Sensex sheds 1.1% on political uncertainty, RBI's rate hike

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 in volatile trade. The BSE 30-share Sensex was down 208.82 points or 1.14% to 18,149.87, up 45.85 points from the day's low and off 204.40 points from the day's high. Nevertheless, the key benchmark indices cut intraday losses in late trade. Global cues were mixed with US index futures and European markets trading firm while Asian markets declined.



Political uncertainty weighed on the market following fresh allegations of government corruption. The opposition parties on Thursday 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 Reserve Bank of India (RBI) raised key interest rates at a mid-quarter policy review today, 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.

Eleven out of the 13-sectoral indices on BSE logged declines. The market breadth was negative. Index heavyweight Reliance Industries (RIL) lost over 1% in volatile trade. Another index heavyweight Infosys Technologies slipped close to 2%. Reliance Anil Dhirubhai Ambani (ADA) group rose on renewed buying. Metal stocks fell on concerns domestic demand may slow. Interest rate sensitive banking stocks fell after the Reserve Bank of India's rate hike. Telecom pivotals saw divergent trend.

The key benchmark indices cut initial losses as higher advance tax payment by top Indian for Q4 March 2011 hinted good Q4 March 2011 earnings. Cooling crude oil prices also aided intraday recovery from an initial slide caused by weakness in Asian markets triggered by worsening nuclear crisis in Japan. The market lost ground again as oil prices bounced back. Volatility ruled the roost as the key benchmark indices cut losses in mid-morning trade on intraday recovery as Asian markets triggered by hopes Japan's nuclear crisis is easing.

Volatility continued as key benchmark indices weakened in early afternoon trade as the Reserve Bank of India (RBI) said it will continue with its anti-inflationary stance and raised key short term rates by 25 basis points each at a mid-quarter policy review announce at 12:00 IST today, 17 March 2011. Weakness continued in afternoon trade. The market extended losses in mid-afternoon trade as crude oil prices rose. The market recovered in late trade after touching a fresh intraday low.

The BSE 30-share Sensex was down 208.82 points or 1.14% to 18,149.87. The index lost 254.67 points at the day's low of 18,104.02 in late trade. The Sensex fell 4.42 points at the day's high of 18,354.27 in mid-morning trade.

The S&P CNX Nifty was down 64.50 points or 1.17% to 5,446.65 after gyrating between 5,510.05 and 5,435.30 so far during the day.

The market breadth, indicating the health of the market, was negative. On BSE, 1652 shares declined while 1231 shares advanced. A total of 116 shares remained unchanged. The breadth oscillated between positive and negative zone earlier in the day.

The BSE Mid-Cap index slipped 0.29% and the BSE Small-Cap index declined 0.38%. Both these indices outperformed the Sensex.

Eleven out of the 13-sectoral indices on the BSE logged declines. The BSE FMCG (down 1.54%), the BSE Auto (down 1.27%), and the BSE IT (down 1.50%), underperformed the Sensex. The BSE Power (up 0.22%), the BSE Consumer Durables (up 0.08%), and the BSE Capital Goods (down 0.19%), outperformed the Sensex.

The total turnover amounted to Rs 2979 crore, lower than Wednesday's Rs 3288.25 crore.

Among the 30-member Sensex pack, 22 declined while the rest of them gained. Bhel (up 2.13%), Cipla (up 1.17%), and ONGC (up 0.35%), edged higher from the Sensex pack. HDFC (down 3.35%), ITC (down 1.34%), and Larsen & Toubro (down 1.10%), edged lower from the Sensex pack.

Index heavyweight Reliance Industries (RIL) lost 1.21% to Rs 1031.95 in volatile trade. The stock hit a high of Rs 1048.50 and low of Rs 1028.05. The company reportedly paid 37% higher tax at Rs 1054 crore in Q4 March 2011 over Q4 March 2010.

