RIL, Bhel extend losses after disappointing Q1 results

Fears that higher interest rates will hurt corporate profit growth pulled the market lower for the second straight day. The barometer index BSE Sensex reached its lowest closing level in more than two weeks. The Sensex shed 85.97 points or 0.46%, up close to 73 points from the day's low and off about 146 points from the day's high. The market breadth, indicating the overall health of the market, was negative. The Reserve Bank of India (RBI) on Tuesday, 26 July 2011, hiked its key lending rate by a steeper-than expected 50 basis points to tame inflation at a policy review, which had triggered a sell-off in stocks on that day.

The market may remain volatile tomorrow, 28 July 2011, as traders roll over positions in the derivatives segment from the near-month July 2011 series to August 2011 series ahead of the expiry of July 2011 derivatives contracts on Thursday, 28 July 2011.



Coming back to today's trade, small-cap and mid-cap indices on BSE registered small gains. Most bank shares dropped for the second straight day after the RBI revised downwards non-food credit growth forecast for the year ending March 2012 to 18% from 19% earlier at its first quarter review of monetary policy 2011-12 announced on Tuesday, 26 July 2011.

Index heavyweight Reliance Industries (RIL) extended losses for the second straight day after weak Q1 operating performance. Bhel hit 52-week low as the stock extended Tuesday's steep losses triggered by disappointing Q1 results. Most realty stocks extended Tuesday's losses triggered by worries that higher interest rates could dent demand for residential and commercial properties. Auto stocks were mixed after Tuesday's sell-off. Telecom stocks rose across the board.

Volatility was the order of the day at the onset of the trading session as the market regained positive terrain after slipping into the red for a brief period after a firm start. Intraday volatility continued as the market recovered after slipping into the red once again to hit fresh intraday low in morning trade. The market alternately swung between gains and losses in mid-morning trade. The market slumped to hit fresh intraday low in early afternoon trade. Key benchmark indices extended intraday losses to hit their lowest level in more than two weeks in early afternoon trade as European stocks fell in early trade. The market trimmed losses in mid-afternoon trade.

The BSE Sensex fell 85.97 points or 0.46% to 18,432.25, its lowest closing level since 12 July 2011. The Sensex rose 60.33 points at the day's high of 18,578.55 in early trade. The index fell 159.46 points at the day's low of 18,358.76 in afternoon trade.

The S&P CNX Nifty fell 28.05 points or 0.50% to 5,546.80, its lowest closing level since 21 July 2011. The Nifty hit a low of 5,521.50 in intraday trade, its lowest level since 12 July 2011.

The BSE Mid-Cap index was up 0.23% and the BSE Small-Cap index was up 0.03%. Both these indices outperformed the Sensex.

The market breadth, indicating the overall health of the market, was negative. On BSE, 1,498 shares declined and 1,345 shares advanced. A total of 140 shares remained unchanged. The breadth was positive earlier in the day.

BSE clocked turnover of Rs 2762 crore, lower than Rs 2899.08 crore on Tuesday, 26 July 2011.

From the 30 share Sensex pack, 20 stocks fell and the rest rose.

Jaiprakash Associates (down 3.28%), Hindalco Industries (down 2.67%), Wipro (down 1.82%), Reliance Infrastructure (down 1.78%) and Tata Motors (down 1.68%), edged lower from the Sensex pack.

Cigarette major ITC fell 0.05% to Rs 200.80 ahead of Q1 results. ITC is seen reporting good Q1 results tomorrow, 28 July 2011. The core cigarette business is expected to do well on the back of higher volumes and stability in retail prices as the government refrained from raising excise duty on cigarettes in the Union Budget 2011-2012 in February this year. The company's other businesses viz. hotels, agri-business and paper product are also expected to do well.

ITC's net profit is seen rising 19.68% to Rs 1281 crore on 16% growth in net sales to Rs 5587.57 crore in Q1 June 2011 over Q1 June 2010, according to average estimate of eight brokerages.

