A seven-day 8.3% rally brings Sensex near 5-week closing high

Resumption of buying by foreign funds this month, gains in world stocks and good monsoon rains helped Indian shares extend recent strong gains. The BSE Sensex jumped 100.54 points or 0.59%, up close to 180 points from the day's low and off about 45 points from the day's high. Intraday volatility was high. The market breadth was strong. Index heavyweight Reliance Industries (RIL) rose more than 2.5%, reversing initial losses, after the firm said it has set a global benchmark for effective and efficient project completion and capital cost competitiveness in KG D6 gas production block under the most trying circumstances. Another index heavyweight ICICI Bank rose 2.5%.



The market has staged a strong rebound after a steep setback in August 2011. The Sensex has jumped 1,316.71 points or 8.3% in seven trading session from 18-1/2-month closing low of 15,848.83 on 26 August 2011.

Foreign institutional investors (FIIs) bought shares worth net Rs 374.20 crore on Wednesday, 7 September 2011, compared with an inflow of Rs 568.80 crore on Tuesday, 6 September 2011, the latest data released by the Securities & Exchange Board of India (Sebi) showed. FII inflow totaled Rs 1985.53 crore in the first few days this month, till 7 September 2011, as per data from the stock exchanges.

Good rains this year will help boost farm output and rural incomes. Higher rural consumption may ease concerns of a likely slowdown in corporate earnings caused by higher interest rates and higher input costs. Good rains may also help bring food inflation down. Data on second quarter September 2011 corporate advance tax payment due on 15 September 2011 may provide cues on Q2 September 2011 results.

Coming back to today's trade, capital goods stocks edged higher. Software stocks gained on positive economic data in US and on a weak rupee. Defensive FMCG stocks edged lower in a firm market.

Intraday volatility was high. The market slipped into the red soon after a positive opening. The market soon regained positive zone. The market pared gains shortly thereafter. Volatility continued as key benchmark indices recovered after hitting fresh intraday lows in morning trade. The barometer index BSE Sensex regained the psychological 17,000 mark after falling below that mark for a short while. The market retained positive zone in mid-morning trade.

Key benchmark indices trimmed loses after reversing gains in early afternoon trade as volatility continued. Volatility ruled the roost as key benchmark indices once again slipped into the red after regaining positive for a brief period in afternoon trade. The market surged to fresh intraday high in mid-afternoon trade as European shares reversed initial losses.

The BSE Sensex was up 100.54 points or 0.59% to 17,165.54, its highest closing level since 5 August 2011. The index rose 144.66 points at the day's high of 17,209.66 in mid-afternoon trade. The index fell 77.63 points at the day's low of 16,987.37 in early trade.

The S&P CNX Nifty was 28.60 points or 0.56% to 5,153.25, its highest closing level since 10 August 2011. The Nifty hit a high of 5,169.25 in intraday trade. The Nifty hit a low of 5,098.25 in intraday trade.

The BSE Mid-Cap index rose 0.26% and underperformed the Sensex. The BSE Small-Cap index gained 0.72%. and outperformed the Sensex.

BSE clocked turnover of Rs 2361 crore, lower than Rs 2757.35 crore on Wednesday, 7 September 2011.

The market breadth, indicating the overall health of the market, was strong. On BSE, 1,740 shares rose and 1,110 shares declined. A total of 101 shares remained unchanged.

Among the 30-share Sensex pack, 15 fell while rest of them rose.

Index heavyweight Reliance Industries (RIL) gained 2.62% to Rs 853.50, off the day's low of Rs 814, after the firm said it has set a global benchmark for effective and efficient project completion and capital cost competitiveness in KG D6 gas production block under the most trying circumstances. RIL issued a statement after the Comptroller and Auditor General of India or CAG said in its final report submitted to the parliament today, 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 report 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.

RIL said it is unable to comment on the final CAG report as the company has not seen the contents of the final report. RIL said it had already provided its detailed comments along with the views of international experts on the draft CAG report to Ministry of Petroleum and Natural Gas (MOPNG), Directorate General of Hydrocarbons (DGH) and CAG. RIL said it hopes that its detailed responses and the views of industry experts have been duly considered in finalising the audit report by CAG.

