Sensex sheds 6.5% in five days

The key benchmark indices tumbled to six-week closing lows as a sell-off accelerated in the second half of the trading session on heightened fears of a rate hike by the central bank to cool inflation. The market declined for the fifth straight day. Data showing substantial selling by foreign funds on Friday, 7 January 2011 and media reports that the proposed Goods and Service Tax (GST) will not be rolled out before April 2012 due to continued parliamentary disruption, also unnerved investors. World stocks fell on rising pressure on Portugal to seek financial help to prevent the debt crisis contagion. The BSE 30-share Sensex lost 467.69 points or 2.38%, off close to 500 points from the day's high and up close to 65 points from the day's low.



From a seven-week closing high of 20,561.05 on 3 January 2011, the Sensex has lost 1,336.93 points or 6.5%, in five trading sessions.

Coming back to today's trade, the market breadth was weak. Index heavyweight Reliance Industries slumped over 3%. But, another index heavyweight Infosys rose close to 1% ahead of its Q3 December 2010 earnings on Thursday, 13 January 2011. Interest rate sensitive sectors led today's market meltdown. Banking & financial stocks declined on concern higher deposits rates may impact banks' net interest margins, thereby hurting profitability. Realty and auto stocks, too, fell.

The market was volatile. The key benchmark indices recovered soon after hitting 4-week lows at the onset of the trading session. The intraday rebound proved short-lived. The market tumbled to a fresh 4-week low in mid-morning trade. The market extended losses in early afternoon trade on fresh selling. The market once again trimmed losses in afternoon trade. A sudden slide took the market to one-month low in mid-afternoon trade. The market extended losses 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 23.16% from Friday's (7 January 2011) close of 20.82%. On Friday, the index had surged 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.

Foreign institutional investors (FIIs) sold shares worth a net Rs 964.60 crore on Friday, 7 January 2011, much higher than an outflow of Rs 213.80 crore on Thursday, 6 January 2011.

FII inflow in January 2011 totaled Rs 552.70 crore (till 7 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.

Emerging-market equity funds saw a big jump in inflows for the week ended 5 January 2011, according to fund tracker EPFR Global. For that week, flows to emerging-market equity funds totaled $3.38 billion. Flows into Asia ex-Japan equity funds hit 7-week highs. Korea equity funds had their best week in 8 months despite tension with North Korea.

But, the market sentiment has been weak off late as data showing a surge in food inflation in late December 2010 has rekindled fears of interest rate hike by the Reserve Bank of India (RBI) at a quarterly policy review on 25 January 2011. Food inflation accelerated to the highest level in more than a year in late December 2010.

The Reserve Bank of India (RBI) governor D Subbarao over the weekend said that the status quo maintained by the central bank in the policy rates at the last policy review should be interpreted only as a comma and not a full stop, suggesting further monetary tightening at the upcoming policy review meet on 25 January 2011.

Finance Minister Pranab Mukherjee, last week, 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.

The trade deficit in December 2010 narrowed to $2.6 billion from $8.9 billion in November 2010, the lowest in the last three years, trade secretary Rahul Khullar said on Saturday, 8 January 2011.

Meanwhile as per reports, the proposed Goods and Service Tax (GST) will not be rolled out before April 2012, two years after its slated implementation date, due to continued parliamentary disruption. The implementation of GST has already been postponed twice due to resistance from opposition party-ruled states and fears over state governments losing financial autonomy.

Corporate earnings for Q3 December 2010, which will start trickling this week, will set the direction for the stock 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.

European stocks edged lower on Monday, 10 January 2011, as sovereign debt worries returned to the foreground after weekend speculation that Portugal is under pressure to take a bailout. The key benchmark indices in Germany, UK and France were down by between 0.51% to 1.44%.

Sovereign debt jitters returned to the eurozone over the weekend amid reports that Portugal was under pressure from Germany to become the third member of the single currency to seek a bailout. A key test will come on Wednesday, 12 January 2011, when Portugal is due to raise up to Euro 1.25 billion in an auction of its debt.

