Sensex sheds 4% in 3 days on euro-zone debt worries

Euro-zone debt pulled the market lower fell for the third straight day, with the barometer index BSE Sensex and the 50-unit S&P CNX Nifty reaching two-week closing lows. Data showing resumption of selling by foreign funds hit sentiment, with the 50-unit S&P CNX Nifty fell below the psychological 5,000 mark after regaining that level earlier in the day. The Sensex shed 34.30 points or 0.21%, off about 300 points from the day's high and up close to 90 points from the day's low. Volatility in European shares and US index futures triggered high volatility on the domestic bourses during the last one hour of trade.



The market fell for the third straight day today, 13 September 2011. From a 5-week closing high of 17,165.54 on Thursday, 8 September 2011, the Sensex has tumbled 698.10 points or 4.06% in the last three trading sessions.

The market breadth was almost even, having weakened from a strong breadth earlier in the day. Software stocks rose on bargain hunting after recent heavy losses triggered by economic worries in US and Europe, the two biggest markets for the Indian IT firms. Index heavyweight Reliance Industries (RIL) edged higher in volatile trade. Commercial vehicles major Tata Motors hit a 52-week low. Bank stocks reversed initial gains on concerns elevated interest rates may restrict loan growth, with banking giant State Bank of India (SBI) hitting 52-week low.

The market surged in early trade, tracking higher Asian stocks. The market regained strength after trimming gains from intraday highs in morning trade. The market hit a fresh intraday high in mid-morning trade. The market came off highs later. The market surged to fresh intraday high in early afternoon trade. The Sensex came sharply off high in afternoon trade as European shares moved off highs after a firm start and as US index futures turned negative from positive.

The market reversed initial rally to hit two-week low in mid-afternoon trade as European shares fell and as US index futures slumped on fears the Greek government may default on its debts and on worries over a possible downgrade of French banks. Volatility in European shares and US index futures triggered high volatility on the domestic bourses in late trade.

Foreign institutional investors (FIIs) sold shares worth a net Rs 779.60 crore on Monday, 12 September 2011, higher than an outflow of Rs 219.80 crore on Friday, 9 September 2011, the latest data released by the Securities & Exchange Board of India (Sebi) showed.

Investors will keenly watch data on second quarter September 2011 corporate advance tax payment due on Thursday, 15 September 2011, which may provide cues on Q2 September 2011 results.

The BSE Sensex shed 34.30 points or 0.21% to settle at 16,467.44, its lowest closing level since 29 August 2011. The Sensex fell 127.06 points at the day's low of 16,374.68 in mid-afternoon trade. The index rose 264.45 points at the day's high of 16,766.19 in early afternoon trade, its highest level since 9 September 2011.

The S&P CNX Nifty lost 5.85 points or 0.12% to settle at 4,940.95, its lowest closing level since 29 August 2011. The Nifty hit a high of 5,030.15 in intraday trade, its highest level since 9 September 2011. The Nifty hit a low of 4,911.05 in intraday trade.

The BSE Mid-Cap index rose 0.03% and the BSE Small-Cap index gained 0.01%. Both these indices outperformed the Sensex.

BSE clocked turnover of Rs 2266 crore, slightly higher than Rs 2264.45 crore on Monday, 12 September 2011.

The market breadth, indicating the overall health of the market, was almost even. On BSE, 1,397 shares rose and 1,395 shares fell. A total of 136 shares remained unchanged. The breadth was strong earlier in the day.

Among the 30-share Sensex pack, 18 stocks declined and the rest rose. Sun Pharmaceutical Industries, Bharti Airtel and Jaiprakash Associates fell by between 1.1 % to 1.31%.