RIL said it reiterates that, as a contractor, it remains committed to complying with the PSC (Production Sharing Contract) provisions and procedures, including adopting Good International Petroleum Industry Practices (GIPIP) in its operations. Since many of the comments in the draft report had referred to issues that were technical in nature, the firm had offered to CAG a complete and thorough interaction with subject matter specialists, RIL said. RIL also said it remains open to such interaction at all times. RIL also said that it will continue to co-operate with the Government of India for audit as per the provisions of PSC.

Europe's second largest oil company BP Plc, last month, completed the acquisition of a 30% stake in 21 oil and gas blocks that RIL operates in India. BP will pay RIL an aggregate consideration of $7.2 billion subject to completion adjustments for the interests to be acquired in the 21 production sharing contracts, the two companies said in a joint statement late last month. Further performance payments of up to $1.8 billion could be paid based on exploration success that results in development of commercial discoveries, the two companies said.

Index heavyweight ICICI Bank rose 2.51% to Rs 919.30. The stock came off the day's low of Rs 883.85.

Pharma stocks edged higher. Biocon, Lupin, Cipla, Dr Reddy's Laboratories rose by between 0.29% to 2.94%. Ranbaxy Laboratories jumped 4.37% on reports the company will release a generic version of the blockbuster cholesterol-lowering drug Lipitor in the US at the end of November 2011 as planned.

Interest rate sensitive realty stocks edged higher on bargain hunting after heavy losses over the past few months triggered by worries that higher interest rates will dent demand for residential and commercial property. Purchases of both residential and commercial property are largely driven by finance. DLF, HDIL, and Unitech gained by between 0.42% to 1.94%.

Consumer durables stocks gained. Blue Star, Videocon Industries, Rajesh Exports, Gitanjali Gems and Titan Industries gained by between 0.08% to 2.93%.

Defensive FMCG stocks edged lower in a firm market. Nestle India, Marico, ITC and United Spirits dropped by between 0.6% to 1.59%.

Capital goods stocks edged higher. Thermax, Larsen & Toubro, Praj Industries, ABB, Siemens and Punj Lloyd rose by between 0.81% to 3.4%.

ONGC fell 0.55%. The company has filed prospectus for about Rs 11000-crore follow-on public offer with the Securities and Exchange Board of India. The government will sell a 5% stake in ONGC through the offer as a part of its plan to raise Rs 40000 crore through sale of shares in state-run companies in the current financial year through March to fund social-sector programs.

Software stocks gained on positive economic data in US and on a weak rupee. US is the biggest market for the Indian IT firms. India's third largest software services exporter Wipro jumped 2.58%.

India's second largest software services exporter Infosys gained 2.07%. The chief executive of Infosys said last month that the economic worries in the US and Europe were delaying decisions and clients may not spend all of their information-technology budgets for this year.

India's largest software services exporter TCS rose 0.49%. TCS early this week said that Westpac has selected TCS' BaNCS Insurance to assist the financial institution to upgrade and transform the life insurance software platform to drive growth in New Zealand.

A weak rupee also supported IT stocks. The rupee today, 8 September 2011, fell to a near one-year low against the dollar dragged by dollar demand from domestic oil companies and weak Asian currencies. The partially convertible rupee ended at 46.19/20 to a dollar, 0.04% lower than Wednesday's (7 September 2011) close of 46.1670/1750 after dipping to 46.2750--a level not seen since 16 September 2010. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

Reliance Communications, India's No 2 mobile phone carrier by subscribers, rose 0.73% on reports that the company has received an order worth Rs 1400 crore for building and maintaining a data centre for HDFC Bank. The contract with HDFC Bank, the country's No. 3 lender, is for 15 years.

Fertiliser shares rose across the board. National Fertilizer, GSFC, Tata Chemicals and Chambal Fertiliser & Chemicals rose by between 0.37% to 5.23%.

Diversified Jaiprakash Associates fell 0.56% after the firm denied a report that it is in talks to sell up to 26% stake in its cement business to a strategic partner.

Metal stocks were mixed after LMEX, a gauge of six metals traded on the London Metal Exchange rose 1.97% on Wednesday, 7 September 2011. Sterlite Industries, Nalco and Hindustan Zinc rose by between 0.95% to 1.59%. Jindal Steel & Power, Hindalco Industries, Bhushan Steel, JSW Steel, Tata Steel, and Sail shed by between 0.44% to 2.47%.

