Sensex off 12.7% in Q2 on euro-zone debt worries

Key benchmark indices slumped during the second half of the trading session as world stocks fell on concerns European leaders won't move as quickly as hoped to take additional steps to contain the ongoing debt crisis in the euro zone. Likely muted-to-weak Q2 September 2011 corporate earnings also weighed on sentiment as the 50-unit S&P CNX Nifty below the psychological 5,000 mark, a day after regaining that level on Thursday, 29 September 2011. The barometer index BSE Sensex lost 244.31 points or 1.46%, off 291.40 points from the day's high and up 48.98 points from the day's low. The market breadth was weak.



The Sensex declined 222.99 points or 1.33% in September 2011. The barometer index tumbled 2,392.11 points or 12.69% in the quarter ended September 2011, as euro-zone debt worries and weakness in the US economy, the world's biggest, pulled markets lower across the globe. The index has slumped 4055.33 points or 19.77% in calendar 2011. From a 52-week high of 21,108.64 on 5 November 2010, the Sensex has lost 4654.88 points or 22.05%. From a 52-week low of 15,765.53 on 26 August 2011, the Sensex has risen 688.23 points or 4.36%.

Coming back to today's trade, index heavyweight Reliance Industries (RIL) ended slightly lower in volatile trade. Metal stocks slumped after HSBC's China manufacturing sector data showed that manufacturing sector continued to stagnate in China in September 2011 amid weak domestic and overseas demand. Mining stocks were mixed after the Union Cabinet approved a new mining bill that calls for coal miners to share a maximum 26% of their profits with local communities and for other miners to share an amount equivalent to royalties.

Interest rate sensitive banking stocks fell on worries that elevated interest rates would hurt borrowers' ability to repay loans and increase delinquencies. Auto stocks fell on worries higher interest rates and the latest petrol price hike may adversely impact sales of cars and two-wheelers during the festive season. Software pivotals reversed two-day gains in volatile trade.

Shares of Anil Dhirubhai Ambani Group (ADAG) slumped after the Central Bureau of Investigation (CBI) on Thursday said it is investigating any role Reliance Communications Chairman Anil Ambani may have played in the country's biggest corruption scandal involving the 2008 sale of telecommunication licenses and bandwidth.

The market opened on a weak note as Asian stocks fell. A bout of volatility was witnessed as key benchmark indices cut losses after hitting fresh intraday lows in early trade. The market turned positive to strike intraday high only to once again dip in red in mid-morning trade. The market moved in a narrow range in early afternoon trade. The market trimmed losses after weakening in early afternoon trade. The market weakened again in mid-afternoon trade. Weakness persisted in late trade.

The BSE Sensex lost 244.31 points or 1.46% to settle at 16,453.76, its lowest closing level since 28 September 2011. The index lost 293.29 points at the day's low of 16,404.78 in mid-afternoon trade. The index rose 47.09 points at the day's high of 16,745.16 in mid-morning trade.

The S&P CNX Nifty lost 72.20 points or 1.44% to settle at 4,943.25, its lowest closing level since 26 September 2011. The Nifty hit a high of 5,025.55 in intraday trade. The Nifty hit a low of 4,924.30 in intraday trade.

The market breadth, indicating the overall health of the market, was weak. On BSE, 1,757 shares fell and 1,045 rose. A total of 120 shares were unchanged. The breadth was positive earlier in the day.

The BSE Mid-Cap index declined 0.58% and the BSE Small-Cap index fell 0.88%. Both these indices outperformed the Sensex.

The total turnover on BSE amounted to Rs 2480 crore, higher than Thursday's Rs 2272.12 crore.

Barring the BSE Consumer Durables index, which rose 1.02%, all the other 12 sectoral indices on BSE registered losses. The BSE Metal index (down 2.68%), BSE Realty (down 2.08%), and Bankex (down 1.84%), were the chief losers among the sectoral indices on BSE.

