Market snaps two-day gains

Automobile, metal and banking shares led Indian shares lower as the market snapped a rally in the preceding two trading sessions. Banking major State Bank of India (SBI) and auto major Tata Motors hit 52-week lows. Intraday volatility was high as traders rolled over positions in the derivatives segment from the near-month August 2011 series to September 2011 series. The August 2011 derivatives contracts expire tomorrow, 25 August 2011. The BSE Sensex fell 213.49 points or 1.29%, off 248.24 points from the day's high and up 31.20 points from the day's low. Data showing sustained selling by foreign funds this month weighed on investor sentiment.



The Sensex had jumped 356.80 points or 2.21% in two sessions to settle at 16,498.47 on Tuesday, 23 August 2011, from a 14-1/2-month low of 16,141.67 on 19 August 2011.

Coming back to today's trade, index heavyweight Reliance Industries (RIL) declined in volatile trade. Coal India tumbled, extending Tuesday's losses triggered by reports that labour unions of the company have demanded a 100% jump in employee salaries. Auto shares saw an across the board decline on concerns higher interest rates could crimp sales of automobiles. Bank stocks reversed initial gains triggered by a statement from Fitch Ratings on Tuesday, 23 August 2011, that Indian banks are better prepared to face asset quality challenges arising from the economic slowdown compared to 2008. Metal stocks declined on worries the global economic slowdown may crimp demand. The market breadth turned negative from positive in late trade.

Intraday volatility was high. The market recovered soon after an initial slide triggered by weak Asian shares. The market alternatively swung between gains and losses in morning trade. Weak Asian shares weighed on the market in mid-morning trade. A bout of volatility was witnessed as the Sensex trimmed losses soon after hitting fresh intraday lows in early afternoon trade. Volatility continued as the Sensex hit fresh intraday lows in afternoon trade. Immense volatility was witnessed as key benchmark indices lost ground in mid-afternoon trade, soon after staging an intraday rebound. The market slumped in late trade.

The BSE Sensex fell 213.49 points or 1.29% to settle at 16,284.98, its lowest closing level since 19 August 2011. The Sensex lost 244.69 points at the day's low of 16,253.78 at the fag end of the trading session. The index rose 34.75 points at the day's high of 16,533.22 in morning trade.

The S&P CNX Nifty fell 60 points or 1.21% to settle at 4,888.90, its lowest closing level since 19 August 2011. The Nifty hit a high of 4,962.40 and low of 4,875.30 in intraday trade.

The BSE Mid-Cap index was down 0.54% and the BSE Small-Cap index shed 0.51%. Both these indices outperformed the Sensex.

The market breadth turned negative from positive in late trade. On BSE, 1,528 shares declined and 1,313 shares advanced. A total of 112 shares remained unchanged. The market breadth was strong earlier in the day.

BSE clocked turnover of Rs 2176 crore, lower than Rs 2247.03 crore on Tuesday, 23 August 2011.

Among the 30-share Sensex pack, 27 declined while only two of them managed gains.

Index heavyweight Reliance Industries (RIL) shed 0.6% to Rs 760.95. The stock hit a high of Rs 769.85 and low of Rs 756.50. The stock had hit 52-week low of Rs 721.60 in intraday trade on Friday, 19 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. "Following the approval, Reliance and BP will work together to conclude the deal expeditiously," RIL said in a statement recently.

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.

Coal India tumbled 4.61% to Rs 373.85 and was the top loser from the Sensex pack. The stock extended Tuesday's losses triggered by 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.

Auto shares saw an across the board decline on concerns higher interest rates could crimp sales of automobiles. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing. India's largest commercial vehicle maker by sales Tata Motors dropped 3.90% to Rs 700.70 after declining to a 52-week low of Rs 696. India's largest tractor and utility vehicles maker by sales Mahindra & Mahindra (M&M) lost 1.51% to Rs 697.35.

India's largest small car maker by sales Maruti Suzuki India declined 3.69% to Rs 1115.15 as the stock turned ex-dividend today, 24 August 2011, for dividend of Rs 7.50 per share for the year ended March 2011.

India's largest bike maker by sales Hero MotoCorp slipped 1.61% to Rs 1961.85 and India's second largest bike maker by sales Bajaj Auto declined 1.86% to Rs 1516.55. TVS Motor Company (down 2.22%), and Ashok Leyland (down 1.41%), also slipped.

