Sensex tumbles 10% in ten trading sessions

Key benchmark indices fell for the fifth straight day to hit 14-month closing lows as an unprecedented downgrade of the US credit rating by Standard & Poor's on Friday, 5 August 2011, led investors to reduce exposure to assets perceived as risky and escalated worries about global economic outlook. The barometer index, BSE Sensex, fell below the psychological 17,000 level. The Sensex lost 315.69 points or 1.82%, up close to 230 points from the day's low and off close to 255 points from the day's high. Intraday volatility was quite high.

The Sensex has tumbled 1,881.11 points or 9.97% in ten trading sessions from a recent high of 18,871.29 on 25 July 2011. Since the beginning of the year, the Sensex has lost 17.15%, making it the worst-performing among major Asian markets.



Foreign institutional investors (FIIs) dumped shares worth net Rs 1609.60 crore on Friday, 5 August 2011, sharply higher than an outflow of Rs 146.70 crore on Thursday, 4 August 2011, the latest data released by the Securities & Exchange Board of India (Sebi) showed. FII outflow in August 2011 totaled Rs 3101.80 crore (till 5 August 2011). FIIs had bought shares worth Rs 8030.10 crore in July 2011. FII inflow in calendar 2011 totaled Rs 7598.70 crore (till 5 August 2011).

The market breadth was quite weak. All the 13-sectoral indices on the BSE edged lower. Index heavyweight Reliance Industries (RIL) fell in volatile trade. Cairn India dived about 3% after hitting a 52-week low as crude oil prices tumbled. Oil & Natural Gas Corporation (ONGC) rose as a sharp fall in crude oil prices will bring down the subsidy sharing burden of the state-run oil exploration giant. Larsen & Toubro, though down for the day, outperformed the Sensex on good Q1 results and a healthy order book position. NTPC, Bhel, Reliance Infrastructure and Jaiprakash Associates hit 52-week lows today.

Metal stocks extended Friday's (5 August 2011) decline triggered by worries the global economic slowdown may crimp demand. LMEX, a gauge of six metals traded on London Metal Exchange, fell 3.68% to $3,942.60 on Friday, 5 August 2011. India's largest non-ferrous metal firm by capacity Sterlite Industries (India) dropped 3.5% after sliding to a 52-week low. Banking pivotals extended recent decline on worries that higher lending rates will crimp loan growth.

Mahindra & Mahindra rose after the company at the time of announcing Q1 result today said that 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. Many other auto shares were off the day's lows. Software pivotals declined as the US rating downgrade may lead to a slowdown in decision-making on technology spending by clients in the world's largest outsourcing market. The US is the biggest market for Indian IT firms.

Intraday volatility was high. The market slumped in opening trade, with investors shaken by a downgrade of the long-term US sovereign rating by rating agency Standard & Poor's on Friday, 5 August 2011. The market came off lows later. The intraday recovery proved short-lived, with the Sensex hitting a fresh intraday low in morning trade. The market once again came off lows later. The market traded off the day's lows in mid-morning trade.

Recovery in index heavyweights Reliance Industries and Infosys aided recovery in key benchmark indices early afternoon trade. The intraday recovery gathered steam in afternoon trade as European shares edged higher in early trade. The market weakened again in mid-afternoon trade as European shares gave up initial gains. The market extended losses in late trade.

The BSE Sensex lost 315.69 points or 1.82% to settle at 16,990.18, its lowest closing level since 10 June 2010. The Sensex lost 546.42 points at the day's low of 16,759.45 in morning trade. The index fell 58 points at the day's high of 17,247.87 in afternoon trade.

The S&P CNX Nifty was down 92.75 points or 1.78% to 5,118.50, its lowest closing level since 10 June 2010. The Nifty hit a low of 5,054.05 in intraday trade. The Nifty hit a high of 5,204.20 in intraday trade.

The BSE Mid-Cap index fell 1.52% and outperformed the Sensex and the BSE Small-Cap index dropped 2.23% and underperformed the Sensex.

The total turnover on BSE amounted to Rs 2980 crore, lower than Rs 3364.70 crore on Friday. 5 August 2011.

The market breadth, indicating the overall health of the market, was quite weak. On BSE, 2,196 shares declined while 672 shares gained. A total of 78 shares remained unchanged.