Bharti Airtel was the lone gainer from the 30-share Sensex pack. Shares of India's largest listed cellular services provider by sales gained 0.43% to Rs 378.05 after telecommunication minister Kapil Sibal said he will push the government to consider offering infrastructure status to the telecom tower segment. Bharti Airtel runs telecom towers business under its arm Bharti Infratel.

Sibal said the telecom towers industry is unlikely to get the required resources, unless it is treated as infrastructure sector and unless banks give loans on a priority lending basis.

Index heavyweight Reliance Industries (RIL) fell 0.2% to Rs 806.50. The stock was volatile. The stock hit a high of Rs 822.80 and a low of Rs 792.60. BP PLC on Wednesday, 28 September 2011, said it expects its partnership with RIL to boost natural gas output at the D6 block in the Krishna Godavari basin, off India's east coast. BP Chief Executive Robert Dudley and RIL Chairman Mukesh Ambani met trade minister Anand Sharma in New Delhi on Wednesday, 28 September 2011.

RIL is fighting a decline in gas output at the D6 block. BP and RIL on Wednesday, 28 September 2011, pitched for permission from the government to develop satellite fields adjacent to the D6 block. RIL, last month, closed a deal with UK-based BP to sell a 30% stake in its 21 oil and gas exploration blocks in India. RIL recently denied inflating costs on its D6 gas field in the Krishna-Godavari (KG) basin. RIL made the clarification after CAG said in its final report submitted to the parliament on Thursday, 8 September 2011, that RIL initially estimated capital expenditure of D-1 and D-3 gas discovery at $2.4 billion, which it later revised to $8.8 billion.

RIL, owner of the world's biggest refining complex, last week, said it is planning to take Maintenance and Inspection (M&I) shutdown of Light Cycle Oil hydrocracker (LCOHC) and Vacuum Gas Oil hydtrotreating unit (VGOHT) of SEZ refinery at Jamnagar refinery complex from 19 to 23 September 2011 respectively. These maintenance shutdowns will be for a period of approximately 4 weeks, RIL said. The routine shutdown of these units is being planned for the first time since commissioning. Both the refineries at Jamnagar complex are planned to operate at maximum crude processing capacity i.e. 1.3 million barrels per day during this period. All other major processing units at the complex are also planned to operate at normal capacity, RIL said.

RIL's advance tax payment rose 37.6% to Rs 1800 crore in Q2 September 2011 over Q2 September 2010, hinting at good Q2 results from the diversified firm.

Mining stocks were mixed as the Union Cabinet approved new mining bill that calls for coal miners to share a maximum 26% of their profits with local communities and for other miners to share an amount equivalent to royalties. Shares of state-run coal giant Coal India slumped 5.33% to Rs 332.10 and was the top loser from the Sensex pack.

State-run iron ore miners NMDC was unchanged at Rs 226.50 while Gujarat Mineral Development Corporation lost 4.67%. Private sector iron ore miner Sesa Goa gained 4.11%. The new mining bill now requires parliamentary approval to become law and is seen as a major move towards reform. State-run copper miner Hindustan Copper jumped 6.68%.

Metal stocks slumped after HSBC's China manufacturing sector data showed that manufacturing sector continued to stagnate in China in September 2011 amid weak domestic and overseas demand. China is the world's largest consumer of aluminum and copper. Nalco (down 0.24%), Sail (down 3.39%), Hindustan Zinc (down 1.65%) and Jindal Steel & Power (down 3.78%), declined.

India's largest private sector steel maker by sales Tata Steel fell 4% to Rs 415.20. The stock had hit 52-week low of Rs 414.20 in intraday trade today.

India's largest non-ferrous metals producer Sterlite Industries (India) lost 4.72% to Rs 113.05. The stock had hit 52-week low of Rs 113 in intraday trade today.

India's largest private sector aluminium maker by sales Hindalco Industries dropped 2.28% to Rs 130.65. The stock had dived to a 52-week low of Rs 125 in intraday trade on Monday, 26 September 2011.

