Sensex settles at two-year low; organized retailers rally

Key benchmark indices edged lower for the tenth time in the past twelve trading session as data showing heavy selling by foreign funds recently and euro-zone debt worries hurt sentiment adversely. The barometer index, BSE Sensex, reached its lowest closing level in more than two years. The Sensex shed 163.06 points or 1.03%, off 195.62 points from the day's high and up 49.65 points from the day's low. The market breadth was positive. Index heavyweight Reliance Industries (RIL) extended intraday losses in late trade. High beta infrastructure stocks gained on bargain hunting after recent steep slide. IT stocks dropped on euro-zone debt worries.



From a recent high of 17,569.53 on 8 November 2011, the Sensex has tumbled 1,874.10 points or 10.66% in 11 trading sessions. The Sensex has lost 2,009.58 points or 11.35% this month so far. The Sensex has slumped 4,813.66 points or 23.47% in calendar 2011. From a 52-week high of 20,664.80 on 3 January 2011, the Sensex has lost 4,967.37 points or 24.04%.

Coming back to today's trade, shares of organized retailers rallied after the Union Cabinet on Thursday, 24 November 2011, cleared a proposal to allow 51% foreign direct investment (FDI) in multi-brand retail and increase in FDI in single brand retail to 100% from current 51%. Aviation shares rose on hopes that the government may allow foreign air carriers to invest in domestic aviation firms.

Interest rate sensitive auto stocks fell on concerns that higher interest rates could crimp sales of automobiles. Interest rate sensitive banking shares were mixed after the latest data showed that inflation eased in the year through 12 November 2011. Realty shares rose for the second day in a row after the latest data showed easing of food inflation.

The market opened on a weak note as Asian stocks fell. The market staged a strong intraday rebound in morning trade, with the Sensex moving into positive zone. A bout of volatility was witnessed as key benchmark indices retreated from intraday highs to once again slide into the negative zone in mid-morning trade. The market languished in negative zone in early afternoon trade. Key benchmark indices erased almost the entire intraday losses in afternoon trade as index heavyweight Reliance Industries (RIL) came off lows.

Volatility ruled the roost as the key benchmark indices weakened in mid-afternoon trade after moving into positive zone for a short while in early afternoon trade. The market extended losses in late trade.

Data showing heavy selling by foreign funds recently weighed on sentiment. Foreign institutional investors (FIIs) sold shares worth a massive Rs 1636.08 crore in a single trading session on Thursday, 24 November 2011, as per the provisional data from the stock exchanges. Their outflow totaled Rs 6483.66 crore in eight trading session from 15 to 24 November 2011, as per data from the stock exchanges.

The BSE Sensex lost 163.06 points or 1.03% to 15,695.43, its lowest closing level since 3 November 2009. The index lost 212.71 points at the day's low of 15,645.78 in late trade. The index rose 32.56 points at the day's high of 15,891.05 in mid-morning trade.

The S&P CNX Nifty was down 46.40 points or 0.98% to 4,710.05, its lowest closing level since 23 November 2011. The Nifty hit a high of 4,767.30 and low of 4,693.10 in intraday trade.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,578 shares advanced and 1,238 shares declined. A total of 116 shares were unchanged.

The Mid-Cap index rose 0.38% and the BSE Small-Cap index gained 0.84%. Both these indices outperformed the Sensex.

The total turnover on BSE amounted to Rs 2153 crore, lower than Rs 2012.91 crore clocked on Thursday, 24 November 2011.

Among the 30-member Sensex pack, 23 declined while the rest gained.

Index heavyweight Reliance Industries (RIL) declined 2.92% to Rs 751.60, extending decline in late trade. The stock hit a high of Rs 771 and low of Rs 751.15. 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.

Interest rate sensitive auto stocks fell on concerns that higher interest rates could crimp sales of automobiles. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.

India's largest tractor maker by sales Mahindra & Mahindra (M&M) slipped 1.07%. India's largest small car maker by sales Maruti Suzuki India lost 4% to Rs 949 and was the top loser from the Sensex pack. India's largest truck maker by sales Tata Motors slipped 1.67% to Rs 170.25, off day's high of Rs 179.40.

