Market hits one-week low as TCS, HCL Tech results disappoint

Key benchmark indices fell for the second straight day to reach one-week closing lows as weakness in global shares caused by disappointment over a quick European rescue plan and poor quarterly result by IT majors TCS and HCL Tech hit sentiments adversely. The barometer index BSE Sensex fell below the psychological 17,000 level. The Sensex lost 276.80 points or 1.63%, up about 90 points from the day's low and off about 75 points from the day's high. The market breadth was weak. All the 13 sectoral indices on BSE were in the red. Index heavyweights Reliance Industries (RIL) and ITC came off intraday lows.



The Sensex has risen 294.53 points or 1.79% in this month so far. The index has slumped 3,760.80 points or 18.33% in calendar 2011. From a 52-week high of 21,108.64 on 5 November 2010, the Sensex has lost 4,360.35 points or 20.65%. From a 52-week low of 15,745.43 on 4 October 2011, the Sensex has risen 1,002.86 points or 6.36%.

Coming back to today's trade, TCS tanked close to 8% and HCL Technologies plunged nearly 9% as both the IT majors reported sequential fall in net profit for the quarter ended September 2011. Two other IT pivotals, Infosys and Wipro, declined as well. Interest rate sensitive realty and banking stocks fell on profit taking after recent gains triggered by hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases this month. HDFC Bank recovered ahead of Q2 results tomorrow, 19 October 2011. Metal stocks declined as the latest data showed China's annual economic growth eased to 9.1% in the third quarter.

IT shares led initial decline on the bourses after weak results from TCS and HCL Tech. A bout of volatility was witnessed as the market extended initial losses to hit fresh intraday low in morning trade. Intraday volatility continued in mid-morning trade as key benchmark indices hit fresh intraday lows. The downtrend continued in early afternoon trade, with the market hitting fresh intraday low. The market came off lows later. Intraday volatility continued as the market hit a fresh intraday low in afternoon trade. The market came off lows in mid-afternoon trade.

The BSE Sensex lost 276.80 points or 1.63% to settle at 16,748.29, its lowest closing level since 11 October 2011. The index fell 356.05 points at the day's low of 16,669.04 in afternoon trade. The index shed 200.33 points at the day's high of 16,824.76 in early trade.

The S&P CNX Nifty shed 80.75 points or 1.58% to settle at 5,037.50, its lowest closing level since 11 October 201. The Nifty hit a low of 5,011.05 and a high of 5,057.50 in intraday trade.

The BSE Mid-Cap index fell 1.21% and the BSE Small-Cap index declined 0.99%. Both these indices outperformed the Sensex.

BSE clocked turnover of Rs 2192 crore, lower than Rs 2444.78 crore on Monday, 17 October 2011.

The market breadth, indicating the overall health of the market, was weak. On BSE, 1,871 shares fell and 861 rose. A total of 105 shares were unchanged.

From the 30-share Sensex pack, 25 fell and the only five rose.

Cigarette maker ITC fell 0.49% to Rs 204.30, off the day's low of Rs 203.

Index heavyweight Reliance Industries (RIL) declined 1.58% to Rs 820, extending Monday's 3.88% losses triggered by weak Q2 operating performance. Nonetheless, the stock came of the day's low of Rs 812.60.

RIL's net profit rose 15.84% to Rs 5703 crore on 34.73% rise in turnover to Rs 80790 crore in Q2 September 2011 over Q2 September 2010. Operating profit rose just 5% to Rs 9844 crore in Q2 September 2011 over Q2 September 2010. The core operating profit margin (OPM) declined sharply to 12.5% in Q2 September 2011 from 16.3% in Q2 September 2010. The result was announced on Saturday, 15 October 2011. The company's gross refining margin (GRM) stood at $10.1 a barrel in Q2 September 2011, sharply higher than $7.9 a barrel in Q2 September 2010. The GRM was at 10.3 a barrel in Q1 June 2011.

