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Friday, November 25, 2011

Auto shares lead recovery


Key benchmark indices edged higher in choppy trade after the latest data showed that food inflation eased in the year through 12 November 2011. A rally in European shares also aided intraday rebound on the domestic bourses in what was a choppy trading session. The 50-unit S&P CNX Nifty rebounded after hitting its lowest level in more than two years in mid-morning trade. Volatility was intense as traders rolled over positions in futures & options (F&O) segment from the near-month November 2011 series to December 2011 series. The November 2011 derivatives contracts expired today, 24 November 2011.

The barometer index, BSE Sensex, jumped 158.52 points or 1.01%, up close to 380 points from the day's low and off about 40 points from day's high. The market breadth turned positive from negative in late trade.



From a recent high of 17569.53 on 8 November 2011, the Sensex had tumbled 1869.56 points or 10.64% in ten trading sessions to 2-year closing low of 15,699.97 on Wednesday, 23 November 2011. The Sensex has lost 1,846.52 points or 10.42% this month so far. The Sensex has slumped 4,650.60 points or 22.67% in calendar 2011. From a 52-week high of 20,664.80 on 3 January 2011, the Sensex has lost 4,806.31 points or 23.25%.

Coming back to today's trade, interest rate sensitive auto, banking and realty stocks bounced back as food inflation eased. Index heavyweight Reliance Industries (RIL) edged higher in choppy trade. State Bank of India (SBI), L&T and Bhel rebounded after hitting 52-week lows in intraday trade today, 24 November 2011. Telecom services provider Bharti Airtel rose on bargain hunting, reversing three-day decline. Shares of organized retailers rose as the Union Cabinet is slated to consider a proposal to allow 51% foreign direct investment in multi-brand retail at a meeting today, 24 November 2011.

The market nudged lower amid initial volatility. The market extended losses in morning trade. An intraday recovery was derailed by fresh selling in mid-morning trade, pulling key benchmark indices to fresh intraday lows. The 50-unit S&P CNX Nifty hit its lowest level in more than two years. The market recovered after hitting fresh intraday low in mid-morning trade as the latest data showed that food inflation eased in the year through 12 November 2011. The intraday recovery gathered steam in afternoon trade. The market once again turned negative after a steep intraday recovery pushed the Sensex to positive zone for a short while in early afternoon trade. The market surged in late trade.

The BSE Sensex jumped 158.52 points or 1.01% to settle at 15,858.49, its highest closing level since 22 November 2011. The Sensex lost 220 points at the day's low of 15,479.97 in early afternoon trade. The index gained 201.33 points at the day's high of 15,901.30 in late trade.

The S&P CNX Nifty advanced 50 points or 1.06% to settle at 4,756.45, its highest closing level since 22 November 2011. The Nifty hit a low of 4,639.10 in intraday trade, its lowest level since 5 November 2009. The Nifty hit a high of 4,771.10 in intraday trade.

The Mid-Cap index rose 1.4% and outperformed the Sensex. The BSE Small-Cap index gained 0.38% and underperformed the Sensex.

The total turnover on BSE amounted to Rs 2005 crore, lower than Rs 2011.32 crore clocked on Wednesday.

The market breadth, indicating the overall health of the market was positive. On BSE, 1,476 shares advanced and 1,314 shares declined. A total of 107 shares were unchanged.

Among the 30-member Sensex pack, 25 gained while the rest slipped.

Index heavyweight Reliance Industries (RIL) rose 0.06% to Rs 774.20, gyrating amid volatility in range of Rs 778 and Rs 755. Recent reports indicated the government has refused to recognize six discoveries made by the company in its D-6 block saying the claims were not backed by prescribed tests and dealing a blow to the company's plan to boost sagging production by developing new fields in the block. Oil Secretary G.C. Chaturvedi had on Tuesday, 22 November 2011, said that the oil ministry may decide within a month on taking action against RIL for falling natural gas production at the D6 block in the Krishna-Godavari basin, off the country's east coast.

RIL last week said that it has formed an equal joint venture with BP by the name India Gas Solutions, which will focus on global sourcing and marketing of natural gas in India. The joint venture will also develop infrastructure to accelerate transportation and marketing of natural gas within the country. India Gas Solutions will be funded with equal equity from BP and RIL.

India's top oil exploration firm by market capitalisation ONGC jumped 2.9% to Rs 253.45. The stock had lost 4.99% in the prior three trading sessions.