Index heavyweight Reliance Industries (RIL) rose 0.61% to Rs 810.80. The stock was volatile. It hit a high of Rs 824.10 and a low of Rs 797.40. The company has denied inflating costs on its D6 gas field in the Krishna-Godavari (KG) basin. RIL clarified that audits by three independent experts had found that costs in the KG-D6 field were not inflated and the company had adhered to the PSC (Production Sharing Contract). With regard to Comptroller and Auditor General of India's (CAG) observation that an operator has an incentive to keep costs high, independent auditor Ernst & Young (E&Y) said any increase in capital expenditure is rather detrimental to both the contractor and the government. Consultant Daniel Johnston commented that the appraisal activities which RIL has carried out in relation to the various discoveries in the KG-D6 block are consistent with good international petroleum industry practices (GIPIP).

RIL said that the independent reports by E&Y, IPA and Daniel Johnston & Co. Inc. entirely validate RIL's stand in its responses to CAG. The independent nature of these studies conducted by globally reputed consultants has acknowledged RIL's commendable efforts in bringing to stream India's first deep water hydrocarbons production facility in record time, RIL said. The fact that energy major BP has entered into a strategic partnership with RIL in this block, further vindicates RIL's position, RIL said. With its newly established partnership with BP, RIL is confident of unlocking the full potential of KG-D6 and other blocks, thus bringing greater benefit to the nation, RIL said.

RIL issued the statement 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. The CAG report also said that RIL started implementing the revised capex plans even before they were approved by the government. The report also found that RIL didn't relinquish some least-priority areas in the KG D6 block, which the government could have given to other companies for further exploration.

Software stocks rose on bargain hunting after recent heavy losses triggered by economic worries in US and Europe, the two biggest markets for the Indian IT firms. A weak rupee aided the recovery in IT shares. India's third largest software services exporter Wipro rose 1.25%.

India's second largest software services exporter Infosys advanced 1.21% on reports the company is in talks to acquire a US-based information technology company in a deal which could be worth $500 million to $750 million. Infosys executive co-chairman S. Gopalakrishnan on 8 September 2011 said clients are unlikely to cut their technology budgets for 2011, though they may end up cutting them for next year. He also warned that clients may hold back spending budgets earmarked for this year. Infosys had earlier said that it is witnessing delays in decision-making by clients.

India's largest software services exporter TCS gained 0.61%. TCS vice chairman S. Ramadorai said in a media interview on Tuesday, 13 September 2011, that demand for outsourcing technology services continues to be good. He, however, added that economic uncertainties in Europe remain the biggest concern for the technology major. Ramadorai said TCS is cautiously optimistic about the demand for outsourcing services as clients remain wary of spending in an uncertain economic environment.

TCS had earlier said that none of its ongoing projects, which are not so urgent in nature, are being cut and it hasn't seen specific delays in decision-making.

A weak rupee supported IT stocks. The rupee weakened to its lowest level in more than 15 months on Tuesday, 13 September 2011, after shares turned negative and the euro fell against the dollar. The partially convertible rupee hit a low of 47.51, its lowest since 26 May 2010. A weak rupee boosts revenue of IT companies in rupee terms as the sector derives a lion's share of revenue from exports.

DLF rose 1.82% on reports that the realty major has decided to sell 17.5 acres land in central Mumbai, which bankers estimate to fetch between Rs 3000--Rs 4000 crore. DLF had bought the land in 2005 from National Textiles Corp. for Rs 702 crore, reports added.

But, most realty shares fell on worries higher interest rates may dent demand for residential and commercial property. Purchases of both residential and commercial property are largely driven by finance. HDIL, Indiabulls Real Estate, and Unitech declined by between 0.55% to 2.62%.

NTPC rose 0.74% to Rs 163.30 on bargain hunting. The stock had hit 52-week low of Rs 160.10 in intraday trade on Monday, 12 September 2011.

Auto stocks were mixed. India's largest truck maker by sales Tata Motors slumped 4.61% to Rs 139.65. The stock hit a 52-week low of Rs 137.65 in intraday trade today, 13 September 2011. The stock was the top loser from the Sensex pack. The stock extended two-day slide. The company on Friday, 9 September 2011, said that its group Chief Executive Office and Managing Director Carl-Peter Forster had resigned on Friday 9 September 2011 with immediate effect.