Interest rate sensitive banking stocks fell on worries that elevated interest rates would hurt borrowers' ability to repay loans and increase delinquencies. India's largest private sector bank by net profit ICICI Bank declined 1.75%. India's second largest private sector bank by net profit HDFC Bank fell 1.18%. India's largest bank by branch network and net profit State Bank of India (SBI) shed 2.16%.

Software pivotals reversed two-day gains in volatile trade. India's second largest software services exporter Infosys fell 0.7%. India's largest software services exporter TCS shed 2.29% and India's third largest software services exporter Wipro slipped 2.3%.

HCL Technologies shed 0.99%. The company said it has further strengthened its software quality assessment services 'ASSESS-SMART' through a strategic alliance with CAST. The company made this announcement during trading hours today, 30 September 2011.

Auto stocks fell on worries higher interest rates and the latest petrol price hike may adversely impact sales of cars and two-wheelers during the festive season. The timing of the latest petrol price hike has been bad for auto firms. The festive season started early this month and it will last until Diwali, the festival of lights, at the end of October 2011. Sales normally pick up during the festive season every year.

India's largest small car maker by sales Maruti Suzuki India declined 2.24% on reports that the company has lost about Rs 600 crore in vehicle production in a month as labor unrest at one of its factories hit output of three of its key car models. Maruti expects to make up for the production loss in a few weeks, reports added.

India's largest commercial vehicle maker by sales Tata Motors declined 2.98%. A single judge Bench of Calcutta High Court on Wednesday, 28 September 2011, ruled that the Singur Land Rehabilitation and Development Bill 'is constitutionally legal'. Justice Indra Prasanna Mukherjee held that the act was framed under the provision of the constitution. Tata Motors had moved the high court challenging the constitutional legality of the Bill which was passed by the West Bengal state government to take back the land from Singur, leased out to Tata Motors to set up a small car factory.

Tata Motors said in a statement on Wednesday that it will study the judgment and decide its next course of action.

India's largest tractor maker by sales Mahindra & Mahindra fell 1.14%. The company on Thursday launched a new global sport utility vehicle XUV500, at a starting price of Rs 10.80 lakh ex-showroom Delhi.

Among two wheeler makers, Hero MotoCorp declined 2.91% while Bajaj Auto slipped 0.17%.

India's largest engineering and construction firm by order book L&T shed 0.88% to Rs 1,357.50. The stock had hit 52-week low of Rs 1,350 in intraday trade on Thursday, 29 September 2011.

India's largest power equipment maker by sales Bhel shed 1.99% to Rs 1635. The company has set 4 October 2011 as the record date for a 5-for-1 stock split.

Infrastructure company Jaypee Infratech spurted 12.73% to Rs 52.70.

Tata Power (down 2.93%), ITC (down 2.23%), and Jaiprakash Associates (down 2.15%), edged lower from the Sensex pack.

Shares of Anil Dhirubhai Ambani Group (ADAG) slumped after the Central Bureau of Investigation (CBI) on Thursday said it is investigating any role Reliance Communications Chairman Anil Ambani may have played in the country's biggest corruption scandal involving the 2008 sale of telecommunication licenses and bandwidth.

Reliance Infrastructure was down 7.32% to Rs 374 after sliding to a 52-week low of Rs 366.80. Reliance Capital plunged 13.03% to Rs 312.35 after declining to a 52-week low of Rs 312. Reliance Power tumbled 3.57% to Rs 76.95 after diving to a record low of Rs 75.25. Reliance Communications lost 8.05% to Rs 71.40 after falling to a 52-week low of Rs 71. Reliance Broadcast Network (down 12.89%), and Reliance MediaWorks (down 5.48%), also edged lower.

ADAG shares slumped even as the group today, 30 September 2011, denied that any of the group companies, including Reliance Telecom, illegally benefited from the 2008 sale of telecommunication licenses that has now turned into the country's biggest corruption scandal. The denial comes a day after the CBI said it is probing if group Chairman Anil Ambani may have had any role in the case. The "CBI's inference that there may be undisclosed beneficiaries is unsupported by any evidence," the Reliance Group said in a statement. A newspaper report on Friday, 30 September 2011, cited a CBI lawyer as telling the Supreme Court that the agency was probing to find out the real beneficiaries from the stake sale, in view of the changing statements of the three arrested ADAG executives, who had initially taken "responsibility" for the stake sale decision.

