Market drifts lower on slowdown in services sector in May

The key benchmark indices extended losses for the second straight day as index heavyweight Reliance Industries (RIL) declined after chairman Mukesh Ambani at the company's 37th AGM (annual general meeting) said that RIL has to confront challenges arising out of higher commodity and input prices and inflationary trends. Data showing slowdown in growth in the services sector in May 2011 weighed on the sentiment. The BSE Sensex was down 117.70 points or 0.54%, off about 295 points from the day's high and up close to 30 points from the day's low.



The market breadth was negative. Metal stocks fell as metal prices declined on the London Metal Exchange on Thursday. FMCG stocks, too, fell. Banking and realty stocks reversed initial gains. Reliance Anil Dhirubhai Ambani (ADA) Group stocks edged higher after a Central Bureau of Investigation (CBI) court on Thursday, 2 June 2011, rejected a plea seeking a probe against group chairman Anil Ambani in a case of alleged rigging of the sale of telecommunication licenses and bandwidth in 2008.

The market edged higher at the onset of the trading session. The key benchmark indices trimmed gains after hitting three-week highs in morning trade. A bout of volatility was witnessed as the key benchmark indices cut gains, soon after regaining strength in mid-morning trade as a private survey showed the services sector activity slowed in the month just gone by. The market further cut gains to hit fresh intraday low in early afternoon trade. The market slipped into the red in afternoon trade. The market came off lows in mid-afternoon trade after hitting a fresh intraday low. Volatility continued in late trade as the market trimmed losses after sliding to fresh intraday low.

The BSE Sensex was down 117.70 points or 0.54% to 18,376.48, its lowest closing level since 30 May 2011. The Sensex rose 178.47 points at the day's high of 18,672.65 in morning trade, its highest level since 13 May 2011. The index lost 148.33 points at the day's low of 18,345.85 in late trade.

The S&P CNX Nifty was down 33.60 points or 0.61% to 5,516.75, its lowest closing level since 30 May 2011. The Nifty hit a high of 5,604.95 in intraday trade, its highest level since 13 May 2011. The Nifty hit a low of 5,507.20 in intraday trade.

The market breadth, indicating the health of the market, was negative. On BSE, 1,502 shares declined while 1,308 shares advanced. A total of 123 shares remained unchanged. The breadth was strong earlier in the day.

Among the 30-member Sensex pack, 22 stocks declined while rest of them gained.

BSE clocked turnover of Rs 2543 crore, lower than Rs 2887.69 crore on Thursday, 2 June 2011.

Index heavyweight Reliance Industries (RIL) fell 1.65% to Rs 936.15, reversing intraday gains, after chairman Mukesh Ambani at the company's 37th AGM (annual general meeting) today said that RIL has to confront challenges arising out of higher commodity and input prices and inflationary trends. The scrip was volatile gyrating between the day's high of Rs 967.90 and low of Rs 932.80 so far during the day. Mukesh Ambani said RIL will become debt free in the current year ending March 2012 (FY 2012). Ambani added that RIL has robust financial position and a sound balance sheet.

Ambani said the BP-RIL partnership will jointly assess and address the technical issues in ramping up gas production from the KG D6 block once the government approves the BP-Reliance partnership. Ambani said RIL is best positioned to capture top quartile margins in petroleum refining business as a result of its crude sourcing strategies, low operating costs and production of cleanest fuels.

With regard to RIL's organized retail business, Ambani said Reliance Retail will soon launch a cash and carry format that is built on the principle of offering inclusive growth to all retail partners of the firm. With regard to the broadband wireless business, Ambani said the company is currently in the process of conceptualizing its products and services.

Realty stocks reversed initial gains. HDIL, Indiabulls Real Estate, DLF, Unitech, Orbit Corporation and Ackruti City shed by between 0.15% to 2.23%.

Banking stocks, too, reversed initial gains. India's largest private sector bank by net profit ICICI Bank fell 0.25%. India's largest commercial bank by branch network State Bank of India (SBI) declined 0.86%, snapping six-day gains. India's second largest private sector bank by net profit HDFC Bank shed 0.38%.

