Market loses ground on disappointing start to earnings season, high inflation

Data showing acceleration in headline inflation in March 2011 and IT bellwether Infosys' disappointing earnings growth forecast for the year ending March 2012 (FY 2012) erased a large part of the gains clocked by the key benchmark indices on Wednesday, 13 April 2011. The BSE 30-share Sensex was down 310.04 points or 1.57%, up close to 50 points from the day's low and off close to 315 points from the day's high. Infosys tanked 9.59% and was the top loser from the Sensex pack. Other IT stocks, too, edged lower after Infosys' disappointing earnings forecast. The market breadth was negative.




Index heavyweight Reliance Industries (RIL) came off intraday low. Bank shares dropped amid worries high inflation and rising interest rates would hurt future profits. Cigarette maker ITC hit record high on expectation of good Q4 result. Interest rate sensitive realty stocks extended past few days' losses on worries higher interest rates could dent demand for residential and commercial property. PSU OMCs and airline stocks fell on higher crude oil prices.

The market skidded in early trade on weak Q4 result reported by Infosys at the onset of the trading session. Volatility ruled the roost as the key benchmark indices extended initial losses to hit fresh intraday lows in morning trade. Weakness continued in mid-morning trade. Selling pressure aggravated as the key benchmark indices hit fresh intraday lows in early afternoon trade soon after the data showed acceleration in headline inflation in March 2011. The market soon came off lows. The market weakened again in late trade after moving in a range.

The BSE 30-share Sensex was down 310.04 points or 1.57% to 19,386.82. The Sensex skidded 359.74 points at the day's low of 19,337.12 in early afternoon trade. The index rose 4.01 points at the day's high of 19,700.96 in early trade.

The S&P CNX Nifty was down 86.95 points or 1.47% to 5,824.55.

The BSE Mid-Cap index shed 0.2% and the BSE Small-Cap index declined 0.17%. Both these indices outperformed the Sensex.

BSE clocked turnover of Rs 3738 crore, higher than Rs 3394.41 crore on Wednesday, 13 April 2011.

The market breadth, indicating the health of the market, was negative. On BSE, 1592 shares declined while 1315 shares advanced. A total of 84 shares remained unchanged. The breadth was positive earlier in the day.

Among the 30-member Sensex pack, 23 declined while the rest advanced.

Index heavyweight Reliance Industries (RIL) declined 0.32% to Rs 1018.40, off the day's low of Rs 1006.10. The company will announce its Q4 result on Thursday, 21 April 2011. After market hours on Wednesday, 13 April 2011, RIL said it has started work on large polyester projects in India to consolidate its position as the world's largest integrated polyester producer. RIL said it has planned its capacity expansion in phases over the next few years including a 2.30 million metric tonne at Dahej, Gujarat, with an ability to increase the capacity by another 1.15 million tonne at a later stage. The expansion also includes a 3.95 lakh tonne of polyester filament yarn and 1.4 lakh tonne polyester texturized yarn at Silvassa.

State-run oil marketing companies fell on higher crude oil prices. Indian Oil Corporation (down 0.95%) and Bharat Petroleum Corporation (down 0.98%) declined. Higher crude oil prices will increase under-recoveries of state-run oil marketing companies on domestic sale of diesel, LPG and kerosene at controlled prices. The government has already freed pricing of petrol.

Hindustan Petroleum Corporation shed 0.06%. The company announced during market hours today that the board has approved acquisition of balance 50% shares held by other joint venture (JV) partners in Prize Petroleum Company.

Cigarette maker ITC rose 0.79% to Rs 191.40 on expectation of good Q4 result. The stock hit record high of Rs 192.55 today.

But many other FMCG stocks fell. Marico, United Spirits, Hindustan Unilever and Dabur India fell by between 0.37% to 3.65%.

Bank shares dropped amid worries high inflation and rising interest rates would hurt future profits. BSE Bankex shed 0.95% and outperformed the Sensex. India's largest state run bank by net profit and branch network State Bank of India (SBI) declined 0.57% to Rs 2803.30, off the day's high of Rs 2849. Pratip Chaudhuri has taken over as the new chairman of State Bank of India the state-run bank said on 7 April 2011. Chaudhuri, 57, has been working with State Bank for 37 years and takes over from O.P. Bhatt. Before taking up the top role, Chaudhuri was deputy managing director in the international banking division of the bank.

India's largest private sector bank by net profit ICICI Bank fell 2.37%, after gaining 2.67% on Wednesday. The bank will announce Q4 result on 28 April 2011. India's second largest private sector bank by net profit HDFC Bank fell 0.5%, after jumping 3.3% on Wednesday. The bank will announce Q4 result on 18 April 2011.