A bailout would see Portugal join Ireland, which was rescued in November 2010 as it struggled to cover the debts of its banks, and Greece, which sought help in May 2010 after its deficit spun out of control. A Portuguese aid package could total between Euro 50 and Euro 100 billion. But, the Portuguese government hurried to deny the reports, with German authorities also claiming there was no truth to them.

A soft lead from Friday's (7 January 2011) close on Wall Street and concern about the global economy helped drag Asian stocks lower on Monday, 10 January 2010. The key benchmark indices in Singapore, Indonesia, China, South Korea and Hong Kong were down by between 0.26% to 4.21%. But, Taiwan's Taiwan Weighted index rose 0.40%. Japanese markets were shut for a holiday.

China's trade surplus narrowed further in December 2010 as the growth in imports again outpaced exports, according to official data released Monday, 10 January 2011. The country's trade balance for the month stood at $13.1 billion, shrinking sharply from November's $22.9 billion and October's $27.1 billion. Imports climbed 25.6% from the year-earlier month, higher than the 17.9% year-on-year increase recorded in China's exports.

Trading in US index futures indicated that the Dow could fall 44 points at the opening bell on Monday, 10 January 2011. US stocks declined on Friday, 7 January 2011, after a disappointing jobs report gave investors a reason to trim the market's recent strong advance. The Dow Jones Industrial Average dropped 22.55 points, or 0.2%, to 11,674.76. The S&P 500 index lost 2.35 points, or 0.2%, to 1,271.50 and the Nasdaq Composite index fell 6.72 points, or 0.3%, to 2,703.17.

In US economic data, a monthly employment data showed nonfarm payrolls rose 103,000 in December 2010 as private-sector employers added 113,000 jobs, missing economists' estimate for a gain of 150,000 jobs.

The US Federal Reserve Chairman Ben Bernanke said Friday, 7 January 2011, that the central bank remains unwaveringly committed to maintaining price stability. Bernanke added that the Fed's bond-buying program is justified because unemployment is likely to remain above 8% for the next two years and inflation will remain subdued.

Back home, the government will announce industrial output data for the month of November on Wednesday, 12 January 2011. Industrial output soared 10.8% in October 2010. 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.

Prime Minister Manmohan Singh said during the weekend that the economy is likely to grow between 9 and 10% from the next financial year that starts from 1 April 2011, after growing 8.5% in the current financial year.

The government will announce inflation data for the month of December 2010 on Friday, 14 January 2011. The benchmark wholesale-price inflation cooled to near a one-year low of 7.48% in November.

India's exports for December 2010 have registered a growth of 36.4%, the highest in 33 months, raising hopes that the country's total exports for the current fiscal will cross the set target of $200 billion. Exports in December 2010 touched $22.5 billion, while imports contracted by 11.1% to $25.1 billion, leading to a trade deficit of $ 2.6 billion, the lowest in three years. The country's exports in the April to December 2010 period stood at $164.7 billion, registering a growth of 29.5 %.

The government, last week, 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, last week, said 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.

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 BSE 30-share Sensex was down 467.69 points or 2.38% to 19,224.12, its lowest closing level since 26 November 2010. The Sensex lost 533.38 points at the day's low of 19,158.43 in late trade. The index rose 28.62 points at the day's high of 19,720.43 in early trade.

The S&P CNX Nifty was down 141.75 points or 2.4% at 5,762.85, its lowest closing level since 26 November 2010. The Nifty slipped to a low of 5,740.95 in late trade.

The market breadth, indicating the health of the market, was weak. On BSE, 2,309 shares declined while 635 shares advanced. A total of 58 shares remained unchanged.

The total turnover on BSE amounted to Rs 3504 crore almost equal to Friday's (7 January 2011) Rs 3504.37 crore.

From the 30 share Sensex pack, 28 fell and 2 rose.

The BSE Mid-Cap index fell 2.34% and outperformed the Sensex. The BSE Small-Cap index declined 2.83% and underperformed the Sensex.

All the sectoral indices on BSE were in the red. The BSE Realty index (down 3.55%), Capital Goods index (down 3.52%), Consumer Durables index (down 3.26%), the Bankex (down 3%), Oil & Gas index (down 2.99%), Power index (down 2.87%), Metal index (down 2.58%) and PSU index (down 2.46%) underperformed the Sensex.

