Sensex strikes back with a vengeance as world stocks rise

An optimistic assessment of the US economy from Federal Reserve Chairman Ben Bernanke on Friday, 26 August 2011, boosted stocks across the globe and Indian shares were no exception. The US is the world's biggest economy. The end of a standoff between the government and anti-corruption activist Anna Hazare during the weekend over anti-corruption bill, also aided the rally on the domestic bourses as the barometer index BSE Sensex regained the psychological 16,000 mark. The BSE Sensex jumped 567.50 points or 3.58%, off close to 45 points from the day's high and up close to 350 points from the day's low. The market snapped a three-day losing streak.

The Sensex had tanked 3,022.46 points or 16.01% during a period of a little over one month to 18-1/2-month closing low of 15,848.83 on Friday, 26 August 2011, from a high of 18,871.29 on 25 July 2011.



The market today, 29 August 2011, shrugged off a recommendation by a panel of the Reserve Bank of India (RBI) of higher risk weights on capital market exposures for some non-bank finance companies (NBFCs). The RBI panel, suggested in its report on issues and concerns in the NBFC sector, a risk weight of 150% for capital market loans of those NBFCs that are not sponsored by a bank or do not have any bank as part of its group.

The market breadth was strong. All the 13 sectoral indices on BSE were in green. Index heavyweight Reliance Industries (RIL) jumped close to 5%. IT stocks surged after Bernanke on Friday, 26 August 2011, said he is "more optimistic" about the long-term prospects of the US economy even amid challenges from the slumping housing market and financial-market volatility. Realty stocks gained on bargain hunting after recent steep losses triggered by worries higher interest rates could dent demand for residential and commercial properties. Bank stocks gained across the board on bargain hunting after recent steep losses triggered by concerns that elevated interest rates may restrict loan growth. Anil Dhirubhai Ambani Group (ADAG) shares surged.

The market opened on a firm note, tracking rally in Asian shares. The market extended gains in morning trade. The market hit a fresh intraday high in mid-morning trade. The market remained near the day's high in early afternoon trade. The market extended gains in afternoon trade as European markets opened on a firm note. The market further extended gains in mid-afternoon trade. The uptrend continued in late trade.

The BSE Sensex jumped 567.50 points or 3.58% to settle at 16,416.33, its highest closing level since 23 August 2011. The index jumped 613.20 points at the day's high of 16,462.03 in late trade. The index rose 219.90 points at the day's low of 16,068.73 in early trade.

The S&P CNX Nifty was up 171.80 points or 3.62% to settle at 4,919.60, its highest closing level since 23 August 2011. The Nifty hit a high of 4,934.40 and a low 4,806.05 in intraday trade.

The BSE mid-Cap index rose 2.48% and the BSE Small-Cap index gained 2.06%. Both these indices underperformed the Sensex.

BSE clocked turnover of Rs 1833 crore, lower than Rs 2375.99 crore on Friday, 26 August 2011.

The market breadth, indicating the overall health of the market, was strong. On BSE, 2,148 shares rose and 711 shares fell. A total of 84 shares remained unchanged.

From the 30-share Sensex pack, 28 rose and only two fell. Jaiprakash Associates, Larsen & Toubro and HDFC rose by between 3.88% to 6.92%. ONGC fell 1.08%.

Index heavyweight Reliance Industries (RIL) jumped 4.8% to Rs 754.05. The stock had hit 52-week low of Rs 713.55 in intraday trade on Friday, 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.

Metal stocks gained as LMEX, a gauge of six metals traded on the London Metal Exchange rose 0.9% on Friday, 26 August 2011. Hindalco Industries, Hindustan Zinc, Sail, Welspun Corp, Nalco, Jindal Steel & Power, and Bhushan Steel rose by 1.96% to 6.75%.

India's largest steel maker by sales Tata Steel jumped 5.9% to Rs 447.15 on bargain hunting. The stock has tumbled this month on euro-zone debt worries. The stock had hit a 52-week low of Rs 419.10 in intraday trade on Friday, 26 August 2011. Tata Steel derived 62% of its consolidated revenues from European operations in Q1 June 2011.

Sterlite Industries rose 3.85% to Rs 126.70. The stock had hit 52-week low of Rs 120.80 in intraday trade on Friday, 26 August 2011.

JSW Steel gained 6.75% to Rs 649.15. The stock had hit 52-week low of Rs 594.65 in intraday trade on Friday, 26 August 2011. JSW Steel's Chief Executive Vinod Nowal on Friday, 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.

IT stocks surged after Bernanke said he is "more optimistic" about the long-term prospects of the US economy even amid challenges from the slumping housing market and financial-market volatility. The US is the biggest market for the Indian IT firms. India's largest software services exporter TCS jumped 7.32%.