India's largest carmaker by sales Maruti Suzuki India lost 4.31% to Rs 1170.90 on concerns the nuclear crisis in Japan that followed a powerful earthquake and tsunami last week may hurt Maruti's imports from Japan. It was the top loser from the Sensex pack. Maruti Suzuki has substantial imports of raw materials from its Japanese parent Suzuki Motor. Reports indicated 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.

The Japanese yen has surged after the quake on expectations that Japanese investors will have to repatriate cash to cover the costs of the disaster. The yen today, 17 March 2011, hit a record high against the dollar. The yen has also surged against the Indian rupee after the quake, which will make imports costlier for Maruti. Maruti Suzuki imports engines and gears from Japan. It also pays royalty on sales to parent Suzuki. There are also concerns about disruption in imports of the key input from Japan after the quake.

India's second software services exporter Infosys Technologies fell 1.76% after the company's American depository receipt, or ADR fell 2.56% to $64.80 on the Nasdaq on Wednesday, 16 March 2011.

Other IT stocks also edged lower. India's largest software services exporter TCS fell 1.35% and India's third largest software services exporter Wipro shed 0.54%.

Interest rate sensitive banking stocks fell after the Reserve Bank of India's rate hike. India's largest bank by net profit and branch network State Bank of India (SBI) slipped 0.76%. The Mumbai-based custodian released on Wednesday a payment of Rs 2,195 crore, recovered from the sale of stock broker Harshad Mehta's assets to the Income Tax department and the State Bank of India. This disbursement, made against the outstanding dues of Harshad Mehta group, is the largest and one of its kind in the country.

India's largest private sector bank by net profit ICICI Bank declined 1.42%. The bank's advance tax payment reportedly rose 35% to Rs 475 crore in Q4 March 2011 over Q4 March 2010.

India's second largest private sector bank by net profit HDFC Bank slipped 0.08%. The bank's advance tax reportedly surged 80% to Rs 540 crore in Q4 March 2011 over Q4 March 2010.

While the year-on-year non-food credit growth at 23% till February 2011 remains above the RBI's indicative projection of 20% for the year ending March 2011, the pace of credit expansion has moderated since December 2010, the RBI said in its mid-quarter policy review today. Monetary transmission is increasingly visible as banks continue to raise their lending rates, it added.

Interest rate sensitive realty stocks declined as interest rates on housing loans may rise after the RBI's latest hike in policy rates. DLF (down 2.25%), Omaxe (down 2.03%), Orbit Corporation (down 0.81%), Ackruti City (down 1.55%), Indiabulls Real Estate (down 1.30%), and Unitech (down 1.43%), declined.

Metal stocks fell on concerns domestic demand may slow. Hindalco Industries (down 2.22%), Sesa Goa (down 1.48%), Tata Steel (down 0.51%), Jindal Steel & Power (down 1.37%), Nalco (down 3.39%), Hindustan Zinc (down 1.72%), and JSW Steel (down 1.57%), declined.

India's second largest listed cellular services provider by sales Reliance Communications (RCom) jumped 3.25% to Rs 106.30, extending three-day gains, after it got the company said it has draw down first tranche of Rs 3000 crore from China Development Bank underwritten facility of Rs 8700 crore. It was the top gainer from the Sensex pack.

RCom last week said it will save over Rs 500 crore in annual interest cost after securing aggregate financing of Rs 8700 crore from the Chinese bank.

Other Anil Dhirubhai Ambani (ADA) group shares rose on renewed buying. Reliance Capital rose 1.20%, extending three-day surge. The company on Monday, 14 March 2011 said Nippon Life Insurance has signed a pact to acquire a 26% stake in its life insurance venture -- Reliance Life Insurance (RLIL). Nippon Life Insurance will invest an aggregate value of Rs 3062 crore ($680 million) to acquire a 26% strategic stake in Reliance Life Insurance (RLIL). This transaction pegs the total valuation of RLIL at approximately Rs 11500 crore ($2.6 billion).

Power utility major Reliance Infrastructure rose 0.87%, extending Wednesday's 5.16% rally, after the company said it has secured a Rs 7200 crore (US$ 1.6 billion) EPC contract for the Samalkot power project.

