Market slips as rising crude oil, Japan nuke crisis play spoilsport

The market declined last week on concerns over developments in Japan and its impact on the global recovery. The key benchmark indices, which attempted to edge higher in the beginning of the week, gave up gains as the Reserve bank of India's 25 basis point hike in key rates put pressure on the market. Even the marginal fall in weekly food inflation numbers for the first week of March was ignored by investors.



Political uncertainty in India also weighed on the market following fresh allegations of government corruption. The opposition parties on Thursday, 17 March 2011 called for the resignation of Prime Minister Manmohan Singh after a Wikileaks cable suggested the Congress party bought votes in parliament in 2008 to secure a civilian nuclear deal between India and the US, forcing adjournment of both Houses of Parliament.

The BSE Sensex fell 295.28 points or 1.62% to 17,878.81 in the week ended Friday, 18 March 2011. The S&P CNX Nifty fell 71.75 points or 1.31% to 5,373.70. The BSE Mid-Cap index fell 0.30% and the BSE Small-Cap index fell 1.29%. Both the indices outperformed the Sensex.

Food inflation eased marginally to 9.42% in the week ended 5 March 2011 from 9.52% in the previous week, data released on Thursday, 17 March 2011 showed. Inflation in fuel and power rose 3.31 percentage points to 12.79%.

The Reserve Bank of India (RBI) raised key interest rates at a mid-quarter policy review on 17 March 2011 and the central bank said it will continue with its anti-inflationary stance. The central bank also warned that continuing uncertainty about energy and commodity prices may vitiate the investment climate, posing a threat to the current economic growth trajectory.

The RBI hiked the repo rate or the short term lending rate to 6.75% from 6.50% while the reverse repo rate or the short term borrowing rate was raised to 5.75% from 5.50% to tame high inflation. The RBI left the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) unchanged at 6% and 24%, respectively. It further said that the central bank would continue with its policy to contain rate of price rise. The hike in key policy rates is likely to make loans, including housing, auto and corporate loans, dearer.

The RBI lifted the wholesale price index-based inflation forecast to around 8% for end March 2011 from 7% earlier. Further upside risks to inflation have stemmed from high international crude prices, their impact on freely priced petroleum products, the increase in administered coal prices and pick-up in non-food manufactured product prices, the central bank said.

With regard to domestic economic growth outlook the RBI said continuing uncertainty about energy and commodity prices may vitiate the investment climate, posing a threat to the current growth trajectory. In particular, the weak performance of capital goods in the index of industrial production suggests that investment momentum may be slowing down.

US crude futures were up 63 cents a barrel or 0.62% to $102.05 a barrel led by ongoing tensions in the oil-rich Gulf region and the impact from Japan's nuclear crisis. With India importing 70% of its oil requirements, surging oil prices - on escalating tensions in the Middle East - stoked concerns about faster inflation and higher interest rates.

Trading for the week began on a strong note. A decline in crude oil prices to below the psychological $100 a barrel level aided a rally on the domestic bourses on Monday, 14 March 2011. Reports that the Union Cabinet will consider a Constitution Amendment Bill on Tuesday, 15 March 2011, to pave the way for implementation of Goods and Services Tax (GST), also boosted sentiments. The GST is a major indirect tax reform. The BSE 30-share Sensex was up 265.39 points or 1.46% to 18,439.48. The S&P CNX Nifty was up 86.05 points or 1.58% to 5,531.50

Bargain hunting and cooling oil prices triggered intraday recovery on the bourses on Tuesday, 15 March 2011 after a sell-off at the onset of the trading session triggered by a worsening nuclear crisis in Japan. The BSE 30-share Sensex was down 271.84 points or 1.47% to 18,167.64. The S&P CNX Nifty was down 81.85 points or 1.48% to 5,449.65.

Expectations of decent to strong Q4 March 2011 earnings triggered a recovery on the domestic bourses on Wednesday, 16 March 2011, following reports companies across sectors have paid significantly higher tax in Q4 March 2011 compared with the year-ago period. But, the market came off the day's high as European markets reversed initial gains. The BSE 30-share Sensex was up 191.05 points or 1.05% to 18,358.69. The S&P CNX Nifty was up 61.50 points or 1.13% to 5,511.15.