Commenting on the results, Mukesh D. Ambani, Chairman and Managing Director, Reliance Industries said, "Our first half financial performance has been consistent. The increase in profits was largely driven by improved performance in the refining and petrochemicals business. All our manufacturing facilities operated at record levels with refineries achieving operating rates of 110%. RIL has strong balance sheet and sustained earning base to pursue growth opportunities."

RIL said its Infotel Broadband Services unit is in the process of setting up a 4G broadband wireless network and finalizing arrangements with global players.

RIL recently concluded a $7.2 billion deal with BP PLC under which it sold a 30% stake in 21 oil-and-gas exploration blocks to the British explorer. RIL said it has received all the payments that were due from BP, with the final installment of Rs 14690 crore received on 3 October 2011. It said all the production-sharing contracts under the deal with BP have been revised and submitted to the government for approval. "The integration process is currently under way, and the joint teams are evolving strategies to operate across the gas value chain in India from exploration, development, distribution and marketing," RIL said.

Meanwhile, Reliance Industries has neither confirmed nor denied media reports of a likely suspension of oil and gas drilling operations. RIL said after trading hours on Monday 17 October 2011 that RIL has always communicated any material event to the stock exchanges first before disseminating to the media. Media reports had suggested recently that RIL may suspend oil and gas drilling operations for an unspecified time until an internal valuation of its exploration and production strategy.

India's largest IT company by sales, TCS, tumbled 7.71% to Rs 1033.50 after the company announced after market hours on Monday that its consolidated net profit fell 4.7% to Rs 2301 crore on 7.7% growth in revenue to Rs 11633 crore in Q2 September 2011 over Q1 June 2011. The stock came off the day's low of Rs 1021.10. The stock was the top loser from the Sensex pack. Shares of TCS had witnessed a pre-results rally. The stock had jumped 12.95% in the preceding fifteen sessions to Rs 1119.80 on 17 October 2011, from a recent low of Rs 991.40 on 23 September 2011.

The company's operating profit rose 11.4% to Rs 3143 crore in Q2 September 2011 over Q1 June 2011. Commenting on the results TCS Chief Executive Officer and Managing Director N Chandrasekaran said, "Our domain-rich solutions and disciplined execution helped us capture business across major markets and deliver stellar growth in international revenues. We see strong momentum for our full services strategy from customers who are looking for agility and growth. We have created a nimble organization on the ground to stay close and stay relevant to our customers as there are ambiguities in the external environment in the short term".

TCS chief financial officer and executive director S Mahalingam said, "We continue to make the necessary investments to support our future business growth in different markets as we remain in expansion mode. However, we are also working to optimize our cost structure and keeping a close watch on economic signals. Given the breadth of our global operations across 45 countries, the recent unprecedented volatility in the foreign currency markets is fresh cause for concern".

HCL Technologies shed 8.58% to Rs 401.15 after the company announced before market hours today that it consolidated net profit as per US accounting standards fell 2.7% to Rs 496.70 crore on 8.2% increase in revenue to Rs 4651.30 crore in Q1 September 2011 over Q4 June 2011. Shares of HCL Technologies had witnessed a pre-results rally. The stock had jumped 11.92% in the preceding eight sessions to Rs 438.80 on 17 October 2011, from a recent low of Rs 392.05 on 4 October 2011.

Commenting on the results, Vineet Nayar, Vice Chairman and CEO, HCL Technologies said, "We have doubled our quarterly revenues in just three years to record a billion dollar quarter despite the tough economic environment. This tremendous momentum has been achieved thanks to our Employees First philosophy which has fuelled a high performance organization, ensured enhanced customer delight and created disruptive thought leadership which is today recognized globally. I want to thank all our 80,520 employees, more than 500 customers, investors and partners who have supported us in this journey".

Anil Chanana, CFO, HCL Technologies said, "We continue to see growth both in revenue and earnings. Our revenues grew 5.1% sequentially in constant currency and 25% YoY this quarter, accompanied by operating and net income growth of 38% YoY and 49% YoY, respectively. While the currency markets continue to be volatile, we at HCL follow layered hedging program to cover our foreign currency exposure".