India's largest listed cellular operator by sales Bharti Airtel shed 0.30%. As per reports, the company signed up 3.2 million mobile users in February 2011, taking its total to about 159 million.

Shares of multiplex cinema operators surged. PVR (up 4.21%), Inox Leisure (up 7.63%), Fame India (up 20%), and Reliance Mediaworks (up 2.68%), gained.

Tata Coffee was the top traded counter on the BSE with turnover of Rs 280.81 crore followed by State Bank of India (Rs 140.28 crore), Acropetal Technologies (Rs 106.27 crore), VIP Industries (Rs 86.78 cror) and Reliance Infrastructure (Rs 78.68 crore) were the other turnover toppers in that order.

Cals Refineries clocked highest volume of 1.38 crore shares on BSE. Acropetal Technologies (93.09 lakh shares), Bampsl Securities (65.96 lakh shares), Reliance Communications (65.92 lakh shares) and Fineotex Chemical (47.63 lakh shares), were the other volume toppers in that order.

The RBI today 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.

India featured among the 'least favoured' investment destinations, according to a foreign fund manager's survey. Fund managers have reduced their allocations towards emerging markets, including India, for the fourth successive month to reach the lowest level in two years, the survey said.

US crude futures were up $1.74 a barrel or 1.78% to $99.72 a barrel on hopes Japan's nuclear crisis is easing. Meanwhile in the Middle East and North Africa, fighting is continuing to intensify in Libya. The International Committee of the Red Cross reportedly withdrew from the rebel stronghold of Benghazi on Wednesday, saying it feared an imminent attack by the forces of Col. Moammar Gadhafi. India imports majority of its crude oil requirements.

Advance tax payments made by top 100 firms based in the country's financial capital --Mumbai reportedly rose by 25% in the Q4 March 2011 over Q4 March 2010, hinting robust earnings. Companies pay advance tax every quarter based on their projected income for the year. Higher advance tax collections reflect more income for firms indicating that companies' sales are growing to meet rising demand.

European markets recovered from the prior day's losses, led by gains in auto and mining stocks. The key benchmark indices in the UK, Germany and France were up by between 0.64% to 0.74%.

French Finance Minister Christine Lagarde has called for a meeting of finance ministers and central bankers from the Group of Seven (G7) advanced nations to discuss their response to the Japanese crisis.

Asian markets fell in choppy trade as Japan struggled to avert a nuclear catastrophe on Thursday, spraying water from both the air and ground on the Fukushima Daiichi nuclear plant in an effort to head off a large-scale radiation leak. The Nikkei 225 average lost 1.44%. The key benchmark indices in China, South Korea, Singapore, Indonesia, Hong Kong and Taiwan were down by between 0.50% to 1.83%. South Korea's Seoul Composite rose 0.05%.

Japan's biggest utility Tokyo Electric Power said it hopes to restore power to the quake-hit Fukushima Daiichi nuclear plant within a few hours.

Meanwhile, global ratings agency Standard & Poor's said on Wednesday Asian economies will continue to grow strongly this year even as Japan struggles with the aftermath of a devastating earthquake and tsunami.

Wall Street suffered severe cut on Wednesday after the European Union's energy chief reportedly said that the situation at a nuclear plant in Japan could get worse. The Dow Jones industrial average lost 242.12 points, or 2.04%, to 11,613.30. The Standard & Poor's 500 Index was down 24.99 points, or 1.95%, to 1,256.88 and the Nasdaq declined 50.51 points, or 1.89%, to 2,616.82.

Trading in US index futures indicated that the Dow could rise 56 points at the opening bell on Thursday, 17 March 2011.

Back home, the Union Cabinet on Tuesday, 15 March 2011, approved a bill to usher in a national goods and services tax (GST), the final step in the country's most ambitious tax reform before introducing it in parliament. The GST will cut business costs and boost government tax revenue, but will likely miss its April 2012 deadline for implementation due to resistance from several states and the Bharatiya Janata Party.