Market skids to three-week low on fears of monetary tightening from RBI

The key benchmark indices suffered a severe setback, sliding for the fourth day in a row, on rising fears of an interest rate hike by the central bank at a policy review scheduled later this month to cool inflation. The barometer index BSE Sensex and the 50-unit Nifty tumbled to their lowest level in three weeks. European and most Asian markets declined as caution prevailed ahead of the key US non-farm payrolls data later in the global day. The BSE 30-share Sensex was down 492.93 points or 2.44% to 19,691.81, off 518.81 points from the day's high and up 62.59 points from the day's low. The Sensex and the 50-unit S&P CNX Nifty fell below the psychological 20,000 and 6,000 levels, respectively.



The market breadth was weak. All the components from the 30-member Sensex pack declined. Today's decline was broad-based with all the 13 sectoral indices on the BSE edging lower. Shares from the auto, metal and IT pack were the worst hit in today's market meltdown. Index heavyweight Reliance Industries (RIL) and Bharti Airtel dropped. Infosys Technologies retreated from record high.

The market came off lows in early trade as Japanese and Chinese stocks recovered from early losses. The Sensex moved into the green from red. The market once again slipped into the red later. The market extended losses to touch fresh intra-day low in mid-morning trade. The market came off lows in early afternoon trade. Volatility was extended in afternoon trade. The market slumped to a fresh intraday low in mid-afternoon trade. Intense selling pressure gripped the bourses 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, surged to 20.82% from Thursday's (6 January 2011) close of 18.20%. 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 market sentiment was weak as data showing a surge in food inflation in late December 2010 rekindled fears of interest rate hike by the Reserve Bank of India (RBI). Food inflation accelerated to the highest level in more than a year in late December 2010. The food price index rose 18.32% and the fuel price index climbed 11.63% in the year to 25 December 2010. Annual food and fuel inflation stood at 14.44% and 11.63% respectively in the prior week. The primary articles price index was up 20.20% in the latest week, compared with an annual rise of 17.24% a week earlier. The data was unveiled during trading hours on Thursday, 6 January 2011.

Finance Minister Pranab Mukherjee on Thursday, 6 January 2011, asked the state governments to remove supply chain bottlenecks at the earliest in the food sector to bring prices down quickly, even as food inflation accelerated to a one year high. Mukherjee also said a large part of the price rise is due to the widening gap between wholesale and retail prices in fruits, vegetables, milk and meat.

Foreign institutional investors (FIIs) sold shares worth a net Rs 213.80 crore on Thursday, 6 January 2011, which was higher than an outflow of Rs 92.40 crore on Wednesday, 5 January 2011.

FII inflow in January 2011 totaled Rs 1517.30 crore (till 6 January 2011). FIIs had bought equities worth Rs 2049.60 crore in December 2010. FII inflow in the calendar year 2010 totaled Rs 133266 crore. In dollar terms the net equity inflow in 2010 totaled $29.36 billion, compared to an inflow of $17.45 billion in 2009. The annual inflow in 2010 was at record level.

European stocks fell in volatile trading on Friday, 7 January 2011, as investors awaited US labor-market data due later in the session for more clues on the state of the American labor market. The key benchmark indices in UK, Germany and France were down by between 0.25% to 0.65%.

Expectations for the US job data are high after a report earlier this week showed a surge in private-sector employment in December 2010. Economists are expecting addition of 175,000 non-farm jobs in December 2010. The unemployment rate is projected to remain unchanged at 9.8%.

Germany's exports rose 0.5% and imports rose 4.1% in November compared with October, according to data released Friday and adjusted for calendar and seasonal effects.

Most Asian stocks fell on caution ahead of US non-farm payrolls data later in the day. The key benchmark indices in Indonesia, Hong Kong, Singapore and Taiwan were down by between 0.42% to 2.81%.

Japanese and Chinese stocks recovered from early losses. The Nikkei 225 average ended 0.11% higher and the Shanghai Composite ended 0.52% higher on gains in financials. South Korea's Kospi was up 0.41%.

China's business confidence index rose to 137 in the fourth quarter of 2010 from 135.9 in the third quarter, the National Bureau of Statistics said on Friday. The index has been climbing steadily after hitting an eight-year low of 94.6 in the last quarter of 2008 in the wake of the global financial crisis.