India's largest listed cellular services provider by market capitalization Bharti Airtel jumped 3.65% on bargain hunting, reversing three-day 8.24% decline. After market hours on Tuesday, 22 November 2011, Bhart Airtel said that Akhil Gupta, a non-executive director, sold 65,500 shares for Rs 2.61 crore on 18 November 2011. Mr. Gupta is also the deputy group chief executive and managing director of Bharti Enterprises, the parent company of Bharti Airtel. Mr. Gupta now holds 24.8 lakh Bharti Airtel shares along with his wife.

Also, Manoj Kohli, chief executive of Bharti Airtel's international business and the company's joint managing director, sold 50,000 shares for Rs 1.99 crore on 18 November 2011. Mr. Kohli now owns 2.53 lakh shares in Bharti Airtel, the company said.

Interest rate sensitive auto shares rose on bargain hunting after the latest data showed that inflation eased in the year through 12 November 2011. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing. India's largest small car maker by sales Maruti Suzuki India rose 4.02%. India's largest tractor maker by sales Mahindra & Mahindra (M&M) gained 2.57%. India's second largest motorcycle maker by sales Bajaj Auto rose 3.71%.

India's largest motorcycle maker by sales Hero MotoCorp lost 1.56% to Rs 2093. The stock extended three-day 2.65% fall.

Interest rate sensitive banking shares rose on bargain hunting after the latest data showed that inflation eased in the year through 12 November 2011. India's second largest private sector bank by net profit HDFC Bank rose 0.76%, halting seven-day 9.55% decline.

India's largest private sector bank by net profit ICICI Bank gained 0.43% to Rs 730.10, off the day's low of Rs 719.35 on bargain hunting. The stock had slipped to a 52-week low of Rs 710.50 in intraday trade on Wednesday, 23 November 2011.

India's largest bank by net profit and branch network State Bank of India (SBI) fell 0.06% to Rs 1653.25. The stock hit a 52-week low of Rs 1629.10 in intraday trade today, 24 November 2011.

Interest rate sensitive realty shares rose on bargain hunting after the latest data showed that inflation eased in the year through 12 November 2011. Purchases of both residential and commercial property are largely driven by finance. DLF, Unitech, Orbit Corporation, HDIL and Indiabulls Real Estate rose by between 0.89% to 3.79%.

IT stocks advanced in volatile trade. India's second largest software services exporter by revenue Infosys rose 0.61%. The company's chief financial officer V. Balakrishnan said in an interview to a news agency on Monday, 21 November 2011, that the company may miss the upper end of its sales targets for Q3 December 2011 and also for the year ending March 2012 (FY 2012) as the worsening global economic situation has made large contracts hard to come by. Balakrishnan said though the upper end of the forecast is at risk, the sales growth will still be in that range.

At the time of announcing Q2 September 2011 results early last month, Infosys had 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 had projected 17.1% to 19.1% growth in revenue at $7.08 billion to $7.20 billion for the year ending March 2012 (FY 2012) over the year ending March 2011 (FY 2011).

In rupee terms, Infosys had 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. The company had projected 21.8% to 24% growth in revenue at Rs 33501 crore to Rs 34088 crore in FY 2012 over FY 2011.

India's largest software services exporter TCS advanced 2.53%. Tata group holding firm, Tata Sons, on Wednesday, 23 November 2011, named Cyrus Pallonji Mistry as the successor to Tata Group Chairman Ratan Tata. India's third largest software services exporter Wipro rose 1.48%.

India's largest engineering and construction firm by order book L&T rose 2.76% to Rs 1224.20, after sliding to a 52-week low of Rs 1175 in intraday trade today, 24 November 2011.

India's largest power equipment maker by sales Bhel rose 2.01% to Rs 260.85. The stock hit a 52-week low of Rs 246.20 in intraday trade today, 24 November 2011.

Indian Oil Corporation fell 0.48%. The company said it has signed an initial agreement on Wednesday, 24 November 2011, to form a 50:50 joint venture with BP PLC to set up an acetic acid plant in Gujarat.

India's largest dam builder Jaiprakash Associates rose 2.33%. The stock had fallen recently on weak Q2 operating performance. From the recent high of Rs 79.25 on 4 November 2011, the stock tumbled 24.03% in eleven trading sessions to Rs 60.20 on 23 November 2011. Net profit rose 11% to Rs 128.65 crore on 2% growth in net sales to Rs 3132.41 crore in Q2 September 2011 over Q2 September 2010. A sharp surge in other income and decline in tax rate to 42% from 60% boosted bottom line. The core operating profit margin declined 80 basis points to 23.9%, mainly due to increase in employee costs.