India's third largest software services exporter Wipro rose 3.12% after Wipro Technologies, the outsourcing services unit of Wipro, said there is no impact to its hiring plans for this fiscal year due to global uncertainties and that it plans to hire 25%-30% more entry-level staff next year on expectations that demand for software services will rise. Wipro's upbeat hiring outlook comes amid concerns that economic uncertainties in the US and Europe--the main markets for outsourcing services--may affect the growth of India's technology companies.

Infosys jumped 4.23%. As per recent 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.

Realty stocks gained on bargain hunting after recent steep losses triggered by worries higher interest rates could dent demand for residential and commercial properties. Purchases of both residential and commercial property are largely driven by finance. Ackruti City, HDIL, Indiabulls Real Estate and Unitech gained by between 4.03% to 6.68%.

DLF jumped 4.92% on reports the company is in talks to sell its 70% stake in DLF IT Park in Noida to financial services firm IDFC. Shares of IDFC jumped 5.72%. In its clarification to stock exchanges, IDFC said that as a part of its normal business, IDFC does evaluate opportunities for loan and investments in infrastructure projects from time to time. In line with its normal businesses, IDFC is in talks with DLF for a business proposal, which may or may not lead to any deal as aforesaid.

Bank stocks gained across the board on bargain hunting after 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 rose 4.63% to Rs 858.10. The stock had hit 52-week low of Rs 813.55 in intraday trade on Friday, 26 August 2011. India's second largest private sector bank by net profit HDFC Bank gained 3.68%.

India's largest bank by branch network and net profit State Bank of India (SBI) rose 2.62% to Rs 1938.30. The stock had hit a 52-week low of Rs 1872 in intraday trade on Friday, 26 August 2011. SBI Chairman Pratip Chaudhuri last week said that 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.

Among other PSU banks, Bank of Baroda, Bank of India and Punjab National Bank rose by between 1.95% to 5.81%.

Rating agency Fitch Ratings last week 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.

New banks in India will be set up only through a wholly owned Non-Operative Holding Company (NOHC) to be registered with the Reserve Bank of India (RBI) as a non-banking finance company, the RBI said on Monday, 29 August 2011, in its draft guidelines for licensing of new banks in the private sector. Entities/groups in the private sector, owned and controlled by residents, with diversified ownership, sound credentials and integrity and having successful track record of at least 10 years will be eligible to promote banks, RBI said. Entities/groups having significant (10% or more) income or assets or both from real estate construction and/or broking activities individually or taken together in the last three years will not be eligible, the central bank said.

As per the RBI draft, the aggregate foreign shareholding in new banks shall not exceed 49% for the first 5 years. Private sector entities or groups owned and controlled by Indian promoters, with diversified ownership and having a successful track record of at least 10 years, will be eligible to promote banks, said the RBI draft. The draft also stated that the new bank should open at least 25% of its branches in unbanked rural centres. It also said that the new bank needs to get its shares listed on the stock exchanges within two years of licensing. Existing non-banking finance companies (NBFCs), if considered eligible, may be permitted to either promote a new bank or convert themselves into banks, RBI said.

Anil Dhirubhai Ambani Group (ADAG) shares surged. Reliance Communications, Reliance Infrastructure, Reliance Capital, Reliance MediaWorks and Reliance Power gained by between 4.61% to 9.72%.

Reliance Infrastructure on Friday, 26 August 2011, said it bought-back five lakh equity shares on Friday, 26 August 2011. So far, the company has bought back 34.79 lakh shares for Rs 192.96 crore, the company said. The company has announced an up to Rs 1000 crore buyback programme.

Coal India rose 2.65% as the stock will replace Reliance Capital in the 50-unit S&P CNX Nifty index from 10 October 2011. Earlier this month, Coal India had replaced another Anil Dhirubhai Ambani Group (ADAG) firm Reliance Infrastructure in barometer index BSE Sensex.

FMCG stocks rose on expectations of pick up in rural demand following normal rains this year. The rural sector forms a chunk of revenues of FMCG firms. Nestle India, ITC, Dabur India and United Spirits rose by between 0.93% to 2.59%.

Hindustan Unilever rose 0.33% after the company announced that shareholders of the company have approved a scheme of arrangement for transfer of certain assets, liabilities and properties of FMCG export business division of Hindustan Unilever to Unilever India Exports.

Auto shares rose ahead of the announcement of monthly vehicles sales figures, which will start trickling in from Friday, 2 September 2011. Tata Motors rose 4.56% to Rs 731.10. The stock had hit a 52-week low of Rs 695 in intraday trade on Friday, 26 August 2011. India's largest tractor and utility vehicles maker by sales Mahindra & Mahindra (M&M) rose 3.66%.

Shares of two-wheeler makers rose as good rains will help boost rural incomes, which in turn may boost sales of two wheelers. Hero MotoCorp gained 1.27%. India's second largest bike maker by sales Bajaj Auto rose 4.46%.

