RBI's aggressive rate hike spooks market

The market slumped last week as a sharper-than-expected interest rate increase by the Reserve Bank of India (RBI) at a policy review on Tuesday, 26 July 2011, raised concerns that higher interest rates will pinch corporate profit growth. Nervousness in the global markets due to a US debt impasse also weighed on the domestic market.

The BSE Sensex slumped 525.10 points or 2.8% to 18,197.20 in the week ended Friday, 29 July 2011. The 50-unit S&P CNX Nifty shed 151.95 points or 2.69% to 5,482.



The BSE Mid-Cap index outperformed the Sensex, falling 130.81 points or 1.86% to 6,915.31. The BSE Small-Cap index also outperformed the Sensex, sliding 157.91 points or 1.87% to 8,305.58.

Investors feared the US' debt-ceiling standoff could force a default or downgrade of US debt. Democrats and Republicans continue to squabble over raising the federal government's $14.29 trillion debt ceiling, despite frantic warnings from the US Treasury that failure to act by next Tuesday (2 August 2011) could force the United States to default on its debt.

Closer home, the RBI raised repo rate-- its key lending rates by 50 basis points at a policy review on Tuesday, 26 July 2011, to tame high inflation. The RBI has raised its end March 2012 inflation target to 7% as against the previous estimate of 6%, saying inflation has been higher than its expectations. It kept its economic growth forecast of 8% for this fiscal year. The RBI revised downwards non-food bank credit growth projection to 18% for the year ending March 2012 (FY 2012) from 19% earlier.

Food prices rose in the week ended 16 July 2011 due to costlier vegetables and fruits, the latest data showed. The wholesale price index for food articles rose 0.8% to 193.3 from 191.7 in the previous week, data from the Ministry of Commerce and Industry showed Thursday. The index has risen three out of four weeks ending July 16. Data also showed the index for primary articles, which includes food and non-food articles, was little changed at 198 in the week ended July 16, compared with 197.7 a week earlier.

The stock market regulator Securities and Exchange Board of India (Sebi) on Thursday made sweeping changes to the takeover code, including raising the threshold that triggers an open offer to 25% from 15%. Sebi also changed the minimum open offer size, saying that when a company acquires at least 25% of another listed company, it must make a mandatory open offer for another 26%. Under current regulations, a company needs to make a mandatory offer for only an additional 20% stake. Partly accepting the recommendations of a Sebi-appointed panel on the matter, Sebi also decided to abolish the non-compete fees that acquirers generally pay to the sellers in merger and acquisition deals.

Trading for the week began on a positive note. Indian stocks shrugged off weak global cues and gained for the second straight day on Monday, 25 July 2011, led by rally in telecom stocks. The BSE Sensex rose 148.99 points or 0.8% to 18,871.29. The S&P CNX Nifty rose 46.35 points or 0.82% to 5,680.30.

Key benchmark indices tumbled on Tuesday, 26 July 2011, after a higher-than-expected hike of 50 basis points by the Reserve Bank of India (RBI) in its key lending rate at a policy review. The BSE Sensex fell 353.07 points or 1.87% to settle at 18,518.22. The S&P CNX Nifty fell 105.45 points or 1.86% to 5,574.85.

Fears that higher interest rates will hurt corporate profit growth pulled the market lower for the second straight day on Wednesday, 27 July 2011. The BSE Sensex fell 85.97 points or 0.46% to 18,432.25. The S&P CNX Nifty fell 28.05 points or 0.50% to 5,546.80.

Key benchmark indices sank to their lowest closing levels in five weeks on Thursday, 28 July 2011, on fears that higher interest rates will hurt corporate profit growth. The BSE Sensex was down 222.73 points or 1.21% to 18,209.52. The S&P CNX Nifty was down 59.05 points or 1.06% to 5,487.75.

US and euro-zone debt worries weighed on the sentiment on Friday, July 29, 2011, as stocks fell across the globe. The BSE Sensex fell 12.32 points or 0.07% to 18,197.20. The S&P CNX Nifty fell 5.75 points or 0.1% to 5,482.

Among the 30 Sensex shares, 24 shares declined and the rest rose.

Diversified infrastructure company Jaiprakash Associates tumbled 11.42% to Rs 66.70. It was the top Sensex loser last week. The stock has a high beta of 1.73. .

State-run power equipment maker Bharat Heavy Electricals (Bhel) tumbled 6.82% to Rs 1838.35, on disappointing Q1 results. The stock hit 52-week low of Rs 1802 in intraday trade on Thursday, 28 July 2011. The company's net profit rose 22.15% to Rs 815.51 crore on 9.97% increase in net sales to Rs 7125.68 crore in Q1 June 2011 over Q1 June 2010. The net profit was boosted by a steep 52.12% jump in non-operational income to Rs 248.65 crore in Q1 June 2011 over Q1 June 2010. The result was announced during trading hours on Tuesday, 26 July 2011.

The top line growth fell short of market expectations. Analysts were expecting a much stronger revenue growth in Q1 June 2011 from Bhel on expectations of a strong execution of the large order book of the power equipment major. The company's outstanding order book was Rs 159600 crore as on 30 June 2011.

Anil Dhirubhai Ambani Group firm Reliance Infrastructure slipped 6.68% to Rs 540.95. State-run coal giant Coal India replaces Reliance Infrastructure in the BSE Sensex from 8 August 2011.

