Market loses ground on worries RBI may retain anti-inflationary stance

Key benchmark indices edged lower in choppy trade as an increase in food inflation raised concerns the central bank will stick to its tight monetary policy. The BSE Sensex lost 71.11 points or 0.42%, off close to 150 points from the day's high and up close to 45 points from the day's low. Index heavyweight Reliance Industries pared intraday gains. Reliance Infrastructure rose after the company said order book remains strong. Tata Power fell more than 4% despite good Q1 result. The market breadth was negative, having alternately swung between positive and negative terrain during the second half of the trading session.



Acceleration of food inflation in late July 2011 has raised concerns that the Reserve Bank of India (RBI) will stick to its tight monetary policy. Investors are worried that higher interest rates will crimp corporate profit growth. The RBI has raised interest rates 11 times since March 2010 to control inflation, which still reigns close to double-digit levels because of high food prices and intensifying demand pressures in non-food commodities.

Bank stocks edged lower on worries that higher interest rates will crimp loan growth. Housing finance major HDFC rose more than 2% as increase in lending rates may help protect net interest margins. Realty stocks extended recent losses on worries higher interest rates could dent demand for residential and commercial properties. Capital goods stocks, too, declined. Tata Motors came off the day's high after the company reported a muted growth in bottom line for Q1 June 2011 at the fag end of the trading session.

The market was volatile. The market recovered after a weak start triggered by lower Asian shares. The market weakened once again to hit fresh intraday low after moving into positive terrain for a brief period in early trade. The market trimmed losses in mid-morning trade as US index futures surged. A bout of volatility was witnessed as the key benchmark indices moved into positive terrain to hit fresh intraday highs in early afternoon trade. Intraday volatility was witnessed again as the market pared gains after hitting fresh intraday high in afternoon trade. The market retained positive zone in mid-afternoon trade. The market once again slipped into the red in late trade.

The BSE Sensex was down 71.11 points or 0.42% to 17,059.40, its lowest closing level since Tuesday, 9 August 2011. The Sensex rose 77.31 points at the day's high of 17,207.82 in early afternoon trade. The index fell 117.56 points at the day's low of 17,012.95 in morning trade.

The S&P CNX Nifty was down 22.70 points or 0.44% to 5,138.30, its lowest closing level since Tuesday, 9 August 2011. The Nifty hit a high of 5,184.95 in intraday trade. The Nifty hit a low of 5,121 in intraday trade.

The BSE Mid-Cap index fell 0.16% and the BSE Small-Cap index declined 0.19%. Both these indices outperformed the Sensex.

BSE clocked turnover of Rs 2360 crore, lower than Rs 2828.40 crore on Wednesday, 10 August 2011.

The market breadth, indicating the overall health of the market, was negative. On BSE, 1,488 shares fell while 1,338 shares rose. A total of 108 shares remained unchanged. The breadth alternately moved between positive and negative zone during the second half of the trading session.

Among the 30-share Sensex pack, 21 fell and the rest rose. NTPC, Coal India and Jaiprakash Associates gained by between 0.31% to 1.51%.

Index heavyweight Reliance Industries (RIL) rose 0.31% to Rs 773.40. The stock hit high of Rs 784.70 and low of Rs 766.10. The stock had hit a 52-week low of Rs 754.25 in intraday trade on Tuesday, 9 August 2011. RIL on Tuesday, 9 August 2011, said it has received the government's formal approval to sell a 30% stake in 21 oil and gas production sharing contracts to BP PLC. "Following the approval, Reliance and BP will work together to conclude the deal expeditiously," RIL said in a statement.

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.

The prized KG-D6 fields of RIL produced 31% less than previously projected natural gas output in the April-June 2011 quarter, the Oil Ministry said recently. The average gas production during April-June 2011 from KG-DWN-98/3 (KG-D6) block was 48.60 million metric standard cubic meters per day (mmscmd), less than the approved Field Development Plan (FDP) rate of 70.39 mmscmd, the ministry said.

Infosys fell 0.27% to Rs 2438.95 in volatile trade. The stock hit high of Rs 2465 and low of Rs 2414.

Bank stocks edged lower on worries that higher interest rates will crimp loan growth. India's largest commercial bank by branch network State Bank of India fell 0.9%. State Bank of India announced after market hours today that it has revised the base rate upwards by 50 basis points (bps) from 9.50% per annum (p.a.) to 10.00% p.a. effective from 13 August 2011. The bank has also revised the benchmark prime lending rate upwards by 50 bps from 14.25% p.a. to 14.75% p.a. effective from 13 August 2011.

