Market hits 18-1/2-month low in broad-based sell-off

Key benchmark indices fell for the third straight day to hit 18-1/2-month lows as data showing sustained selling by foreign funds this month hurt sentiment. Weak global shares also weighed on sentiment. The barometer index BSE Sensex fell below the psychological 16,000 mark. Index heavyweights Reliance Industries (RIL) hit 52 week low. The Sensex tumbled 297.50 points or 1.84%, off about 410 points from the day's high and up close to 80 points from the day's low. The sell-off was broad-based and all the 13 sectoral indices on BSE were in the red. The market breadth was quite weak.



Macroeconomic worries also weighed on the market as bond prices dropped following comments from a senior government official that Indian government is likely to borrow at least Rs 30000 more than it has budgeted this fiscal year to meet swelling subsidies.

The Sensex has tanked 3,022.46 points or 16.01% in one month from a recent high of 18,871.29 on 25 July 2011.

NTPC, Maruti Suzuki India, Tata Power Company, Tata Motors and Jaiprakash Associates hit 52-week lows today, 26 August 2011. Metal stocks declined on worries the global economic slowdown may crimp demand. Steel giant Tata Steel, JSW Steel and Sterlite Industries hit 52-week lows. Realty stocks fell on worries higher interest rates could dent demand for residential and commercial properties. Bank stocks extended recent steep losses triggered by concerns that elevated interest rates may restrict loan growth, with State Bank of India and ICICI Bank hitting 52-week lows. Anil Dhirubhai Ambani Group (ADAG) shares slumped.

The market edged lower amid initial volatility as most Asian stocks fell. Volatility continued as the market trimmed gains after surging to fresh intraday high in morning trade. The market slipped into the red to hit fresh day's low in mid-morning trade. The market weakened again after recovering from the day's low to turn positive for a brief period in early afternoon trade. The market hit a fresh intraday low in afternoon trade as European markets opened lower. The market extended losses in mid-afternoon trade. The market trimmed losses after hitting fresh intraday lows in late trade.

The BSE Sensex lost 297.50 points or 1.84% to settle at 15,848.83, its lowest closing level since 5 February 2010. The index fell 380.80 points at the day's low of 15,765.53 in late trade. The Sensex jumped 110.05 points at the day's high of 16,256.38 in morning trade.

The S&P CNX Nifty shed 91.80 points or 1.9% to settle at 4,747.80, its lowest closing level since 5 February 2010. The Nifty hit a low of 4,720 in intraday trade.

The BSE Mid-Cap index fell 2.25% and the BSE Small-Cap index shed 2.65%. Both these indices underperformed the Sensex.

BSE clocked turnover of Rs 2078 crore, lower than Rs 2438.34 crore on Thursday, 25 August 2011.

The market breadth, indicating the overall health of the market, was quite weak. On BSE, 2,226 shares fell and 641 shares rose. A total of 111 shares remained unchanged.

Among the 30-share Sensex pack, 27 fell while only three rose.

Index heavyweight Reliance Industries (RIL) tumbled 4.61% to Rs 719.50. The stock hit 52-week low of Rs 713.55 in intraday trade today, 26 August 2011. RIL has received the government's formal approval to sell a 30% stake in 21 oil and gas production sharing contracts to BP PLC. The initial proposal was for RIL to sell the stake in 23 blocks to BP for $7.2 billion plus another $1.8 billion linked to exploration success. However, the government cleared only 21 blocks and RIL had said it would continue to seek approval for the remaining two blocks.

Meanwhile, RIL has hired Navin Wadhwani, currently managing director at NM Rothschild and Sons (India), to lead mergers and acquisitions at the company. RIL, which has diversified from its textile origins into oil and gas, retail and financial services, is looking to expand into more areas and effectively utilize the $9 billion on its balance sheet.

Auto shares were mixed. India's largest small car maker by sales Maruti Suzuki India fell 2.23% to Rs 1087. The stock hit 52-week low of Rs 1048 today. Tata Motors fell 2.08% to Rs 699.20. The stock hit 52 week low of Rs 695 today. India's largest tractor and utility vehicles maker by sales Mahindra & Mahindra (M&M) rose 1.2%.

Hero MotoCorp gained 2.7% and was the top gainer from the Sensex pack. India's second largest bike maker by sales Bajaj Auto fell 1.77%.

Consumer durables stocks edged lower. Rajesh Exports, Blue Star, Videocon Industries and Titan Industries fell by between 2.04% to 5.7%.

FMCG stocks fell on profit taking after recent gains. ITC, Hindustan Unilever and United Spirits shed by between 0.34% to 4.82%.