Metal and mining stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange, declined 2.2% on Thursday, 2 June 2011. Hindalco Industries, Jindal Steel & Power, Sail, Nalco, NMDC, Tata Steel, Hindustan Zinc and Sterlite Industries fell by between 0.2% to 2.55%.

FMCG major Hindustan Unilever declined 0.81%. The stock had jumped 3.53% on Thursday on rumours US-based Procter & Gamble is contemplating a 38 billion pound bid for its European rival Unilever. Unilever Group holds 52.55% stake in Hindustan Unilever (HUL) (as on 31 March 2011).

Cigarette major ITC fell 0.95% to Rs 193.55 on profit taking. The stock had hit record high of Rs 197.75 on Thursday.

Reliance Anil Dhirubhai Ambani (ADA) Group stocks came off highs after an initial sharp surge. A Central Bureau of Investigation (CBI) court on Thursday rejected a plea seeking a probe against group chairman Anil Ambani in a case of alleged rigging of the sale of telecommunication licenses and bandwidth in 2008. Reliance Infrastructure (up 0.85%), Reliance Capital (up 2.62%), Reliance MediaWorks (up 3.34%) and Reliance Power (up 1.97%) edged higher. Shares of Reliance ADA group companies had declined in choppy trade on Thursday ahead of the court outcome, which came after trading hours on that day.

India's second largest listed cellular services provider by sales Reliance Communications surged 3.95% and was the top gainer from the Sensex pack.

Coal India fell 2.78% on reports the company's output will fall by 11.5 million tonnes this fiscal because of a recent order from the environment ministry.

IT stocks were mixed. India's second largest software services exporter Infosys rose 0.38%. The IT firm, last month, said it had received a subpoena from a grand jury in a US district court that requires the company to provide certain documents and records related the company's sponsorships for and uses of B1 business visas. Infosys said it intends to comply with the subpoena and to cooperate with the investigation.

India's largest software services exporter TCS shed 1.02%. The company announced during market hours on Wednesday that Ahli Brokerage QSC has selected the company's TCS BaNCS product to extend its brokerage footprint in the Middle East.

India's third largest software exporter Wipro rose 0.06%. The company announced after market hours on Wednesday that the Jammu and Kashmir state government has selected the company for automating its state power distribution department.

Auto stocks were mixed. India's top truck maker by sales Tata Motors lost 2.29%, with the stock sliding for the third straight day hit by weak car sales in May 2011. It was the top loser from the Sensex pack. Tata Motors' domestic passenger car sales declined 8.25% to 21,549 unit in May 2011 over May 2010. The passenger car sales include Tata and Fiat vehicles. Sales of commercial vehicles in the domestic market rose 19% to 37,361 units in May 2011 over May 2010. Tata Motors' total sales including exports of commercial and passenger vehicles rose 9.7% to 62,296 vehicles in May 2011 over May 2010. The company announced the monthly sales data on 1 June 2011.

India's largest car maker by sales Maruti Suzuki India gained 0.82%. The firm said during market hours on Wednesday that total sales rose 1.9% to 1.04 lakh units in May 2011 over May 2010. Domestic sales rose 3.9% to 93,519 units. Exports fell 13% to 10,554 units.

Mahindra & Mahindra (M&M) gained 0.96% after declining 2.19% on Thursday. The company announced a 20% rise in its auto sales to 34,323 units in May 2011 over May 2010. The figures were announced during trading hours on Wednesday. Speaking on the May 2011 sales numbers, Rajesh Jejurikar, CEO, Automotive Division, M&M said, "We are happy with the 20% growth that we have clocked in May 2011. All our brands have been doing well, with the recently launched Verito having sold 1,290 vehicles, almost three times last May".

India's largest motorcycle maker by sales Hero Honda Motors fell 0.66%. The company reported 14.7% increase in sales to 5,00,234 units in May 2011 over May 2010. The company unveiled the monthly sales data after trading hours on Wednesday.

Bajaj Auto rose 0.27%, extending Thursday's 2.22% gain triggered by higher sales in May 2011. The company announced during market hours on Thursday that total sales rose 20% to 3.58 lakh units in May 2011 over May 2010. Exports rose 32% to 1.26 lakh units. Motorcycle sales rose 18% to 3.17 lakh units. Commercial vehicle sales rose 36% to 40,860 units.