India's largest FMCG company by sales Hindustan Unilever rose 0.71% to Rs 319.50 on optimism good monsoon rains may boost rural incomes which in turn could boost FMCG sales. Among other FMCG stocks, Nestle India (up 2.25%), Britannia Industries (up 2.15%), United Breweries (up 1.75%), Marico (up 1.58%) and Dabur India (up 0.71%), edged higher.

However, India's largest cigarette maker by sales ITC fell 0.37% to Rs 201.90. Tata Global Beverages (down 1.03%), United Spirits (down 1.34%), Ruchi Soya Industries (down 1.36%), Colgate-Palmolive (India) (down 2.25%) and Godrej Consumer Products (down 2.50%), were the other FMCG shares that fell.

India's largest engineering and construction Larsen & Toubro fell 2.17% to Rs 1557.90. During market hours today, 24 August 2011, the company said it has bagged new orders worth Rs 1340 crore in the building and factories segment in Q2 September 2011.

Among other capital goods shares, Bhel, Praj Industries, Suzlon Energy, Punj Lloyd, Jyoti Structures, Lakshmi Machine Works, Bharat Electronics, Everest Kanto Cylinders, Siemens, Thermax, Reliance Industrial Infrastructure, Areva T&D (India), ABB, Walchannagar Industries, BEML, Kalpataru Power and Alstom Projects fell by 0.05% to 3.73%.

Bank stocks reversed initial gains triggered by a statement from Fitch Ratings on Tuesday, 23 August 2011, that Indian banks are better prepared to face asset quality challenges arising from the economic slowdown compared to 2008.

India's largest bank by branch network and net profit State Bank of India (SBI) dropped 3.53% to Rs 1992.15 after sliding to a 52-week low of Rs 1981. 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.

India's largest private sector bank by net profit ICICI Bank fell 1.20% to Rs 841.80. India's second largest private sector bank by net profit HDFC Bank slipped 0.79% to Rs 453.30.

Bank of India (down 3.46%), Axis Bank (down 3.12%), Union Bank of India (down 2.39%), Canara Bank (down 2.27%), Bank of Baroda (down 1.83%), Punjab National Bank (down 1.79%), IDBI Bank (down 1.50%), IndusInd Bank (down 1.43%), Yes Bank (down 1.20%) and Kotak Mahindra Bank (down 0.33%), declined.

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.

Metal stocks declined on worries the global economic slowdown may crimp demand. Tata Steel, Hindustan Zinc, Jindal Steel & Power, Jindal Saw, Sterlite Industries, Sail, Welspun Corp, Nalco and Bhushan Steel fell 0.41% to 4.28%.

Sesa Goa declined 1.84% to Rs 218.60. During market hours today, 24 August 2011, the company said that the Legislature of Republic of Liberia has ratified the Mineral Development Agreement for the Western Cluster Project executed with the Government of Liberia.

Cals Refineries reported highest volume of 2.24 crore shares on BSE. KS Oils (1.04 crore shares), Sanra Software (58.91 lakh shares), Ballarpur Industries (52.06 lakh shares) and Resurgere Mines & Minerals India (41.47 lakh shares), were the other volume toppers on BSE in that order.

State Bank of India reported a highest turnover of Rs 160.49 crore shares on BSE. Lovable Lingerie (Rs 85.91 crore), Tata Steel (Rs 63.72 crore), Tata Motors (Rs 47.69 crore) and ICICI Bank (Rs 47.03 crore), were the other turnover toppers on BSE 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. FIIs sold shares worth a net Rs 100.34 crore on Tuesday, 23 August 2011, as per provisional data from the stock exchanges. FIIs have sold shares worth Rs 9843.16 crore this month, till 23 August 2011, as per data from the stock exchanges. There was a massive outflow of Rs 5279.30 crore in just three trading sessions between 5 August 2011 and 9 August 2011.

FIIs have sold shares worth a net Rs 14882.39 crore in calendar year 2011 so far, as per data from the stock exchanges. Domestic institutional investors have bought shares worth a net Rs 21478.25 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) said at first quarter 2011-2012 policy review late last month that that the uncertain global macro-economic environment poses a challenge for the Indian economy from the perspective of financing the current account deficit. 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, RBI said. This trend needs to be reinforced through policy actions to improve the quality of financing of the current account deficit, RBI said.

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.

Prime Minister Manmohan Singh, last week, said the government is aiming for 9% annual growth over a five-year period beginning 1 April 2012. "It will be prudent to have a growth target, which would ensure achievement of the objective of sustained inclusive growth at a level which will also take into account the capabilities of the economy to achieve higher growth," Mr. Singh said, after a meeting of the planning commission to finalize details of the 12th five-year plan. If the global economic situation improves, India's growth "can be 9.2% during the period," he added.