FMCG giant Hindustan Unilever (HUL) dropped 0.34% to Rs 326.40 ahead of its Q1 result tomorrow, 28 July 2011. The company is seen reporting a decent revenue growth driven by new product launches and aggressive product promotions. Increase in input cost will likely be offset by ad spend savings.

Index heavyweight Reliance Industries (RIL) fell 1.20% to Rs 860.70, extending Tuesday's 1.25% losses triggered by weak Q1 operating performance. 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 hit the market after trading hours on Monday, 25 July 2011.

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.

Commenting on the first quarter results, RIL chairman and managing director Mukesh Ambani said, "Reliance Industries continues to deliver strong financial and operating results. The growth in earnings was driven by strong refining margins and sustained performance in the petrochemicals business. Our cash flows give us the unparalleled opportunity to allocate capital to higher-margin resource plays in leading markets around the world. We remain committed towards investing in India and have commenced the investment programme in the petrochemicals business".

Private sector oil refiner Cairn India fell 1.86% to Rs 317.05, reversing initial gains triggered by strong Q1 results. Consolidated net profit jumped 869% to Rs 2726.60 crore on 342% surge in revenue to Rs 3712.70 crore in Q1 June 2011 over Q1 June 2010. Rahul Dhir, Managing Director and Chief Executive Officer, Cairn India said, "Cairn India's focus on safe and efficient operations ensured delivery of more than 50 million barrels of crude oil to Indian refineries. The Mangala reservoir continues to perform as per expectations and production has been maintained at 125,000 barrels of oil per day. As per the approved field development plan, we are now focussed on commencing production from Bhagyam coupled with the commissioning of Train Four at the Mangala Processing Terminal.

Dhir said Cairn's Rajasthan fields have significant growth potential and an increase in production from this world class asset will enhance the energy security of the nation. The optimal development of this resource will only be possible with the active support of joint venture partner in the field, ONGC, and the Government of India, Dhir said. "The mobilisation of the drill ship brings us closer to the commencement of our exploration campaign in the frontier Mannar basin offshore Sri Lanka," Dhir said.

Cairn India said it is seeking shareholders' approval for the conditions imposed by the government of India for the proposed sale of a substantial part of its shareholding in the company by parent Cairn Energy PLC to Vedanta Resources. The company said royalty sharing with joint venture partner ONGC with respect to a key oil field, one of the key conditions for the clearance of the deal, will lead to a decline in the revenues and profit after tax for the current quarter by Rs 1291.60 crore.

State-run Oil India fell 0.86% to Rs 1257.40. The company announced during market hours today that net profit rose 69.54% to Rs 849.61 crore on 46.91% rise in total income to Rs 2668.72 crore in Q1 June 2011 over Q1 June 2010. The company's subsidy sharing burden surged in Q1 June 2011.

State-run GAIL (India) fell 0.52% to Rs 458.10 on profit taking. The company announced during market hours today that net profit rose 11.02% to Rs 984.67 crore on 24.98% rise in total income to Rs 8953.65 crore in Q1 June 2011 over Q1 June 2010. The company's subsidy sharing burden surged in Q1 June 2011.

State-run Indian Oil Corporation (IOC) rose 0.72% to Rs 321.80. The company said that it is in the process of issuing foreign currency bonds in the international market to the extent of $500 million to finance its capital expenditure. The tenor of the bonds is 10 years with the coupon rate of 5.625% per annum payable semi-annually. The bonds will be listed on the Singapore Stock Exchange. The bonds have been rated as "Baa3" by Moody's and "BBB-" by Fitch, which denote 'Investment' grade. The announcement was made after trading hours today, 27 July 2011.

Telecom shares rose on renewed buying. MTNL, Tata Teleservices (Maharashtra), Reliance Communications, Idea Cellular and Bharti Airtel rose by between 1.32% to 3.14%. Telecom shares have witnessed renewed buying recently after Bharti raised call rates prices in some regions last week.