Interest rate sensitive realty stocks extended past few days' losses on worries higher interest rates could dent demand for residential and commercial property. Sunteck Realty, Ackruti City, Orbit Corporation, DLF and Unitech shed by between 0.84% to 4.31%. Purchases of both residential and commercial property are largely driven by finance. BSE Realty index fell 1.22% and outperformed the Sensex.

Infosys slumped 9.59% as the company's earnings growth forecast for the year ending March 2012 (FY 2012) as also the Q4 March 2011 result disappointed the street. Infosys has projected 8% to 10% growth in earnings per American Depositary Share (ADS) as per International Financial Reporting Standards at $2.83 to $2.88 for the year ending March 2012 (FY 2012) over the year ended March 2011 (FY 2011). The projected growth in earnings is much lower than the projected revenue growth for the current year -- Infosys has projected 18% to 20% growth in revenue at $7.13 billion to $7.25 billion for the year ending March 2012 (FY 2012) over the year ended March 2011 (FY 2011).

The company sees 10% to 11.4% decline in non-annualized earnings per ADS at $0.62 and $0.63 in Q1 June 2011 over Q4 March 2011. The company sees 2.56% to 3.55% growth in revenue at $1.643 billion and $1.659 billion in Q1 June 2011 over Q4 March 2011.

In rupee terms, the IT bellwether has projected 5.5% to 7.3% growth in earnings per share (EPS) at Rs 126.05 to Rs 128.21 for the year ending March 2012 (FY 2012) over the year ended March 2011 (FY 2011). The company sees 11.9% to 13.29% decline in non-annualized EPS at Rs 27.59 and Rs 28.02 in Q1 June 2011 over Q4 March 2011.

Infosys has projected 15.4% to 17.3% growth in revenue in rupee terms at Rs 31727 crore and Rs 32270 for the year ending March 2012 (FY 2012) over the year ended March 2011 (FY 2011). The company sees 0.84% to 1.82% growth revenue at Rs 7311 crore and Rs 7382 crore in Q1 June 2011 over Q4 March 2011.

"We expect the demand environment to be normal this year for the industry," said Infosys CEO and Managing Director S. Gopalakrishnan. "We have created a structure with strong customer driven vertical focus and have enhanced our investment to take advantage of the opportunities we see in the market", he added. Chief Financial Officer V. Balakrishnan said, "We are seeing growth opportunities emerging in the market place. Our focus on high quality growth enables us to make the right investments to capture those opportunities." Balakrishnan said the company's margins could decline in FY 2012, mainly due to currency volatility.

Infosys and its subsidiaries added 34 clients in Q4 March 2011. There was a gross addition of 8,930 employees and net addition of 3,041 for the quarter by Infosys and its subsidiaries.

Earlier today, 15 April 2011, Infosys reported disappointing Q4 March 2011 results. It reported lower-than-expected 2.13% growth in consolidated net profit as per International Financial Reporting Standards at Rs 1818 crore in Q4 March 2011 over Q3 December 2010. Infosys' revenue rose 2.02% to Rs 7250 crore in Q4 March 2011 over Q3 December 2010. The revenue growth, too, fell short of market expectations. The result hit the market just after trading began at 9:15 IST.

The board of directors of Infosys will meet on 30 April 2011 to finalize plans for the company's leadership succession post Mr. N. R. Narayana Murthy's retirement as Chairman of the board in August 2011.

Meanwhile, T. V. Mohandas Pai, has decided to relinquish the position of Member of the Board of Infosys. The Infosys board has accepted his the resignation effective 11 June 2011, post the company's annual general meeting. Commenting on Mohandas Pai's resignation from Infosys board N R Narayana Murthy said, "Mohan has been an early adopter and a keen anchor builder of Infosys. It is difficult to imagine Infosys without Mohan's passion, commitment, joie-de-vivre and intellect. We all know that he is taking this painful decision, since he has much bigger projects in the horizon -- nation building. The Board and every Infoscion thank Mohandas Pai for his wonderful contribution and wish him great success in his future endeavors."

Most other IT stocks declined hit by Infosys' disappointing earnings guidance for FY 2012. India's largest software services exporter TCS declined 1.52%. The company will announce Q4 result on 21 April 2011. India's third largest software services exporter Wipro skidded 5.04%. The company will announce Q4 result on 27 April 2011.Tech Mahindra, Patni Computer Systems and HCL Technologies fell by between 0.54% to 3.03%. The BSE IT index declined 6.4% and underperformed the Sensex.