Among the 30-share Sensex pack, 24 declined while the rest of them gained.

Index heavyweight Reliance Industries (RIL) shed 1.4% to Rs 780.60. The stock hit a 52-week low of Rs 767.05 in intraday trade today, 8 August 2011. The stock hit a high of Rs 796.80. 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.

RIL's operating profit margin (OPM) declined sharply to 12.25% in Q1 June 2011 from 16.04% in Q1 June 2010 as weak performance from the oil & gas and petrochemicals businesses offset strong performance from the refining segment. RIL's net profit rose 16.69% to Rs 5661 crore on 39.1% increase in net sales to Rs 81018 crore in Q1 June 2011 over Q1 June 2010. The result was announced on 25 July 2011.

RIL's gross refining margin (GRM) surged to $10.3 a barrel from $7.3 a barrel in Q1 June 2010. Gas production from RIL's KG-D6 field off the east coast declined 18% to 156.2 BCF in Q1 June 2011 over Q1 June 2010. Production of gas condensate from the filed jumped 81.6% to 0.21 million barrels in Q1 June 2011 over Q1 June 2010. The company said gas sales have been prioritized as per government's directive with effect from 9 May 2011.

India's largest oil exploration firm by market capitalisation Oil & Natural Gas Corporation (ONGC) gained 2.35% to Rs 282.60, off day's low of Rs 269.15. The stock rose as a sharp fall in crude oil prices will bring down the subsidy sharing burden of the state-run oil exploration giant. Oil India rose 1.93%.

Cairn India dived 3.21% to Rs 278.50 after declining to a 52-week low of Rs 274.60 as crude oil prices tumbled.

Shares of offshore oil services firms declined as a sharp decline in crude oil prices raised worries that oil firm may go slow on expansion of exploration and production activities. Dolphin Offshore, Aban Offshore, Great Offshore and Jindal Drilling declined by between 1.64% to 3.99%.

State-run oil marketing companies (PSU OMCs) rose as crude prices extended recent steep losses. Indian Oil Corporation and BPCL rose by between 0.27% to 2.14%. HPCL fell 0.21%. Lower crude oil prices could decrease under-recoveries of state-run oil marketing companies (PSU OMCs) on domestic sale of diesel, LPG and kerosene at controlled prices. The government has already freed pricing of petrol.

Oil plunged after Standard & Poor's lowered the US credit rating from the highest level, stoking concern that an economic slowdown in the world's biggest crude consumer will worsen and cut fuel demand.

India's largest engineering and construction firm by net sales Larsen & Toubro slipped 0.62%. The stock outperformed the Sensex on good Q1 results and a healthy order book position. During market hours today, Larsen & Toubro reported 12% rise in net profit to Rs 746 crore on 21% rise in gross revenues to Rs 9578 crore in Q1 June 2011 over Q1 June 2010. The company garnered fresh orders of Rs 16190 crore in Q1 June 2011, taking the total order book to Rs 136172 crore as at 30 June 2011. The company said it is confident of sustaining the growth momentum in the medium term, with its proven track record, strong order book and execution excellence.

L&T has appointed R. Shankar Raman, Senior Vice President (Finance & Legal), as the Chief Financial Officer (CFO) of the company with effect from 6 September 2011, the day when the current CFO Y. M. Deosthalee retires. Deosthalee will take charge as Chairman & Managing Director (CMD) of L&T Finance Holdings, a subsidiary of L&T, from 6 September 2011.

India's largest power equipment maker by sales Bhel fell 0.24% to Rs 1711.85 after slipping to a 52-week low of Rs 1662.

India's largest power generation firm by capacity NTPC declined 0.73% to Rs 170.65 after declining to a 52-week low of Rs 164.50 today.

Metal stocks extended Friday's (5 August 2011) decline triggered by worries the global economic slowdown may crimp demand. LMEX, a gauge of six metals traded on London Metal Exchange, fell 3.68% to $3,942.60 on Friday, 5 August 2011.

India's largest private sector steel maker by sales Tata Steel lost 4.12%. The company, last week, said it will invest 7 million pounds ($11.4 million) in its European unit to enhance welding and material handling capabilities of its mill in Hartlepool in the UK. "This investment will help us retain our position as a world-leading supplier of pipes and tubes," said Ramsay Ross, a director of Tata Steel's tubes business, said in a statement.

