Sensex slumps 4.1% amid global rout in equities

Fears of weak Q2 September 2011 corporate earnings and a rout in global stocks triggered by data showing a further slowdown in China's manufacturing sector and Federal Reserve's assessment that the US economy faces significant downside risks rattled Indian shares. The 50-unit S&P CNX Nifty settled near 3-1/2-week closing low below the psychological 5,000 level. The barometer index BSE Sensex settled near 4-week trough. The Sensex tanked 704 points or 4.13%, up close to 45 points from the day's low and off about 470 points from the day's high.



Index heavyweights Reliance Industries slumped more than 6%. State-run power equipment maker Bhel hit 52-week low. Realty stocks slumped on worries higher interest rates could dent demand for residential and commercial properties. Metal stocks slumped on weak economic data in China, the world's largest consumer of aluminum and copper. Auto stocks extended recent losses on worries higher interest rates and the latest petrol price hike may adversely impact sales of cars and two-wheelers during the festive season.

Today's decline on the bourses was broad based. The market breadth was quite weak. All the 13 sectoral indices on BSE were in the red. All the 30-share Sensex stocks declined.

The market recovered soon after a weak start. The intraday recovery proved short-lived as the market weakened again later. Intraday volatility continued as the market hovered near the day's low in morning trade. The market hit a fresh intraday low in mid-morning trade. The market extended initial losses to hit one week-low in early afternoon trade. The market tumbled in afternoon trade as European shares opened on a weak note. The market further extended losses in mid-afternoon trade. The market tumbled in late trade.

Nearly a quarter of top 100 companies have paid lower advance tax in Q2 September 2011, reflecting the slowdown in growth and pressure on margins because of rising input costs and higher interest rates. 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 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.

Meanwhile, Indian government's decision to defer the mega Rs 11000 crore follow-on public offer (FPO) of ONGC has helped ease concerns of the large issue sucking secondary market liquidity. As per the original plan, the FPO was scheduled to open for bidding on Tuesday, 20 September 2011.

The BSE Sensex tanked 704 points or 4.13% to settle at 16,361.15, its lowest closing level since 26 August 2011. The index tanked 749.12 points at the day's low of 16,316.03 in late trade. The index declined 231.54 points at the day's high of 16,833.61 in early trade.

The S&P CNX Nifty was down 209.60 points or 4.08% to settle at 4,923.65, its lowest closing level since 29 August 2011. The index hit low of 4,907.75 in intraday trade.

The BSE Mid-Cap index fell 3.1% and the BSE Small-Cap index declined 3.14%. Both these indices outperformed the Sensex.

BSE clocked turnover of Rs 2805 crore, higher than Rs 2536.54 crore on Wednesday, 21 September 2011.

The market breadth, indicating the overall health of the market, was quite weak. On BSE, 2,241 shares fell and 604 shares rose. A total of 75 shares remained unchanged.

All the shares from the 30-share Sensex pack fell.

Cement stocks dropped on profit taking. ACC, Jaiprakash Associates, Ambuja Cements, UltraTech Cement, and India Cements shed by between 0.46% to 9.33%.

Index heavyweight Reliance Industries (RIL) tumbled 6.16% to Rs 786.45, with the stock falling for the second straight day. 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.

RIL, owner of the world's biggest refining complex, on Tuesday 20 September 2011, 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.

Separately, RIL announced after market hours on Monday, 19 September 2011, that Reliance Security Solutions, a subsidiary of RIL and Siemens have signed a memorandum of understanding to jointly develop homeland security solutions for safe, secure and smart cities and highways in India.

Offshore oil services providers declined as crude oil prices fell. Aban Offshore, Great Offshore, SEAMEC, Jindal Drilling and Dolphin Offshore shed by between 0.24% to 7.75%.

Larsen & Toubro (L&T) fell 4.46%. The company announced during market hours today that it has bagged a Rs 700-crore order in Oman.

State-run power equipment maker Bhel declined 2.04% to Rs 1605. The stock hit 52 week low of Rs 1602.20 today. The company has fixed 4 October 2011 record date for a 5-for-1 stock split.

Interest rate sensitive banking stocks fell on fears 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 fell 4.2%. ICICI Bank and US based Oppenheimer Holdings Inc. have agreed to form a non-financial partnership to tap business opportunities in the two countries, the companies said Wednesday. ICICI Securities and Oppenheimer & Co. Inc. have formed a strategic alliance covering a wide range of securities activities including equity and debt capital markets services, advisory services, private equity transactions, and wealth management, the companies said in a press statement.