Most auto stocks fell on concerns higher interest rates could crimp sales of automobiles. Purchases of automobiles, including that of cars, two-wheelers, utility vehicles and commercial vehicles are substantially driven by financing. India's largest truck maker by sales Tata Motors declined 1.19% after Wednesday's 2.51% gain. The company recently said its global vehicle sales rose 1% in March 2011 to 110,785 units. Global sales of commercial vehicles grew 19% to 56,814 in March, while sales of passenger vehicles were at 53,971 units, the company said in a statement. Jaguar and Land Rover (JLR) sales rose 2% to 24,101 units, driven by an 8% rise in Land Rover sales. Tata Motors bought the British luxury brand unit JLR from Ford Motor Co for $2.3 billion in 2008.

India's top tractor and utility vehicles maker by sales Mahindra & Mahindra fell 0.6% after Wednesday's 2.59% rise. The company has reportedly raised prices on most of its models by 1.5% to 2% recently to offset higher commodity prices.

India's top small car maker by sales Maruti Suzuki fell 1.38% after Wednesday's 3.22% gain. The company will announce its Q4 result on 25 April 2011. The company had recently announced that it will recall 13,157 diesel engine cars. The company said it would inspect the 'connecting rod bolt' for units of its Swift and Ritz model diesel cars with engines manufactured between 13 November 2010 and 4 December 2010.

Maruti Suzuki increased the prices of its products by 0.2% to 2.4% from 4 April 2011, depending on the models to offset rising costs of key inputs viz. steel, aluminum, copper and natural rubber.

India's second largest bike maker by sales Bajaj Auto edged up 1.06%, extending Wednesday's 1.41% gain. The company's total vehicle sales increased 12% to 3.07 lakh units in March 2011 over March 2010. The company announced its March 2011 sales figures on 4 April 2011.

India's largest bike maker by sales Hero Honda Motors jumped 5.52%, extending Wednesday's (13 April 2011) 5.86% rally triggered by the announcement of a liberal interim dividend of Rs 70 per share for the year ended March 2011. Hero Honda's total sales rose 24.4% to 5.15 lakh units in March 2011 over March 2010. The monthly sales in March 2011 were record monthly sales.

Most metal stocks declined as LMEX, a gauge of six metals traded on the London Metal Exchange dropped 0.79% on Thursday, 14 April 2011. Jindal Steel & Power, Sterlite Industries, Nalco, Sail, Hindustan Zinc, JSW Steel and Tata steel shed by between 0.42% to 1.38%. The BSE Metal index fell 0.65% and outperformed the Sensex.

The environment ministry has reportedly put on hold a crucial forest clearance to South Korean steelmaker Posco's $12-billion steel project. The ministry has reportedly asked the Orissa state government to settle the claims of two villages affected by Posco's steel project in Orissa viz. Dhinkia and Gobindapur, before giving the forest clearance.

Cement major ACC fell 0.79% after ACC management said at the company's annual general meeting on Wednesday, 13 April 2011 that with bulk of new cement capacities coming in South India, realizations could be a problem in the Southern region. The management further said that the company has expanded its manufacturing capacity from 22 million tones to 30 million tonnes and expects its market share in cement industry to go up to 11% in 2011 from current 10.1% in 2010. The company is looking for inorganic growth opportunities and is eyeing some acquisitions. However, the management did not comment on the time-frame.

ACC said there is no plan of merging ACC and Ambuja Cements. Shares of Ambuja Cements were down 1.64%.

Airline stocks declined as a higher crude oil prices heightened worries about higher operating costs. Kingfisher Airlines and Jet Airways fell by between 1.11% to 1.21%. But, SpiceJet rose 1.37%. Jet fuel prices are linked to crude oil prices. Jet fuel constitutes 50% of the operating cost for airliners.

Casl Refineries clocked highest volume of 4.27 crore shares on BSE. Teledata Technology Solutions (1.81 crore shares), BAMPSL Securities (1.31 crore shares), Development Credit Bank (81.97 crore shares) and Alok Industries (66.12 lakh shares) were the other volume toppers in that order.

Infosys clocked highest turnover of Rs 659.46 crore on BSE. Everonn Education Systems (Rs 127.06 crore), State Bank of India (Rs 83.35 crore), Larsen & Toubro (Rs 67.92 crore) and Zuari Industries (Rs 64.57 crore) were the other turnover toppers in that order.

