Samvat 2068 begins on positive note; Sensex, Nifty settle at 11-1/2-week highs

Key benchmark indices edged higher to attain 11-1/2-week closing highs during the auspicious Muhurat trading session today, 26 October 2011, on hopes that a much-awaited summit of euro-zone leaders will present a convincing plan to handle the 2-year old euro-zone debt crisis. The barometer index BSE Sensex rose 33.97 points or 0.2%, off close to 60 points from the day's high and up about 15 points from the day's low. The market breadth was strong.

Index heavyweight Reliance Industries (RIL) reversed initial gains. Another index heavyweight ICICI Bank fell. IT stocks edged lower. Two-wheeler major Bajaj Auto hit a record high. Metal shares were mixed. Sesa Goa fell on poor Q2 results. Interest rate sensitive realty and banking stocks rose after RBI hinted that a pause in interest rate hikes is likely at its December 2011 policy meeting. Cigarette major ITC hit record high.



Trading for Samvat year 2068 commenced on a positive note, with the key benchmark indices hitting 11-1/2-week highs. The market trimmed gains later. A special Muhurat trading session was held from 16:45 IST to 18:00 IST today, 26 October 2011, to mark the beginning of a new year Samvat year 2068. For the trading communities of the north, the new financial year begins with Diwali, the festival of lights. The market remains closed tomorrow, 27 October 2011, on account of Diwali, the biggest festival in India.

Foreign institutional investors (FIIs) bought shares worth Rs 444.76 crore on Tuesday, 25 October 2011, as per provisional figures on the stock exchanges. FIIs had bought shares worth Rs 101.10 on Monday, 24 October 2011, as per data from stock exchanges.

The BSE Sensex rose 33.97 points or 0.2% to settle at 17,288.83, its highest closing level since 5 August 2011. The index gained 95.63 points at the day's high of 17,350.49 in early trade. The index rose 18.66 points at the day's low of 17,273.52 in late trade.

The S&P CNX Nifty rose 10.20 points or 0.2% to settle at 5,201.80, its highest closing level since 5 August 2011. The Nifty hit a high of 5,219.25 and a low 5196.15 in intraday trade.

BSE clocked turnover of Rs 743 crore.

The market breadth, indicating the overall health of the market, was strong. On BSE, 1,835 shares rose and 850 fell. A total of 115 shares were unchanged.

From the 30-share Sensex pack, 19 rose and the rest fell.

Index heavyweight Reliance Industries (RIL) fell 0.4% to Rs 871.50, off the day's high of Rs 880.95. 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 cigarette maker by sales ITC rose 0.5% to Rs 211.90, extending recent gains on good Q2 results. The stock hit a record high of Rs 213 today. Net profit rose 21.46% to Rs 1514.31 crore on 18.22% rise in total income to Rs 6266.02 crore in Q2 September 2011 over Q2 September 2010. The company announced the results during trading hours on Monday.

Most banking stocks edged higher after the Reserve Bank of India on Tuesday, 25 October 2011, hinted that a pause in interest rate hikes is likely at its December 2011 meeting. Axis Bank, Bank of India, HDFC Bank and SBI rose by between 0.26% to 1.5%. ICICI Bank fell 0.73%.

Capital goods stocks rose on renewed buying. ABB, BEML, L&T, Bhel, and Thermax rose by between 0.02% to 2.27%.

IT stocks edged lower. Infosys, TCS and Wipro fell by between 0.47% to 1.29%.

India's second largest bike maker by sales Bajaj Auto rose 0.36% to Rs 1756.50. The stock scaled a record high of Rs 1767.95 today, 26 October 2011.

India's largest tractor and utility vehicles maker Mahindra & Mahindra (M&M) fell 0.49% to Rs 849. The stock had hit a record high of Rs 856.90 on Tuesday, 25 October 2011.

Metal shares were mixed after improved Chinese manufacturing data recently. China is the world's largest consumer of aluminum and copper. Nalco, Hindalco Industries, Sterlite Industries, Hindustan Zinc, and Jindal Saw rose by between 0.11% to 2.36%. Sail, Tata Steel, and Jindal Steel & Power fell by between 0.36% to 0.53%.

Sesa Goa lost 2.8% as consolidated net profit fell 99.7% to Rs 1 crore on 13.8% fall in net sales to Rs 790 crore in Q2 September 2011 over Q2 September 2010. Sesa Goa's net profit fell 50.2% to Rs 842 crore on 12.9% fall in sales to Rs 2899 crore in the half-year ended September 2011 over the half-year ended September 2010. The company said the profit was impacted on account of decline in volumes, lower income from investments, higher interest costs and mark to market loss on foreign currency borrowings.