Infosys declined 1.61% to Rs 2703.10 on profit taking after recent strong gains triggered by good Q2 results. Infosys announced before market hours on 12 October 2011 that its consolidated net profit as per International Financial Reporting Standards (IFRS) rose 10.68% to Rs 1906 crore on 8.2% growth in revenue to Rs 8099 crore in Q2 September 2011 over Q1 June 2011. From the recent low of Rs 2509.20 on 11 October 2011, the stock had jumped 9.48% in four trading sessions to Rs 2747.25 on Monday, 17 October 2011.

Infosys has forecast 9.72% to 11.11% growth in non-annualized earnings per American Depositary Share at $0.79 to $0.80 in Q3 December 2011 over Q2 September 2011. It has forecast 3.2% to 5.3% growth in revenue at $1.802 to $1.84 billion in Q3 December 2011 over Q2 September 2011.

The company has for the second quarter in a row revised upwards its dollar earnings guidance for the year ending March 2012 (FY 2012). The company expects 15.3% to 16.8% growth in earnings per American Depositary Share at $3.02 to $3.06 in FY 2012 over the year ending March 2011 (FY 2011). However, the company has revised downwards dollar revenue growth guidance for FY 2012. The company expects 17.1% to 19.1% growth in revenue at $7.08 billion to $7.20 billion in FY 2012 over FY 2011.

Infosys has forecast 15.4% to 1.7.5% growth in non-annualised earnings per share (EPS) at Rs 38.51 to Rs 39.20 in Q3 December 2011 over Q2 September 2011. The company has forecast 8.97% to 11.2% growth in revenue at Rs 8826 crore to Rs 9012 crore in Q3 December 2011 over Q2 September 2011.

Thanks to a recent steep fall in rupee against the dollar, Infosys has sharply revised upwards EPS guidance for FY 2012. The company has projected 19.7% to 21.6% growth in EPS at Rs 143.02 to Rs 145.26 in FY 2012 over FY 2011. The company has also revised FY 2012 revenue guidance upwards. Infosys has projected 21.8% to 24% growth in revenue at Rs 33501 crore to Rs 34088 crore in FY 2012 over FY 2011.

India's third largest software services exporter Wipro declined 2.44%, extending Monday's 1.76% losses. The company announces its Q2 results on 31 October 2011.

iGATE Patni jumped 15.8% after the company reported a consolidated net profit of Rs 90.27 crore in Q3 September 2011, compared with a net loss of Rs 51.52 crore in Q2 June 2011. Net sales increased 8.20% to Rs 889.34 crore in Q3 September 2011 over Q2 June 2011. The company had incurred an impairment of intangible cost of Rs 89.18 crore in Q2 June 2011. The company said its headcount was 17,853 as of 30 September 2011.

Commenting on the results, Phaneesh Murthy, Chief Executive Officer and Managing Director, iGATE Patni said, "Our integration efforts are progressing smoothly. Measurable outcomes like attrition rate and pipeline building are trending in the right direction." On the market viewpoint, he said, "While we do not see any cut back in the existing projects, we still retain a cautious outlook for the 2012 budgets in some verticals."

Interest rate sensitive realty stocks fell on profit taking after recent gains triggered by hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases this month. Purchases of both residential and commercial property are largely driven by finance. HDIL, DLF, Indiabulls Real Estate, Unitech, Orbit Corporation, Ackruti City and D B Realty fell by between 2.35% to 4.26%.

Interest rate sensitive banking stocks fell on profit taking after recent strong gains triggered by hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases this month. India's largest private sector bank by net profit ICICI Bank declined 2.13%, snapping a four-day winning streak.

India's largest bank by branch network State Bank of India (SBI) fell 1.5%, after recent strong gains triggered by hopes of capital infusion from the Government of India, its majority shareholder. Financial Services Secretary D.K. Mittal last week said that the government will inject Rs 3000 crore to Rs 4500 crore in SBI this fiscal year to help improve its capital base. "The capital infusion in SBI may happen by December-end, but definitely before March 31," Mittal said. His comments came after Moody's Investors Service recently cut its rating on SBI's financial strength to D+ from C- and lowered its hybrid debt rating on the bank to Ba3 (hyb) from Ba2 (hyb), flagging concerns over capital and deteriorating loan quality.