Fears of further monetary tightening by the central bank to tame high inflation, firm global crude oil prices and political uncertainty combined to pull the market lower on Thursday, 17 March 2011. The BSE 30-share Sensex was down 208.82 points or 1.14% to 18,149.87. The S&P CNX Nifty was down 64.50 points or 1.17% to 5,446.65.

The key benchmark indices dropped to intraday low in late trade on rising political uncertainties and a spurt in crude oil prices on Friday, 18 March 2011. Notwithstanding a firm start, the barometer index had slipped below the psychological 18,000 mark since the mid-morning trade. The BSE 30-share Sensex was down 271.06 points or 1.49% to 17,878.81. The S&P CNX Nifty was down 72.95 points or 1.34% to 5,373.70.

Among the 30 Sensex shares, 22 fell and the rest gained.

India's largest car maker by sales Maruti Suzuki India was the biggest Sensex loser last week. The stock tumbled 7.54% to Rs 1158.30 on concerns the company's imports from Japan may get affected due to the ongoing nuclear crisis in Japan triggered by last week's earthquake and tsunami.

A strengthening of the Japanese yen against the rupee after the quake has also weighed on Maruti shares. The rupee's decline against the yen may lead to higher import costs and royalty payment costs to Maruti Suzuki. As per reports, the company had not hedged its yen exposure after 28 February 2011 as the management had expected the yen to depreciate against the US dollar.

India's largest mortgage lender by market capitalisation HDFC was the second biggest Sensex loser. The stock declined 6.01% to Rs 620.95.

India's largest aluminium maker by sales Hindalco Industries declined 4.08% to Rs 197.25. It was the third biggest Sensex loser.

ONGC (down 4.07%), Hero Honda Motors (down 3.78%), Infosys Technologies (down 3.70%), Mahindra & Mahindra (down 3.47%) and Tata Motors (down 3.41%), were the other major Sensex losers last week.

India's second largest listed telecom operator by sales Reliance Communications (RCom) was the biggest Sensex gainer last week. The stock jumped 8.52% to Rs 104.50 after the company said during market hours on 17 March 2011, it had drawn the first tranche of Rs 3000 crore out of the Rs 8700 crore or $1.93 billion facility signed with China Development Bank (CDB) recently. Balance draw-down is expected shortly, RCom said. CDB's aggregate financing of Rs 8700 crore will help RCom save over Rs 500 crore in annual interest cost, the company had said last week.

Anil Dhirubhai Ambani-controlled Reliance Infrastructure flared up 3.79% to Rs 627.55. It was the second biggest Sensex gainer. The company bagged an engineering, procurement, and construction order worth Rs 7200 crore from group company Reliance Power for the latter's 2400 megawatt gas fuelled Samalkot Power Plant in Andhra Pradesh. With this order, Reliance Infrastructure's engineering, procurement, and construction (EPC) order book stands at Rs 30700 crore.

India's largest steel maker by sales Tata Steel was the third biggest Sensex gainer. The stock rose 2.46% to Rs 596.30 on reports the company reportedly paid 92% higher advance tax at Rs 987 crore in Q4 March 2011 over Q4 March 2010. Higher advance tax payment normally indicates higher profit for the period under review.

Tata Power Company (up 2.32%), State Bank of India (up 0.74%), TCS (up 0.57%) and Jaiprakash Associates (up 0.43%), were the other major Sensex gainers.

Index heavyweight Reliance Industries (RIL) inched up 0.16% to Rs 993.15. The stock rose in the beginning of the week on reports it paid 37% higher tax at Rs 1054 crore in Q4 March 2011 over Q4 March 2010.

However, the stock tumbled 3.71% to Rs 993.15 on Friday, 18 March 2011 on reports the company's gas output from the Krishna Godavari basin may decline in the year ending March 2013 (FY 2013). As per reports, gas sales estimates from RIL's D1 and D3 fields in the Krishna Godavari (KG)-D6 basin could be as low as 38 million standard cubic meters of natural gas per day (mmscmd) in FY 2013.

However, RIL after market hours on Friday, 18 March 2011, clarified that figures in the report are purely provisional and indicative and are subject to variations based on actual operations in the future years.