The BSE IT index (down 0.17%), Teck index (down 0.36%), FMCG index (down 1.41%), Auto index (down 2.14%) and HealthCare index (down 2.17%) outperformed the Sensex.

India's largest software services exporter by sales Infosys rose 0.9%, in anticipation of strong quarterly earnings and on hopes for an optimistic guidance. Infosys unveils Q3 December 2010 results on Thursday, 13 January 2011.

However, other software pivotals edged lower on disappointing economic data in the US, the key market for Indian software exporters. India's third largest software services exporter Wipro fell 2.77% after the company's American depository receipt, or ADR lost 2.42% to $15.31 on the New York Stock Exchange on Friday, 7 January 2011.

India's largest software services exporter TCS lost 1.15%. The company unveils Q3 December 2010 results on 17 January 2011.

Patni Computer Systems rose 0.82% after US software firm iGate Corporation agreed to buy a majority stake in the company. Patni Computer made the announcement during trading hours today, 10 January 2011.

Index heavyweight Reliance Industries (RIL) lost 3.18% to Rs 1031.05 after gyrating between Rs 1021.35 and Rs 1070 during the day. The company is reportedly targeting a national rollout of its fourth generation or 4G broadband services on 28 December 2011 this year.

Banking and financial stocks declined on worries the central bank may hike interest rates at a quarterly policy review on 25 January 2011 to tame inflation. India's second largest private sector bank by net profit HDFC Bank plunged 5% to Rs 2154.90, with the stock falling for the second straight day. It was the top loser from the Sensex pack.

India's largest private sector bank by net profit ICICI Bank shed 3.22%, with the stock falling for the sixth straight day. India's largest bank by net profit and branch network State Bank of India fell 2% to Rs 2547.80, off sharply from day's high of Rs 2635.20.

India's leading mortgage lender by total income HDFC slumped 4.44%.

High beta capital goods pivotals declined. India's largest engineering & construction firm by sales Larsen & Toubro slumped 3.53%. The company has reportedly signed more than Rs 2500 crore worth of new projects in the Gulf region.

India's largest power equipment maker by sales Bharat Heavy Electricals declined 4.76%.

Auto stocks declined on worries higher interest rates and higher vehicle prices could dent demand for vehicles. India's top bike maker by sales Hero Honda Motors declined 3.68%. India's second largest motorcycle maker by sales Bajaj Auto fell 4.07%.

India's leading tractor maker by sales Mahindra & Mahindra skidded 1.27%. India's largest car maker by sales Maruti Suzuki India lost 1.19%. Commercial vehicle maker Tata Motors declined 0.95%.

Realty stocks collapsed on worries higher interest rates and property prices could dent demand for residential and commercial properties, which are mostly driven by financed funds. HDIL, Indiabulls Real Estate, Unitech and DLF shed by between 3.33% to 7.81%.

India's largest private sector aluminium maker by sales Hindalco fell 4.44%. The company's unit Novelis is reportedly close to selling at least a part of its Bridgnorth foil plant in Britain, which it had decided to close by the end of April 2011.

Among other metal stocks, JSW Steel, Sterlite Industrie, Jindal Steel & Power, Tata Steel, National Aluminum Company, Steel Authority of India and Hindustan Zinc fell by between 0.44% to 4.37%.

Consumer durables stocks also fell on profit taking. Blue Star, Videocon Industries, Rajesh Exports, Titan Industries and Gitanjali Gems shed by between 0.89% to 3.97%.

Comfort Intech clocked highest volume of 6.24 crore shares on BSE. Cals Refineries (1.75 crore shares), Bellary Steels (60.15 lakh shares), Alok Industries (59.41 lakh shares) and IFCI (58.77 lakh shares) were the other volume toppers in that order.

State Bank of India clocked highest turnover of Rs 249.48 crore on BSE. Va Tech Wabag (Rs 157.24 crore), Tata Steel (Rs 125.79 crore), ICICI Bank (Rs 96.47 crore) and Tata Motors (Rs 91.34 crore) were the other turnover toppers in that order.