Mittal said that the rating downgrade was "shocking" and "unfair", and that some banks in developed countries were rated higher despite their asset quality being inferior to SBI's, He also said that the capital infusion may not be through a rights issue or a public share sale as market conditions weren't right for that, but through other methods. He didn't elaborate.

Axis Bank fell 2.23%. The bank today, 18 October 2011, said that Moody's Investors Service, Singapore has reaffirmed its ratings on the bank with a stable outlook. Moody's has reaffirmed Axis Bank's Bank Financial Strength rating at C-, local currency bank deposit rating at Baa2 and foreign currency bank deposit rating at Ba1.

India's second largest private sector bank by net profit HDFC Bank rose 0.46% to Rs 480.05, off the day's low of Rs 471.60. The stock extended a six-day winning streak ahead of its Q2 results tomorrow, 19 October 2011.

The government last week approved amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and debt recovery acts to enable banks to effectively deal with the menace of bad loans and also encourage them to disburse credit freely to home and corporate loan seekers. The Cabinet approved the introduction of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, in the next Winter Session of Parliament.

Information and Broadcasting Minister Ambika Soni said that suggested amendments will strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of banks to extend credit to both corporate and retail borrowers, reduce the cost of funds for banks and their customers and reduce the level of non-performing assets.

Metal stocks declined as the latest data showed China's annual economic growth eased to 9.1% in the third quarter. China is the world's largest consumer of aluminum and copper. Jindal Saw, Sail, NMDC, Nalco, JSW Steel, Sterlite Industries, Hindalco Industries and Hindustan Zinc dropped by between 0.64% to 3.69%. LMEX, a gauge of six metals traded on the London Metal Exchange, fell 0.64% on Monday, 17 October 2011.

Jindal Steel & Power fell 1.08% ahead of its Q2 results today, 18 October 2011.

Tata Steel, the world's seventh-largest steelmaker, declined 2.54%. The company said on Friday, 14 October 2011, that sales from its Indian operations fell 1% in the July-September period to 1.65 million tonnes. The Indian operations account for about a quarter of the group's total annual global capacity of about 28 million tonnes, which includes unit Corus, Europe's second-largest steelmaker. Sales of flat products, used in cars and consumer goods, rose 3% from a year ago, the company said, but did not give any details about sales of long-steel products, used mostly in construction industry. The company's crude steel production in India stood at 1.74 million tonnes for the quarter, up 1%, it said in a statement.

State-run Coal India gained 2.71% on reports that the government has given conditional approval to Coal India's long-awaited proposal to buy unlisted units of listed mining companies overseas. The permission is subject to Coal India investing in overseas projects that offer a rate of return of at least 12%.

As per separate reports, employees unions of Coal India (CIL) on Monday withdrew their proposed three-day strike after the management agreed to give higher bonus, along with Rs 1000 as Diwali gift, a development that would avert possible power crisis in the country. CIL has reached an agreement with workers Unions to pay a higher -- Rs 20,000 bonus to each worker instead of earlier announced Rs 17,000, besides Rs 1,000 as Diwali gift. The unions were demanding for a minimum bonus of Rs 23,500 per employee.

Capital goods stocks extended recent losses. BEML, L&T, Bhel, Siemens, ABB fell by between 1.19% to 3.32%.

Oil exploration stocks fell along with crude oil prices. Cairn India and Oil India shed by between 0.78% to 0.87%. Lower crude oil prices will result in lower realizations from crude sales for oil exploration firms.

State-run ONGC fell 2.19% after the finance ministry today, 18 October 2011, said that ONGC's follow-on public offer (FPO) is likely to be completed by Q3 December 2011 as all preparations have been completed for the FPO. It may be recalled that the government had deferred ONGC FPO in September 2011 due to weak market conditions. The government plans to divest 5% stake in ONGC through FPO.