Jindal Steel & Power fell 6.53% at Rs 586.35 on weak Q1 results. The company's consolidated net profit after tax fell 2.5% to Rs 933.03 crore on 31.4% increase turnover to Rs 3944.10 crore in Q1 June 2011 over Q1 June 2010. The result was announced on Thursday, 28 July 2011.

Index heavyweight Reliance Industries (RIL) fell 5.25% to Rs 827.70 on weak Q1 operational performance. The stock hit 52-week low of Rs 824 on Friday, 29 July 2011. RIL's operating profit margin (OPM) declined sharply to 12.25% in Q1 June 2011 from 16.04% in Q1 June 2010 as weak performance from the oil & gas and petrochemicals businesses offset strong performance from the refining segment.

RIL's net profit rose 16.69% to Rs 5661 crore on 39.1% increase in net sales to Rs 81018 crore in Q1 June 2011 over Q1 June 2010. The growth in both net profit and net sales topped market expectations. RIL was seen reporting 15.44% growth in net profit to Rs 5600.35 crore on 28.7% growth in net sales to Rs 74951.47 crore in Q1 June 2011 over Q1 June 2010, as per average estimate of 10 brokerages. The result was announced early this week.

RIL's gross refining margin (GRM) surged to $10.3 a barrel from $7.3 a barrel in Q1 June 2010. Gas production from RIL's KG-D6 field off the east coast declined 18% to 156.2 BCF in Q1 June 2011 over Q1 June 2010. Production of gas condensate from the filed jumped 81.6% to 0.21 million barrels in Q1 June 2011 over Q1 June 2010. The company said gas sales have been prioritized as per government's directive with effect from 9 May 2011.

State-run Oil & Natural Gas Corporation (ONGC) declined 3.97% to Rs 268.65, as a sharp surge in the company's subsidy sharing burden restricted first quarter profit growth. Net profit rose 11.83% to Rs 4094.90 crore on 18.7% rise in sales revenue to Rs 16268 crore in Q1 June 2011 over Q1 June 2010. ONGC's subsidy burden swelled 118.4% to Rs 12046 crore in Q1 June 2011 over Q1 June 2010. The result was announced on Thursday, 28 July 2011.

State Bank of India (down 6.10%), Larsen & Toubro (down 5.45%), Sterlite Industries (down 5.19%), Tata Motors (down 4.96%), Hindalco Industries (down 4.75%) and Cipla (down 4.68%), edged lower from the Sensex pack.

India's largest private sector bank by market capitalisation ICICI Bank fell 2.86% to Rs 1037.75. Consolidated net profit rose 53% to Rs 1667 crore on 8.9% growth in total income to Rs 14749.79 crore in Q1 June 2011 over Q1 June 2010. Standalone net profit increased 30% to Rs 1332 crore in Q1 June 2011 over Q1 June 2010. Net interest income increased 21% to Rs 2411 crore and fee income increased 12% to Rs 1578 crore in Q1 June 2011 over Q1 June 2010. The result was announced on Friday, 29 July 2011.

Telecom shares rose on reports Vodafone Essar and Idea Cellular have raised telephone tariffs by 20% for certain prepaid plans in some telecom service areas after a hike in rates by Bharti Airtel last week. India's second largest listed telecom operator by sales Reliance Communications spurted 8.55% to Rs 101.55.

India's largest listed telecom operator by sales Bharti Airtel jumped 6.34% to Rs 437. Bharti Airtel raised tariffs for two of its prepaid schemes recently.

India's third largest listed telecom operator by sales Idea Cellular rose 10.61% to Rs 94.35. Idea's earnings before interest, taxation, depreciation and amortization (EBITDA) rose 11.97% to Rs 1204 crore on 6.7% increase in total revenue to Rs 4520.70 crore in Q1 June 2011 over Q4 March 2011. The EBITDA margin improved to 26.6% from 25.4% in Q4 March 2011. Consolidated net profit fell 35.43% to Rs 177.26 crore in Q1 June 2011 over Q4 March 2011, mainly due to capitalization of interest costs due to the roll out of 3G services. The result was announced on Friday, 29 July 2011.

India's largest car maker by sales Maruti Suzuki India rose 3.94% to Rs 1207.90. Maruti Suzuki India's net profit rose 18% to Rs 549.23 crore on 3.4% increase in net sales to Rs 8361.47 crore in Q1 June 2011 over Q1 June 2010. The company announced results on 26 July 2011. At the time of announcing Q1 results, the company said higher commodity prices and foreign exchange volatility put pressure on margin in Q1 June 2011. The car market was sluggish, mainly due to a sharp increase in fuel prices and higher interest rates, Maruti said. Maruti's other income jumped 79.2% to Rs 180.07 crore in Q1 June 2011 over Q1 June 2010, which helped bottom line growth at the car maker.

Cigarette major ITC rose 0.48% to Rs 208.30. The stock hit a record high of Rs 211.35 on Friday, 29 July 2011. ITC's net profit jumped 24.51% to Rs 1332.72 crore on 20.57% rise in operating income to Rs 5860.18 crore in Q1 June 2011 over Q1 June 2010. A stronger-than-expected top line growth aided strong bottom line growth. The core operating profit margin declined to 33.72% from 33.81% in Q1 June 2010. The result was announced during trading hours on 28 July 2011