Sensex slumps 6.1% in four days as FIIs step up selling

Key benchmark indices dropped for the fourth day in a row to hit one-month closing lows as fears of weak Q2 September 2011 results and data showing heavy selling by foreign funds recently, weighed on investor sentiment. The market was volatile. The market breadth was weak. The barometer index BSE Sensex settled above the psychological 16,000 mark, having alternately swung above and below that mark in intraday trade. The Sensex lost 110.96 points or 0.69%, up close to 260 points from the day's low and off close to 160 points from the day's high.



From a recent high of 17,099.28 on 20 September 2011, the Sensex has slumped 1,048.18 points or 6.12% in four trading sessions. The Sensex has fallen 625.65 points or 3.75% in this month so far. The index has slumped 4,457.99 points or 21.73% in calendar 2011. From a 52-week high of 21,108.64 on 5 November 2010, the Sensex has lost 5,057.54 points or 23.95%. From a 52-week low of 15,765.53 on 26 August 2011, the Sensex has risen 285.57 points or 1.81%.

Coming back to today's trade, auto stocks fell on worries higher interest rates and the recent petrol price hike may adversely impact sales of cars and two-wheelers during the festive season. Index heavyweight Reliance Industries (RIL) dropped. But, another index heavyweight ICICI Bank rose. Coal India slumped on reports the company's workers' unions have called country-wide shutdown on 10 October 2011 over their demands for bonus and ex-gratia. Engineering and construction major L&T, metals producer Sterlite Industries (India) and aluminium major Hindalco Industries hit 52-week lows.

The market was volatile as traders rolled over positions in the futures & options (F&O) segment from the near-month September 2011 series to October 2011 series. The September 2011 derivatives contracts expire on Thursday, 29 September 2011. The market lost ground soon after a positive start. The Sensex hit one-month low. The market soon came off lows. The intraday recovery proved short-lived as the Sensex hit fresh one-month low in morning trade.

The market extended losses in mid-morning trade. A bout of volatility was witnessed in early afternoon trade as the market came off one-month low. Volatility continued in afternoon trade as key benchmark weakened soon after a strong intraday rebound. The market traded off one-month low in mid-afternoon trade.

Foreign institutional investors (FIIs) sold shares worth net Rs 1189.80 crore on Friday, 23 September 2011, on the top of an outflow of Rs 1234.60 crore on Thursday, 22 September 2011, the latest data released by the Securities & Exchange Board of India (Sebi) showed.

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.

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.

The BSE Sensex shed 110.96 points or 0.69% to settle at 16,051.10, its lowest closing level since 26 August 2011. The index lost 361.05 points at the day's low of 15,801.01 in mid-morning trade. The index rose 47.13 points at the day's high of 16,209.19 in early trade.

The S&P CNX Nifty was down 32.35 points or 0.66% to settle at 4,835.40, its lowest closing level since 26 August 2011. The Nifty hit a low of 4,758.85 in intraday trade.

The BSE Mid-cap index fell 1.47% and the BSE Small-Cap index declined 1.67%. Both these indices underperformed the Sensex.

The market breadth, indicating the overall health of the market, was weak. On BSE, 1,987 shares fell and 779 shares rose. A total of 99 shares remained unchanged.

Among the 30-share Sensex pack, 21 declined while the rest gained.

The total turnover on BSE amounted to Rs 2147 crore, lower than Rs 2644.44 crore on Friday, 23 September 2011.

Index heavyweight Reliance Industries (RIL) dropped 1.5% to Rs 759.20, off the day's low of Rs 748.50. Recent reports indicated that the Comptroller and Auditor General of India (CAG) has begun examining the books of Reliance Industries (RIL) to see whether there was any loss to the exchequer at the company's D6 block in the Krishna-Godavari basin in 2008-09 and 2009-10. RIL had 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.

Meanwhile, RIL is reportedly undertaking a comprehensive review of its oil and gas strategy in view of its ordeals with regulators and auditors, which may compel the explorer to drill abroad in partnership with global major BP instead of bidding for new blocks in the country.

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, 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.

India's largest coal miner Coal India (CIL) tumbled 5.46% and was the top loser from the Sensex pack. The stock slumped on reports the company's workers' unions have called country-wide shutdown on 10 October 2011 over their demands for bonus and ex-gratia. But, CIL chairman N.C. Jha asserted that it is not possible to give higher bonus this year as there was no growth in production, report said.

India's largest engineering and construction firm by order book Larsen & Toubro fell 1.62% to Rs 1428.70. The stock hit 52-week low of Rs 1411.10 today.

Private sector power generation major Tata Power settled at Rs 97.20 after turning 10-for-1 stock-split today. The stock had settled at Rs 989.80 on Friday, 23 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. Two wheeler makers, Hero MotoCorp (down 2.84%), and Bajaj Auto (down 2.45%), declined.