Indian stocks had witnessed a solid surge on Wednesday, 13 April 2011, driven higher by gains in world stocks. The BSE Sensex had risen 2.25% on that day. The stock market was closed on Thursday, 14 April 2011, on account of Dr Babasaheb Ambedkar Jayanti.

The near term major trigger for the market is Q4 March 2011 results of India Inc. Investors will scrutinize post-result management commentary to gauge outlook on earnings at a time when rising salaries, raw materials prices and interest rates are pressurizing profit margins of India Inc. High global commodity prices will add to pressure on profit margins of Indian firms.

The wholesale price index (WPI) rose 8.98% in March 2011, higher than 8.31% rise in February 2011 and also ahead of market expectations. The WPI inflation for January 2011 was revised upwards to 9.35% from 8.23%.

A surge in crude oil prices over the past few months has already sparked inflation and interest rate worries. The Reserve Bank of India (RBI) is seen raising key short term policy rates by 25 basis points at its annual 2011-2012 monetary policy review on 3 May 2011.

India imports majority of its crude oil requirements and high oil prices have raised concerns about widening current account deficit. High oil prices have also raised concerns about higher oil subsidy bill for the government and its negative impact on the government's fiscal position. US crude futures were down 6 cents or 0.06% at 108.05 a barrel.

Industrial production rose 3.6% in February 2011, lower than market expectations of a 4.8% growth, data released by the government on Monday showed. Manufacturing output, which constitutes about 80% of the industrial production, rose an annual 3.5% in February 2011. January's industrial output annual growth rate was revised upwards to 3.9% from 3.7%.

South Asia is likely to receive normal monsoon rains in 2011, a global weather forum meeting said in a statement on Friday, a data that should cheer countries such as India whose massive demand for farm goods impact international markets. The South Asia Climate Outlook Forum, which met in Pune, said La Nina weather phenomenon, which aids monsoon in the region, would continue until June.

For India, good monsoon this year could help ease food inflation and boost rural income. The India Meteorological Department (IMD) will give its first official forecast for the June to September monsoon on 19 April 2011.

India is eager to absorb foreign direct investment, Prime Minister Manmohan Singh said on Thursday in the Chinese town of Sanya in a statement at the BRICS summit, which included China, Brazil, Russia and South Africa. Singh also said the Indian economy was well positioned to achieve annual long-term growth of 9% or more. Leaders from Brazil, Russia, India, China and South Africa issued a new call for reform of the dollar-dominated international monetary system and for greater supervision of commodity markets and capital flows, as the so-called Brics nations seek to boost their influence in debates about the global economy.

European shares edged higher on Friday, 15 April 2011, helped by auto shares, though investors were cautious after Moody's cut Ireland's sovereign rating and on worries high Chinese inflation could prompt more monetary policy tightening. Key benchmark indices in Germany and UK were up by between 0.2% to 0.39%. France's CAC 40 fell 0.26%.

Moody's Investors Service on Friday cut its rating on Irish government bonds by two notches to Baa3 from Baa1 and said the outlook on the ratings remains negative. The rating agency said the main drivers for the downgrade are the further weakening of the Irish government's financial strength and the uncertainty created by the solvency test required by the European Stabilization Mechanism, which is required for the the provision of future liquidity support. Moody's said the ongoing austerity package in Ireland is weakening domestic demand and that the government's financial strength may suffer due to what may be the first in a series of policy rate increases by the European Central Bank.

Most Asian stocks declined after the latest Chinese data showed an acceleration in inflation there, making policy-tightening more likely. The key benchmark indices in Japan, Hong Kong, South Korea, Singapore and Taiwan fell by between 0.02% to 0.96%. Indonesia's Jakarta Composite rose 0.61%.

China's Shanghai Composite rose 0.27%. China's consumer inflation accelerated in March to its fastest rate in almost three years, slightly ahead of expectations, while other data showed the pace of economic growth little changed. The consumer price index rose 5.4% in March from a year earlier, up from February's 4.9% rise. Wholesale prices were up 7.4% for the month from a year earlier. China's gross domestic product in the first quarter expanded 9.7%, easing slightly from 9.8% in the prior quarter.

US markets ended flat on Thursday amid concerns about faltering growth and rising inflation. A US government report showed a surprising jump in US jobless claims, raising some questions among investors about the health of the labor market recovery. The core US Producer Price Index rose faster than expected in March as fuel prices rose strongly, adding to concerns about inflation.

Trading in US index futures indicated that the Dow could fall 25 points at the opening bell on Friday, 15 April 2011.