India sets five-year macroeconomic targets, and the planning commission's view is a part of planning for the next five-year period. The commission is chaired by the prime minister.

Reserve Bank of India (RBI) deputy governor Subir Gokarn on Tuesday, 23 August 2011, said that RBI continues to expect inflation to start falling by November and December 2011 and is watching for signs of moderation in demand. Gokarn had said last week that the primary objective of monetary policy must be to keep inflation low and stable. The RBI is scheduled to undertake a mid-quarter policy review on 16 September 2011.

Food Minister K.V. Thomas, last week, said that the government plans to introduce a food security bill, which promises to give cheap food grains to 70% of the country's population, in the winter session of parliament. Thomas told reporters that the bill won't be introduced in the ongoing session of parliament, as earlier planned, because the "consultation process with state governments and different ministries is still on. "A ministerial panel had cleared the draft law last month.

Indian Meteorological Department (IMD) said on 18 August 2011 that monsoon rains were 26% above normal in week to 17 August 2011, strengthening from a 14% above normal reading in the previous week. The June to September Southwest monsoon rains are crucial to crop production in 60% of the country that does not have adequate irrigation.

Total rainfall since the beginning of the season was 1% below normal until 17 August 2011, down from a deficit of 4% until last week. Good rains will help India achieve its target of increasing its food grains output to a record 245 million metric tonnes this crop year that started 1 July 2011. Good rains could help boost rural income and may help bring down food inflation. The rainfall has been normal in 65% of the country, while it has exceeded the normal in 23% and deficient in 12% until 17 August 2011.

The rainfall was excess to normal in oilseeds-growing western region, in the rice-growing eastern region as well as parts of the grain-bowl northern region and the north-western Rajasthan state. Plantings of key summer crops have been on the rise until 5 August, aided by favourable weather, including the main summer-sown rice crop. Rice acreage rose to 26.03 million hectares as against 24.47 million hectares during the same period last year.

Prime Minister Manmohan Singh on Tuesday, 23 August 2011, made an appeal to anti-corruption activist Anna Hazare to call off his fast. Singh has appointed senior Congress leader Pranab Mukherjee as negotiator for discussions with Team Anna. The government has reported agreed to bring the Prime Minister under the ambit of the Lokpal. Hazare, the 73-year-old Gandhian began his indefinite fast in police custody on 16 August 2011 demanding a strong Lokpal bill. The government has called an all-party meeting for Wednesday 24 August 2011 to discuss details of setting up an anti-corruption watchdog.

European stocks rose on Wednesday, 24 August 2011, shrugging off concerns over a downgrade of Japan by Moody's Investors Service as earnings announcements helped boost several companies. Key benchmark indices in France, UK and Germany were up by between 0.08% to 0.89%.

Asian stocks fell in choppy trade on Wednesday, 24 August 2011, as investor tolerance for risk assets evaporated after Moody's downgrade of Japan's credit ratings brought back worries related to sovereign debt and the global economic outlook. The key benchmark indices in Taiwan, Indonesia, Singapore, China, Japan, Hong Kong and South Korea were down by between 0.51% to 2.06%.

Moody's Investors Service today, 24 August 2011, cut Japan's debt ratings by one notch to AA3 from AA2 with a stable outlook, citing the nation's large budget deficits and burgeoning debt since 2009. Two other ratings agencies --Standard & Poor's and Fitch -- currently have negative outlooks on their AA ratings for Japan.

US stocks surged on Tuesday, 23 August 2011, after a business activity index slid in August 2011 but not by as much as a similar index released last week. In addition, global manufacturing surveys weren't bad as some had expected. The Dow Jones Industrial Average jumped 322.11 points, or 3%, to close at 11176.76. The Standard & Poor's 500-stock index rose 38.53 points, or 3.4%, to 1162.35 and the Nasdaq Composite rallied 100.68 points, or 4.3%, to 2446.06.

Investors are looking forward to Federal Reserve Chairman Ben Bernanke's speech at Jackson Hole on Friday, 26 August 2011, amid a debate and speculation over further monetary easing, and specifically, about any reference to the Fed's third round of quantitative easing, or QE3.

On Thursday, 25 August 2011, investors will scrutinize weekly US jobless claims data for signs of stabilization in the nation's labor market

Trading in US index futures indicated that the Dow could fall 69 points at the opening bell on Wednesday, 24 August 2011.