The government aims to raise Rs 40000 crore through stake sales in state-run companies in the current fiscal year. It has so far been able to raise only Rs 1140 crore due to poor market conditions.

Shares of offshore oil services providers fell as oil prices declined. Jindal Drilling, Great Offshore, Dolphin Offshore, Aban Offshore and Deep Industries dropped by between 1.4% to 3.36%.

Shares state-run oil-marketing companies (PSU OMCs) rose as crude oil prices fell. HPCL and BPCL gained by between 1.28% to 2.01%. Indian Oil Corporation (IOC) fell 0.09%. Lower crude oil prices will reduce under-recoveries of state-run oil marketing companies (PSU OMCs) on domestic sale of diesel, LPG and kerosene at controlled prices.

Oil extended losses for the second straight day. US front-month November crude futures fell 46 cents to $ 85.92 a barrel in Asian electronic trading today. The price had declined 42 cents to settle at $86.38 a barrel on Monday, 17 October 2011.

Consumer durables stocks, too, declined in a weak market. Videocon Industries, Blue Star, Gitanjali Gems and Titan Industries fell by between 0.93% to 1.75%.

Interest rate sensitive automobile stocks fell on profit taking after recent strong gains triggered by hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases this month. Automobile purchases, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.

India's largest tractor and sports utility vehicles maker Mahindra & Mahindra (M&M) fell 0.6%, with the stock snapping gains in preceding two trading sessions. M&M plans to raise monthly production of its new sport-utility vehicle--XUV500--by half to 3,000 units in January and more than double it to 5,000 units in June to meet robust local demand. The company currently produces 2,000 units of XUV500 a month. M&M recently said it has received more than 8,000 bookings for the vehicle in the first 10 days of the launch, forcing it to halt taking fresh orders.

M&M's total auto sales rose 25% to a record 44,137 units in September 2011 over September 2010. The company's domestic sales stood at 41,136 units during September 2011, as against 33,866 units during September 2010, an increase of 21%. M&M's Passenger Vehicles segment (which includes the Utility vehicles and Verito) registered a growth of 11%, having sold 19,447 units in September 2011, as against 17,537 units during September 2010. The 4-wheeler commercial segment which includes the passenger and load categories registered a phenomenal growth of 45%.

India's second largest bike maker by sales Bajaj Auto declined 2.54%, with the stock snapping gains in preceding two trading sessions. The company's total sales rose 18% to a record 4,17,686 units in September 2011 over September 2010. Motorcycle sales rose 18% to a record 3,71,208 units. Commercial vehicle sales rose 21% to 46,478 units in September 2011 over September 2010. The company said it achieved record three-wheeler sales in September 2011. Exports rose 39% to 1,41,913 units in September 2011 over September 2010.

India's largest truck maker by sales, Tata Motors fell 3.64% to Rs 181.15 on profit taking. From a recent low of Rs 147.25 on 4 October 2011, the stock had jumped 27.67% in eight trading sessions to settle at Rs 188 on Monday, 17 October 2011. The company on Friday, 14 October 2011, said its global sales rose 24% to 1,07,258 units in Q2 September 2011 over Q2 September 2010. Global sales of Jaguar Land Rover were up 42% to 27,639 vehicles in September 2011 over September 2010. It said the total passenger vehicles sales stood at 55,539 units in September 2011, up 21% from the corresponding period last year. Commercial vehicles sales were up by 28% to 51,719 units in Q2 September 2011 over Q2 September 2010.

India's largest bike maker by sales Hero MotoCorp fell 0.41% ahead of its Q2 results today. The company's total sales jumped 26.75% to 5.49 lakh units in September 2011 over September 2010. Hero MotoCorp's total sales increased 20.10% to 15.44 lakh units in Q2 September 2011 over Q2 September 2010. The company expects sales growth to continue into the festive season.

India's largest care maker by sales Maruti Suzuki India fell 0.05% to Rs 1052.551, off the day's low of Rs 1038.50. The company has incurred a revenue loss of Rs 1500 crore since 29 August 2011 due to labor unrest at one of its factories, Chairman R.C. Bhargava was quoted by the media as saying today, 18 October 2011.