India's largest tractor maker by sales M&M shed 0.45%, with the stock falling for the third straight day.

India's largest commercial vehicle maker by sales Tata Motors fell 0.27%, with the stock falling for the fourth straight day. Tata Motors has reportedly 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.

Maruti Suzuki India, India's largest car maker by sales fell 0.71% to Rs 1078.85 after swinging between Rs 1108.95 and Rs 1066. Undeterred by ongoing stand-off with its workers at the Manesar plant, Maruti Suzuki India expressed confidence that production constraints will have no impact on supplies for the festive season sales. The company, which has so far received bookings of 1.08 lakh units for its new Swift, also said it is all poised to normalise supply of the model after being affected by the labour issue at the plant.

The company may report weak Q2 results as Maruti's advance tax payment fell 55.8% to Rs 120 crore in Q2 September 2011 over Q2 September 2010.

Offshore oil services providers declined as crude oil prices extended last week's steep losses. Deep Industries, Great Offshore, Aban Offshore, SEAMEC and Jindal Drilling & Industries shed by between 0.64% to 4.78%.

A sharp decline in crude oil prices raised worries that oil firms may go slow on expansion of exploration and production activities.

Oil exploration stocks fell as lower crude oil prices will result in lower realizations from crude sales. Cairn India, ONGC and Oil India dropped by between 0.8% to 2.76%. Crude for November delivery slid 0.31% at $79.60 a barrel. Oil had plunged 9.5% last week on concerns about slowing global economic growth.

Realty stocks extended recent losses 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. D B Realty, Orbit Corporation, HDIL, Indiabulls Real Estate and Unitech shed by between 0.87% to 4.86%.

Metal stocks slumped as LMEX, a gauge of six metals traded on the London Metal Exchange, dropped 3.2% on Friday, 23 September 2011. Nalco, Hindustan Zinc, JSW Steel, Sail, Sesa Goa, and Jindal Steel & Power fell by between 0.67% to 5.9%.

India's largest private sector aluminium maker by sales Hindalco Industries slumped 3.8% to Rs 129.05 after sliding to a 52-week low of Rs 125 today.

India's largest non-ferrous metals producer Sterlite Industries (India) lost 4.4% to Rs 117.30 after sliding to a 52-week low of Rs 115.05 today.

IT stocks rose on a recent steep slide in rupee against the dollar. India's largest software services exporter TCS rose 0.72% while India's second largest software services exporter Infosys gained 0.64%.

India's third largest software services exporter Wipro rose 0.46% on reports the company is evaluating options to sell data centres and other computer hardware assets of its US subsidiary, Infocrossing, to unlock value from what the company now calls non-core business.

A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports. The rupee shed 4.4% of its value last week, its biggest fall since the week ended 12 July 1996.

Interest rate sensitive banking stocks recovered from the intraday lows. India's largest private sector bank by net profit ICICI Bank rose 1.4% to Rs 856.45, reversing from an initial slide to day's low of Rs 833.10. India's second largest private sector bank by net profit HDFC Bank declined 1.64% to Rs 450.15, off the day's low of Rs 438.80.

India's largest bank by branch network and net profit State Bank of India (SBI) slipped 0.22% to Rs 1951.20, off the day's low of Rs 1924.10. Reportedly, the state-run bank is unlikely to come up with a retail bond issue this year because it will get locked to a higher coupon at a time when the interest rate cycle is peaking.

Shares of air carriers were mixed as crude oil prices extended last week's steep losses. SpiceJet (down 1.96%) and Kingfisher Airlines (down 1.24%), declined while Jet Airways (India) rose 0.22%.

Aviation turbine fuel, or jet fuel constitutes more than 50% of operating cost for airliners. Prices of jet fuel are directly linked to crude oil prices. State-run oil marketing companies--Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation revise jet fuel prices on the 1st and 16th of every month based on the average international crude price in the preceding fortnight.

Shares of gold jewellery makers slumped as gold prices tumbled. Rajesh Exports and Titan Industries tumbled by between 5.57% to 7.27%.

PG Electroplast clocked highest volume of 2.92 crore shares on BSE. Futura Polyester (53.92 lakh shares), Delta Corp (40.01 lakh shares), IFCI (39.42 lakh shares) and Shree Ashtavinayak Cine Vision (36.81 lakh shares) were the other volume toppers in that order.

PG Electroplast clocked highest turnover of Rs 120.40 crore on BSE. SBI (Rs 122.41 crore), RIL (Rs 85.87 crore), L&T (Rs 60.83 crore) and HDFC Bank (Rs 52.67 crore) were the other turnover toppers in that order.