Anil Dhirubhai Ambani Group shares slumped. Reliance Communications, Reliance Infrastructure, Reliance Capital, and Reliance Power shed by between 5.06% to 11.9%.

Jaiprakash Associates declined 7.58% to Rs 54.90. The stock hit 52 week low of Rs 54.45 today.

NTPC fell 2.26% to Rs 166.20. The stock hit 52 week low of Rs 162.65 today.

Realty stocks fell on worries higher interest rates could dent demand for residential and commercial properties. Purchases of both residential and commercial property are largely driven by finance. DLF, HDIL, Indiabulls Real Estate and Unitech shed by between 3.38% to 5.76%.

Metal stocks declined on worries the global economic slowdown may crimp demand. Hindalco Industries, Hindustan Zinc, Sail, Welspun Corp, Nalco Jindal Steel & Power, and Bhushan Steel fell by 0.39% to 4.54%.

India's largest steel maker by sales Tata Steel declined 4.77% to Rs 422.25 on concerns the ongoing euro-zone debt worries will impact its European operations adversely. The stock hit 52 week low of Rs 419.10 today, 26 August 2011. Tata Steel derived 62% of its consolidated revenues from European operations in Q1 June 2011.

Sterlite Industries declined 2.44% to Rs 122. The stock hit 52 week low of Rs 120.80 today.

JSW Steel declined 6.07% to Rs 608.10. The stock hit 52 week low of Rs 594.65 today. JSW Steel's Chief Executive Vinod Nowal today, 26 August 2011, said that the company will invest Rs 1000 crore in the current financial year through March 2012 in a new 10 million metric tonnes a year capacity steel plant at Salboni in West Bengal.

Bank stocks extended recent steep losses triggered by concerns that elevated interest rates may restrict loan growth. India's largest private sector bank by net profit ICICI Bank fell 1.73% to Rs 820.15. The stock hit 52-week low of Rs 813.55 today. India's second largest private sector bank by net profit HDFC Bank shed 1.37%.

India's largest bank by branch network and net profit State Bank of India (SBI) dropped 3.9% to Rs 1888.75, after sliding to a 52-week low of Rs 1872. SBI Chairman Pratip Chaudhuri on Tuesday, 23 August 2011, said the bank expects to launch a rights issue in the second half of this financial year. He said the government is considering infusing additional capital into the lender. SBI is looking to bolster its capital base to keep up with its fast-growing loan portfolio and expects the government to invest Rs 5000 crore-Rs 9000 crore in the rights issue. Chaudhuri said the bank is well-capitalized for loan growth of 16%-19% in the current fiscal year ending March 2012.

SBI's plan to raise about Rs 20000 crore in fresh capital was submitted to the Indian government--its biggest stakeholder--in 2010, but it is yet to receive a decision.

Rating agency Fitch Ratings on Tuesday, 23 August 2011, said that Indian banks are better prepared to face asset quality challenges arising from the economic slowdown compared to 2008. In a study, Fitch said that banks have higher tier-1 capital and improved loan-loss reserves at the end of June 2011 against 2008. The government's injection of capital in state-owned banks in 2010 has helped most banks raise core tier-1 capital ratio above 8%. The report said that though banks' operating margins are likely to decline in the year ending March 2012 (FY 2012), the margins are likely to remain sufficiently robust to absorb credit costs for most banks.

Tata Power Company fell 3.1% to Rs 1013.50 after the company fixed 27 September 2011 as record date for a 10-for-1 stock split. The stock hit 52 week low of Rs 1007 today.

Bharti Airtel fell 0.76%. The company reportedly added 1.51 million mobile subscribers in July 2011, taking its total mobile subscribers base in the country to 170.7 million.

Cipla fell 1.3%. The company's Chairman Y.K. Hamied on Thursday said that the company is open to entering marketing alliances with international drug companies for tapping the opportunity in emerging markets. He said there is a likelihood for the "creation of strategic alliances and various types of partnerships" as it is difficult for individual companies to simultaneously expand in all emerging markets. "There are areas where we are not very strong, but we have strong products, so we want somebody who's stronger in those areas to market our products there and vice versa," Mr. Hamied said during the company's annual shareholders meeting Thursday. Such product-wise or territory-wise arrangements will be good for the company, he said.

Mr. Hamied, who is a member of Cipla's founding family, reiterated Thursday that the founders aren't looking to exit the company. Cipla has an investment plan of Rs 600 crore for upgrading five of its plants in India, Mr. Hamied said. He said the company may see slower sales in the Middle East because of political unrest affecting its business in Syria, Libya and Algeria. The region accounts for 6%-7% of the company's sales.

