Nifty at 15-month closing low

Key benchmark indices extended losses for the second straight day as data showing a rise in food inflation in mid-August 2011, data showing sustained selling by foreign funds this month, standoff between the government and anti-corruption activist Anna Hazare over the Lokpal Bill and reports that China has deployed more advanced nuclear missiles at Sino-Indian border as a 'deterrent posture' weighed on investor sentiment. The 50-unit S&P CNX Nifty reached 15-month closing low. The barometer index BSE Sensex lost 138.65 points or 0.85%, up close to 40 points from the day's low and off close to 230 points from the day's high.



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 expired today, 25 August 2011. Index heavyweights Reliance Industries (RIL) dropped in volatile trade. The market breadth was negative.

Investors investing in India are worried that higher interest rates will restrict corporate profit growth. Commercial banks have raised lending rates this month after the Reserve Bank of India (RBI) late last month raised its key lending rate by a steeper-than-expected 50 basis points at a policy review.

Metal stocks declined on worries the global economic slowdown may crimp demand. Steel giant Tata Steel hit 52-week low. Software pivotals extended recent losses triggered by concerns that a likely economic slowdown in the US and Europe will hit technology spending by overseas clients, with Infosys hitting 52-week low. Bank stocks extended recent steep losses triggered by concerns that elevated interest rates may restrict loan growth, with State Bank of India, Axis Bank and Bank of Baroda hitting 52-week lows.

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 757.80 crore on Wednesday, 24 August 2011, compared with an outflow of Rs 71.70 crore on Tuesday, 23 August 2011. FII outflow in August 2011 totaled Rs 9728.40 crore (till 24 August 2011).

FIIs have sold shares worth a net Rs 15765.87 crore in calendar year 2011 so far, till 24 August 2011, as per data from the stock exchanges. Domestic institutional investors have bought shares worth a net Rs 22039.35 crore this year so far.

The Reserve Bank of India (RBI) today, 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. ICOR is measure used predominantly in determining a country's level of production efficiency.

The market pared gains soon after a firm start triggered by a rally in Asian shares. The market swung between gains and losses in morning trade. The market extended losses to hit fresh intraday low in mid-morning trade. The market trimmed losses in early afternoon trade. The recovery gathered steam in afternoon trade as European shares rose in early trade. It regained positive terrain for a brief period. Volatility ruled the roost as the key benchmark indices trimmed losses after weakening once again in mid-afternoon trade. Volatility continued in late trade as the key benchmark indices trimmed losses, soon after hitting fresh intraday lows.

The BSE Sensex was down 138.65 points or 0.85% to 16,146.33, its lowest closing level since 19 August 2011. The Sensex gained 88.86 points at the day's high of 16,373.84 in early trade. The index fell 180.64 points at the day's low of 16,104.34 in late trade.

The S&P CNX Nifty was down 49.30 points or 1.01% to 4,839.60, its lowest closing level since 25 May 2010. The Nifty hit a low of 4,825.05 in intraday trade.

The BSE Mid-Cap index fell 0.88% and underperformed the Sensex. The BSE Small-Cap index declined 0.82%. and outperformed the Sensex.

BSE clocked turnover of Rs 2426 crore, higher than Rs 2204.92 crore on Wednesday, 24 August 2011.

The market breadth, indicating the overall health of the market, was weak. On BSE, 1,654 shares fell and 1,133 shares rose. A total of 115 shares remained unchanged.

Among the 30-share Sensex pack, 19 fell while the rest rose.

Index heavyweight Reliance Industries (RIL) was down 0.87% to Rs 754.30. The stock hit a high of Rs 768.50 and low of Rs 751.10. The stock had hit 52-week low of Rs 721.60 in intraday trade on 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.

Telecom stocks bucked weak market. Bharti Airtel was up 1.18%, while Idea Cellular was up 5.03%. The Telecom Regulatory Authority of India (TRAI) has reportedly sought clarification from Bharti Airtel, Idea Cellular and unlisted Vodafone Essar on their recent moves to increase rates for some of their call services. TRAI will also seek similar clarification from Reliance Communications (RCom). Shares of RCom were up 1.5%.