HCL Technologies fell 2.32%, reversing initial gains, on profit taking. The company's consolidated net profit as per US accounting standards rose a stronger-than-expected 9% to Rs 510.50 crore on 3.9% rise in revenue to Rs 4299.50 crore in Q4 June 2011 over Q3 March 2011. An increase in operating profit margin to 18.5% from 17.3% in Q3 March 2011 aided the strong bottom line growth. The results was announced before trading hours today.

The top line growth, however, lagged market expectations. HCL Tech's consolidated net profit as per US accounting standards was seen rising 7.52% to Rs 503.44 crore on 5% growth in revenue to Rs 4345.08 crore in Q4 June 2011 over Q3 March 2011 as per average estimate of 5 brokerages.

Commenting on the results, HCL Tech Chairman Shiv Nadar said, "Over the last few years HCL Technologies has been investing in creating new capabilities and markets which have given a new face and shape to the company. Additionally our focus on diversity and localizing footprints have tremendously increased our competitiveness in the global IT space".

Vineet Nayar, Vice Chairman and CEO, HCL Technologies said, "In these times of dynamic demand and swiftly changing customer priorities, HCL is focusing on building an innovation engine that is agile, business-aligned and employee driven. We continue to balance this thought leadership with an equally rewarding financial performance quarter by quarter".

Some realty stocks extended Tuesday's losses triggered by worries that higher interest rates could dent demand for residential and commercial properties. Purchases of both residential and commercial property are largely driven by finance. Sobha Developers, Indiabulls Real Estate, HDIL, Orbit Corporation, Godrej Properties, Sunteck Realty, Peninsula Land, Unitech, Ackruti City and Mahindra Life Space Developers fell by 0.45% to 5.30%.

State-run power equipment maker Bharat Heavy Electricals (Bhel) fell 4.40% to Rs 1824.90, extending Tuesdays' 4.46% slump triggered by disappointing Q1 results. The stock hit 52-week low of Rs 1805.10 today. 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.

Among other capital goods stocks, Suzlon Energy, Punj Lloyd, Siemens, Usha Martin, Bharat Bijlee, Larsen & Toubro, Havells India, Reliance Industrial Infrastructure, ABB, Gammon India, Everest Kanto Cylinders, Praj Industries, Thermax, Walchandnagar Industries, Lakshmi Machine Works, Areva T&D India, Kalpataru Power Transmission and Bharat Electronics fell by 0.03% to 2.94%.

UltraTech Cement rose 2.79% to Rs 1027.95 after the cement major said net profit rose 22.40% to Rs 683 crore on like-to-like basis in Q1 June 2011 over Q1 June 2010. Net sales rose 9.40% to Rs 4365 crore in Q1 June 2011 over Q1 June 2010. The result was announced during trading hours today. The results are strictly not comparable with the corresponding period of the previous year, the company said.

UltraTech said it will incur capital expenditure of over Rs 11000 crore over the next three years to raise capacity. UltraTech Cement said the surplus cement scenario is likely to continue over the next 2 to 3 years resulting in selling prices remaining under pressure. With commodity prices rising, input costs will be affected, which will squeeze margins, the company said.

Among other cement shares, Madras Cement, JK Cements, Ambuja Cement, India Cements and ACC rose by 0.30% to 5.09%.

Most bank shares dropped for the second straight day after the Reserve Bank of India revised downwards non-food credit growth forecast for the year ending March 2012 to 18% from 19% earlier at its first quarter review of monetary policy 2011-12 announced on Tuesday, 26 July 2011. India's largest private sector bank by net profit ICICI Bank fell 1.52% to Rs 1024.75, extending Tuesday's 3.13% losses.

India's largest commercial bank by branch network State Bank of India (SBI) declined 1.58% to Rs 2403.30, extending Tuesday's 2.86% fall. The bank's Chairman Pratip Chaudhari was quoted by the media as saying on Tuesday that the bank sees a need to raise short-term deposit rates.