India's largest motorcycle maker by sales Hero MotoCorp lost 3.04%, extending four-day 3.57% fall. India's largest motorcycle maker by sales Bajaj Auto shed 1.14%.

High beta infrastructure stocks gained on bargain hunting after recent steep slide. India's largest power equipment maker by sales Bhel jumped 3.91% to Rs 271.05. The stock had hit a 52-week low of Rs 246.20 in intraday trade on Thursday, 24 November 2011.

India's largest engineering and construction firm by order book L&T gained 3.32% to Rs 1264.90. The stock had hit 52-week low of Rs 1175 in intraday trade on Thursday, 24 November 2011.

Interest rate sensitive banking shares were mixed after the latest data showed that inflation eased in the year through 12 November 2011. India's largest private sector bank by net profit ICICI Bank fell 1.66% to Rs 718. The stock had slipped to a 52-week low of Rs 710.50 in intraday trade on Wednesday, 23 November 2011. India's second largest private sector bank by net profit HDFC Bank rose 0.35%.

India's largest bank by net profit and branch network State Bank of India (SBI) rose 2.13% to Rs 1686.30. The stock had hit a 52-week low of Rs 1629.10 in intraday trade on Thursday, 24 November 2011.

Union Bank of India rose 2.23% after the state-run bank said it has decided to raise benchmark prime lending rate by 50 basis points from 15% to 15.5%. The announcement was made during market hours today, 25 November 2011.

Reliance Capital declined 4.02% to Rs 276 after sliding to a 52-week low of Rs 274.75 in intraday trade today, 25 November 2011.

IT stocks declined on euro-zone debt worries. Europe is the second biggest outsourcing market for Indian software exporters after the US. India's second largest software services exporter by revenue Infosys shed 2.87%. 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 third largest software services exporter Wipro slipped 0.18%.

India's largest software services exporter TCS declined 2.36%. 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 largest non-ferrous metals maker by capacity Sterlite Industries India shed 3.04% to Rs 100.30 after striking a 52-week low of Rs 99.15 today, 25 November 2011.

Realty shares rose for the second day in a row after the latest data showed easing of food inflation. Another trigger for the rally in realty shares was the government's decision to liberalize foreign investment rules in retail sector. A likely debut of foreign retail giants like Carrefour, Walmart and Tesco, among others, in India's organised retail space, could throw open a big opportunity for domestic real estate developers.

DLF (up 2.58%), Sobha Developers (up 5.59%), D B Realty (up 4.36%), Godrej Properties (up 2.54%), Indiabulls Real Estate (up 1.61%), Oberoi Realty (up 2.04%) and Omaxe (up 0.62%), edged higher.

Shares of organized retailers surged after the Union Cabinet on Thursday, 24 November 2011, cleared a proposal to allow 51% foreign direct investment (FDI) in multi-brand retail and increase in FDI in single brand retail to 100% from current 51%. Pantaloon Retail India (up 16.65%), Trent (up 7.84%), and Shoppers Stop (up 4.77%), surged.

CESC jumped 7.73%. Spencer's Retail is a unit of CESC, the power utilities business of the diversified RPG Group.

Currently, India allows 51% FDI in single brand retail and 100% FDI in cash and carry format of the business. The move to liberalize FDI norm in retails signals that the Indian government, after years of prevaricating over allowing greater foreign investment in several sectors, is now serious about attracting overseas funds. Foreign direct investment in India dropped 28% to $29.4 billion in the year ended 31 March 2011 as the country's economic forecast clouded. Further opening the retail market--and the message that sends about the government's willingness to introduce reforms--might help kick-start the economy and shore up faltering investor sentiment.

Aviation shares rose on hopes that the government may allow foreign air carriers to invest in domestic aviation firms. Reports of Prime Minister Manmohan Singh scheduling a meeting with chiefs of all Indian airlines on Saturday (26 November 2011) to discuss the situation being faced by the cash-strapped carriers and other related issues also boosted gains. SpiceJet (up 8.12%), Jet Airways India (up 13.03%) and Kingfisher Airlines (up 7.55%), edged higher.