There is also expectation of pick-up in sales of two-wheelers, cars and utility vehicles during the upcoming festive season. The festive season starts with Onam early next month and will last until Diwali, the festival of lights, at the end of October 2011.

India's largest car maker by sales Maruti Suzuki India fell 0.02% to Rs 1080 on reports the firm has temporarily halted production at its Manesar plant in Haryana due to labour problem at the unit. The stock had hit 52-week low of Rs 1048 in intraday trade on Friday, 26 August 2011. A Maruti spokesman was quoted by the media as saying that the company has asked about 1,600 workers at the Manesar plant to sign a so-called good conduct bond before they can enter the factory premises. The auto maker has suspended 10 workers and dismissed another five at the Manesar plant for sabotaging the production and deliberately causing quality problems in the vehicles produced at the plant last week, the spokesman told the media.

This is the third production stoppage in three months at the factory at Manesar in Haryana. Maruti stopped output for 10 working days at the factory in June due to a strike by workers demanding recognition of a new union and reinstatement of some sacked colleagues. And in July, Maruti stopped production for a day at the same plant due to a strike by some workers. The local unit of Suzuki Motor Corp. produces the Swift and A-Star hatchbacks, and the SX4 sedan at the Manesar plant. Maruti has another factory at Gurgaon, also in Haryana.

Cals Refineries clocked highest volume of 1.12 crore shares on BSE. Unitech (87.23 lakh shares), IFCI (54.78 lakh shares), Tree House Education & Accessories (50.85 lakh shares) and FCS Software (42.21 lakh shares) were the other volume toppers in that order.

SBI clocked highest turnover of Rs 88.54 crore on BSE. Reliance Capital (Rs 65.71 crore), Tree House Education & Accessories (Rs 63.08 crore), RIL (Rs 52.74 crore) and Larsen & Toubro (Rs 45.34 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 96.60 crore on Friday, 26 August 2011, compared with an outflow of Rs 1494 crore on Thursday, 25 August 2011. FII outflow in August 2011 totaled Rs 11319 crore, till 26 August 2011.

FIIs have sold shares worth a net Rs 17432.69 crore in calendar year 2011 so far, till 26 August 2011, as per data from the stock exchanges. Domestic institutional investors have bought shares worth a net Rs 22817.27 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), last week, 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 recently 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.

Anti-corruption activist Anna Hazare on Sunday, 28 August 2011, called off his 13-day hunger strike after the government pledged that the anticorruption legislation it is drafting would address several of his demands, ending a crisis that has tested the nation's political will to crack down on graft and put the Gandhian social activist's health in peril.

Hazare decided to end his fast after Parliament on Saturday night endorsed his core proposals for a bill that will set up a "Lokpal"--an independent agency to investigate and prosecute corruption in Indian public life. Hazare's movement has come to symbolize Indians' rage at rampant corruption in public life--especially the kind of alleged big-ticket wheeling and dealing between bureaucrats and companies that has come to light in a wave of scandals over the past year.

European stocks rose on Monday, 29 August 2011, after Bernanke offered an optimistic assessment of the US economy on Friday, 26 August 2011. Key benchmark indices in Germany and France were up 1.52% and 1.77% respectively. The London market was closed for a holiday.

In Greece, trading in shares of EFG Eurobank Ergasias SA and Alpha Bank SA was suspended ahead of an expected merger announcement between the two Greek banks. The Athens Exchange said trading was temporarily suspended until the two "inform the investing community of the outcome of their board of director meetings, regarding their merger." Media reports over the weekend said the two banks were expected to announce a tie-up on Monday, 29 August 2011, that will form the biggest lender in southeast Europe.

Most Asian stock markets gained on Monday, 29 August 2011, following Friday's (26 August 2011) advance on Wall Street after Federal Reserve Chairman Ben Bernanke's speech encouraged buyers. Bernanke refrained from stating that the Federal Reserve would immediately introduce new measures to support the US economy, saying instead that options would be discussed at the Fed's next meeting in September 2011. The Fed holds a two-day meeting on 20 and 21 September 2011. The key benchmark indices in Hong Kong, Japan, Singapore, South Korea and Taiwan rose by between 0.61% to 2.84%.

Chinese banks led mainland Chinese stocks lower as concerns about monetary tightening returned on reports the People's Bank of China has announced new measures that would in effect increase the amount they must set aside as reserves. The China's Shanghai Composite was down 1.37%.

Trading in US index futures indicated that the Dow could gain 103 points at the opening bell on Monday, 29 August 2011.

The main event this week is the US employment report for August 2011 due on Friday, 2 September 2011. Economists expect non-farm payrolls to rise by a paltry 46,000 after a less-than-impressive 117,000 rise in July 2011. The unemployment rate is forecast to remain unchanged at 9.1%. The US market remains closed on Monday, 5 September 2011, for the Labour Day holiday.