Most auto shares gained. India's largest small car maker by sales Maruti Suzuki India advanced 0.39% after the chairman of the country's largest auto maker by sales R.C. Bhargava said that the company is considering building a new factory in Gujarat and may take a final decision in the next two to three months. Bhargava also said that a delegation from Maruti Suzuki, comprising Osamu Suzuki, chairman and chief executive of Maruti's parent Suzuki Motor Corp., will meet Gujarat Chief Minister Narendra Modi and other senior state government officials later Thursday to hold discussions about the proposed factory. "This is still at an exploratory stage," Mr. Bhargava said. He said the auto maker is also considering other locations in India for the new factory, but he declined to give details.

Maruti's sales declined 13% to 91,442 vehicles in August 2011 over August 2010 hurt by disruption in production at Manesar plant caused by the labour unrest in end-August.

India's largest truck maker by sales Tata Motors rose 2.59%. Tata Motors sold 64,078 vehicles in August 2011, 3% down on last year. Car sales fell 33% to 16,829 vehicles but sales of trucks and buses grew 21% to 43,045 units. Tata Motors sold 1,202 units of its Nano minicar in August 2011, down 85% on year, as its Gujarat factory remained shut for two weeks for routine maintenance. Exports also fell 18% to 4,204 vehicles.

India's largest tractor maker by sales Mahindra and Mahindra (M&M) rose 0.53%. As per recent reports, the company raised prices by up to 2% for its entire range of products last month to offset the impact of high raw material costs. The company's 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 rose 0.14% to Rs 2170.60. The stock had scaled a record high of Rs 2206 in intraday trade on 6 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 fell 0.88% to Rs 1625.60. 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.

Offshore oil services providers rose as crude oil prices surged. Aban Offshore, Deep Industries, Jindal Drilling, SEAMEC gained by between 0.5% to 4.79%.

State-run oil marketing companies (PSU OMCs) were mixed as crude oil prices surged. Indian Oil Corporation and BPCL rose by between 0.13% to 0.55%. HPCL fell 4.56% as the stock turned ex-divided today for dividend of Rs 14 a share for the year ended March 2011. Higher crude oil prices will result in increase in 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 were also mixed. Higher crude oil prices will result in higher realization from crude sales. Cairn India rose 3.07%. India's biggest state-run oil exploration firm by revenue Oil & Natural Gas Corporation (ONGC) fell 0.55%. India's second biggest oil and gas exploration firm by revenue, Oil India, rose 1.42%.

Airline stocks fell as a surge in crude oil prices and a weak rupee heightened concerns about the impact of high jet fuel prices on operating costs. Kingfisher Airlines, Jet Airways and SpiceJet shed by between 0.71% to 4.14%. 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.

Oil traded near the highest close in more than a month in New York on speculation a storm building in the Gulf of Mexico poses a threat to supplies in the US, which were reduced last week by an earlier cyclone. US crude futures for October 2011 delivery were down 9 cents or 0.1% at 89.25 a barrel.

Cals Refineries clocked highest volume of 5.97 crore shares on BSE. TD Power Systems (1.16 crore shares), K S Oils (67.10 lakh shares), Unitech (63.70 lakh shares) and Shree Ashtavinayak Cine Vision (60.80 lakh shares) were the other volume toppers in that order.

TD Power Systems clocked highest turnover of Rs 320.76 crore on BSE. RIL (Rs 133.12 crore), VIP Industries (Rs 105.93 crore), SBI (Rs 99.48 crore) and Delta Corp (Rs 62.23 crore) were the other turnover toppers in that order.

Foreign institutional investors (FIIs) bought shares worth Rs 262.43 crore on Wednesday, 7 September 2011, as per provisional data from the stock exchanges. FIIs bought shares worth a net Rs 2972.63 crore during six trading sessions from 29 August 2011 to 7 September 2011, as per data from the stock exchanges.

The government moved a step closer to an overhaul of century-old land acquisition laws on Wednesday by introducing a long-delayed bill in parliament that aims to draw infrastructure investment while compensating farmers and land-owners. The current parliamentary session ends on Friday, 9 September 2011 and the bill is unlikely to be passed before parliament reconvenes later this year. Compulsory land acquisition for the public good is a contentious issue as crowded India seeks to industrialize, with major factories, housing and transport projects held up by conflicts over land.

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 Commerce & Industry Ministry said in a statement. 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.