Forster's resignation, according to a Tata Motors' statement, was due to unavoidable personal circumstances. Forster, who earlier headed General Motors Co.'s Europe operations, joined Tata Motors in February 2010. His mandate at Tata Motors included managing its global operations, including Jaguar Land Rover (JLR), which was acquired in June 2008.

"I deeply regret that my personal circumstances make it difficult for me to continue to perform the challenging duties of managing the thriving global activities of the Tata Motors group with its main activities in India and the UK and increasingly in additional overseas markets," Forster said in a statement. Forster will, however, continue to be on the board as a non-executive member. Prakash Telang, Managing Director India Operations and Ralf Speth, Chief Executive Officer, Jaguar Land Rover, will represent their respective operations on the board.

India's largest small car maker by sales Maruti Suzuki India rose 0.62% to Rs 1075.05. The stock hit high of Rs 1094.95 and a low of Rs 1062. Maruti Suzuki has reportedly started hiring fresh permanent workers at its Manesar, Haryana factory to raise production and cut the waiting time for one its best-selling car models, the Swift. Maruti late last month halted production at the plant after it asked the 950 regular workers to sign the bond before they could enter the factory. The move came after the company said it discovered "serious and deliberate" quality problems in cars made at the plant.

The company is currently using 1,100 workers, including supervisors, engineers and temporary workers to continue production at Manesar. It has also deployed some workers from its factory at Gurgaon, also in Haryana, at the Manesar facility. Maruti last week started making the Swift at the Gurgaon plant in addition to Manesar to boost production of the car. Earlier this month, Maruti began weld operations at a second plant in Manesar, almost a month ahead of schedule, to assist in increasing production at the first factory where it is facing labor problems.

India's largest tractors and utility vehicles maker by sales Mahindra and Mahindra (M&M) rose 0.35% to Rs 785.20. The stock hit a high of Rs 795 and a low of Rs 766. Mahindra & Mahindra, last week, introduced a new, costlier version of its Bolero SUV. The company expects to sell more than 1 lakh Bolero vehicles this fiscal year through March, compared with 83,112 last year. M&M's auto sales rose 30.38% to 37,684 units in August 2011 over August 2010. The maker of the Xylo, Scorpio and Bolero models exported 1,928 autos, up 18% on year.

India's largest two-wheeler maker by sales Hero MotoCorp shed 0.17% to Rs 2205.60 on profit taking. The stock had scaled a record high of Rs 2,231.70 in intraday trade on Friday, 9 September 2011. The company's sales rose 19% to 5.03 lakh units in August 2011 over August 2010.

India's second largest two wheeler maker by sales Bajaj Auto rose 1.52% to Rs 1601.10. The stock had hit a record peak of Rs 1694.90 in intraday trade on 6 September 2011. The company's total sales rose 16% to a record 3.82 lakh units in August 2011 over August 2010. Motorcycle sales jumped 17% to a record 3.38 lakh units in August 2011 over August 2010.

Bank stocks reversed initial gains on concerns elevated interest rates may restrict loan growth. India's largest private sector bank by net profit ICICI Bank fell 0.92% to Rs 853.80, off the day's high of Rs 880.70. India's second largest private sector bank by net profit HDFC Bank declined 0.42% to Rs 466.65, off the day's high of Rs 475.

India's largest bank by branch network and net profit State Bank of India (SBI) shed 1.56% to Rs 1840.05. The stock hit a 52-week low of Rs 1,822.75 in intraday trade today, 13 September 2011. The government is likely to take a call shortly on infusing capital into SBI. SBI requires Rs 20000 crore to fund its growth plans over the next two financial years.