Shares of organized retailers rose on reports that the Union Cabinet is slated to consider a proposal to allow 51% foreign direct investment in multi-brand retail at a meeting today, 24 November 2011. V2 Retail, Koutons Retail India, Trent, Store One Retail, Pantaloon Retail India, and Shoppers Stop rose by between 1.08% to 12.26%. Also on the Cabinet agenda is a proposal to increase the FDI ceiling to 100% from the present 51% in single-brand retail. In July 2011, the Committee of Secretaries (CoS) had recommended allowing 51% FDI multi-brand retail. CoS had also recommended that foreign investors have to invest at least $100 million to set up multi-brand retail operations in India. Further, the CoS suggested that FDI in retail should be allowed only in cities with population of at least one million people.

Shares of Tata group firms rose after the group holding firm, Tata Sons, on Wednesday, 23 November 2011, named Cyrus Pallonji Mistry as the successor to Tata Group Chairman Ratan Tata. Tata Motors rose 2.76%.

Shares of private sector power generation major Tata Power Company gained 0.93% to Rs 92.15. The stock rose on bargain hunting after sliding 6.31% in prior three-trading sessions.

Shares of India's largest private sector steel maker by sales Tata Steel rose 0.64% to Rs 384.95 after sliding to a 52-week low of Rs 367.20 today, 24 November 2011.

Mr. Mistry has been appointed as the group's deputy chairman immediately and will take over as chairman after Ratan Tata retires when he turns 75 in December 2012, India's biggest business conglomerate by revenue said. Ratan Tata said the appointment is a "good and far-sighted choice."

Tata Group had been trying to find a replacement for Ratan Tata for more than a year. The 43-year-old Mr. Mistry will be the sixth chairman of the group, which was founded by Jamsetji Nusserwanji Tata in 1868 and now comprises more than 100 companies in businesses such as steel, automobiles, telecommunications, beverages and information technology. The group has operations in more than 80 countries across six continents, and its companies export products and services to 85 countries.

Cyrus Mistry is the younger son of Pallonji Mistry, whose construction firm Shapoorji Pallonji & Co. is the biggest shareholder of Tata Sons with a stake of about 18%. Cyrus, who has been on the Tata Sons board since August 2006, is managing director of Shapoorji Pallonji. Mr. Mistry said in a statement he will "legally dissociate" himself from the management of his family businesses to avoid any conflict of interest. Mr. Mistry is a civil engineering graduate from Imperial College London and holds a masters degree in management from the London Business School.

Metal stocks were mixed. India's largest non-ferrous metals maker by sales Sterlite Industries India fell 0.67% to Rs 103.45. The stock had hit a 52-week low of Rs 101.25 in intraday trade on Wednesday, 23 November 2011.

India's largest private sector aluminium maker by sales Hindalco Industries lost 1.26% to Rs 118. The stock hit a 52-week low of Rs 116.05 in intraday trade today, 24 November 2011.

Jindal Saw, JSW Steel, Hindustan Zinc and Jindal Steel & Power gained by between 0.07% to 5.73%.

Steel Authority of India (Sail) lost 3.19%, extending recent steep losses triggered by the stock's exclusion from MSCI Global Standard Index (India).

A latest government statement in parliament dashed hopes of a relief in securities transaction tax (STT). Junior finance minister S.S. Palanimanickam on Wednesday, 23 November 2011, said the government has no proposal to lower the securities transaction tax (STT). There has been a speculation that the government will reduce STT in Union Budget 2012-2013 in a bid to revive sagging volumes on the bourses. Palanimanickam said in a written reply to Rajya Sabha that the securities transaction tax receipts had declined by around 18% to Rs 2960 crore during the first six months in the current fiscal year from a year ago period.

Corporate earnings have been weak. The combined net profit of a total of 3,857 companies declined 36.1% to Rs 67428 crore on 20.5% growth in sales to Rs 1142361 crore in Q2 September 2011 over Q2 September 2010.

Food price index rose 9.01% and the fuel price index climbed 15.49% in the year to 12 November 2011, government data on Thursday, 24 November 2011, showed. In the previous week, annual food and fuel inflation stood at 10.63% and 15.49%, respectively. The primary articles price index was up 9.08%, compared with an annual rise of 10.39% a week earlier.

Over the past few weeks, the government has taken some steps to encourage foreign investment. It raised the amount of government bonds that foreigners can hold and the amount of corporate debt they can hold by $5 billion each, to $15 billion and $20 billion respectively. The Union Cabinet also recently approved a pension overhaul that is expected to have a provision added allowing foreign pension-management companies to hold up to 26% of Indian joint ventures, from zero today.

The Reserve Bank of India (RBI) on Tuesday, 22 November 2011, eased rules for overseas investors in infrastructure debt funds, allowing foreign buyers to purchase bonds issued by such funds. Foreign investors can now buy either local or foreign currency bonds issued by infrastructure debt funds, provided they hold them for three years, the Reserve Bank of India said in a statement. Under broad guidelines for infrastructure funds issued in June this year, a fund may be set up either as a trust or a company. Overseas investors were previously allowed to invest in infrastructure debt funds that were set up as a trust.