Market regulator Securities and Exchange Board of India (Sebi) on Friday, 23 September 2011, notified the new takeover code which makes it mandatory for entities buying more than 25% stake in a listed firm to buy an additional 26% from the public. The new code will come into effect from 23 October 2011. Under existing norms, the trigger for making an open offer is 15% while the offer size has to be 20%. In July, Sebi board had approved the recommendations of the takeover panel with some changes. The new norm exempts inter se transfers of shares among promoters from making an open offer. The new norms also does away with the non-compete fee.

A news agency 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 recently 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."

The government recently 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 recently cleared the ambitious $90-billion Delhi-Mumbai industrial corridor. The Delhi-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 recently approved projects worth Rs 18000 crore that include a housing project for para-military forces and a road project among others.

A memorandum of understanding (MoU) was signed recently 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 also said at that 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.

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 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 shed 4.4% of its value last week, its biggest fall since the week ended 12 July 1996.

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.

Reserve Bank of India Deputy Governor Subir Gokarn on Sunday, 25 September 2011, said the decline in the rupee in "so short a time" is a concern that reflects volatility in global financial markets. Sharp movements in the currency can be disruptive and tend to trigger panic, he said in a speech in Washington. India has not intervened with an exchange-rate target in mind for a long time and there are no plans to change the policy, he said.

"We do see that very sharp movements intra-hour or intra- day can be disruptive," Gokarn said. "They tend to trigger panic, entry or exit. In that situation, we feel that there is some merit in smoothing, infusing dollars to ensure that movement is moderated. That is something we would consider."

Inflation in India remains high and will probably remain in a range of 9% to 10% until November 2011, Gokarn said. 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.

Shankar Acharya, a member of the Reserve Bank of India's monetary policy advisory panel, on Thursday, 22 September 2011, said the repo rate is "near the peak". He added that the central bank has to keep its short-term interest rate high as it solely battles stubborn inflation. The tight monetary policy is likely to stay until March-end before the inflation rate starts showing distinct signs of easing, Mr. Acharya said. A widening fiscal deficit would further stoke inflationary pressures, leaving little room for the RBI to ease its policy, Acharya added.

Though inflation will remain the RBI's prime concern, its next action will also depend on how the global economic woes shape out, Mr. Acharya said. "We are poised at the cusp of another very difficult period," Mr. Acharya said, adding that future RBI actions will take note of external risks in a big way, as past rate hikes have started hurting investments in the economy.

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

A late surge in rainfall has pushed this season's rains 4% above the 50-year average. 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.

European stocks reversed initial losses on Monday, 26 September 2011, on speculation about a possible interest-rate cut by the European Central Bank as well as hopes that a solution will be found to the euro-zone debt crisis. Key benchmark indices in France, Germany and UK were up by between 1.32% to 3.52%.

A rate cut by the European Central Bank (ECB) can't be ruled out, ECB Governing Council member Ewald Nowotny said, according to news reports on Monday, 26 September 2011, citing Market News International. The ECB has raised interest rates in recent months, with its key rate currently at 1.5%.

European shares had slumped last week amid continuing worries over Europe's sovereign debt crisis.

Over the weekend, global economic policy makers, gathered in Washington for the annual meeting of the International Monetary Fund, tried to sound united and said Europe would do whatever is necessary to resolve the crisis. However, it remained unclear whether euro-zone nations can bridge their differences and respond quickly and effectively to the crisis.

Asian stocks today, 26 September 2011, extended last week's heavy losses on reports that fresh aid for Greece may take longer than expected. Key benchmark indices in China, Indonesia, Japan, Hong Kong, Taiwan, Singapore and South Korea were down by between 1.48% to 3.22%.

Asian stocks had tumbled last week, with the Chinese, South Korean and Australian markets posting weekly losses that varied from 2% for the Shanghai Composite to 9.2% for the Hang Seng Index. Worries about future global economic performance intensified late in the week after the release of a weak survey on manufacturing from China and downbeat comments on the growth outlook from the US Federal Reserve.

China won't change its monetary and fiscal policy, while its monetary policy must have leeway for adjustment in the event of a more serious crisis in the global economy, the country's central bank chief was cited as saying on Monday, 26 September 2011. In an interview with the China Business News, People's Bank of China Gov. Zhou Xiaochuan said China will not adopt policies that may prompt a "hard landing" of its macro economy. Instead, the government will pursue policies to achieve a "soft landing" of its economy, and seek to maintain stable and sustainable development.

Data last week 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.

US index futures reversed initial losses. Trading in US index futures indicated that the Dow could gain 119 points at the opening bell on Monday, 26 September 2011. US stocks edged slightly higher on Friday, 23 September 2011, as a pledge from global officials to maintain financial stability alleviated some immediate investor anxiety. The Dow Jones industrial average edged up 37.65 points, or 0.35%, to 10771.48. The Standard & Poor 500 index rose 6.87 points, or 0.61%, to 1136.43 and the Nasdaq Composite rose 27.56 points, or 1.12%, to 2483.23.

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.