India's largest FMCG firm by sales Hindustan Unilever fell 1.36% to Rs 341.20. The stock retreated on profit taking after striking a record high of Rs 348.40 in intraday trade on Monday, 12 September 2011. Reportedly, the company has raised prices of coffee brand Bru in the wake of a sustained rise in cost of raw materials over last several quarters.

Cement shares rose after corporate affairs minister Veerappa Moily today, 13 September 2011, said that there were no signs of cartel by the three leading cement firms. UltraTech Cement, ACC, and Ambuja Cements rose 0.58% to 1.89%. Shares of south based cement major India Cements jumped 4.4%. Earlier, the Serious Fraud Investigation Office (SFIO), had found UltraTech Cement, ACC and Ambuja Cements guilty of price manipulation between 2008 and 2010. The SFIO had then submitted a report to the Ministry of Corporate Affairs (MCA), recommending action against them. The cement companies had defended their position by saying their actions were a function of the market and the way the cement industry functions.

Expectations of a post-monsoon pick-up in cement demand aided buying in cement shares. Cement demand falls during the monsoon season every year due to slowdown in construction activity.

Anil Dhirubhai Ambani Group shares recovered from last two days' steep losses. Reliance Infrastructure, Reliance Communications, Reliance Capital, Reliance MediaWorks and Reliance Power rose by between 0.52% to 2.96%.

State-run oil marketing companies (PSU OMCs) fell as crude prices gained. BPCL and HPCL fell by between 0.27% to 0.89%. Indian Oil Corporation rose 0.27%. Higher crude oil prices could increase 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.

Shares of oil exploration firms rose along with crude oil prices. Higher crude oil prices will result in higher realizations from crude sales for oil exploration firms. Cairn India (up 5.75%) and Oil India (up 0.3%) rose.

But, India's largest oil exploration firm by sales ONGC fell 1.17%. The company, early this month, filed prospectus for about Rs 11000-crore follow-on public offer with the Securities and Exchange Board of India.

Oil rose for a second day on speculation crude stockpiles shrank last week in the US, the world's biggest consumer of the commodity, after storms curtailed offshore production. Crude for October delivery was up 42 cents or 0.47% at $88.61 a barrel in Asian electronic trade.

Metal stocks were mixed. Sterlite Industries, National Aluminium Company, Hindustan Zinc, Hindalco Industries, JSW Steel, and Sail rose by between 0.08% to 1.62%. Tata Steel, Bhushan Steel, and Jindal Steel & Power rose by between 0.81% to 1.74%.

Some construction shares rose after the government further relaxed norms on FII investment in long-term corporate bonds issued by the companies in the infrastructure sector. Nagarjuna Construction Company, IRB Infrastructure Developers, and Patel Engineering rose by between 0.24% to 3.74%.

Biocon rose 1.76% after the firm's Chairwoman Kiran Mazumdar-Shaw told the media that the company plans to list its research services unit Syngene International within the next 18 months.

Cals Refineries clocked highest volume of 3.64 crore shares on BSE. K S Oils (2.94 crore shares), SpiceJet (67.17 lakh shares), GTL (62.44 lakh shares) and Pipavav Defence (55.09 lakh shares) were the other volume toppers in that order.

SBI clocked highest turnover of Rs 163.86 crore on BSE. RIL (Rs 74.26 crore), Jubilant Foodworks (Rs 64.85 crore), ARSS Infra (Rs 53.30 crore) and Delta Corp (Rs 51.03 crore) were the other turnover toppers in that order.

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 has further relaxed the norms on FII investment in such bonds. The Finance Ministry said in a statement late on Monday, 12 September 2011, that FIIs can now invest in long-term infra bonds, subject a ceiling of $5 billion limit, which have an initial maturity of five years or more at the time of issue and residual maturity of one year at the time of first purchase by FIIs. These investments are subject to a lock-in period of one year. FIIs can trade amongst themselves in these bonds but cannot sell to domestic investors during the lock-in period of one year.

