Market extends gains for the second straight day

The key benchmark indices edged higher for the second straight day as investors resorted to bargain hunting in beaten down stocks. The BSE 30-share Sensex was up 358.69 points or 1.98%, up close to 385 points from the day's low and off close to 15 points from the day's high. The Sensex had dropped more than 11% by Wednesday's (2 February 2011) close since the beginning of 2011. The market breadth was strong. European stocks were mixed. Most Asian markets were closed for the Chinese Lunar New Year holidays.



High beta realty, metal and capital goods led the rally. Sugar stocks surged on firm global sugar prices. All the 13 sectoral indices on the BSE were in green. Software pivotals were in demand on strong economic data in the US, the key market for Indian IT firms. Most auto stocks rose on good January 2011 sales.

Index heavyweight Reliance Industries (RIL) gained more than 2%. Another heavyweight Bharti Airtel advanced over 5% while Reliance Communications recovered from record low. Engineering & construction major Larsen & Toubro surged.

The market shrugged off data showing acceleration in food inflation. Food inflation jumped to 17.05% for the week ended 22 January 2011, its highest level since 25 December 2010. Food inflation for the previous week stood at 15.57%. The fuel price index climbed 11.61%, higher that previous week's 10.87% rise. The primary articles index for the week ended 22 January 2011 rose to 18.44% from previous week's 17.26% rise.

Business activity in the country's services sector grew at a faster clip in January 2011 than in December 2010, boosted by new orders and expectations of solid growth, but costs also soared, a survey showed on Thursday, 3 February 2011. The HSBC Markit Business Activity Index, based on a survey of around 400 firms, rose to 58.1 in January 2011 after falling to 57.7 in December 2010 from November's four-month high.

On the corporate front, the results announced so far showed that the combined net profit of a total of 1,651 companies rose 22.2% to Rs 72527 crore on 20.5% rise in sales to Rs 604242 crore in Q3 December 2010 over Q3 December 2009.

There are concerns of slowdown in corporate profit growth going ahead. With the rise in key policy rates by the Reserve Bank of India (RBI) recently, interest cost will only rise in the coming quarters that could hurt earnings going forward. If raw material costs keep rising at a fast clip, companies will feel the heat of slowing sales growth and rising cost of operations that could start eating into profit growth.

Meanwhile, the stock market regulator Securities & Exchange Board of India (Sebi) in an order released late Wednesday, 2 February 2011, banned 39 entities from the market for indulging in circular trading in five stocks -- Spectacle Infotek, Goldstone Technologies, Gemstone Investments, LGS Global and Well Pack Papers & Containers. The order followed a detailed investigation in these stocks and their price movement between 2008 and 2010, the market regulator said.

Finance Minister Pranab Mukherjee on Wednesday, 2 February 2011, said stock markets have seen volatility over the past few days due to selling pressure from foreign institutional investors but the government still expects 8.5% economic growth in the current financial year ending March 2011. There could fluctuations in inflationary pressures over the next three months or so, but the overall trend for prices is to moderate, Mukherjee said. Mukherjee said on Thursday that the rise in food price index reading is part of inflationary fluctuations, referring to the latest weekly food inflation data.

The Finance Minister on Wednesday said manufacturing activity is on a strong growth path, in spite of the monthly fluctuations in the Index of Industrial Production witnessed in recent months, he said. Mukherjee also said fiscal deficit will be lower than the government's earlier projection of 5.5% for the year ending March 2011.

Foreign institutional investors (FIIs) sold shares worth a net Rs 46.10 crore on Wednesday, 2 February 2011, lower than an outflow of Rs 425.70 on Tuesday, 1 February 2011. FII outflow in the calendar year 2011 totaled Rs 6185.30 crore (till 2 February 2011). FII outflow in January 2011 totaled Rs 4813.20 crore. FIIs had bought equities worth Rs 2049.60 crore in December 2010.

The next major trigger for the stock market is Union Budget 2011-2012. Investors will watch if the Finance Minister announces measures to rein in inflation and inflationary expectations. The Finance Minister may announce a new road map for the Goods & Services Tax (GST). The original deadline of 1 April 2010 for roll-out of GST has already been missed due to the lack of consensus between the Centre and states on the issue. GST is India's most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states.