Bharti Airtel, India's largest mobile phone operator by subscribers, along with Idea and Vodafone Essar, the Indian unit of UK telecom major Vodafone Group PLC., increased call rates for some of their services in July 2011. In August 2011, second-ranked Reliance Communications said it had also raised call tariffs. All companies said they had to raise rates following the rising cost of operations.

Consumer durables stocks edged lower in a weak market. Rajesh Exports, Blue Star, Gitanjali Gems and Titan Industries fell by between 0.36% to 4.11%.

Bank stocks extended recent steep losses triggered by concerns that elevated interest rates may restrict loan growth. India's largest bank by branch network and net profit State Bank of India (SBI) dropped 1.34% to Rs 1965.40 after sliding to a 52-week low of Rs 1954. 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 0.86%. India's second largest private sector bank by net profit HDFC Bank was down 1.88%.

Axis Bank shed 2.61% to Rs 1021.65. The stock hit 52 week low of Rs 1006.30 today. Bank of Baroda dropped 2.37% to Rs 708.05. The stock hit 52 week low of Rs 707.60 today.

Rating agency 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. 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. JSW Steel, Hindalco Industries, Hindustan Zinc, Jindal Steel & Power, Sterlite Industries, Sail, Welspun Corp, Nalco and Bhushan Steel fell 0.08% to 6.02%.

India's largest steel maker by sales Tata Steel declined 2.64% to Rs 443.40 on concerns the ongoing euro-zone debt worries will impact its European operations adversely. The stock hit 52 week low of Rs 441.25 today, 25 August 2011. Tata Steel derived 62% of its consolidated revenues from European operations in Q1 June 2011.

Software pivotals extended recent losses triggered by concerns that a likely economic slowdown in the US and Europe will hit technology spending by overseas clients. The US and Europe are the two biggest markets for Indian IT firms. India's largest software services exporter TCS fell 0.79%. India's second largest software services exporter Infosys slipped 2.68% to Rs 2189.65. The stock hit 52 week low of Rs 2169 today. India's third largest software services exporter Wipro shed 0.53%.

The rupee erased all intraday losses to recover from the over 11-month low against the dollar touched earlier on Thursday. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

Tata Power Company rose 0.94% after Chairman Ratan Tata said on Wednesday, 24 August 2011, that the company is looking at setting up power projects outside the country to sustain its growth.

Construction stocks edged lower. Hindustan Construction Company, Nagarjuna Construction Company, and Jaiprakash Associates fell by between 3.17% to 4.5%.

Larsen & Toubro fell 0.72%. The company said during market hours today that it has bagged yet another order of Rs 797 crore in the building and factories segment in Q2 September 2011. During market hours on Wednesday, 24 August 2011, the company had said it has bagged new orders worth Rs 1340 crore in the building and factories segment in Q2 September 2011.

Auto shares were mixed. India's largest commercial vehicle maker by sales Tata Motors gained 1.91%. India's largest tractor and utility vehicles maker by sales Mahindra & Mahindra (M&M) fell 0.15%. India's largest small car maker by sales Maruti Suzuki India declined 0.3%.

Hero MotoCorp fell 3.1% after stock turned ex-dividend today, 25 August 2011, for a final dividend of Rs 35 per share for the year ended March 2011. India's second largest bike maker by sales Bajaj Auto rose 0.35%.

FMCG stocks extended recent gains on optimism good monsoon rains may boost rural incomes which in turn could boost FMCG sales. Rural sector accounts for a large chunk of revenues for FMCG firms. ITC, Hindustan Unilever, Dabur India and Nestle India gained by between 0.2% to 0.9%.

Realty stocks edged higher on bargain hunting after recent losses. DLF, Unitech, and Indiabulls Real Estate rose by between 0.38% to 2.67%.