FIIs can also now invest, subject to a ceiling of $17 billion, in long-term infra bonds which have an initial maturity of five years or more at the time of issue and residual maturity of three years at the time of first purchase by FIIs. These investments are subject to a lock-in period of three years. During the three-year lock-in period, FIIs can trade amongst themselves but cannot sell to domestic investors. The Securities & Exchange Board of India (Sebi) is expected to issue notifications incorporating these changes in the scheme by 15 October 2011.

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.

Planning Commission deputy chairman Montek Singh Ahluwalia on Monday, 12 September 2011, said at a conference that private funding has to make up half of the infrastructure investment of $1 trillion planned for in the five years during 2012-2017. Prime Minister Manmohan Singh said at the conference that to overcome the fund crunch for infrastructure projects, the government has proposed to set up a $11 billion fund to help finance infrastructure projects. "We have also constituted a high-level committee to suggest measures necessary for financing our ambitious program in infrastructure development," Mr. Singh said.

Industrial production grew a dismal 3.3% in July 2011 from a year earlier, hurt by a sharp fall in capital goods output, government data showed on Monday, 12 September 2011. The reading was sharply lower than the 8.8% industrial output growth recorded in June 2011. July capital goods output shrank 15.2% from a year earlier, compared with a 38% expansion in June. Manufacturing output, which has a 75.5% weight in the index, rose 2.3% year on year in July, compared with a 10% rise in June. Mining output grew 2.8%, compared with a revised 1.1% contraction in June.

Prolonged rainfall in the latter part of the season has helped ease concerns that this year's monsoon might drop below the long-term average after a brief lull in July, when the country usually receives a third of its monsoon rains. The monsoon was 3% above average till 7 September 2011, as per the latest data from Indian Meteorological Department (IMD). Most parts of the country received average to above-average rainfall this year, but the season was marked by both lulls and periods of intense rainfall in western and eastern regions.

While overall rainfall plays a key part in determining farm output, the timing and distribution of rains are also important to ensure a good crop. The unusual pattern of this year's rains may delay harvesting, affecting the yield from key summer-sown crops such as rice, oilseeds, sugarcane and cotton. Rice acreage as of 2 September 2011 was up 12% from last year at 35.75 million hectares.

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. But food prices may not necessarily fall if delayed and excess rains in some regions affect crop yields.

Annual inflation in the Food Articles group fell to 9.55% in the week ended 27 August 2011, from 10.05% in the previous week, the latest data showed. It was at 14.76% in the corresponding period of last year. However, inflation in the Primary Articles group climbed to 13.34% in the week under review, from 12.93% in the week ended 20 August 2011. It was at 15.24% in the year-ago period. Inflation in the Fuel & Power group was at 12.55% in the week ended 27 August, unchanged from the previous week, the latest data showed. It was at 12.61% in the comparable week of the previous year.

The Reserve Bank of India (RBI) has said that a change in anti-inflationary monetary stance will be motivated by signs of a sustainable downturn in inflation. The Reserve Bank of India has raised its key policy rate 11 times in the past 18 month to tame high inflation.

Inflation based on wholesale prices is forecast at 9.6% for August 2011, higher than a reading of 9.22% in July 2011, as per the median estimate of 13 economists polled by Capital Market. The data is due on Wednesday, 14 September 2011. Eleven out of twelve economists polled by Capital Market expect a 25 basis points (bps) hike in repo rate, the key short-term policy interest, from the Reserve Bank of India at its mid-quarter policy review on Friday, 16 September 2011.

Moody's Investors Services affirmed its Baa3 rating for India's foreign currency government debt and its Ba1 rating for local currency debt in an annual credit analysis released last week. The ratings firm assigned a positive outlook to India's rupee-denominated bonds, saying it will consider a unified Baa3 rating for all bonds if India improves its fiscal position and its commitment to strengthening the domestic market. The outlook for foreign-currency debt is stable.