Trading in US index futures indicated that the Dow could fall 14 points at the opening bell on Friday, 7 January 2011. US stocks had a mixed session on Thursday, 6 January 2011, with the Dow Jones Industrial Average posting its first down session of the year as retail and telecommunications shares lagged and euro-zone debt worries resurfaced. The Dow lost 25.58 points, or 0.22%, to 11697.31. The Nasdaq Composite edged up 7.69, or 0.28% to 2709.89 and the S&P 500 shed 2.71, or 0.21%, to 1273.85.

Back home, corporate earnings for Q3 December 2010, which will start trickling in from the second week of January 2011, will set the direction for the market in the near term. Analysts see corporate profit margins to be under pressure in the coming months due to higher commodity prices, rising cost of debt, surging wages and increased competitive intensity across sectors. IT bellwether Infosys kickstarts the earnings reporting season on 13 January 2011.

The government on Wednesday, 5 January 2011, deferred a decision to free the prices of urea for now and bringing it under the Nutrient Based Subsidy (NBS) policy regime even as a panel of secretaries has been asked to work out a viable model for decontrolling the prices.

Union petroleum and natural gas minister Murli Deora on Wednesday, 5 January 2011, reportedly said that his ministry was not in favour of raising diesel and cooking gas prices despite a spurt in global prices of crude oil.

Growth in India's service sector eased in December 2010 from a four-month high the previous month, reflecting a slightly slower expansion in new business, a recent survey showed. The HSBC Markit Business Activity Index, based on a survey of around 400 firms, fell to 57.7 in December 2010 from 60.1 in November 2010 -- its strongest reading since July 2010. Both input and output prices rose in December 2010, with the growth in input costs accelerating to its highest levels since July 2010.

Exports in November 2010 rose an annual 26.5% to $18.9 billion, while imports for the month grew 11.2% on the year to $27.8 billion, government data released early this week showed. India's trade deficit in November narrowed to $8.9 billion compared with $9.7 billion in October.

India's manufacturing activity continued to expand in December 2010, although the momentum from the prior month eased because of capacity constraints and a slowdown in new orders, a survey by HSBC showed early this week. The monthly purchasing managers' index eased to 56.7 from November's reading of 58.4, though it stayed well ahead of the threshold of 50, which separates expansion from contraction. "The PMI numbers show that the economy remains in high gear, but that this is becoming increasingly difficult to reconcile with a comfortable level of inflation," HSBC economists wrote in a statement. India's central bank, they wrote, may raise interest rates sooner rather than later to curb price increases.

The output of six key infrastructure sectors grew 2.3% in November 2010 from a year ago, the slowest pace in the last 21 months, raising the prospects of a drop in industrial growth for the month. The six core industries -- crude oil, petroleum refining, coal, electricity, cement and finished steel, have a combined weight of 26.7% in the index of industrial production and are considered an advance indicator of industrial activity. These sectors had grown an upwardly revised 8.6% in October 2010.

The BSE 30-share Sensex was down 492.93 points or 2.44% to 19,691.81, its lowest closing since 15 December 2010. The Sensex lost 555.52 points at the day's low of 19,629.22 in late trade. The index rose 25.88 points at the day's high of 20,210.62 in early trade.

The S&P CNX Nifty was down 143.65 points or 2.38% at 5,904.60, its lowest closing since 15 December 2010. The Nifty hit a low of 5,883.60 in late trade.

The market breadth, indicating the health of the market, was weak. On BSE, 2,396 shares declined while 621 shares rose. A total of 65 shares remained unchanged. The breadth had moved between positive and negative zone in early trade.

The BSE Mid-Cap index fell 2.49% and the BSE Small-Cap index declined 2.86%. Both these indices underperformed the Sensex.

The total turnover on BSE amounted to Rs 3486 crore compared with Rs 3571 crore on Thursday, 6 January 2011.

All the 13 sectoral indices on BSE edged lower. The BSE Metal index (down 4.03%), the BSE Consumer Durables index (down 3.18%), and the BSE Auto index (down 3.26%), underperformed the Sensex.

The BSE Capital Goods index (down 1.55%), the BSE Oil & Gas index (down 1.44%), and the Bankex (down 1.38%) outperformed the Sensex.