India's largest non-ferrous metal firm by capacity Sterlite Industries (India) dropped 3.49% to Rs 136.80 after sliding to a 52-week low of Rs 133.80 in intraday trade today, 8 August 2011.

JSW Steel dropped 3.53%. The company, last week, denied the conclusions drawn in a report by the Lokayukta, Karnataka's anti-graft watchdog, against the company on procurement and transportation of iron ore in the state.

India's largest sponge iron steel maker by sales Jindal Steel & Power shed 3.99% to Rs 520.35 after declining to a 52-week low of Rs 514.55 today.

India's largest private sector aluminium maker by sales Hindalco Industries plunged 6.85% to Rs 151.70 and was the top loser from the Sensex pack.

Hindustan Zinc (down 2.92%), Steel Authority of India (down 6.4%), and National Aluminium Company (down 3.65%), declined.

Sesa Goa declined 3.17%. On Saturday, 6 August 2011, the company said it has agreed to acquire 51% stake in Western Cluster, Liberia for a cash consideration of $90 million. With this acquisition, Sesa Goa will become a significant player in the upcoming West African Iron Ore hub, the company said.

Coal India was flat. The stock today, 8 August 2011, replaced Anil Dhirubhai Ambani Group (ADAG) Reliance Infrastructure in the 30-share BSE Sensex.

Sun Pharmaceutical rose 0.04%. The stock today replaced ADAG firm Reliance Communications in Sensex.

ADAG shares tumbled. Shares of Reliance Infrastructure declined 5.91% to Rs 592.85, after declining to a 52-week low of Rs 488. Reliance Communications, Reliance Power, Reliance Capital and Reliance MediaWorks fell by between 5.7% to 7.48%.

Banking pivotals extended recent decline on worries that higher lending rates will crimp loan growth. A number of commercial banks have raised lending rates recently after the central bank raised its key lending rate by a steeper-than-expected 50 basis points at a policy review on 26 July 2011. State Bank of India (down 0.65%), HDFC Bank (down 2.17%), and ICICI Bank (down 1.45%), declined.

Auto shares were off day's lows. Tractor and utility vehicles major Mahindra & Mahindra (M&M) rose 1.68%, reversing initial losses after company announced during market hours today that net profit rose 7.6% 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 largest truck maker by sales Tata Motors lost 6.51%. India's largest small car maker by sales Maruti Suzuki India shed 0.06%.

Bike makers reversed initial decline. India's largest bike maker by sales Hero MotoCorp advanced 3.98% to Rs 1855, off day's low of Rs 1705.20, and was the top gainer from the Sensex pack. India's second largest bike maker by sales Bajaj Auto rose 0.86%.

Software pivotals tumbled as the US rating downgrade may lead to a slowdown in decision-making on technology spending by clients in the world's largest outsourcing market. European debt woes also weighed on IT shares. The US and Europe are the two biggest markets for the Indian IT firms.

India's third largest software services exporter Wipro fell 2.54% to Rs 358.65, rebounding after sliding to a 52-week low of Rs 337.75. India's second largest software services exporter Infosys slumped 4.73% to Rs 2468, after falling to a 52-week low of Rs 2431.40. Infosys sees fears of another recession in the US.

India's largest software services exporter TCS lost 4.49% to Rs 1009.25, off the day's low of Rs 996.90. TCS and Singapore Management University (SMU) today announced establishment of TCS-SMU iCity Lab to be located at SMU. TCS made the announcement after trading hours.

HCL Technologies plunged 5.79% after the software exporter said the historic downgrade of US debt over the weekend may lead to a slowdown in decision-making on technology spending by clients in the world's largest outsourcing market. Though the downgrade may lead to a slowdown in business in the immediate term, the rating change itself can't be the sole cause for a dramatic shift in outsourcing, Shami Khorana, president, HCL Americas, said in an interview late on Sunday, 7 August 2011.