ICICI Securities had recently announced a similar pact with the UK-based financial advisory group Collins Stewart Hawkpoint PLC to promote joint access to each others' core markets.

India's largest bank by branch network and net profit State Bank of India (SBI) declined 3.55% on likely weak Q2 results as SBI's advance tax payment declined 14.2% to Rs 1650 crore in Q2 September 2011 over Q2 September 2010. SBI today, 22 September 2011, said it has increased the size of its Medium Term Note (MTN) Programme from $5 billion to $10 billion. The offering circular (OC) under the said MTN Programme has been updated on 19 September 2011 with the audited financial data of the bank as on 31 March 2011 and filed with Singapore Exchange.

Punjab National Bank, Bank of India and Bank of Baroda dropped by between 2.8% to 5.09%. India's second largest private sector bank by net profit HDFC Bank fell 4.28%.

Axis Bank shed 3.55% on profit taking after recent rally. The private sector bank last week its board has unanimously approved the transfer of the financial services business of Enam Securities whereby the Enam Financial Services business will be demerged from Enam into the bank under a Scheme of Arrangement. Enam shareholders will get 5.7 equity shares of Axis Bank for every one equity share of Enam. Upon completion aforesaid transaction, the bank will sell the Enam Financial Services business to ASSL, its wholly owned subsidiary. ASSL will pay the bank a cash consideration of approximately Rs 274 crore, which represents the book value of the Enam Financial Services Business, Axis Bank said. A total of 1.37 crore shares of Axis Bank will be issued to Enam shareholders.

Realty stocks fell on worries higher interest rates could dent demand for residential and commercial properties. Purchases of both residential and commercial property are largely driven by finance. DLF, HDIL, Indiabulls Real Estate and Unitech shed by between 5.44% to 8.32%. BSE Realty index tumbled 5.67% and underperformed the Sensex.

Metal stocks slumped on weak economic data in China, the world's largest consumer of aluminum and copper. Sterlite Industries, Sail, Jindal Steel & Power, Tata Steel, JSW Steel, Hindustan Zinc, and Hindalco Industries dropped by between 3.53% to 6.82%. BSE Metal index slumped 4.34% and underperformed the Sensex.

Auto stocks extended recent losses 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. Mahindra & Mahindra, Ashok Leyland, Hero MotoCorp and Bajaj Auto fell by between 1.51% to 3.86%.

Maruti Suzuki India, India's largest car maker by sales declined 3.92%, extending recent losses, on likely weak Q2 results as Maruti's advance tax payment fell 55.8% to Rs 120 crore in Q2 September 2011 over Q2 September 2010. Maruti on Wednesday it will resume production of the A-Star small car and the SX4 hatchback within a week at its factory at Manesar in Haryana. Production of the cars at Manesar was stopped 29 August 2011 after Maruti asked 950 regular workers belonging to the unrecognized Maruti Suzuki Employees Union to sign a "good conduct bond" before they could enter the factory. The auto maker said it asked the workers to sign the bond after it discovered "serious and deliberate" quality problems in cars made at the plant. It also suspended or dismissed 21 employees.

Maruti was so far focusing on normalizing production of the Swift hatchback, one of its largest selling models, to cut long waiting period. The company also started producing the Swift at its Gurgaon factory, also in Haryana state, to meet demand. It is relying on supervisors, engineers and temporary workers to continue production of Swift at Manesar. Maruti also deployed some workers from its Gurgaon factory at Manesar.

Maruti said it hasn't held any fresh talks with the striking workers. Talks between Maruti's management and the workers had failed late Sunday after the employees stuck to the demand that the company take back their dismissed colleagues.

Tata Motors tumbled 5.96% on reports that the company has cut production of most of its car models, including the Nano minicar, this month due to sluggish demand. India's largest auto maker by sales will likely make about 12,000 cars this month. The September 2011 production figure will be 33% lower than the 17,821 cars it produced a year earlier, reports suggest.

IT stocks fell after Federal Reserve's assessment that the US economy faces significant downside risks. US is the biggest outsourcing market for Indian IT firms. India's second largest software services exporter Infosys fell 3.28%. The company is reportedly close to acquiring the health care business of Thomson Reuters in a $700-750 million deal. If the deal goes through, it will be the largest acquisition by Infosys. Thomson Reuters' health care business provides data, analytics and performance benchmarking solutions and services to companies, government agencies and health care professionals.

India's largest software services exporter TCS declined 4.59%. Tata Consultancy Services (TCS) said after market hours on Wednesday that TCS BaNCS Core Banking Release 12 has been launched at the annual flagship event for Banking and Capital Markets in Toronto. The company early this week said Deutsche Bank has selected the company as a strategic partner for its production management transformation initiative within their capital market business unit.