India's largest private sector bank by net profit ICICI Bank shed 2.2%. India's largest private sector bank by net profit HDFC Bank dropped 0.14%.

The growth in bank advances continued to decline, owing to a rise in lending rates. According to recent data from the Reserve Bank of India (RBI), credit growth declined to 18.5% on an annual basis as on July 29, compared with 19.33% a fortnight before.

Housing finance major HDFC rose 2.34% as increase in lending rates may help protect net interest margins. HDFC raised its retail prime lending rate on housing loans by 50 basis points with effect from 1 August 2011. "This is in line with interest rates in the economy, which have hardened due to increase in policy rates by 75 basis points since June 2011," the company had said in a statement at the time of announcing the rate hike.

Realty stocks extended recent losses 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 0.34% to 1.9%.

Capital goods stocks edged lower in a weak market. BEML, Larsen & Toubro, Bhel and Crompton Greaves declined by between 0.23% to 2.52%.

India's largest commercial vehicle maker by sales Tata Motors rose 0.2% to Rs 845.60, off the day's high of Rs 861.40. The company reported a muted growth in bottom line for Q1 June 2011 at the fag end of the trading session today, 11 August 2011. Consolidated net profit 0.55% to Rs 2000 crore on 24.1% growth in net revenue to Rs 33572 crore in Q1 June 2011 over Q1 June 2010.

Tata Motors said cost pressures, including commodity price increase, resulted in a reduction in the operating margins to 8.4% in standalone financials. Earnings before interest taxes depreciation and amortization (EBITDA) fell 15% to Rs 999 crore in Q1 June 2011 over Q1 June 2011. The company's market share in commercial vehicle segment was 60.1%. The market share in passenger vehicles stood at 11.9%.

Jaguar Land Rover (JLR) revenues rose 19.9% to 2712 million pounds in Q1 June 2011 over Q1 June 2010. Cost pressures and impact of exchange rates resulted in a marginal reduction in the operating margins to 15.1%. EBITDA rose 16.9% to 408 million pounds in Q1 June 2011 over Q1 June 2010. Profit after tax fell 3.09% to 219 million pounds in Q1 June 2011 over Q1 June 2010.

In May 2011, JLR successfully completed issue of 7-year and 10-year bonds aggregating 1 billion pounds, part of which has been used for refinancing of existing loans and general corporate purposes. A new vehicle assembly plant was inaugurated in Pune, India in May 2011. The facility at present is assembling Land Rover's Freelander 2 vehicles supplied in complete knock down form, from the manufacturing plant in Liverpool.

India's largest small car maker by sales Maruti Suzuki India dropped 2.52%, on profit taking. The company is set to launch an upgraded model of the Swift hatchback this month. Maruti had said early this month that new Swift being manufactured at the company's Manesar plant will be launched nationally in mid-August 2011.

India's largest tractor and utility vehicles maker by sales Mahindra & Mahindra (M&M) shed 0.34% on profit taking. The stock had surged in the last three days after M&M during market hours on Monday, 8 August 2011, reported 7.6% rise in net profit to Rs 604.90 crore on 28.8% increase in gross revenue & other income to Rs 7294.30 crore in Q1 June 2011 over Q1 June 2010. M&M said profit before tax (PBT) rose 12.9% to Rs 814.30 crore. M&M said there was a sharp increase in non-cash charge arising from amortization of ESOPs granted in earlier years, at Rs 26.50 crore in Q1 June 2011 from Rs 0.90 crore in Q1 June 2010. Excluding this charge, PBT growth was 16.5% in Q1 June 2011, M&M said.

M&M said despite a relentless increase in material costs the profit grew in the first quarter due to tight control on expenses and good volumes in both auto and tractor segments. Since prospects for agricultural and services sectors growth remain reasonably robust, the outlook for the company for the remaining part of the year remains positive but watchful, M&M said.

India's local car sales fell 16% to 1.33 lakh units in July 2011 over in July 2010 as rising loan rates and higher fuel costs crimped demand for new vehicles. Industry body, the Society of Indian Automobile Manufacturers, expects car sales to rebound from August 2011 because of the introduction of new cars and resumption of full production at Maruti Suzuki, the country's largest car maker by sales.

