis Bank rose after good Q3 result. Anil Dhirubhai Ambani Group (ADAG) stocks tumbled after the Securities and Exchange Board of India (Sebi) after trading hours on Friday, 14 January 2011, passed a consent order with regard to its probe into possible violation of securities market norms by Reliance Infrastructure (R-Infra) and Reliance Natural Resources (RNRL).

IT stocks surged. Realty and metal stocks fell. The BSE Mid-Cap and Small-Cap indices underperformed Sensex. The BSE 30-share Sensex was up 21.81 points or 0.12%, up close to 100 points from the day's low and off close to 140 points from the day's high.

Intraday volatility was high. The market hit its lowest level in more than 4 months in early trade as Asian stocks fell. Volatility was at the forefront in morning trade as the key benchmark indices pared gains after regaining positive terrain in early trade. The market regained strength after moving between positive and negative terrain in mid-morning trade. The market pared gains in early afternoon trade. The market surged to fresh intraday high in afternoon trade. Volatility ruled the roost as the key benchmark indices regained positive after slipping into the red for a brief period in mid-afternoon trade. The market swung between gains and losses in late trade.

The initial Q3 earnings have been a mixed bag. A day after disappointing Q3 results from IT bellwether Infosys, which also gave a muted guidance for Q4 March 2011, housing finance major HDFC came out with decent Q3 results on Friday, 14 January 2011, which also showed asset quality remain strong. Engineering & construction major L&T expects revenue growth to remain strong over the medium term on a healthy order book. Private sector bank Axis Bank has reported strong Q3 results, with asset quality remaining healthy.

Foreign institutional investors (FIIs) continue to press sales. Foreign funds sold shares worth a net Rs 694.60 crore on Friday, 14 January 2011, higher than an outflow of Rs 112.60 crore on Thursday, 13 January 2011. FII outflow in January 2011 totaled Rs 2564.50 crore (till 14 January 2011). FIIs had bought equities worth Rs 2049.60 crore in December 2010.

High food prices have raised fears of aggressive hike in policy rates by the central bank in 2011. As per a poll by Capital Market, economists widely expect 25 basis points increase each in repo rate and reverse repo rate at 25 January 2010 policy review. Reserve Bank of India governor Duvvuri Subbarao said on Monday, 17 January 2011, that the country is facing surging inflation and that the RBI needs to calibrate monetary policy in order to manage inflation and also support growth.

The wholesale price index (WPI) rose an annual 8.43% in December 2010 on higher food prices, government data showed on Friday, 14 January 2011. The annual reading for October 2010 was revised upwards to 9.12% from 8.58%. Rising food and commodity prices are major challenges facing the government, Finance Minister Pranab Mukherjee said on Friday. Finance Secretary Ashok Chawla said on Monday, 17 January 2011, inflation is expected to ease to around 6.5% by end-March 2011.