The group also denied media reports, citing the CBI, that the three arrested executives had "expressed any intention to become 'approvers'" in the case, which may help the probe agency to find the real beneficiaries. The "CBI is now raising new issues to oppose bail to the three Reliance executives," the group said.

TTK Prestige rose 2.4% on reports that the company is set to buy the ailing Indian unit of Italian firm Bialetti.

Reliance Capital was the top traded counter on the BSE with turnover of Rs 143.62 crore followed by RIL (Rs 127.21 crore), PG Electroplast (Rs 115.39 crore), SBI (Rs 103.38 crore), and Coal India (Rs 100.93 crore).

Cals Refineries clocked highest volume of 3.50 crore shares on BSE. RCom (57.29 lakh shares), Reliance Capital (44.25 lakh shares), Resurgere Mines (40.17 lakh shares) and PG Electroplast (39.24 lakh shares) were the other volume toppers in that order.

The near-term major trigger for the market is Q2 September 2011 results. The results are expected to be muted-to-weak due slower volume growth, higher input costs, rising wages, higher interest rates and slowdown in investment growth. Advance tax data from top 100 companies corroborates this view. The advance tax payment by top 100 companies rose a modest 9.9% in Q2 September 2011 from a year ago against 19% growth in Q1 June 2011, suggesting corporate profit growth is likely to be muted in the second quarter.

Among the big companies that have paid lower advance tax, indicating a drop in profits, include State Bank of India (SBI), Maruti Suzuki India and state-run Neyveli Lignite Corporation. SBI's advance tax payment declined 14.2% to Rs 1650 crore in Q2 September 2011. Maruti's tax payment fell 55.8% to Rs 120 crore. Neyveli Lignite tax payment plunged 50.1% to Rs 66 crore. But, Reliance Industries' (RIL) advance tax payment jumped 37.6% to Rs 1800 crore, hinting at good Q2 results from the diversified firm.

Investors will closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook. IT bellwether Infosys kickstarts the Q2 September 2011 earnings season on 12 October 2011. Housing finance major HDFC unveils Q2 results on 17 October 2011. HDFC Bank unveils Q2 results on 19 October 2011. Bajaj Auto reveals Q2 results on 20 October 2011. Colgate Palmolive (India) and BPCL unveil Q2 results on 31 October 2011.

The market regulator Securities and Exchange Board of India on Wednesday set a minimum net worth of Rs 100 crore for companies that wish to issue structured products or market-linked debentures to raise funds. Sebi also set the minimum size for such issues at Rs 10 lakh. Market-linked debentures are hybrid products which have the features of usual debt securities, but offer market-linked returns like an exchange-traded derivative. The issuer company will have to appoint a third party, a credit-rating company registered with the regulator, which will provide the value of the security at least once a week, Sebi said in a circular.

A news agency on Monday, 26 September 2011, quoted principal economic adviser to the ministry of finance Dipak Dasgupta as saying that the government has no plans to tax or impose restrictions on capital outflows. He said the government will instead focus on liberalising fund inflows into the economy, particularly via overseas borrowing.

Finance Minister Pranab Mukherjee said this month that central banks in emerging economies have been forced to raise interest rates repeatedly as they battle high inflation, exposing them to volatile capital flows. "An issue of immediate concern for emerging economies is managing large capital flows," he said. "Large and volatile capital flows to emerging markets can be destabilizing as they lead to high exchange rate volatility and in some cases make it incumbent to maintain high levels of foreign exchange reserves as an insurance against sudden and large-scale flight of international capital."

The government this month raised the limit of overseas borrowing for companies to $750 million from $500 million. Indian companies can also now raise loans up to $1 billion in Chinese yuan. The relaxation of overseas borrowing rules will help Indian companies tap cheaper cash abroad amid rising credit costs in the local market. US and European countries have near-zero interest rates in a bid to support weak economic growth.