India's second largest bike maker by sales Bajaj Auto fell 1.83%, with the stock snapping three-day gains.

India's largest bike maker by sales Hero MotoCorp fell 1.01%. The company aims to increase annual revenue to $10 billion and two-wheeler sales to 10 million units a year in the next five to six years, as it expands in overseas markets and hopefully benefits from strong local demand. The company expects exports to contribute a tenth of its vehicle sales and revenue over the same period.

Hero MotoCorp's chief executive Pawan Munjal on Tuesday, 9 August 2011, said the company has identified 30 new markets in Africa, Southeast Asia and Latin America where it plans to sell one million two-wheelers in the next five to six years. Munjal said the company will start exporting two-wheelers to some countries in Africa in the October-December quarter. Hero MotoCorp will retain a link to Japan's Honda Motor, paying royalties to the latter for use of technology until end-2014.

Munjal said Hero MotoCorp is enhancing its research and development set-up and exploring opportunities for collaboration with international design houses and technology suppliers. The company on Tuesday, 9 August 2011, unveiled a new 110-cubic-centimeter scooter model, Maestro, and a 150cc motorcycle, Impulse.

Anil Dhirubhai Ambani Group Reliance Power (RPower) rose 0.44% after the power generation firm said consolidated earnings before interest, taxation, depreciation and amortization (EBITDA) from power generation assets jumped 245% to Rs 208 crore in Q1 June 2011 over Q1 June 2010. Net profit rose 0.36% to Rs 196.12 crore on 300% surge in operating revenue to Rs 542 crore in Q1 June 2011 over Q1 June 2010. The result hit the market during trading hours today, 11 August 2011.

Anil Dhirubhai Ambani Group Reliance Infrastructure (R-Infra) rose 2.56%. The company's consolidated net profit rose 8.02% to Rs 405 crore on 38% increase in total operating income to Rs 5191 crore in Q1 June 2011 over Q1 June 2010. The result was announced during trading hours today, 11 August 2011.

Consolidated revenue from engineering, procurement and construction (EPC) segment surged 295% to 1754 crore in Q June 2011 over Q1 June 2010. The order book of the EPC division stood at Rs 28000 crore as on 30 June 2011, which is 9.35 times the EPC division's revenue of Rs 2994 crore for the year ended 31 March 2011.

Consolidated book value was Rs 903 per share and networth was at Rs 24025 crore. The company said it is conservatively financed with a debt-equity ratio of 0.55.

Tata Power Company shed 4.31% and was the top loser from the Sensex pack. The company's consolidated net profit after statutory appropriations jumped 34% to Rs 418.57 crore on 12.33% growth in revenue to Rs 5824.51 crore in Q1 June 2011 over Q1 June 2010. The result was announced after trading hours on Wednesday, 10 August 2011.

Commenting on the first quarter results, Anil Sardana, Managing Director, Tata Power, said the strong financial and operational performance for the quarter was driven by all business divisions. The operations continue to be stable and new projects are progressing well, he said. The company's two large projects at Maithon and Mundra are progressing towards commercialization, he said. "The 4000 megawatts (MW) Mundra UMPP is one of the first ultra mega projects of the country that has progressed faster than schedule. Mundra UMPP has made all contractual preparations including linkages through linked mines abroad for imported coal, linked ports at both ends and shipping for reliability. Our 1,050 MW Maithon mega power project's unit 1 has also achieved full load on coal," Sardana said.

Metal stocks were mixed after LMEX, a gauge of six metals traded on the London Metal Exchange dropped 1.03% on Wednesday, 10 August 2011. Hindalco Industries, Jindal Steel & Power, Sail, and Sterlite Industries shed by between 0.4% to 2.43%.

Tata Steel fell 0.27% to Rs 484.55. The stock hit 52 week low of Rs 480 today.

Hindustan Zinc, Hindalco Industries and JSW Steel rose by between 0.98% to 1.92%.

Castrol India fell 0.12%. The company's net profit fell 5.8% to Rs 142.50 crore on 7.9% rise in total income to Rs 812.60 crore in Q2 June 2011 over Q2 June 2010.

Fertiliser shares extended recent gains as the government moved a step closer to decontrolling urea prices and bringing urea under the nutrient-based subsidy regime. Rashtriya Chemicals and Fertilisers (RCF), Chambal Fertiliser & Chemicals, National Fertilizer, GNFC, GSFC, Coromandel International rose by between 1.27% to 5.58%.

