Market shoots up on Euro bailout plan

The market surged last week as investors build fresh positions after a long-awaited plan to resolve the European debt crisis was announced on Thursday (27 October 2011). Investors sentiment was also boosted after the Reserve Bank of India (RBI) hinted that its latest 25 basis points rate hike could possibly be its last in the current interest rate cycle. Key benchmark indices rose in all three trading sessions last week. The market was shut on Wednesday (26 October 2011) and Thursday (27 October 2011), on account of Diwali.



The BSE Sensex surged 1,019.16 points or 6.07% to settle at 17,804.80 in the week ended Friday, 28 October 2011. The 50-share S&P CNX Nifty spurted 310.75 points or 6.15% to 5360.70

The BSE Mid-Cap index rose 2.67% and the BSE Small-Cap index rose 1.97%. Both these indices underperformed the Sensex.

On Thursday (27 October 2011), European Union members agreed in its Summit to raise the eurozone bailout fund to about Euro 1 trillion and are also going to recapitalize banks. The European Union struck a deal with private lenders to accept a 50% on their Greek bonds.

The RBI raised rates for the 13th time in 19 months last week. The central bank announced a 25 basis points hike in its key policy rate viz. the repo rate to 8.5% after half-yearly review of the monetary policy on Tuesday (25 October 2011). The central bank cut its GDP growth forecast for the current fiscal year through March 2012 to 7.6% from 8% earlier. But it retained its March-end inflation projection of 7%. RBI said the projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 (January 2012 release) and then continue down a steady path to 7% by March 2012. It is expected to moderate further in the first half of 2012-13. This reflects a combination of commodity price movements and the cumulative impact of monetary tightening. Further, moderating inflation rates are likely to impact expectations favourably. RBI said that economic growth is moderating on account of the cumulative impact of past monetary policy actions as well as some other factors.

The central bank said that the likelihood of a rate action in the December mid-quarter review is relatively low. Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted, the central bank said in a statement. However, as always, actions will depend on evolving macroeconomic conditions, it added.

While the impact of past monetary actions is still unfolding, it is necessary to persist with the anti-inflationary stance, RBI said. The stance of the monetary policy is intended to maintain an interest rate environment to contain inflation and anchor inflation expectations. The stance of the monetary policy is also intended to stimulate investment activity to support raising the trend growth. The stance of the monetary policy is also intended manage liquidity to ensure that it remains in moderate deficit, consistent with effective monetary transmission.

RBI said that several factors--structural imbalances in agriculture, infrastructure capacity bottlenecks and distorted administered prices of several key commodities and the pace of fiscal consolidation--have combined to keep medium-term inflation risks in the economy high. These risks can only be mitigated by concerted policy actions on several fronts, RBI said. In the absence of progress on these, over the medium term, RBI's monetary policy stance will have to take into account the risks of inflation surging in response to even a moderate growth recovery.

Food inflation accelerated to a six-month high, propelled by soaring vegetable prices. Data released by the government on Thursday (27 October 2011) showed food inflation rose to 11.43% year on year for the week to 15 October 2011, compared with 10.6% in the preceding week, driven by a 25% jump in vegetable prices even as prices of food articles increased 0.25%.

Foreign institutional investors (FII) outflow in October 2011 totaled Rs 1137.50 crore (till 24 October 2011). FII outflow in calendar 2011 totaled Rs 1429.10 crore (till 24 October 2011).

Trading for the week began on a strong note. Key benchmark indices edged higher on Monday (24 October 2011), snapping a two-day losing streak, on news that euro-zone leaders are making progress toward agreeing measures to tackle the sovereign debt crisis. The BSE Sensex rose 153.64 points or 0.92% to 16,939.28. The S&P CNX Nifty rose 48.40 points or 0.96% to 5,098.35.

Key benchmark indices gained for the second straight day on Tuesday (25 October 2011), to scale 11-1/2-week closing highs after the Reserve Bank of India (RBI) said at a policy review that day, that a likely moderation in inflation from December 2011 will provide some room for monetary policy to address growth risks in the short run. The BSE Sensex jumped 315.58 points or 1.86% to settle at 17,254.86. The S&P CNX Nifty surged 93.25 points or 1.83% to settle at 5,191.60.