Given the lackluster initial FII response to the government's sharply raising the ceiling of FII investment in long-term corporate bonds issued by the companies in the infrastructure sector in March 2011, the government on 12 September 2011, further relaxed the norms on FII investment in such bonds. Sebi had in early August 2011 allowed Qualified Foreign Investors (QFIs) to subscribe to Mutual Fund Debt Schemes which invest in the infrastructure sector subject to a total overall ceiling of $3 billion within the total ceiling of $25 billion.

The government Thursday, 29 September 2011, raised its borrowing target for the current fiscal year by Rs 52800 crore, surprising the market and fueling worries that it may even overshoot the new estimate because of muted revenue growth amid a slowing economy and swelling subsidies. The government will borrow Rs 2.2 lakh crore during October 2011-March 2012 period, or the second half of the fiscal year, compared with the target of Rs 1.67 lakh crore announced in budget in February 2011. C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, on Thursday, 29 September 2011, said it is going to be difficult to achieve fiscal deficit target of 4.6% of GDP for the year ending March 2012.

The government's new borrowing programme may crowd out private borrowers who come into the market in the second half of the year. Credit growth normally picks up after October every year when the busy season starts.

Food inflation rate edged higher in the week ended 17 September 2011 as meat and vegetables turned costlier, once again reflecting stubborn pricing pressures that reinforce expectations of more monetary tightening. Food price index rose 9.13% and the fuel price index climbed 14.69% in the year to 17 September 2011, government data on Thursday, 29 September 2011, showed. In the previous week, annual food and fuel inflation stood at 8.84% and 13.96%, respectively. Rangarajan on Thursday, 29 September 2011, said there has to be definite signs of inflation falling before the Reserve Bank of India can reverse its current policy.

Reserve Bank of India (RBI) deputy governor Subir Gokarn on Wednesday, 28 September 2011, said poor supply responses to rising demand for protein-rich food aren't helping to lower the inflation rate. His comment underscores the central bank's growing dismay over the federal government's loose fiscal stance that is diluting monetary policy moves and weakening its battle against inflation. "Energy prices have remained very steady. I think (it) is a huge problem to deal with because it certainly reduces the space that monetary policy has," Mr. Gokarn said at a conference.

RBI said at a monetary policy review on 16 September 2011 that it is imperative to persist with the current anti-inflationary stance because a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. The RBI raised repo rate by 25 basis points on 16 September 2011.

For India, a weak rupee will offset the benefit of the recent steep fall in global commodity prices triggered by global growth worries. Most commodities imported by India, particularly oil, are denominated in dollars making these expensive for India. The rupee has witnessed a steep fall recently.

Going forward, the stance of the monetary will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments, RBI said in its 16 September 2011 policy statement. The overall tone of the RBI's latest policy was softer than the previous policy announcement which was extremely hawkish.

Inflation in India remains high and will probably remain in a range of 9% to 10% until November 2011, Gokarn had said recently. RBI said on 16 September 2011 that corporate margins moderated across several sectors in Q1 June 2011 compared to levels in Q4 March 2011. However, barring a few sectors, significant pass-through of rising input costs is still visible, RBI said.

RBI governor D Subbarao on Monday, 26 September 2011, said inflation rate remains above the level the central bank deems acceptable. Inflation has been fairly stubborn, Subbarao said in New York. "Above a threshold, you can't accept high inflation to have higher growth," he said, adding that the price-rise limit is as much as 6% for the nation. A rate of 4% to 6% is the short-term comfort range for inflation, Subbarao said. He said the central expects inflation to slow by March 2012, but more slowly than initially expected. Intervention in forex markets brings unexpected consequences, Subbarao said.

Monsoon rains were 2% above average till 28 September 2011. India is aiming for record foodgrain output of more than 245 million metric tonnes this crop year that began on July 1, as well as bumper cotton, sugarcane and other crops. A good monsoon season can typically boost rural farm incomes and have an impact on the wider economy through increased spending on consumer goods as well as reduced prices of food items.