Yes Bank dropped 2.10% to Rs 312.70, extending Tuesday's 3.98% losses. In an instant reaction to the RBI's policy move, private sector bank Yes Bank on Tuesday, 26 July 2011, raised its base rate by 50 basis points to 10.25% with immediate effect. The bank also increased its prime lending rate by 50 bps with immediate effect. The increase in base rate and PLR will enable the bank to fully absorb the increased costs on account of rising interest rates, Yes Bank said in a statement. The rate hike will also serve the purpose of effective and immediate transmission of monetary policy objectives of RBI, Yes Bank said.

India's second largest private sector bank by net profit HDFC Bank rose 0.80% to Rs 501.85 reversing initial losses.

Canara Bank fell 3.40% to Rs 496 after net profit fell 28.37% to Rs 725.85 crore on 30.75% increase in total income to Rs 7707.59 crore in Q1 June 2011 over Q1 June 2010. The result was announced during market hours today, 27 July 2011.

Bank of Baroda shed 2.69% to Rs 875.40 after the ratio of net non-performing assets rose to 0.44% as on 30 June 2011 from 0.35% as on 31 March 2011. Bank of Baroda's ratio of gross non-performing assets rose 1.46% as on 30 June 2011 from 1.36% as on 31 March 2011. The bank's net profit rose 20.21% to Rs 1032.85 crore on 36.08% rise in total income to Rs 7272.46 crore in Q1 June 2011 over Q1 June 2010. The result was announced during market hours today, 27 July 2011.

Among other bank shares, Punjab National Bank, Union Bank of India, Federal Bank, Axis Bank and Kotak Mahindra Bank fell by 0.50% to 3.42%.

Infrastructure Development Finance Company (IDFC) fell 0.67% to Rs 133.95 after the infrastrcuture finance firm announced during market hours today that consolidated net profit fell 6.39% to Rs 313.69 crore on 23.76% rise in total income to Rs 1357.98 crore in Q1 June 2011 over Q1 June 2010.

Auto stocks were mixed after Tuesday's sharp losses. India's largest truck maker by sales Tata Motors fell 1.68% to Rs 956.80, extending Tuesday's 3.06% decline.

Utility vehicles and tractors major Mahindra & Mahindra (M&M) was flat at Rs 716.85 after Tuesday's 4.20% fall. Last week, Ssangyong Motor Company, the South Korean subsidiary of M&M, reported 43% growth in revenue to KRW 1349.2 billion in the first half of the calendar 2011 over the previous corresponding period. Ssangyong Motor's sales rose 53% to 55,873 vehicles in the first half of the calendar 2011 over in the first half of the calendar 2010. This is the highest level of sales volume achieved by the company in a half year period since 2007.

India's largest bike maker by sales Hero Honda Motors shed 0.89% to Rs 1802.15. India's second largest motorcycle maker by sales Bajaj Auto rose 0.72% to Rs 1434.

India's largest car maker by sales Maruti Suzuki India rose 2.42% to Rs 1206.45. The stock had declined 0.32% in choppy trade on Tuesday after the company said at the time of announcing Q1 June 2011 results that the passenger car market was sluggish in Q1 June 2011, mainly due to a sharp increase in fuel prices and higher interest rates. Maruti's net profit rose 18% to Rs 549.20 crore on 3.3% increase in net sales to Rs 8319.90 crore in Q1 June 2011 over Q1 June 2010. Other income jumped 79.2% to Rs 180.07 crore in Q1 June 2011 over Q1 June 2010.

The result was announced during trading hours Tuesday, 26 July 2011. Maruti said higher commodity prices and foreign exchange volatility put pressure on profit margins in Q1 June 2011.