India's largest software services exporter Wipro fell 4.14%. Wipro recently entered into a strategic alliance with Saab AB to develop and market protective software for the Swedish major's Land Electronic Defence System (LEDS). LEDS provides protection to light and medium combat vehicles and main battle tanks against rocket-propelled grenades, anti-tank missiles, mortars and artillery shells.

HCL Technologies declined 5.7%. The company announced before market hours today the opening of a new state-of-the-art Global Delivery Center with significant focus on engineering, in Redmond, Washington. The initial investment of 4 million dollars will create more than 400 jobs in the Seattle area over the next two years, HCL Tech said. The new center will support HCL's continued global expansion and increased focus on business innovation in software product development, test engineering and business critical platform development.

The company had announced during market hours on Wednesday that it has signed a strategic 5-year Application Support Transformation deal with Deutsche Bank's Capital Markets arm. HCL Tech had early this week announced the setting up a software delivery center in Dublin.

Meanwhile, the rupee fell more than 1.9% on Thursday to its lowest in more than 26 months as global investors fled risky assets following a grim economic outlook for the United States. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

FMCG stocks declined in a weak market. ITC, Marico, Dabur India and Hindustan Unilever shed by 0.9% and 3.34%.

Consumer durables stocks, too, declined. Videocon Industries, Blue Star, Rajesh Exports, Gitanjali Gems and Titan Industries dropped by between 0.38% to 5.81%.

Oil exploration stocks declined as lower crude oil prices will result in lower realizations from crude sales Cairn India declined 4.35%. ONGC fell 1.3%. Oil India was flat.

State-run oil marketing companies (PSU OMCs) rose as crude prices declined. HPCL and Indian Oil Corporation rose by between 0.84% to 0.96%. BPCL fell 0.39%. 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. However, weak rupee will negate the impact of lower crude oil prices for PSU OMCs as the crude oil that that refineries process is either imported or priced on import-parity. The government has already freed pricing of petrol.

Oil tumbled in Asian trade on Thursday on a stronger dollar as investors flocked to the safe-haven currency after the US central bank warned of significant downside risks to the American economy. Crude futures were down $2.78 barrel at $83.14 a barrel.

India Securities clocked highest volume of 4.76 crore shares on BSE. K S Oils (1.24 crore shares), Tree House Education Accessories (53.07 lakh shares), Prism Cement (45.56 lakh shares) and Unitech (43.32 lakh shares) were the other volume toppers in that order.

India Securities clocked highest turnover of Rs 264.54 crore on BSE. SBI (Rs 126.31 crore), RIL (Rs 112.04 crore), L&T (Rs 89.11 crore) and Tree House Education Accessories (Rs 85.76 crore) were the other turnover toppers in that order.

The Sensex has fallen 315.60 points or 1.89% in this month so far. The index has slumped 4,147.94 points or 20.22% in calendar 2011. From a 52-week high of 21,108.64 on 5 November 2010, the Sensex has lost 4,747.49 points or 22.49%. From a 52-week low of 15,765.53 on 26 August 2011, the Sensex has risen 595.62 points or 3.78%.

Finance Minister Pranab Mukherjee early last week said 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."

A recent India investor survey report prepared by J P Morgan Asset Management-ValueNotes expects benchmark Sensex to trade between 20,000 and 22,000 by end of this year. According to the report, the investment sentiment is affected by concerns such as recession, frequent hikes in interest rates and volatility in the domestic investment environment. Despite witnessing a 4.2-point decline from the last quarter, the 'Retail Investor Confidence Index' ranks the highest at 137.5 points. Retail investors' activity in mutual funds has improved 11% since the last quarter, the survey said. The survey was carried out from 22 July to 4 August 2011.

The survey also shows that investors are becoming cautious as preserving capital emerges as a popular investment strategy among retail investors (40%). However, 40% of investors, in comparison to 57% in March 2011, are expected to turn "somewhat aggressive" about their investment strategy over the coming six months.

Minister of commerce and industry Anand Sharma on Wednesday, 21 September 2011, said India has nearly completed discussions on a proposed India-US Bilateral Investment Treaty. Sharma, who is on a trip to the US, will meet US Trade Representative Ron Kirk to discuss other trade issues. In August 2009, India and the US started negotiating on the proposed treaty that seeks to provide binding legal rules regarding the treatment of investments between the two countries.

Food prices edged higher in the week ended 10 September 2011 as protein-rich foods kept becoming more expensive, offsetting a decline in vegetable and fruit prices and putting paid to hopes that inflationary pressures will ease anytime soon.