Pharmaceuticals major Cipla declined 1.59%. After market hours on Friday, 5 August 2011, Cipla reported a surprise fall in first quarter net profit. Cipla's net profit fell 1.6% to Rs 253.34 crore on 9.2% rise in total sales to Rs 1573.81 crore in Q1 June 2011 over Q1 June 2010. Cipla was seen reporting a muted 1.61% growth in net profit at Rs 261.56 crore in Q1 June 2011 over Q1 June 2010 as per average estimate of 9 brokerages.

Some cement stocks bucked weak market. ACC, and Ambuja Cements rose by between 0.24% to 1.96%.

Interest rate sensitive realty stocks fell on worries higher interest rates could dent demand for residential and commercial property. Purchases of both residential and commercial property are largely driven by finance. Phoenix Mills, DLF, HDIL, Indiabulls Real Estate and Unitech shed by between 0.12% to 6.85%.

Sugar stocks tumbled in a weak market. Bajaj Hindusthan, Balrampur Chini Mills and Shree Renuka Sugars fell by between 2.5% to 6.19%.

Fertiliser shares rose on reports an empowered group of ministers headed by Finance Minister Pranab Mukherjee has cleared the proposal to free the prices of urea. Tata Chemicals, Chambal Fertilisers and Chemicals, National Fertilizers, RCF, Nagarjuna Fertilizers & Chemicals rose by between 0.21% to 5.62%.

A Group of Ministers headed by Finance Minister Pranab Mukherjee on Friday, 5 August 2011, reportedly approved the recommendation of the Saumitra Chaudhuri committee that urea pricing should be decontrolled. According to reports, the government has decided to raise urea prices by 10% per tonne in the first year of the policy, after which the industry would be free to determine the urea prices. The decision of the Group of Ministers, headed Finance Minister Pranab Mukherjee, will now go to the Cabinet Committee on Economic Affairs for final approval.

Cals Refineries clocked highest volume of 6.78 crore shares on BSE. KS Oils (70.83 lakh shares), Suzlon Energy (66.22 lakh shares), Inventure Growth Securities (65.70 lakh shares) and Sanraa Media (63.94 lakh shares) were the other volume toppers in that order.

Inventure Growth Securities clocked highest turnover of Rs 134.73 crore on BSE. L&T (Rs 116.81 crore), SBI (Rs 97.18 crore), RIL (Rs 74.30 crore) and Tata Steel (Rs 69.43 crore) were the other turnover toppers in that order.

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.

ABB, Tata Communications, Mahindra Satyam, GMR Infrastructure and VIP Industries announce quarterly results tomorrow, 9 August 2011. Tata Power and Rural Electrification Corporation unveil Q1 results on Wednesday, 10 August 2011. Tata Motors, Reliance Infrastructure, Reliance Power, Castrol India and Shipping Corporation of India unveil quarterly results on Thursday, 11 August 2011.

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

The Reserve Bank of India (RBI) today, 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.

Rupee liquidity is being provided through the Repo window of the Liquidity Adjustment Facility (LAF). As of now, the banking system does not face any liquidity pressures as evident from the low level of dependence on liquidity injections under the LAF, RBI said. In any case, the banking system currently has an adequate stock of Statutory Liquidity Ratio (SLR) securities, which are eligible for Repo transactions, RBI said. Further, the capacity of the LAF to inject liquidity has recently been augmented by the introduction of the Marginal Standing Facility (MSF), which allows banks to draw down SLR securities up to a further one per cent of their Net Demand and Time Liabilities (NDTL) in order to meet liquidity requirements. This will help stabilize the call rate within the LAF corridor, which is currently 7% to 9%, RBI said.

As regards forex liquidity, in anticipation of financial market turbulence related to the US debt ceiling impasse, the RBI recently made an assessment of the ability of the forex reserve portfolio to meet potential forex requirements in the event of significant capital outflows. This exercise indicated that there were sufficient liquid reserves to meet the demand for forex even in stress scenarios, RBI said.

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.

Finance Minister Pranab Mukherjee on Monday, 8 August 2011, said the government will give an impetus to domestic growth drivers. "Our economic fundamentals are sound and we would also focus on encouraging greater domestic consumption and give impetus to the drivers of domestic growth," Mukherjee told reporters. He was reacting to questions on the impact of the US debt rating downgrade and the debt troubles in the euro zone on the Indian economy. Mukherjee also said that the government would fast-track economic reforms and that the Indian economy remains an attractive investment destination for foreign investors despite the global growth slowdown worries.