The government may also announce some populist measures in the Budget given that assembly elections are due in Kerala, Tamil Nadu, West Bengal and Assam. In all these states, the Congress is potentially looking to regain power or to retain it.

European markets edged lower on Thursday, 3 February 2011, as heightened tensions in Egypt and upcoming economic data releases prompted traders to tread cautiously. The key benchmark indices in Germany, UK and France were down by 0.12% and 1.08%.

Euro-zone debt worries resurfaced after Standard & Poor's on Wednesday, 2 February 2011, cut its rating on Ireland. Meanwhile, the European Central Bank (ECB) President Jean-Claude Trichet and officials are scheduled to meet in Frankfurt today, 3 February 2011, to discuss monetary policy. The euro region's inflation accelerated to a 2.4% annual rate in January 2011, the statistics office said in a preliminary estimate on 31 January 2011, the fastest since October 2008. Trichet said on 26 January 2011 the ECB will 'do what is necessary' to maintain price stability.

Japan's Nikkei 225 average slipped 0.25% after sluggish overnight leads from Wall Street and as renewed violence in Egypt stymied demand for riskier assets. Markets in China, Hong Kong, South Korea, Taiwan, Singapore, Malaysia, Indonesia and Vietnam were shut for the Lunar New Year holidays.

Turmoil in Egypt took center stage again amid violent clashes between pro- and anti-government demonstrators on Wednesday. Crowds, not satisfied with President Hosni Mubarak's pledge to step down from power after his term expires this fall, called for his nearly 30-year reign to end immediately.

US stocks struggled to move higher on Wednesday, 2 February 2011, as investors took a break after recent rally. The Dow Jones Industrial Average rose 1.81 points to 12,041.97. The S&P 500 fell 3.56 points to 1,304.03 and the Nasdaq declined 3.86 points to 2,321.09. A report by ADP Employer Services showed private companies in America added 187,000 jobs in January 2011, exceeding economists forecast. It is the 12th consecutive month that employers have lifted staffing levels.

US index futures were volatile. Trading in US index futures indicated that the Dow could fall 4 points at the opening bell on Thursday, 3 February 2011.

The BSE 30-share Sensex was up 358.69 points or 1.98% to 18,449.31. The Sensex gained 375.59 points at the day's high of 18,466.21 in late trade. The index fell 26.01 points at the day's low of 18,064.61 in early trade.

The S&P CNX Nifty was up 94.75 points or 1.74% to 5,526.75. The Nifty hit a high of 5,532.65 in late trade.

The BSE Mid-Cap index rose 1.09%. The BSE Small-Cap index gained 1.21%. Both these indices underperformed the Sensex.

All the sectoral indices on BSE were in green. The BSE Realty index (up 3.93%), Capital Goods index (up 2.51%), Metal index (up 2.19%) and banking sector index Bankex (up 2.04%), outperformed the Sensex.

Healthcare index (up 0.18%), FMCG index (up 0.46%), IT index (up 0.68%), Consumer Durables index (up 0.91%), Auto index (up 1.39%), Power index (up 1.61%), Oil & Gas index (up 1.66%), and PSU index (up 1.61%), underperformed the Sensex.

The market breadth, indicating the health of the market, was strong. On BSE, 1,819 shares advanced while 1,073 shares declined. A total of 96 shares remained unchanged.

The total turnover on the BSE amounted to Rs 3519 crore lower than Rs 3595.50 crore on Wednesday, 2 February 2011.

Bajaj Auto was the lone loser from the 30-member Sensex pack. India's second largest bike maker by sales lost 0.51%. Total sales rose 18% to 3.13 lakh units in January 2011 over January 2010. The company announced January sales figures during market hours on Wednesday, 2 February 2011.

Other auto stocks edged higher. India's largest bike maker by sales Hero Honda Motors gained 2.79%, recovering from Wednesday's over 5% slide. Net profit fell almost 20% to Rs 429 crore on 34.13% increase in total income to Rs 5223.69 crore in Q3 December 2010 over Q3 December 2009. The result was announced during trading hours on Wednesday, 2 February 2011.