All the components from the 30-member Sensex pack edged lower. Bharti Airtel (down 3.89%), Reliance Infrastructure (down 4.42%), and ITC (down 4.03%), were among the leading losers.

Metal and mining stocks slumped after global commodity prices declined on Thursday, 6 January 2011. India's largest private sector aluminium maker by sales Hindalco Industries plunged 7.36% to Rs 232.30 and was the top loser from the Sensex pack. The stock dipped on profit booking after gaining 13.31% in the past one month till 6 January 2011.

Sterlite Industries (down 4.77%), Steel Authority of India (down 3.65%) and Sesa Goa (down 3.53%), declined.

India's largest private sector steel maker by sales Tata Steel lost 3.85%. The company during maker hours today said it has inked a joint venture (JV) agreement with Nippon Steel for setting up a Rs 2300 crore specialty steel-making line having a capacity of 60,000 tonnes per annum at Jamshedpur to cater to the domestic auto sector. Tata Steel will hold 51% stake and Nippon will hold 49% stake in the JV.

Index heavyweight Reliance Industries (RIL) declined 1.66% to Rs 1066 after gyrating between Rs 1087.60-Rs 1058.10 during the day. British oil explorer Hardy Oil and Gas on Wednesday said it abandoned a well in its key D9 exploration licence in India after failing to find gas in commercial quantities. Hardy holds a 10% participating interest in the licence, which is operated by RIL and is located on the east coast of India.

India's largest oil exploration firm by sales ONGC fell 1.79%. The stock extended Thursday's (6 January 2011) over 3% decline triggered by comments from chairman R S Sharma that the company's profitability in Q3 December 2010 may be hit due to higher subsidy pay out to refiners and higher global crude oil prices.

India's largest private sector bank by net profit ICICI Bank lost 1.33% to Rs 1039.05, off day's high of Rs 1077.10. The stock extended 8% decline in the prior four trading sessions.

India's largest private sector power utility firm by sales Reliance Infrastructure (RInfra) declined 4.42%. The company during market hours today said its promoters have invested Rs 2,095 crore in the company's shares, thereby raising their stake by about 5% to 48%. This equity capital infusion will substantially enhance RInfra's net worth to Rs 23125 crore ($ 5.1 billion) on consolidated basis, and provides for increased financial flexibility, the company said in a statement.

Auto stocks extended recent losses on worries higher interest rates and higher vehicle prices could dent demand for vehicles. India's largest tractor maker by sales Mahindra & Mahindra lost 4.40%, extending three-day 2.18% slide.

India's largest car maker by sales Maruti Suzuki India fell 1.96%, with the stock falling for the third straight day.

India's top truck maker by sales Tata Motors declined 6.12%, after the company's American depository receipts, or ADR slumped 3.07% to $28.14 on the New York Stock Exchange on Thursday, 6 January 2011. The stock extended its decline for the fourth straight day today.

India's second largest motorcycle maker by sales Bajaj Auto fell 1.29%, extending a four-day 13.84% slide. The slide was triggered sequential fall in sales in December 2010. The company reported 7.69% decline in total vehicle sales to 2.76 lakh units and motorcycle sales declined 8.3% to 2.43 lakh units in December 2010 over November 2010.

India's second largest software services exporter by sales Infosys declined 2.90% to Rs 3374.90. The stock retreated after striking a record high of Rs 3493.95 in intra-day trade today. Infosys unveils Q3 December 2010 results on 13 January 2011.

State Bank of India clocked highest turnover of Rs 331.50 crore on BSE. Tata Steel (Rs 101.87 crore), Tata Motors (Rs 96.77 lakh shares), ICICI Bank (Rs 72.61 crore) and Reliance Industries (Rs 62.10 crore) were the other turnover toppers in that order.

Cals Refineries clocked highest volume of 1.75 crore shares on BSE. Sanraa Media (1.70 crore shares), Indiabulls Power (1.44 crore shares), Ravikumar Distilleries (78.24 lakh shares) and Sambhaav Media (68.12 lakh shares) were the other volume toppers in that order.

APW President Systems jumped 5% after the company said France-based Schneider Electric has signed an agreement to acquire a majority 75% stake in the company. The company made this announcement before