Dabur India rose 0.23% to Rs 110.50 after the company announced during market hours today that consolidated net profit surged 19.6% to Rs 127.74 crore on 31.6% rise in total income to Rs 1216.24 crore in Q1 June 2011 over Q1 June 2010. Commenting on the results, Mr Sunil Duggal, chief executive officer (CEO) Dabur India said, "Dabur has been reporting strong and consistent performance despite inflation playing truant and competitive pressures intensifying in some key categories. In order to minimize the impact of high input costs, the company has put in place calibrated price hikes. This combined with our cost management initiatives, helped Dabur record a 27.8% growth in EBITDA during the first quarter."

Dabur's earnings before interest, depreciation, taxation and amortization (EBIDTA) margin declined to 15.9% in Q1 June 2011 from 16.4% in Q1 June 2010 due to material cost inflation and higher VAT and excise.

Agrochemicals major United Phosphorous (UPL) rose 4.14% to Rs 163.40 extending Tuesday's 1.1% gains triggered by the company's acquisition of a majority 51% stake in DVA Agro Do Brasil, which produces crop protection products and specialties in the Brazilian agrochemicals market. DVA Agro Do Brasil had net revenue of about $130 million for the year ended December 2010. UPL's acquisition of 51% stake in DVA Agro Do Brasil will be against an immediate cash outlay of about $150 million, which will accomplished through primary infusion of funds in the Brazilian firm and secondary purchase of shares from the existing shareholders, UPL said before trading hours on Tuesday.

SKS Microfinance tumbled 8.35% to Rs 478.15 after the company reported net loss of Rs 218.74 crore in Q1 June 2011 as against net profit of Rs 66.70 crore in Q1 June 2010. Total Income declined 43.65% to Rs 176.71 crore in Q1 June 2011 over Q1 June 2010. The result was announced after market hours on Tuesday, 26 July 2011.

Coal India clocked a highest turnover of Rs 96.76 crore on BSE. State Bank of India (Rs 93.21 crore), Bharat Heavy Electricals (Rs 78.20 crore), Rushil Decor (Rs 72.39 crore) and Hercules Hoists (Rs 60.28 crore), were the other turnover toppers on BSE in that order.

Birla Cotsyn (India) reported highest volume of 89.33 lakh shares on BSE. Lanco Infratech (72.12 lakh shares), Sanraa Media (50.96 lakh shares), Rushil Decor (50.52 lakh shares) and Reliance Communications (43.73 lakh shares), were the other volume toppers on BSE in that order.

As the crucial corporate earnings season gathers steam, investors will closely watch the post-Q1 June 2011 result management commentary to gauge the future earnings outlook at a time when Indian firms are witnessing cost pressures amid rising interest rates and staff costs.

State-run oil exploration giant ONGC, FMCG giant Hindustan Unilever, Cigarette major ITC, Sun Pharma, cement majors--ACC and Ambuja Cements, Jindal Steel & Power, state-run Punjab National Bank, and GSFC unveil results on 28 July 2011. ICICI Bank, Power Finance Corporation, Bhushan Steel, Idea Cellular and TVS Motor unveil Q1 results on 29 July 2011. Sun TV announces Q1 results on 1 August 2011. Power Grid Corporation unveils Q1 results on 2 August 2011.

Bharti Airtel and United Spirits unveil Q1 results on 3 August 2011. Adani Power, Mundra Port And Special Economic Zone and Indian Hotels announce Q1 results on 4 August 2011. IL&FS Transportation Networks announces Q1 results on 5 August 2011. M&M announces Q1 results on 8 August 2011. ABB, Mahindra Satyam and GMR Infrastructure announce quarterly results on 9 August 2011. Tata Power unveils Q1 results on 10 August 2011. Tata Motors unveils Q1 results on 11 August 2011. Hindalco and Coal India unveil Q1 results on 12 August 2011. Aditya Birla Nuvo unveils Q1 results on 13 August 2011.

The Reserve Bank of India (RBI) raised 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.

