Market slides for fifth week in a row

Sustained selling by foreign fund amid concerns about corporate earnings growth, worries over global economic growth and standoff between the government and anti-corruption activist Anna Hazare over the Lokpal Bill, pulled Indian shares lower for the 5th week in a row. The Sensex fell below the psychological 16,000 mark and the Nifty slid below 4,800 level. Reports that China had deployed more advanced nuclear missiles at Sino-Indian border as a 'deterrent posture' also weighed on investor sentiment.



The BSE Sensex fell 292.84 points or 1.81% to 15,848.83 in the week ended Friday, 26 August 2011. The S&P CNX Nifty fell 97.85 points or 2.01% to 4,747.80.

The BSE Mid-Cap index fell 1.51% and the BSE Small-Cap index fell 1.33%. Both these indices outperformed the Sensex.

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.

Gains in European shares triggered by a fall in crude oil prices aided a recovery in battered Indian shares on Monday, 22 August 2011. The BSE Sensex jumped 200.03 points or 1.24% to 16,341.70.

Positive global cues helped Indian shares register gains for the second day in a row on Tuesday, 23 August 2011. World stocks rose that day, with sentiment boosted by Chinese data and expectations Federal Reserve Chairman Ben Bernanke will signal readiness later this week to support struggling US economy. The BSE Sensex jumped 156.77 points or 0.96% to settle at 16,498.47.

Automobile, metal and banking shares led Indian shares lower on Wednesday, 24 August 2011, as the market snapped a rally in the preceding two trading sessions. The BSE Sensex fell 213.49 points or 1.29% to settle at 16,284.98.

Key benchmark indices extended losses for the second straight day on Thursday, 25 August 2011, as data showing a rise in food inflation in mid-August 2011 weighed on investor sentiment. The BSE Sensex was down 138.65 points or 0.85% to 16,146.33.

Key benchmark indices slumped to 18-1/2-month lows on Friday, 26 August 2011, as data showing sustained selling by foreign funds this month hit sentiment. Weak global shares also weighed on sentiment. The BSE Sensex fell 297.50 points or 1.84% to 15,848.83.

Among the thirty Sensex shares, 24 stocks declined and the remaining shares rose.

State-run Coal India slumped 8.62% to Rs 359.75. It was the top Sensex loser last week. The stock fell on reports that labour unions of the company have demanded a 100% jump in employee salaries--a demand that would put the state-run entity under a severe strain. Coal India's annual employee cost stood at Rs 18201.45 crore for the year ended 31 March 2011 as per the company's consolidated financial statements. The major cost within the employee cost was salaries, wages and bonus at Rs 11706.42 crore. This amounted to 24.73% of the company's total expenditure of Rs 47332.08 crore.

Coal India will replace Reliance Capital in S&P CNX Nifty index from 10 October 2011, the National Stock Exchange said on Thursday, 25 August 2011.

India's largest steel maker by sales Tata Steel declined 8.05% 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 on 26 August 2011. Tata Steel derived 62% of its consolidated revenues from European operations in Q1 June 2011.

Diversified infrastructure company Jaiprakash Associates tumbled 7.73% to Rs 54.90.

India's largest bank by branch network and net profit State Bank of India (SBI) dropped 7.41% to Rs 1888.75. The stock hit a 52-week low of Rs 1872 on 26 August 2011. 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.

Index heavyweight Reliance Industries (RIL) fell 1.60 to Rs 719.50. The stock hit 52-week low of Rs 713.55 in intraday trade on 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.

Maruti Suzuki India (down 7.07%), DLF (down 5.91%), HDFC Bank (down 5.03%), Jindal Steel & Power (down 4.70%), NTPC (down 4.35%), Tata Power Company (down 3.73%) and Cipla (down 2.76%), edged lower from the Sensex pack.

India's second largest bike maker by sales Bajaj Auto jumped 4.46% to Rs 1495. It was the top Sensex gainer.

India's largest listed cellular operator by sales Bharti Airtel rose 3.98% to Rs 398.75 on reports the company added 1.51 million mobile subscribers in July 2011, taking its total mobile subscribers base in the country to 170.7 million.

India's largest power equipment maker by sales Bhel rose 3.16% to Rs 1736.50. India's largest IT company by sales TCS rose 2.08% to Rs 949.15. India's largest FMCG company by sales Hindustan Unilever (HUL) rose 1.27% to Rs 319.05. State-run oil exploration giant ONGC rose 0.82% to Rs 278.

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 1440.55 crore on Thursday, 25 August 2011, as per provisional data from the stock exchanges. FII outflow in August 2011 totaled Rs 12167.19 crore, till 25 August 2011, as per data from the stock exchanges.

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 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.