India's top truck maker by sales Tata Motors surged 4.08%. The company announces Q3 result on Friday, 11 February 2011. The company's total sales rose 15% to 75,423 units in January 2011 over January 2010.

India's largest tractor and utility vehicles maker Mahindra & Mahindra rose 0.66%. The company announces Q3 result on Wednesday, 9 February 2011. Total sales rose 21.7% to 57,217 units in January 2011 over January 2010, aided by 21.8% growth in automotive sales to 36,718 units and 21.4% growth in tractor sales to 20,499 units.

India's largest car maker by sales Maruti Suzuki India rose 0.25%. Total vehicle sales rose 14.7% to Rs 1.09 lakh units in January 2011 over January 2010. Domestic sales rose 23.8% to 1 lakh units in January 2011 over January 2010. The company announced the monthly sales data during market hours on Tuesday, 1 February 2011.

Index heavyweight Reliance Industries (RIL) advanced 2.4% to Rs 943.50, off day's low of Rs 914.60. Reportedly, fuel exports from RIL's Jamnagar refinery doubled in January 2011 to the highest in five months, driven by a surge in diesel shipments. RIL shipped at least 1.2 million metric tonnes of fuels from Jamnagar in January, up from about 630,000 tons in December 2010.

India's top realty developer by sales DLF jumped 7.42% on reports the company plans to make an average quarterly investment of Rs 300-400 crore over the next couple of quarters to acquire land in areas such as New Gurgaon and Chandigarh to consolidate its land holding. The scrip was the top gainer from the Sensex pack.

Among other realty stock, HDIL, Indiabulls Real Estate and Unitech rose by between 2.54% to 6.37%.

India's largest engineering & construction firm by sales Larsen & Toubro surged 3.72% on bargain hunting, ending a two-day 4.28% slide. Larsen & Toubro's wholly owned subsidiary L&T Infrastructure Finance has reportedly priced its retail bond issue at 8.2% annually, and 8.3% for the cumulative option. The 10-year bonds will have a buy back option at the end of fifth and seventh years. The company will raise a maximum of Rs 400 crore through the sale which remains open between 4 February 2011 and 4 March 2011.

Among other capital goods stocks, Bhel, Praj Industries, ABB and Siemens rose by between 0.43% to 2.59%.

India's largest listed cellular services provider by sales Bharti Airtel surged 5.12%, extending Wednesday's over 2% advance, after the company before market hours on Wednesday, 2 February 2011, said underlying earnings before interest, taxation, depreciation and amortization (EBITDA) margin was sustained at 33.8% in Q3 December 2010. Bharti's consolidated net profit as per International Financial Reporting Standards declined 41% to Rs 1303 crore on 53% growth in total revenue at Rs 15756 crore in Q3 December 2010 over Q3 December 2009.

India's second largest listed cellular services provider by sales Reliance Communications rose 0.85% to Rs 118.05, recovering from a record low of Rs 114.30 hit earlier in the day.

Bank stocks saw an across the board rally on fresh buying. India's biggest commercial bank in terms of branch network, State Bank of India, rose 3.08%. India's second largest private sector bank by net profit HDFC Bank rose 2.12%. India's largest private sector bank by net profit ICICI Bank gained 2.13%.

Software pivotals were in demand on strong economic data in the US, the key market for Indian IT firms. India's third largest IT exporter by sales Wipro gained 0.99% and India's second largest software services exporter Infosys rose 0.98%.India's largest software services exporter TCS rose 0.5%.

India's largest pharma company by sales Cipla gained 1.43% ahead of its Q3 December 2010 earnings on Friday, 4 January 2011.

Sun Pharmaceuticals Industries was up 0.54% after the company's unit got US drug regulator's approval to market Galantamine hydrobromide extended-release capsules. The company made this announcement during trading hours today.

Most metal stocks rose after copper rushed towards a record high on Wednesday, nearing $10,000 a tonne before losing momentum. Three-month copper on the London Metal Exchange ended flat at $9,945 a tonne on Wednesday. It earlier hit a record of $9,988.25.