Although the impact of past monetary policy actions is still getting transmitted, considering the overall growth and inflation scenario, there is a need to persevere with the anti-inflationary stance, the RBI said. Going forward, the monetary policy stance will depend on the evolving inflation trajectory, which, in turn, will be determined by trends in domestic growth and global commodity prices, the RBI said. A change in stance will be motivated by signs of a sustainable downturn in inflation, it added.

The uncertain global macro-economic environment poses a challenge for the domestic economy from the perspective of financing the current account deficit, RBI said. In this context, the composition of capital flows remains a concern. In recent months, some shift in composition of capital flows towards foreign direct investment (FDI) has been observed. This trend needs to be reinforced through policy actions to improve the quality of financing of the current account deficit, RBI said.

Reacting to the RBI's monetary policy review, Devendra Kumar Pant, Director, Fitch Ratings said, "RBI's monetary policy was announced in the backdrop of sticky inflation, growth moderation and uncertain global economic conditions. The hike in repo rate by 50 bps is mainly to control inflation, especially non-food manufactured inflation, which is going out of hand. This will certainly have its impact on economic growth, which is likely to be below 8%."

Finance Minister Pranab Mukherjee today, 27 July 2011, said food inflation at 8% around the current level, is not acceptable. He added that the government would take steps to support the RBI's battle against stubbornly high inflation, which is likely to see further rate rises. "I don't think we have reached the end of tunnel," Mukherjee said referring to the RBI's rate tightening cycle. "Appropriate measures will be taken," Mukherjee said, referring to government support of the central bank's policy action, without giving specifics.

Mukherjee said the government would keep its spending in check to meet its deficit target but did not give details. "We are looking at ways to compress expenditure. There is revenue buoyancy and together I think they will help us in reaching fiscal deficit target," he said.

Monsoon rain in India this year is likely to be close to normal, and there is no change in the rainfall forecast of 95% of the 50-year average, the country's weather chief said on Tuesday, 26 July 2011, giving some cheer to policy makers who are battling high inflation. The distribution of rains is very good, and it is one of the best monsoons in recent years, Ajit Tyagi told reporters on the sidelines of a conference on Tuesday. He said that the monsoon rain is lagging only in the states of Gujarat, Haryana, Assam and some parts of Andhra Pradesh.

Gujarat is the country's largest cotton and groundnut producer, while Assam is a key tea-growing region. Andhra Pradesh is one of India's leading rice producers. The June-September monsoon is crucial for summer-sown crops such as rice, sugarcane, pulses, cotton and oilseeds. It holds the key to food prices and farm incomes. Tyagi said the slight shortfall in rain won't have any significant impact on crop output. Monsoon rains have now been around 2% below normal so far.

European stocks fell on Wednesday, 27 July 2011, after poorly received company updates from Merck KGaA, Peugeot SA and Banco Santander SA, while continued US debt-ceiling negotiations also kept investors on edge. The key benchmark indices in UK, France and Germany were down by 0.33% to 0.76%.

Most Asian shares reversed initial losses on Wednesday, 27 July 2011. The key benchmark indices in, Singapore, Indonesia, China and Taiwan rose by between 0.22% to 1%. The key benchmark indices in Japan and Hong Kong fell by between 0.50% and 0.13%, respectively.

South Korea's Kospi rose 0.26%, reversing initial losses triggered by data showing that the country's second-quarter gross domestic product growth eased to a below-consensus 0.8% from the previous quarter.

Trading in US index futures indicated that the Dow could gain 6 points at the opening bell on Wednesday, 27 July 2011.

Some heavyweight US companies have put out well-received results in recent weeks, including Apple Inc., International Business Machines Corp. and Morgan Stanley

US shares fell for the third session on Tuesday, 26 July 2011, as lawmakers haggled over raising the US debt ceiling. The process has become entwined with demands for reducing the country's debt, which in turn is linked to the country's ability to retain its AAA credit rating. The US is moving closer to an August 2 deadline, after which the Treasury says it will no longer be able to meet debt obligations.