Chief economic adviser Kaushik Basu said while India would be affected in the short term by a US economic slowdown, it had potential to benefit in the future. "We have a slew of instruments available with the finance ministry, the government and the Reserve Bank of India, and, should the need arise, the government and the central bank are in a position to step in," Basu told reporters. Basu expects India's brisk economic growth could be a magnet for global capital inflows, a thought shared by the finance minister.

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 Reserve Bank of India (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 stock markets gave up initial gains as the downgrade of the US credit rating by Standard & Poor's led investors to reduce exposure to assets perceived as risky and escalated worries about the economic outlook. The key benchmark indices in France, Germany and UK fell by between 1.66% to 2.34%.

The European Central Bank (ECB) said late on Sunday, 7 August 2011, that it will actively implement its bond-buying program. Media reports said ECB bought Italian and Spanish bonds from the start of European trading on Monday, 8 August 2011, pushing down yields sharply. The ECB move comes as policy makers attempt to halt a sharp rise in borrowing costs for Italy, the euro-zone's third largest economy, and Spain, its fourth-largest. A sharp rise in bond yields has stoked fears the countries could be pushed toward default.

Asian markets fell on Monday, 8 August 2011, after a historic downgrade of the US credit rating. The key benchmark indices in South Korea, Singapore, Indonesia, Hong Kong, Taiwan, China and Japan were down by between 1.82% to 3.82%.

Standard & Poor's Ratings Services on Monday, 8 August 2011, said that Asian sovereign ratings could face downgrades if global financial markets deteriorate. S&P said that its downgrade late Friday of US debt wouldn't weigh on Asian government bond ratings in the near term. However, taken together with the weakening sovereign creditworthiness of European nations, the US ratings change "does point to an increasingly uncertain and challenging environment ahead," S&P said. "Given the interconnectivity of the global markets, an unexpectedly sharp disruption in developed world financial markets could change the picture," S&P said.

The ratings agency said that a disruption to the financial markets in the developed nations, would likely require governments in the Asia-Pacific region to use the strength of their balance sheets to support their domestic economies, and that most regimes would "promptly oblige." However, some Asian countries still "bear the scars" of the recent downturn, and fiscal capacities of countries such as Japan, India, Malaysia, Taiwan and New Zealand have shrunk from their pre-2008 levels, S&P said. "The implications for sovereign creditworthiness in Asia-Pacific would likely be more negative than previously experienced, and a larger number of negative rating actions would follow," it said.

Trading in US index futures indicated that the Dow could fall 216 points at the opening bell on Monday, 8 August 2011. US index futures were volatile. Dow futures were down more than 240 points ahead of Europe's open. S&P on Friday, 5 August 2011, downgraded the US long-term debt rating to AA+ from AAA with a negative outlook, meaning it can be lowered again within two years.

Finance ministers and central bank governors at the Group of 20 industrialized and developing nations on Monday, 8 August 2011, said they were committed to take "all necessary initiatives in a coordinated way" to support financial stability and to foster stronger economic growth. Without detailing specifics, the G20 officials said they will remain in close contact and "cooperate as necessary" in the coming weeks to ensure stability and liquidity in the financial markets.

The statement comes amid fears of economic fallout from Standard & Poor's downgrade of US credit ratings and ongoing worries over the euro zone debt crisis. The Group of Seven developed nations had also said Sunday that it was ready to respond as needed to take coordinated action, including to ensure liquidity and support financial market functioning and economic growth

The latest data showed that the US economy added 117,000 jobs last month, more than economists were expecting. The unemployment rate edged lower to 9.1%. The better-than-anticipated jobs report, however, wasn't enough to convince investors that the troubles affecting the economy are over. Recent reports have shown a drop in consumer spending, a slowing manufacturing sector and sluggish economic growth.

All eyes are now on the US Federal Reserve's one-day policy meeting on Tuesday, 9 August 2011. At their last meeting in June 2011, Fed officials decided to keep the central bank's balance sheet at a record to spur the slowing economy after completing $600 billion of bond purchases. The Fed has held its target for the short-term federal-funds rate inside a lowest-ever range of 0% to 0.25% since December 2008.