The report was upbeat about India's ability to weather a global economic downturn. "While it is not immune to an international growth slowdown, the strength of domestic demand and the diversity of the economy provides a buffer against a deceleration in globally exposed sectors," the report said. It noted that India's foreign currency reserves equal four times its foreign debt obligations.

A debt-to-GDP ratio of 71% is cause for concern, as interest on this debt eats up 25% of India's revenues annually. However, "Moody's expects that continued GDP growth and incremental fiscal consolidation efforts will continue to lower the government debt/GDP ratio," the report said.

India's merchandise exports grew 44.2% in August 2011 from a year earlier, totaling $24.3 billion, sharply slowing from the previous month's pace, Commerce Secretary Rahul Khullar said last week. Imports in the just-ended month rose 41.8% from a year earlier to $38.4 billion, which widened the trade deficit to $14.1 billion from $11.1 billion in July.

Prospects for job seekers are gloomier in most major economies than they were three months ago, as weak US and European economies begin to affect employers' confidence in other parts of the world, according to a quarterly hiring survey by ManpowerGroup. The global staffing services company said the fourth-quarter hiring outlook is lower in 21 of 39 countries and territories, including the United States. Prospects are stronger in 13 economies and unchanged in five others versus the third-quarter.

Manpower's global survey, which polled more than 65,000 employers, found evidence slow US growth was affecting job creation elsewhere. India's hiring outlook fell steeply from the third quarter, partly because its information technology industry relies on US sales. Employers in China are also expecting less robust hiring in the next three months. Europe's austerity programs are also hurting demand for goods produced in emerging markets, Manpower said

European stocks fell in choppy trade on Tuesday, 13 September 2011, amid fading hopes that China was interested in Italian bonds. Key benchmark indices in Germany, France and UK were down 0.51% to 1.67%.

European stocks had opened higher on reports China might buy Italian sovereign debt. Media reports on Monday, 12 September 2011, said Italian Finance Minister Giulio Tremonti met with a delegation of Chinese officials last week to discuss possible Italian bond purchases. However, markets turned lower after reports of a denial from China. A senior banking official in China reportedly told Market News International that the government may not agree to a proposal to buy Italian debt owing to the instability of European bond markets.

Europe is China's biggest trading partner with around 30% of its exports going to Europe.

The euro-zone Economic and Financial Affairs Council (Ecofin) holds an inform meeting in Poland on Friday, 16 September 2011. Treasury Secretary Timothy Geithner is attending the meeting, reports suggest. Ecofin is one of the oldest configurations of the Council of the European Union and is composed of the Economics and Finance Ministers of the 27 European Union member states, as well as Budget Ministers when budgetary issues are discussed.

Asian stocks reversed initial gains on Tuesday, 13 September 2011. The key benchmark indices in Indonesia, China, Taiwan and Singapore fell by between 0.55% to 2.88%. Japan's Nikkei Average rose 0.95%. South Korea's stock market was closed for the Chusok holiday, while Hong Kong's equity markets were shut for the Mid-Autumn Festival.

On Monday, Japanese and Hong Kong shares closed at 2011 lows, while Australian stocks fell back to levels last seen in early August 2011. European markets also took a pounding on Monday, fueled by last week's resignation of a prominent European Central Bank official, fears that Greece is close to default and renewed talk that French banks are on the cusp of a ratings downgrade.

Trading in US index futures indicated that the Dow could fall 110 points at the opening bell on Tuesday, 13 September 2011. US stocks rose on Monday, bouncing back in late trading, as hopes that Italy could get financial support from China tempered investors' worst fears over the euro zone's sovereign debt crisis. US technology stocks gained on Monday after Broadcom Corp said it will pay $3.7 billion for acquiring US chip firm NetLogic Microsystems Inc

The Federal Open Market Committee (FOMC) is scheduled to undertake a two-day policy review on US interest rates on 20 and 21 September 2011.