Production at Maruti's Manesar plant in northern Haryana state resumed Monday, 17 October 2011, after striking workers were evicted from the factory premises Friday, 14 October 2011, following a court order. The workers have struck work since 7 October 2011 demanding reinstatement of 44 colleagues who were not taken back by Maruti after a 33-day long impasse ended 1 October 2011.

Ashok Leyland clocked highest volume of 66.17 lakh shares on BSE. Jaypee Infratech (49.44 lakh shares), Cals Refineries (40.79 lakh shares), SpiceJet (38.52 lakh shares) and Chambal Fertilisers & Chemicals (37.88 lakh shares) were the other volume toppers in that order.

SBI clocked highest turnover of Rs 122.96 crore on BSE. TCS (Rs 90.72 crore), iGate Patni (Rs 79.49 crore), Onelife Capital (Rs 64.66 crore) and Infosys (Rs 60.99 crore) were the other turnover toppers in that order.

Stock-specific activity may dominate trade in the near-term as earnings trickle in. 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. HDFC Bank and Biocon unveil Q2 results tomorrow, 19 October 2011.

Bajaj Auto, Cairn India, UltraTech Cement, Exide Industries and Thermax unveil quarterly results on Thursday, 20 October 2011. Engineering & construction major L&T, Idea Cellular, paints major Asian Paints, JSW Steel and Godrej Consumer Products reveal Q2 results on Friday, 21 October 2011. Axis Bank, Power Grid Corporation and Grasim unveil Q2 results on Saturday, 22 October 2011. Cigarette major ITC, Sterlite Industries and Titan Industries unveil Q2 results on 24 October 2011.

NTPC, Kotak Mahindra Bank and Dr. Reddy's Lab unveil Q2 results on 25 October 2011. Indian Hotels unveils Q2 results on 28 October 2011. Maruti Suzuki and LIC Housing Finance report Q2 results on 29 October 2011. ICICI Bank, Wipro, Hindustan Unilever, Dabur India, Colgate Palmolive (India) and BPCL unveil Q2 results on 31 October 2011. Cement majors ACC and Ambuja Cements and Aditya Birla Nuvo unveil quarterly results on 1 November 2011. Infrastructure Development Finance Company and ABB unveil results on 8 November 2011. Ranbaxy Laboratories unveils quarter results on 9 November 2011. Hindalco unveils Q2 results on 10 November 2011. Jet Airways (India) unveils Q2 results on 11 November 2011. Mahindra & Mahindra and India Cements unveil Q2 results on 14 November 2011. Tata Power unveils Q2 results on 15 November 2011.

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

The government last month raised the limit of overseas borrowing for companies to $750 million from $500 million. Indian companies can also now raise loans up to $1 billion in Chinese yuan.

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

Industrial output in the month of August 2011 rose a slower-than expected 4.1% from a year earlier, data released by the government on 12 October 2011 showed. Industrial output growth for July was revised upwards to 3.84% from a provisional reading of 3.28%. Manufacturing output, which constitutes about 76% of the industrial production rose an annual 4.5% in August versus 2.3% in July. The government also revised upwards the industrial production growth for May 2011 to 6.15% from 5.91% reported earlier.

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

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

Atsi Sheth, a New York-based vice president and senior analyst at Moody's Investors Service said in a media interview recently that Moody's is unlikely to change its rating outlook on India for now, though the extent of the increase in the government's borrowing target is a surprise. The possibility of fiscal slippage is, however, already factored into the sovereign rating, Sheth said.

Standard & Poor's Ratings Services on 3 October 2011 said it is maintaining its view that India will struggle to meet its fiscal deficit target. Takahira Ogawa, director of Sovereign and International Public Finance Ratings at S&P said India must prove its intent to continue with the process of fiscal consolidation in the medium term.

India remains firmly on track to achieve annual economic growth of 8%-9% in the medium-term, Finance Minister Pranab Mukherjee said on Monday, 17 October 2011. But the country needs to stay alert and respond to emerging global challenges, Mr. Mukherjee said at a conference. Like many other countries, food security and volatility in prices have been a matter of concern for India, he added.