A Group of Ministers on fertilizers recently approved a policy for decontrol of urea prices. Under the policy, manufacturers will be allowed to hike the rates for the key farm nutrient by up to 10% in the first year. The decision of the Group of Ministers, headed Finance Minister Pranab Mukherjee, on urea decontrol will now go to the Cabinet Committee on Economic Affairs for final approval. The government has already freed potassic and phosphoric fertilisers with the introduction of NBS with effect from April 2010.

Piramal Healthcare gained 1.46% after the company agreed to buy a 5.5% stake in Vodafone Group Plc's Indian telecom unit, Vodafone Essar, for cash consideration of Rs 2856 crore.

Sugar stocks rose on reports an Empowered Group of Ministers on food headed by Finance Minister Pranab Mukherjee is scheduled to meet on Friday, 12 August 2011, to decide on allowing more sugar export. Balrampur Chini Mills, Bajaj Hindusthan and Shree Renuka Sugars gained by between 0.26% to 3.75%.

According to reports, the government has so far allowed sugar export of one million tonnes under Open General Licence (OGL) in two tranches as the country's sugar production in 2010-11 has exceeded demand. Sugar output of India, the world's second largest producer and the biggest consumer, is estimated at 24.2 million tonnes in 2010-11 season (October-September) against around 19 million tonnes in the previous year. The annual domestic demand is 21-21.5 million tonnes.

Indian Sugar Mills Association (ISMA) is reportedly demanding export of further one million tonnes due to surplus stock and also to take advantage of higher global prices of the sweetener.

Cals Refineries clocked highest volume of 2.87 crore shares on BSE. Inventure Growth Securities (53.02 lakh shares), Birla Pacific (43.50 lakh shares), FCS Software (39.68 lakh shares) and Sanraa Media (36.94 lakh shares) were the other volume toppers in that order.

Inventure Growth Securities clocked highest turnover of Rs 118.55 crore on BSE. Lovable Lingerie (Rs 107.86 crore), SBI (Rs 79.69 crore), Tata Motors (Rs 62.32 crore) and Tata Steel (Rs 56.57 crore) were the other turnover toppers in that order.

In a bid to curb excessive leverage in the market, Securities & Exchange Board of India (Sebi) on Wednesday, 10 August 2011, directed stock exchanges to impose penalty on trading members for any short fall in the collection of margin from clients in equity derivatives and currency derivative segments. While the minimum penalty is 0.5% of the shortfall of margin money, the penalty could be as high as 100%.

The Q1 June 2011 earnings season is drawing towards a close. Investors are focusing on 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.

Tata Steel, Hindalco Industries, Coal India, National Aluminium Company, Jaiprakash Associates, Unitech, BPCL and HPCL unveil Q1 results on Friday, 12 August 2011. State Bank of India, Aditya Birla Nuvo, Reliance Communications, Reliance Capital and Shipping Corporation of India unveil Q1 results on Saturday, 13 August 2011.

Finance Minister Pranab Mukherjee on Thursday, 10 August 2011, said the Indian government and the Reserve Bank of India (RBI) are working together to ensure stability in local markets, which have been partly influenced by the US Federal Reserve's comments on interest rates. There won't be any cash crunch in Indian markets, Mukherjee said adding that the markets' movements are reflecting a return of investors' confidence after jittery trades for the past two days following the US rating downgrade.

Mukherjee early this week said the government will fast-track economic reforms and that the Indian economy remains an attractive investment destination for foreign investors despite the global growth slowdown worries. Mukherjee on Tuesday, 9 August 2011, said the decline in global crude prices will help in managing India's inflation.

The RBI on Monday, 8 August 2011, said that the US rating downgrade has raised concerns of continuing turmoil in global financial markets as investors re-allocate portfolios in response to heightened risk perceptions stemming from the latest developments. As Friday's (5 August 2011) market behaviour demonstrated, India is not insulated from such developments, RBI said. It may, however, be noted that in the worst phase of the recent global financial crisis, the Indian economy grew by 6.8%, suggesting high resilience emerging from domestic factors, the RBI said in a statement.

While downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact, RBI said. However, the policy and regulatory framework must anticipate and be prepared to respond to turbulent financial market conditions arising out of external developments, RBI said. In the immediate future, the RBI's priority is to ensure that adequate rupee and forex liquidity are maintained in domestic markets to prevent excessive volatility in interest rates and exchange rates.

RBI said it is closely monitoring all key indicators and will continuously assess the impact of global developments on rupee and forex liquidity and macroeconomic stability. "We will respond quickly and appropriately to the evolving situation, "RBI said.

The industrial production growth for June 2011 is projected to remain steady at 5.7% as per Capital Market's poll of economists, compared to 5.6% growth recorded in May 2011. About fifteen economists responding to the poll have projected IIP growth for June 2011 in the range of 4.9% to 8.5%. The median of various forecast received stood at 5.7%, while the average was higher at 5.9% for June 2011. The data is due tomorrow, 12 August 2011.

Annual inflation in the Food Articles group rose to 9.9% in the week ended 30 July, from 8.04% in the previous week, the Commerce & Industry Ministry said in a statement today, 11 August 2011. It was at 16.45% in the corresponding period of last year. Inflation in the Primary Articles group climbed to 12.22% in the week under review, from 10.99% in the week ended 23 July 2011. Inflation in the Fuel & Power group stood at 12.19% in the week ended 30 July from 12.12% in the previous week, the Government data showed. It was at 12.40% in the comparable week of the previous year.

Merchandise exports grew nearly 82% in July 2011 from a year earlier, totaling $29.3 billion, Commerce Secretary Rahul Khullar said Thursday, 11 August 2011. Imports in the just-ended month rose 51.5% from a year earlier to $40.4 billion, which widened the trade deficit to $11.1 billion from $7.66 billion in June.

Monsoon rains were 22% below normal in the week to 3 August 2011, recording marginal improvement from 23% below average showers in the previous week. Total rainfall since the beginning of the June-September monsoon season has been 6% below average. Rainfall has been normal or above in 73% of the country so far this season, while 27% of the country is facing a deficit. In some parts of eastern India such as Orissa, Bihar and Jharkhand, rainfall is below normal, but in the key rice-growing state of West Bengal rainfall is above normal. A rainfall deficit in the southern state of Andhra Pradesh, a top rice-producer, has largely been bridged.

In the northern grain bowl region of Punjab, the monsoon rain deficit is 26%. However, since most farmland in Punjab is irrigated, rice production may not be adversely affected in the state. But, low rainfall in the western regions is likely to adversely affect the output of groundnut, the second biggest summer-sown oilseed crop after soybean. In Gujarat, rainfall is 37% below average.

The RBI holds a mid-quarter monetary policy review on 16 September 2011. The RBI raised its key lending rates by 50 basis points at a policy review on 26 July 2011, to tame high inflation. RBI had at time said that 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. A change in stance will be motivated by signs of a sustainable downturn in inflation, it had added.

European stocks reversed initial strong gains amid ongoing worries about euro-zone debt. The key benchmark indices in UK, France and Germany were down by 1.05% to 2.86%.

Societe Generale (GLE) SA, France's second-largest bank, has denied "all market rumors" and asked the nation's market watchdog for an investigation after speculation France's creditworthiness was in doubt sent the bank's shares tumbling on Wednesday, 10 August 2011.

Asian stocks came off initial lows on bargain hunting after recent heavy losses. The key benchmark indices in South Korea and China rose 0.62% and 1.27%, respectively. The key benchmark indices in Hong Kong, Indonesia, Japan, Singapore and Taiwan fell by between 0.22% to 0.95%.

The recovery in South Korean shares was triggered by a ban on short-selling for three months announced by the government on Wednesday, 10 August 2011, in the wake of extreme losses in share prices recently. Meanwhile, South Korea's central bank left interest rates on hold on Thursday, setting in all likelihood a precedent for Asian policymakers forced to respond to a global economic slump and briefly halt their battle against inflation. The Bank of Korea was unambiguous in its statement, saying that while inflation would remain high, the downside risks to growth had increased.

US index futures came off the day's highs. Trading in US index futures indicated that the Dow could gain 34 points at the opening bell on Thursday, 11 August 2011. European and US stocks posted steep losses on Wednesday, 10 August 2011, after costs of insuring French government debt rose to new highs on Wednesday, 10 August 2011, on worries that France will be next in line to receive a sovereign downgrade. All three major ratings agencies, however, affirmed the country's rating.