Infosys rose 0.68% on reports the company has won a $29-million mobile banking deal from ANZ Australia, one of the largest listed companies in Australia with assets of AU$531.74 billion. The stock had hit 52 week low of Rs 2169 in intraday trade on Thursday, 25 August 2011. ANZ is a customer of Infosys' core banking product Finacle since 2006 and has used the solution to quickly expand its business in Asia. The deal is a positive sign for the sector, whose pipelines have been running dry of late, report said.

India's third largest software services exporter Wipro shed 2.64%. India's largest software services exporter TCS fell 0.63%.

Cals Refineries clocked highest volume of 5.03 crore shares on BSE. Tree House Education & Accessories (2.01 crore shares), Resurgence Mines (63.19 lakh shares), K S Oils (59.73 lakh shares) and Suzlon Energy (52.13 lakh shares) were the other volume toppers in that order.

Tree House Education & Accessories clocked highest turnover of Rs 235.03 crore on BSE. SBI (147.48 crore), Infosys (Rs 68.72 crore), Tata Steel (Rs 67.91 crore) and ICICI Bank (Rs 56.76 crore) were the other turnover toppers in that order.

Foreign institutional investors (FIIs) have pressed heavy sales this month amid the ongoing credit crisis in the euro zone. The sustained selling by foreign funds is a cause for concern for India Inc. Foreign portfolio inflow acts as a catalyst to private corporate capital expenditure in India. Foreign institutional investors (FIIs) sold shares worth net Rs 1494 crore on Thursday, 25 August 2011, higher than an outflow of Rs 757.80 crore on Wednesday, 24 August 2011. FII outflow in August 2011 totaled a massive Rs 11222.40 crore (till 25 August 2011)

FIIs have sold shares worth a net Rs 17206.42 crore in calendar year 2011 so far, till 25 August 2011, as per data from the stock exchanges. Domestic institutional investors have bought shares worth a net Rs 22424.36 crore this year so far.

As per a recent survey by a prominent investment bank, Corporate India will raise capital spending by tepid 10% in the year to March 2012 (FY 2012). Capital expenditure (capex) in FY 2012 will be concentrated on improving productivity rather than adding greenfield capacity, the investment bank said.

The Reserve Bank of India (RBI) on Thursday, 25 August 2011, said that there is a need to rebalance demand from consumption to investment by stepping up savings in the economy. In order to achieve a 9% growth in Twelfth Five Year Plan (2012-17), the investment rate of 40.5% would be required if incremental capital output ratio (ICOR) remains unchanged from 4.5% during the Eleventh Plan. This requires augmenting saving as well as bringing about technological and institutional improvements to lower ICOR.

In its annual report for 2010-2011 released on Thursday, 25 August 2011, RBI said that there is a need to step up savings in the economy. The current account deficit (CAD) that finances the saving-investment gap has averaged less than 1% of GDP over past two decades. Even assuming a higher a CAD/GDP ratio of 2%, gross domestic saving (GDS) rate need to be raised by about 5 percentage points from 33.7% in 2009-10, RBI said. This underscores, the importance of augmenting saving as well as bringing about technological and institutional improvements to realize higher growth through higher investments and lower ICOR.

Overall investment requirements and the need for continued sustainability on current account, thus underscore the need for attaining the highs of private corporate and public sector savings reached in the recent past and exploring the possibility of invoking an upward shift in household savings which have remained stable for many years, RBI said.

RBI said there could be some pressure on CAD if the global economy weakens significantly and affects exports. With adequate foreign exchange reserves, India remains capable of handling any pressures emanating from the external sector in the near term. However, from a medium to long term perspective, it is important to improve resilience of external account by pursuing policies that shift the composition of capital flows so as to reduce dependence on its volatile components, RBI said. Augmenting foreign direct investment (FDI) further could bring about a better balance between different components of capital flows and reduce the possibility of volatile currency movements and any pressure on reserves in the face of contagion risks, RBI said.

RBI said tackling food inflation also needs a strategy to break the inertial element arising from rising real wages leading to increases in the Minimum Support Price (MSP), which in turn lead to higher food inflation that feeds back to higher wages with an element of indexation. Rural wage programmes need to be linked with productivity, RBI said. If productivity improves, real wages can rise without putting pressure on prices. The inclusion agenda can then be pursued on a sustainable basis without drag on inflation and the fiscal position.