The latest data showed that inflation in India remains uncomfortably high. Inflation, as measured by the wholesale price index (WPI), rose 9.72% in September 2011, compared with a 9.78% rise in August 2011, data released by the government on 14 October 2011, showed. WPI inflation for July 2011 was revised upwards to 9.36% from the provisional reading of 9.22%. Five out of nine economists polled by Capital Market before the latest WPI data expect a 25 basis points hike in repo rate from the Reserve Bank of India at its half-yearly review of the monetary policy on 25 October 2011. The rest four expect a status quo on rates.

Boosting farm output on a sustainable basis is the only long-term solution to address supply constraints and cool high commodity prices that have often hurt economic growth, Mukherjee said on Monday, 17 October 2011. Rangarajan on 14 October 2011 said that monetary policy has a role to play in containing demand pressures as long as inflation remains above 9%.

While its tolerance of inflation has gone up with rising income levels, the Reserve Bank of India (RBI) will raise rates further if high inflation persists, central bank deputy governor Subir Gokarn said on 12 October 2011. On the same day, RBI governor D Subbarao reiterated that controlling inflation is the main focus of monetary policy.

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.

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 September policy was softer than the previous policy announcement which was extremely hawkish.

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.

India's services sector contracted for the first time in more than two years as new business dried up and expectations weakened amid concern over a flagging world economy, a survey showed on 5 October 2011. The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of around 400 firms, plunged in September to 49.8 -- its lowest reading since April 2009 -- and below the 50 mark which separates growth from contraction.

The slowdown in growth has continued to broaden with the service sector seeing a further slowdown in economic momentum, HSBC economist Leif Eskesen said. The new business sub-index sank to a 28-month low of 51.6 in September, down from 54.9 in August. The weak expansion in new business -- the main cause of the stagnation in activity -- meant employment levels fell for a third consecutive month. Despite harsh conditions firms were able to pass on rising input costs to customers, albeit at a slightly lower pace than in August.

The growth in manufacturing sector nearly stalled in September 2011, hitting its weakest spot since March 2009 on slowing output and orders growth following a series of interest rate hikes, data showed on 3 October 2011. The HSBC Markit India Manufacturing PMI fell more than two points to 50.4 in September 2011 from 52.6 in August 2011, very close to the 50 mark which divides growth and contraction. The output index plunged by its biggest amount in one month since November 2008, to 51.1 from 56.

European stock markets edged lower for the second day in a row on Tuesday, 18 October 2011, as pessimism ahead of the weekend's summit meeting of European leaders continued to weigh. Key benchmark indices in UK, France and Germany were down by 0.21% to 1.78%.

European shared had lost ground on Monday, 17 October 2011, after German officials' comments downplayed the chances for a fresh European aid plan to be ready for Sunday's (23 October 2011) European Union summit, as had been hoped.

Germany's ZEW index of investor expectations slid to minus 48.3 in October from minus 43.3 in September, the Mannheim-based Center for European Economic Research, or ZEW, said on Tuesday. The reading is the lowest since November 2008. The ZEW said that the decline reflected worries about weak domestic economic activity in Germany and Europe's ongoing sovereign debt crisis.

Asian stocks fell on Tuesday, 18 October 2011, after Germany's finance minister cautioned against hopes for a quick fix to Europe's debt problem, reminding investors not to become too optimistic about a rapid development to the two-year-old crisis. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan shed by between 1.36% to 4.23%.

China's annual economic growth eased to 9.1% in the third quarter from 9.5% in the previous quarter, the National Bureau of Statistics said on Tuesday, as tight domestic monetary policy and easing foreign demand crimped activity.

Trading in US index futures indicated that the Dow could fall 18 points at the opening bell on Tuesday, 18 October 2011. US stocks suffered their worst loss in two weeks on Monday after comments from Germany's finance minister caused investors to fear Europe's solution to its debt crisis may not come fast enough.