Good rains this year will help boost farm output which in turn could help cool food prices. The country has received 3% above-average monsoon rain so far, till 7 September 2011.

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. Data on 12 September 2011 on industrial production for July 2011 and on 14 September 2011 on headline inflation for August 2011 will provide cues on the central bank's likely policy stance at its mid-quarter monetary policy review on 16 September 2011. The Reserve Bank of India has raised its key policy rate 11 times in the past 18 month to tame high inflation.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission, today, 8 September 2011, said that he agrees with the finance minister's view on pausing India's tight monetary stance.

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 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 services sector grew at its slowest pace in more than two years in August 2011, throttled by feeble expansion in new business as a faltering global economy and tight domestic monetary conditions weighed, a survey showed on Monday, 5 September 2011. The HSBC Markit Business Activity Index, based on a survey of around 400 companies, slumped to 53.8 in August from 58.2 in July, the index's biggest one-month decline since January 2009. It was also the weakest growth since June 2009, but the index has stayed above the 50 mark that separates growth from contraction for 28 consecutive months.

The new business sub-index fell to its lowest level in three months in August, at 54.9 from July's 59.3, as dampening global economic conditions knocked orders. Expectations for new business were also scaled back in August. The survey also showed a reduction in service sector employment levels for the second consecutive month as new business growth slowed while input costs and output prices continued to march ahead.

India's manufacturing activity in August 2011 slowed to a 29-month low as exports took a beating amid the lingering uncertainty in the global economic environment, a survey showed last week. The seasonally adjusted HSBC Purchasing Managers' Index, prepared by Markit, fell to 52.6 in August from 53.6 in July. The pace of new order flows in August decelerated to the slowest in 29 months as export orders contracted at the sharpest rate since the series was started, HSBC said.

Production backlogs fell for the first time since March 2010 as pressure on operating capacity subsided. Also, inflationary pressures intensified as both input and output prices rose.

Exports surged 81.79% to $29.3 billion while imports jumped 51.5% to $40.4 billion in July 2011 over July 2010, leaving a trade deficit of $11 billion, data showed last week.

European stock markets edged higher in volatile trade on Thursday. Key benchmark indices in UK, France and Germany were up 0.05% to 0.22%. The European Central Bank (ECB) is expected to keep its key interest rate unchanged at 1.5% at its monthly policy meeting on interest rates today, 8 September 2011. Britain's central bank--Bank of England left interest rates at 0.5% on Thursday, leaving open the option of restarting its quantitative easing programme should the economy weaken further.

Most Asian stocks gained on Thursday, 8 September 2011, ahead of key policy statements due out of the US and Europe. The key benchmark indices in South Korea, Singapore, Taiwan, Japan, and Indonesia were up by between 0.1% to 0.87%. The key benchmark indices in Hong Kong and China fell by between 0.67% to 0.68%.

The Bank of Korea held off from raising borrowing costs today, amid mounting risks that the global recovery will stall.

China will unleash a host of economic data on Friday, 9 September 2011, with the focus squarely on inflation. Any upside surprise, especially a number above the July inflation, would be negative for stocks in China, and would likely also hurt equities elsewhere in Asia. With food and fuel prices spiking, Chinese inflation hit a three-year high of 6.5% in July 2011, prompting some monetary tightening moves from the People's Bank of China.

US index futures were volatile. Trading in US index futures indicated that the Dow could fall 23 points at the opening bell on Thursday, 8 September 2011.

Federal Reserve Chairman Ben Bernanke is due to speak on Thursday, 8 September 2011, on the outlook for the US economy and the possibility of further quantitative easing, his last scheduled speech ahead of the Federal Open Market Committee's two-day meeting on 20 and 21 September 2011. Bernanke on 26 August 2011 refrained from stating that the Federal Reserve will immediately introduce new measures to support the US economy, saying instead that options would be discussed at the Fed's meeting in September 2011.

Global stock markets put in a strong performance on Wednesday, 7 September 2011, after a German court ruled in favor of proposed euro-zone bailouts, the Federal Reserve's Beige Book indicated that the US economy is still growing, and as details emerged on the US president's job-creation proposals to be unveiled later on Thursday, 8 September 2011. In an address to a joint session of Congress Thursday night, US president Barack Obama plans to propose bolstering employment by injecting more than $300 billion into the economy next year, mainly through tax cuts, infrastructure spending and aid to state and local governments.