The central bank also said that foreign investors other than non-resident Indians can't collectively invest more than $10 billion in such funds. The limit of $10 billion is within the $25 billion cap on overseas investment in infrastructure sector bonds, or infrastructure finance firms.

The RBI on Wednesday, 23 November 2011, eased rules on overseas borrowings by Indian firms by raising the cap on the total cost of some such loans, in a move that could allow lower-rated firms to more easily tap offshore funds. Local firms can now raise external debt at a total spread of up to 3.5 percentage points over the London Interbank Offered Rate, or Libor, for overseas loans with a maturity of between three and five years, the Reserve Bank of India said in a notice. The previous cap was 3 percentage points over Libor. The total cost cap on loans with a maturity of more than five years, however, remains the same at 5 percentage points over Libor, the release said.

The new cost ceiling will be applicable immediately, and will be valid up to 31 March 2012. The RBI also noted that any funds raised through such overseas loans must be brought back into India immediately, unless meant for use offshore.

The RBI on Wednesday, 23 November 2011, also eased rules on currency swap hedges by companies, removing a cap on the net supply of foreign currency a bank can add to the market as a result of such swaps. The move will help banks sell more currency swaps to companies with overseas debt, to help them cope with the volatile currency market.

The Reserve Bank of India (RBI) recently announced its first government bond buyback under its open-market-operations program this year, in a move aimed at easing liquidity in the cash-strapped banking system. The central bank said late on Tuesday, 22 November 2011, that the buyback operations will include the old 10-year benchmark bond, the 7.80% 2021. The other papers in the buyback on Thursday, 24 November 2011, are: 7.99% 2017 bond, 7.83% 2018 bond and the 8.13% 2022 bond.

Monetary policy has a limited role in curbing food price pressures in India but such action may still be warranted if high food inflation persists, the central bank governor said Tuesday, 22 November 2011. "A lasting solution to food price pressures lies in a supply response that raises agricultural production and productivity, improves supply chain management and sets the right incentive framework for both producers and consumers," D Subbarao said, according to a copy of his speech at a conference released by the Reserve Bank of India.

Subbarao said that the supply measures taken to meet the growing demand for protein-rich foods have been inadequate. Food prices have been hovering at their highest levels in several months due to sustained demand from the growing middle class that is increasingly consuming more of high-protein diets like milk, fish and meats, offsetting price decline in other commodities.

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 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.

European stock markets gained on Thursday, 24 November 2011, after Germany's Ifo business confidence index unexpectedly rose, ending four straight months of declines. Key benchmark indices in UK, Germany and France were up by between 0.34% to 1.37%.

Asian stocks outside of Japan advanced after China's central bank confirmed on Wednesday, 23 November 2011, that it had lowered the reserve requirement ratio for six rural banks in Zhejiang province, to 16% from 16.5%, effective from Friday, 25 November 2011. Key benchmark indices in Indonesia, China, Hong Kong, Singapore, Taiwan, Malaysia and South Korea were up by between 0.02% to 0.82%. Japan's Nikkei Average fell 1.8%.

HSBC's preliminary China manufacturing survey fell to a 32-month low in November 2011, with the reading signaling the sector is now contracting. The Purchasing Managers Index printed at 48 on a 100 point scale, reversing from a mildly expansionary reading of 51 in October, data showed on Wednesday, 23 November 2011. The index provides a non-government view on how China's economy is faring.

HSBC economist Hongbin Qu said the data implied that industrial production will moderate to annualized growth rates of 11% to 12% in the coming months amid cooling domestic and external demand. However, he said there was little in the data to suggest a major contraction was underway in China.

US markets are closed on Thursday, 24 November 2011, for the Thanksgiving Day holiday. US markets are open for half-day on Friday, 25 November 2011.

Fitch Ratings said late on Monday, 21 November 2011, that it would conclude a review of US sovereign credit ratings by the end of November, in light of the congressional super committee's failure to reach a bipartisan deal to cut the federal debt. Fitch cited its previous statement in August that "failure by the super committee to reach agreement would likely result in a negative rating action -- most likely a revision of the rating outlook to negative, which would indicate a greater than 50% chance of a downgrade over a two-year horizon." It said a one-notch downgrade was possible but "less likely."

S&P reaffirmed it will keep its US rating at AA+ after stripping the government of its top AAA grade on 5 August 2011. Moody's retained its AAA rating on US with a negative outlook.