The Reserve Bank of India (RBI) said at a monetary policy review last week 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. In recent weeks, as a result of global risk aversion, the rupee has depreciated, which may have adverse implications for inflation, the RBI said. Most commodities imported by India, particularly oil, are denominated in dollars making these expensive for India.

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. The overall tone of the RBI's latest policy was softer than the previous policy announcement which was extremely hawkish.

Corporate margins in Q1 June 2011 moderated across several sectors compared to levels in Q4 March 2011. However, barring a few sectors, significant pass-through of rising input costs is still visible, RBI said.

Finance Minister Pranab Mukherjee said at a conference in the US on Wednesday, 21 September 2011, that India's vibrant services sector, which makes up nearly 58% of GDP, could hold the economy from further slippage.

The government last week 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.

The government last week cleared the ambitious $90-billion Delhi-Mumbai industrial corridor. The Delihi-Mumbai industrial corridor project will set up nine mega industrial zones of about 200-250 square kilometre (km) along with a 1,500 km high speed freight line connecting the two cities. It will include three ports and six airports, as well as a six-lane intersection-free expressway connecting the two cities and a 4,000 megawatts (MW) power plant and also set up seven new cities.

The public private partnership (PPP) approval committee approved projects worth Rs 18000 crore last week, that include a housing project for para-military forces and a road project among others.

A memorandum of understanding (MoU) was signed last week between India Infrastructure Finance Company (IIFCL), LIC and IDFC with respect to the Takeout Finance Scheme (TFS). Under the MoU, the project lender(s) will offer eligible infrastructure projects to IIFCL for availing takeout financing. Finance Minister Pranab Mukherjee said he expects this mechanism will help financing to the tune of Rs 30000 crore, adding this will facilitate banks to take more exposure in new projects, which in turn will help in bridging the gap in infrastructure financing.

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. The Finance Ministry said in a statement 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 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.

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 first advance estimates for the 2011-12 kharif season point to a record production of rice, oilseeds and cotton, while the output of pulses may decline. The monsoon rains were 29% above normal in the week to 21 September 2011, strengthening from 1% above average in the previous week, the weather office said on Thursday. The monsoon rains were 4% above average since the start of the June-September season, in line with the weather office's latest forecast of a normal monsoon in 2011, which means rains of 96 to 104% of a long-term average.

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.

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 early this month. 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.

European stock markets fell sharply on Thursday, 22 September 2011, with banks, mining and oil stocks hit hard in the wake of a bond-swap program announced by the US Federal Reserve, which also warned of sharper risks to its economic outlook. Key benchmark indices in UK, France and Germany were down by 4% to 4.8%.

Adding to pressure, credit-rating firm Standard & Poor's on Wednesday, 21 September 2011, cut its long-term ratings on several Italian lenders in the aftermath of the company's decision to downgrade Italy's sovereign rating earlier this week. S&P cut its rating on Italy by one notch to single-A on early this week, saying political paralysis in Prime Minister Silvio Berlusconi's governing coalition has become an obstacle to overhauling the country's stagnant economy.

Some writing down and hopefully orderly restructuring of Greek debt is inevitable, former European Commissioner for Trade Peter Mandelson said Thursday, 22 September 2011. In a speech in Singapore, Mandelson said that would likely necessitate further liquidity for Greece, aid for banks facing losses as a result, and support from the European Central Bank for other euro-zone members who come under pressure. He expressed confidence that there would be a "re-galvanising" of European political forces in October that would allow leaders to bring the debt crisis under control.

Mandelson stressed that it would also be vital for the currency bloc to tackle its big internal imbalances.

Asian shares fell sharply on Thursday, 22 September 2011, with investors reacting badly to the US Federal Reserve's new policy measures and view on the prospects for economic growth. Key benchmark indices in China, Hong Kong, Indonesia, Taiwan, Japan, Singapore and South Korea shed by between 2.07% to 8.88%.

Stocks in Hong Kong and Shanghai, also came under pressure from data showing a further slowdown in China's manufacturing sector. HSBC's preliminary China Manufacturing Purchasing Managers' index, or flash PMI, fell to a two-month low of 49.4 in September, easing from 49.9 in August, the bank said Thursday, 22 September 2011.

Trading in US index futures indicated that the Dow could tumble 223 points at the opening bell on Thursday, 22 September 2011.

The Fed on Wednesday, 21 September 2011, announced a program to twist the yield curve by swapping $400 billion of short-term debt for longer-term maturities. The Fed said it was acting in light of "significant downside risks to the economic outlook, including strains in global financial markets."