Coal India rose 0.13% while Reliance Capital fell 0.77%. Coal India will replace Reliance Capital in S&P CNX Nifty index from 10 October 2011, NSE said today, 25 August 2011.

India Securities clocked highest volume of 4.87 crore shares on BSE. Cals Refineries (3.54 crore shares), K S Oils (1.04 crore shares), Resurgence Mines (99.58 lakh shares) and Suzlon Energy (47.76 lakh shares) were the other volume toppers in that order.

India Securities clocked highest turnover of Rs 287.69 crore on BSE. SBI (Rs 152 crore), Lovable Lingerie (Rs 124.42 crore), Tata Steel (Rs 76.55 crore) and Infosys (Rs 47.73 crore) were the other turnover toppers in that order.

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.

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.

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.

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.

Prospects for agricultural production remain positive. 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.

Prime Minister Manmohan Singh today, 25 August 2011, said that he is "hopeful of a solution" that will persuade anti-corruption campaigner Anna Hazare to end his hunger strike, now on its tenth day. Singh has reportedly requested former Chief Justice of India JS Verma to help persuade the 73-year-old activist and his supporters "to adopt a more rational approach in dealing with this complex problem."

Team Anna wants its Jan Lokpal Bill to be tabled in parliament and put to a debate. But, the government says its own version of this legislation has already been introduced in parliament and cannot be withdrawn. It has offered for Anna's bill to be reviewed by the same parliamentary committee that has received the government's draft.

Singh also made an impassioned appeal to Hazare to give up his 10-day fast in support of a strong Lokpal bill. He said, "I respect Anna Hazare's idealism. I applaud and salute him. His life is much too precious, I urge him to end his fast." Hazare has been fasting since 16 August 2011, demanding passing of Janlokpal Bill in the Parliament.

Meanwhile, Pentagon has reportedly said in its annual report on Chinese military build up that China has deployed more advanced and survivable solid-fuel nuclear capable CSS-5 MRBM missiles against India as a 'deterrent posture'. The report states that a high degree of mistrust continues to strain bilateral ties between China and India.

European stocks rose on Thursday, 25 August 2011, buoyed by well-received earnings reports from commodities trader Glencore International PLC, bank Credit Agricole SA and drinks maker Diageo PLC. Key benchmark indices in France and Germany were up by 0.58% to 1.03%. UK's FTSE 100 fell 0.08% reversing initial gains.

Overnight borrowing from the European Central Bank fell back to a more conventional level of 42 million euros ($60.5 million) on Wednesday, 24 August 2011, after spiking the previous day to 2.8 billion euros, the ECB said Thursday, 25 August 2011. The earlier spike had raised eyebrows as investors worried that the increase signaled a further heightening of tensions within the euro-zone banking system amid signs institutions are having difficulty securing short-term funding in the interbank market.

Borrowers pay a punitive rate of 2.25% to borrow from the overnight facility. Banks on Wednesday, 24 August 2011, continued to park a high level of funds in the ECB's deposit facility, although the total dropped to 110.4 billion euros from 126.4 billion euros on Tuesday, 23 August 2011.

Asian stocks rallied on Thursday, 25 August 2011, as strong US manufacturing data and several robust earnings reports boosted investor sentiment, although some technology shares were subdued after Steve Jobs resigned as Apple Inc.'s chief executive. The key benchmark indices in Singapore, China, Japan, Hong Kong and South Korea were up by between 0.56% to 2.92%. The key benchmark indices in Indonesia and Taiwan fell 0.07% and 1.23% respectively.

US index futures were volatile. Trading in US index futures indicated that the Dow could gain 22 points at the opening bell on Thursday, 25 August 2011.

Investors are looking ahead to Federal Reserve Chairman Ben Bernanke's scheduled speech tomorrow, 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.

Before that, investors will scrutinize data on weekly US jobless claims, which is due later in the global day today, 25 August 2011, for signs of stabilization in the nation's labor market.