The market was shut on Wednesday (26 October 2011) and Thursday (27 October 2011), on account of Diwali. Key benchmark indices cheered a new plan to help European countries by gaining sharply on Friday (28 October 2011). This newfound optimism across global markets resulted from a deal presented by European leaders on Thursday (27 October 2011) meant to solve the Euro-zone crises. The BSE Sensex surged 515.97 points or 2.98% to 17,804.80. The S&P CNX Nifty galloped 158.90 points or 3.05% to 5,360.70.

Among the 30 Sensex shares, 28 rose and just two shares declined.

India's largest aluminium maker by sales Hindalco Industries was top Sensex gainer last week. The stock surged 16.89% to Rs 142.20. The company will announce its Q2 September 2011 results on 10 November 2011.

India's largest truck maker by sales Tata Motors spurted 15.88% to Rs 206.20. Recently, the company reported 24% rise in global sales 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. 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. The company unveils its Q2 results on 14 November 2011.

India's largest non-ferrous metals maker Sterlite Industries India climbed 15.46% to Rs 132.90. During market hours on Monday, 24 October 2011, the company reported 1.01% fall consolidated in net profit to Rs 997.78 crore on 67.57% rise total income to Rs 10195.70 crore in Q2 September 2011 over Q2 September 2010.

Jaiprakash Associates (up 12.94%), Tata Steel (up 11.21%), DLF (up 10.06%), Jindal Steel & Power (up 9.39%) and Mahindra & Mahindra (up 8.41%), edged higher from the Sensex pack.

India's largest mortgage lender by market capitalisation HDFC jumped 8.30% to Rs 686.90. HDFC's net profit rose 20.20% to Rs 970.70 crore on 40.36% increase in total income to Rs 4169.14 crore in Q2 September 2011 over Q2 September 2010. HDFC said it utilised Rs 254.68 crore from the additional reserve to meet the increased provision required consequent to changes in provisioning norms mainly on standard assets prescribed by NHB.

As at 30 September 2011, the loan book stood at Rs 126992 crore as against Rs 106287 crore in the corresponding period of the previous year. This is after considering the loans sold during the preceding 12 months amounting to Rs 4989 crore. The result was announced on 17 October 2011.

Index heavyweight Reliance Industries (RIL) advanced 7.49% to Rs 898. 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 15 October 2011.

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, RIL has neither confirmed nor denied media reports of a likely suspension of oil and gas drilling operations. RIL said on 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 bank by branch network State Bank of India (SBI) was top loser from the Sensex pack. It fell 2.13% to Rs 1907. SBI, expects its average funding cost for savings bank accounts to rise 100-125 basis points, its chairman said Friday (28 October 2011). SBI is not in a hurry to raise interest rates now, its Chairman Pratip Chaudhuri had said on Tuesday (25 October 2011). "We don't see pressure now. Banks are comfortable with the liquidity now. Banks will not be desperate to raise rates," Chaudhuri said at a post policy bankers' meeting with media.

The SBI stock had surged recently on hopes of capital infusion from the Government of India, its majority shareholder. The finance ministry has ruled out a rights issue for SBI in this financial year. However, it assured the lender that its capital requirements would be met by 31 March 2012.

India's second largest private sector bank by net profit HDFC Bank fell 0.78% to Rs 482.50. The bank's net profit rose 31.48% to Rs 1199.35 on 37.4% rise in total income to Rs 7929.38 crore in Q2 September 2011 over Q2 September 2010. The result was announced during market hours on 19 October 2011.

HDFC Bank's portfolio quality as of 30 September 2011 remained healthy, with gross non-performing assets (NPA) at 1% of gross advances and net non-performing assets at 0.2% of net advances (as against 1.2% gross NPAs and 0.3% net NPA ratios as on 30 September 2010). The bank's provisioning policies for specific loan loss provisions remained higher than the minimum regulatory requirements. The NPA provision coverage ratio (excluding write-offs, technical or otherwise) was at 81.3% as of 30 September 2011. Total restructured assets were 0.4% of the bank's gross advances as of 31 September 2011. Of these, restructured advances categorized as standard assets were 0.1% of the bank's gross advances.

HDFC Bank's CASA ratio stood at 47.3% as of 30 September 2011. The CASA (current and savings account) ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits. A high CASA ratio indicates that a higher portion of the banks' deposits come from current and savings accounts. This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.

The bank's total capital adequacy ratio (CAR) as at 30 September 2011 as per Basel II guidelines was at 16.5%, as against regulatory minimum of 9%. Tier I CAR was at 11.4% as at 30 September 2011.