Cals Refineries clocked highest volume of 1.55 crore shares on BSE. SpiceJet (1.45 crore shares), Sun TV Network (80.26 lakh shares), Lloyd Steel Industries (68.98 lakh shares) and Mahindra Satyam (68.20 lakh shares) were the other volume toppers in that order.

Sun TV Network clocked highest turnover of Rs 227.50 crore on BSE. Aanjaneya Lifecare (Rs 120.11 crore), Reliance Industries (Rs 118.51 crore), State Bank of India (Rs 82.45 crore) and Tata Motors (Rs 64.54 crore) were the other turnover toppers in that order.

The services sector expanded at its slowest pace in 20 months in May 2011 as soaring prices and interest rate hikes gnawed at new business growth and reduced the level of optimism, a survey showed on Friday. The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of over 400 Indian firms, slipped to 55 in May 2011 from 59.2 in April 2011, marking its twenty-fifth successive month above the 50 level that divides growth from contraction.

The food price index rose 8.06% in the year to 21 May 2011, government data showed on Thursday, slowing down from an annual rise of 8.55% a week ago. The fuel price index climbed 12.54% compared with a rise of 12.11% a week earlier. The primary articles price index was up 10.87% compared with an annual rise of 11.60% a week earlier.

The infrastructure sector output grew 5.2% in April from a year earlier, slower than an annual growth of 7.4% in March, government data showed on Wednesday. The infrastructure sector accounts for 26.7% of India's industrial output.

Growth in India's manufacturing sector eased slightly in May as the pace of new orders slowed, but factories' input and output prices continued to rise sharply. The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 companies, edged down to 57.5 in May from 58.0 in April, weighed down by a slower expansion rate for new orders and a labour shortage.

The Indian economy grew by a slower-than-expected 7.8% in Q4 March 2011 and also slower than a revised 8.3% growth in Q3 December 2010, data showed on Tuesday. The manufacturing sector output rose 5.5% and farm output rose 7.5% in Q4 March 2011. The GDP grew 8.5% in the fiscal year ended March 2011, higher than 8% growth in the previous fiscal year.

Monsoon rains were 12% above normal in the week to 1 June 2011 after hitting the southern coast two days ahead of expectations, the weather office said on Thursday. The India Meteorological Department (IMD) has predicted the southwest monsoon 2011 to be 98% (normal) of the long period average (LPA) with a model error of plus/minus 5%. IMD has indicated that there is very low probability for the season rainfall to be deficient (below 90% of LPA) or excess (above 110% of LPA).

Good rains would help ease food inflation and boost rural income. Rainfall that comes within 96% to 104% of the long-term average is considered a normal monsoon season, but this alone doesn't guarantee a good crop. The timing and spread of the rains are equally important. The quantity and geographical spread of rainfall during the monsoon season is crucial for India's agriculture sector, which lacks irrigation facilities on more than half its farm land. Monsoon rains usually enter India's mainland through the southern state of Kerala in the first week of June, gradually progressing to cover most of central and northern India by July, before retreating in September.

European markets were mixed on Friday ahead of key US job data due later in the global day. The key benchmark indices in UK and Germany were up by between 0.01% to 0.25%. France's CAC 40 fell 0.09%.

Most Asian stocks fell on Friday ahead of critical labor market report in the US later in the global day. The key benchmark indices in South Korea, Hong Kong, Japan and Singapore fell by between 0.03% to 1.31%. The key benchmark indices in China, Indonesia and Taiwan rose by between 0.16% and 0.85%.

Trading in US index futures indicated that the Dow could fall 30 points at the opening bell on Friday, 3 June 2011.

Ratings agency Moody's warned on Thursday it would consider cutting the United States' coveted top-notch credit rating if the White House and Congress do not make progress by mid-July in talks to raise the US debt limit.

The Federal Reserve's second round of quantitative easing or QE2, a temporary policy designed to increase the money supply, keep interest rates low and stimulate the economy, ends on 30 June 2011.