Interest rate sensitive realty stocks rose after RBI hinted that a pause in interest rate hikes is likely at its December 2011 policy meeting. Purchases of both residential and commercial property are largely driven by finance. HDIL, Unitech, and Indiabulls Real Estate rose by between 0.36% to 1.45%. DLF fell 0.54%.

Stock-specific activity may dominate trade in the near-term as earnings flow 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.

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), Bank of Baroda, NMDC and BPCL unveil Q2 results on 31 October 2011

Cement majors ACC and Ambuja Cements, Punjab National Bank, HPCL and Aditya Birla Nuvo unveil quarterly results on 1 November 2011. Sun TV Network, Ashok Leyland and TVS Motor report Q2 results on 3 November 2011. ONGC, Bharti Airtel and GlaxoSmithKline Pharmaceuticals unveil quarterly results on 4 November 2011.

Infrastructure Development Finance Company and ABB unveil results on 8 November 2011. Ranbaxy Laboratories, Indian Oil Corporation, GMR Infrastructure and Power Finance Corporation unveil quarterly results on 9 November 2011. Tata Steel, Hindalco and Mahindra Satyam unveil Q2 results on 10 November 2011. Jet Airways (India) and Tata Chemicals unveil Q2 results on 11 November 2011. Coal India and Shipping Corporation of India report Q2 results on 12 November 2011. Tata Motors, Mahindra & Mahindra and India Cements unveil Q2 results on 14 November 2011. Tata Power unveils Q2 results on 15 November 2011.

RBI 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.

Finance Minister Pranab Mukherjee on 19 October 2011 said that the government is concerned about the volatility of FII flows. Mukherjee said loose monetary policies adopted by central banks in advanced economies have added to global liquidity, driving investments into better off emerging economies and fueling inflation in these countries.

The falling rupee could bloat India's already mammoth import bill and further strain government finances as the fuel subsidy burden swells, Finance Secretary R.S. Gujral said Friday, 21 October 2011. The rupee hit a near 30-month low below 50 against the dollar on 21 October 2011. Elevated crude oil prices are likely to push the government to spend an additional Rs 40000 crore on fuel subsidies in the current year.

Meanwhile, the new takeover code regulations notified by the market regulator Sebi last month became effective from Saturday, 22 October 2011. With these rules coming into force, both promoter and public shareholders of a listed company would now get the same price for their shares being purchased by an acquirer. At the same time, an acquirer would have to make an open offer for purchase of a minimum 26% stake from public shareholders, as against 20% earlier.

The new rules would also help the listed companies to get more investment from private equity players and other investors who are not interested in a takeover, as the trigger point for an open offer has been raised to 25%, from 15% earlier. Now, an entity needs to make an open offer only if its holding reaches threshold limit of 25%, as against 15% earlier. The new regulations replace the takeover rules that were in force since 1997

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.

The government has raised its borrowing target for the current fiscal year by Rs 52800 crore, 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.

The Union Cabinet on Tuesday, 25 October 2011 approved a national manufacturing policy, the first of its kind in the country, to increase manufacturing's share of national output as it aims to create millions of jobs and add capacity to sustain brisk economic growth through the next decade. The policy targets raising the share of manufacturing to 25% of gross domestic product by 2022 from the current 16% -- a level that has remained stagnant since 1980.

The new policy proposes developing National Investment and Manufacturing Zones, or mega-industrial parks, that will reduce the compliance burden on industry, the government said in a statement. The policy also aims to create 100 million additional jobs over the next decade, Commerce and Industry Minister Anand Sharma said. The government has identified seven locations across India to set up such industry parks, the government statement said.

Under the policy, a special company will be established that will be a one-stop shop for all clearances for businesses interested in setting up operations in the industry parks, the statement said. Small- and medium-sized companies will be offered tax breaks to entice them to the parks.

European shares rose on Wednesday, lifted by hopes that a much-awaited summit of euro-zone leaders will present a convincing plan to handle the region's debt crisis. The key benchmark indices in France, Germany and UK rose by between 0.332% to 0.54%.

At a key summit later on Wednesday in Brussels, EU leaders are expected to announce details of another bailout for Greece, the recapitalization of the region's banks and a boost to a rescue fund.

Asian stocks pared earlier losses on Wednesday as speculation China may begin easing monetary policy tempered uncertainty about the outcome of European debt-crisis talks.

Trading in US index futures indicated that the Dow could gain 71 points at the opening bell on Wednesday, 26 October 2011.