Transmission of inflation from abroad has also been an important element in keeping inflation high in the recent years, RBI said. International commodity prices remain a potential threat as global liquidity is still far too large due to monetary policy accommodation by advanced countries, RBI said. Fuel and food security would need to be given particular attention. There is a need for environmentally sustainable solutions to manage energy security. Free pricing of petroleum products can help, as a large population cannot be subsidised in an import dependent item, RBI said.

The central bank also said that pricing power in the manufacturing sector has macro as well as micro angles. A competition policy has been put in place and industrial organisation structures could be studied along with price information to stamp out anti-competitive practices and collusive behavior. Such behavior also adds to inflationary pressures and needs to be curbed, RBI said.

RBI said inflation is likely to remain high and moderate only towards the latter part of the year to about 7% by March 2012. The recent decline in global commodity prices has not been very significant, RBI said. If the global recovery weakens ahead, commodity prices may decline further, which should have a salutary impact on domestic inflation, RBI said. The pass-through of the rise in global commodity prices so far has been incomplete, especially in the minerals and oil space. As such, the benefit of a moderate fall in global commodity prices on domestic price level would also be limited, RBI said.

If global oil prices stay at current level, further increase in prices of administered oil products will become necessary to contain subsidies. Fertiliser and electricity prices will also require an upward revision in view of sharp rise in input costs, RBI said. The high and persistent inflation over the last two years has brought to the fore the limitation in arresting inflation in absence of adequate supply response. However, monetary policy still has an important role to play in curbing the second round effects of supply-led inflation, RBI said. In face of nominal rigidities and price stickiness, there are dangers of accepting elevated inflation level as the new normal, the central bank said.

The food price index rose 9.8% and the fuel price index climbed 13.13% in the year to 13 August 2011, government data on Thursday, 25 August 2011, showed. In the previous week, annual food and fuel inflation stood at 9.03% and 13.13% respectively. The primary articles index was up 12.4%, compared with an annual rise of 11.64% a week earlier.

The near-term prospects for agricultural sector remain good. The rainfall deficit in the country had widened to 5% of the long-term average in July 2011, but a pickup in August 2011 helped narrow the deficit to 1% by 24 August 2011. Good rains could help boost rural income and may help bring down food inflation.

Meanwhile, Indian firms relying on European and US markets are worried about a likely economic slowdown in the US and Europe. Bilateral trade between India and the US stood at $36.5 billion in 2010.

Commerce Minister Anand Sharma, last week, said India's discussions with the European Union (EU) and Canada to form free-trade agreements are in advance stages. India aims to boost bilateral trade with Canada to C$15 billion (US$15.3 billion) a year by 2015 from about C$4.2 billion in 2010. With the 27-member EU, India had initiated discussions on the free-trade pact in 2007. The two sides originally hoped to conclude a wide-ranging deal by 2010 to boost trade to $237 billion annually by 2015. Their bilateral trade is currently worth about $92 billion.

Amid hectic efforts to break the deadlock on Lokpal issue, Anna Hazare today, 26 August 2011, shot off a letter to Prime Minister Manmohan Singh saying he would break his fast if Parliament agrees to his three key demands but will continue his protest till the legislation is passed. Mr. Hazare's letter to Singh also contains his Team's version of a resolution to be moved in Parliament which details his three demands -- all civil servants should be brought under Lokpal, a Citizen Charter should be displayed at all government offices and all States should have Lokayukta. Hazare has been fasting since 16 August 2011, demanding passing of Jan Lokpal Bill in the Parliament.

European shares dropped on Friday, 26 August 2011, as investors remained cautious ahead of a key speech by US Federal Reserve Chairman Ben Bernanke and a revision of US second-quarter growth estimates. The key benchmark indices in UK, France and Germany were down by 0.97% to 2.55%.

Shares of French lenders rose after the French regulator on Thursday, 25 August 2011, extended a ban on short selling.

Asian shares were mixed on Friday, 26 August 2011, ahead of a US Federal Reserve conference in Jackson Hole, Wyoming. The key benchmark indices in Japan, South Korea and Taiwan rose by between 0.29% to 0.81%. The key benchmark indices in Singapore, Hong Kong, Indonesia and China were down by between 0.07% to 0.86%.

Trading in US index futures indicated that the Dow could fall 11 points at the opening bell on Friday, 26 August 2011. Investors are looking ahead to Federal Reserve Chairman Ben Bernanke's scheduled speech later in the global day today, 26 August 2011, in Jackson Hole, Wyo., and whether he will announce another round of quantitative easing or QE3 to prop up the US economy. The Fed chairman used the same forum in 2010 to hint at the launch of a QE2, which sparked a rush into risky assets and away from dollar.