Prime Minister Manmohan Singh, seeking to defend his government amid a growing political crisis, on Tuesday, 27 September 2011, denied there was infighting in his cabinet over a corruption scandal and accused the leading opposition party of being "prematurely restless" for early elections. The disclosure last week of a Finance Ministry memo about a controversial 2008 sale of mobile-phone spectrum was widely interpreted by the media as an attempt by Finance Minister Pranab Mukherjee to blame Home Minister P. Chidambaram, his predecessor as finance minister, for failing to prevent what turned into a massive alleged telecom corruption scam. Reports of a battle between the two top ministers have dominated the news for the past several days, especially after both of them met Congress President Sonia Gandhi on Monday, 26 September 2011.

Singh said there is no room for dissension in his cabinet. Mukherjee had told reporters on Monday that Chidambaram is a "valued colleague" and a "pillar of strength for the party and government."

The government is still hopeful of meeting the divestment target of Rs 40000 crore budgeted for the current fiscal year that ends in March, economic affairs secretary, R. Gopalan, said on Wednesday, 28 September 2011. Earlier this month, the government deferred the about Rs 11000-crore follow-on public offer plan in state-run energy major ONGC.

European stocks dropped on Friday, 30 September 2011, on concerns European leaders won't move as quickly as hoped to take additional steps to contain the ongoing debt crisis in the euro zone. Key benchmark indices in France, Germany and UK were down 1.6% to 2.9%.

German Economy Minister Philipp Roesler on Friday said German lawmakers are unlikely to back any further increase in the euro-zone rescue fund, the European Financial Stability Facility, beyond the measures approved in a key vote on Thursday. The German parliament Thursday passed a key piece of legislation designed to allow the expansion the European Financial Stability Fund to facilitate a second bailout for Greece.

World stocks have been volatile over the past few months amid fears over Europe's escalating debt crisis and weakness in the US economy.

Asian stocks were in red on Friday, 30 September 2011, with investors treading nervously ahead of further developments on Europe's debt crisis. Key benchmark indices in Hong Kong, Japan, China and Singapore were down by between 0.01% to 2.32%. Key benchmark indices in South Korea, Indonesia and Taiwan were up by between 0.02% to 0.60%.

HSBC's China Manufacturing Purchasing Managers' Index was flat in September from its reading in August, indicating conditions remain marginally in contraction, though the result was stronger than the preliminary or "flash" PMI that had indicated conditions at a two-month low for the month, according to a release Friday by HSBC. The headline PMI for the month was 49.9, unchanged from levels in August, while stronger than the flash PMI reading of 49.4.

HSBC said the data showed China's manufacturing sector continued to stagnate in September amid weak domestic and overseas demand. HSBC's chief China economist Hongbin Qu noted that credit tightening had resulted in lag effects that would continue to cool industrial activity in the months ahead, though GDP growth was likely to stay in the 8.5% to 9% range in coming years. "There is little need to worry about a sharp slowdown," Qu said in a note accompanying the PMI release

Japanese industrial production rose 0.8% month-on-month in August, the fifth straight month of production gains. The Japanese government noted that industrial production has almost recovered from the Great East Japan earthquake that devastated the country in March.

Trading in US index futures indicated that the Dow could fall 120 points at the opening bell on Friday, 30 September 2011. US stocks ended mostly higher in a volatile session on Thursday as better-than-expected economic data and German approval of a stronger euro-zone crisis fund soothed two of the worst fears hanging over the market. The Dow Jones Industrial Average was up 143.08 points, or 1.30%, to 11,153.98. The Standard & Poor's 500 Index was up 9.34 points, or 0.81%, at 1,160.40. But, the Nasdaq Composite Index was down 10.82 points, or 0.43%, to 2,480.76.

The Federal Reserve said at the end of a two-day policy meeting on 21 September 2011 that there are significant downside risks to the US economic outlook and also noted strain in global financial markets.