Tata Steel, Sterlite Industries, Hindustan Zinc, Jindal Steel & Power, Hindalco Industries and Steel Authority of India rose by between 1.25% to 4.62%.

National Aluminium Company rose 3.11% on reports the firm has increased the price of aluminium by nearly 5% or Rs 6,000 a tonne to about Rs 1.21 lakh a tonne effective 1 February 2011 due to firming up of global prices.

LMEX, a gauge of six metals traded on the London Metal Exchange, fell 0.10% on Wednesday, 2 February 2011.

Ambuja Cements jumped 3.75% to Rs 125.80. Net profit rose 3.8% to Rs 1264 crore on 4.4% growth in net sales to Rs 7390 crore in the year ended December 2010 over the year ended December 2009. The result was announced during trading hours today. Ambuja Cements said the cement demand-supply imbalance is set to continue for some time and there could be period market and price instability. Equally, the uptrend in in input costs currently shows no sings of abatement. Consequently, in the short term, margins may remain under pressure, the company said in a statement.

Sugar stocks extended Wednesday's gains after sugar prices in New York spiked to their highest level in more than 30 years on Wednesday, 2 February 2011, as a massive tropical cyclone slammed into the northeast coast of Australia. Shree Renuka Sugars, Bajaj Hindusthan and Balrampur Chini Mills rose by between 3.27% to 5.92%.

Cals Refineries clocked highest volume of 1.22 crore shares on BSE. Birla Power Solutions (91.52 lakh shares), Unitech (68.68 lakh shares), Apollo Hospitals (55.60 lakh shares) and DLF (52.07 lakh shares) were the other volume toppers in that order.

Apollo Hospitals clocked highest turnover of Rs 259.71 crore on BSE. Reliance Industries (Rs 171.36 crore), State Bank of India (Rs 168.79 crore), DLF (Rs 127.04 crore) and Tata Steel (Rs 112.20 crore) were the other turnover toppers in that order.

In macro news, exports in December rose an annual 36.4% to $22.5 billion, while imports for the month fell 11.1% on the year to $25.1 billion, the latest government data showed. The trade deficit in December narrowed to $2.6 billion compared with $8.9 billion in November. Exports rose an annual 29.5% to $164.7 billion in April-December 2010.

The manufacturing sector expanded at a slightly faster pace in January 2011 on the back of output and new order growth but inflationary pressures persisted, a business survey showed. The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 companies, edged up to 56.8 in January from 56.7 in December. That was the 22nd consecutive month the key index of manufacturing has been above the reading of 50 that divides growth from contraction.

To control surging inflation, the Reserve Bank of India (RBI) at its quarterly policy review on 25 January 2011 raised repo rate by 25 basis points to 6.5% and the reverse repo rate by 25 basis points to 5.5%. Repo rate is the rate at which the RBI lends money to banks. Reverse repo is the rate at which RBI borrows funds from banks. The central bank held the cash reserve ratio steady at 6%.

"As high food inflation persists, the prospect of it spilling over to the general inflation process is rapidly becoming a reality," Reserve Bank of India (RBI) Governor Subbarao said in the policy document released on Tuesday, 25 January 2011. The RBI lifted its headline inflation projection for March 2011 to 7% from 5.5% previously. The RBI stuck with its 8.5% GDP growth forecast for the current fiscal year, but with an upside bias.

The combined risks from inflation, the high current account deficit (CAD) and fiscal situation contribute to an increase in uncertainty about economic stability that consumers and investors will have to deal with, RBI said. To the extent that this deters consumption and investment decisions, growth may be impacted. While slower growth may contribute to some dampening of inflation and a narrowing of the CAD, it can also have significant impact on capital inflows, asset prices and fiscal consolidation, thereby aggravating some of the risks that have already been identified, it said.

Capital flows, which so far have been broadly sufficient to finance the CAD, may be adversely affected, the RBI said. Faster than expected global recovery may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India. This may increase the vulnerability of India's external sector. Hence, the composition of capital inflows needs to shift towards longer-term commitments such as foreign direct investment (FDI), the RBI said.