Expectations that the government may allow equity participation by foreign airlines in Indian carriers were rekindled after the Union Cabinet on Thursday, 24 November 2011, cleared a proposal to allow 51% foreign direct investment in multi-brand retail and increasing FDI to 100% in single brand retail.

According to recent media reports, the government is likely to allow up to 26% equity participation by foreign airlines in Indian carriers in a bid to further liberalise the aviation sector in the country and help the industry out of it present troubles. A Cabinet note has reportedly put investment cap for foreign airlines in Indian carriers at 26%, against the 24% proposed initially by the civil aviation ministry. At present, foreign direct investment of up to 49% is allowed in the aviation sector, but foreign airlines are not allowed to invest in a domestic airline company.

Ranbaxy Laboratories jumped 4% on reports the company may get approval from the US Food and Drug Administration to sell copies of Pfizer's Lipitor as early as next week.

SBI clocked highest turnover of Rs 180.01 crore on BSE. Pantaloon Retail India (Rs 97.27 crore), L&T (Rs 80.08 crore), RIL (Rs 54.32 crore) and Tata Motors (Rs 52.77 crore) were the other turnover toppers in that order.

Parsvnath Developers clocked highest volume of 83.24 lakh shares on BSE. Suzlon Energy (71.82 lakh shares), SpiceJet (71.46 lakh shares), Kingfisher Airlines (52.22 lakh shares) and Cals Refineries (48.29 lakh shares) were the other volume toppers in that order.

Uproar in parliament on Friday, 25 November 2011, over the cabinet's decision to open up the retail market to global supermarket chains forced Trade Minister Anand Sharma to announce the details of the new FDI policy at a press conference instead of the government's plan of announcing the same in parliament. Sharma said the "India-specific" scheme would create tens of millions of jobs. The proposal sets a minimum investment limit of $100 million per chain -- 50% to go on developing rural infrastructure and establishing a cold-chain system -- and 50% on front-end retailing, or stores. "We also mandated that 30% of entire sourcing by retailers will be from small and medium enterprises," he said. The multi-brand retailers will be permitted only in cities with a population of one million or more. "The step which we have taken is an investment in the present and the future of this country," Sharma said.

Trinamool Congress cabinet member and Railway Minister Dinesh Trivedi said he had registered his dissent at the cabinet meeting on Thursday but was overruled.

The government's decision to allow foreign direct investment (FDI) in retail drew flak from opposition parties in parliament, forcing the adjournment of both houses till Monday and ending the first week of the winter session without any business being transacted. Today, 25 November 2011 is the fourth consecutive day of the winter session, which began Tuesday, 22 November 2011, when Question Hour had to be cancelled in the wake of opposition protests. Besides FDI, the opposition was also out with their blazing guns to attack the government on the issue of price rise and corruption. Parliament did not run on the first three days of the session due to protests over rising prices and the demand of separate statehood for Telangana region in Andhra Pradesh. The winter session concludes on 21 December 2011.

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 3,876 companies declined 36.1% to Rs 67423 crore on 20.5% growth in sales to Rs 1142482 crore in Q2 September 2011 over Q2 September 2010.

The Union Cabinet on Thursday, 24 November 2011, approved the long-awaited Companies Bill that will completely recast the key provisions of the decades-old Companies Act 1956. Following Cabinet clearance, it is now likely to be taken up for consideration and passage in the ongoing winter session of Parliament. The Bill suggests that profit-making companies above a certain threshold will have to spend at least 2% of the average profits in the preceding three years on corporate social responsibility (CSR) activities and make a disclosure to shareholders about the policy adopted in the process.

The government diluted the provision after stiff opposition from the industry and decided not to make 2% CSR spend mandatory. The Bill also seeks to provide for class action suits and a fixed term for independent directors. Among other things, it proposes to tighten laws for raising money from the public. The Bill also seeks to prohibit any insider trading by company directors or key managerial personnel by treating such activities as a criminal offence. The Bill will give more powers to the Serious Frauds Investigation Office.

The Securities and Exchange Board of India (Sebi) on Thursday, 24 November 2011, tightened rules governing the issuance of warrants allotted along with public and rights offerings in a bid to prevent their misuse. Sebi said it has decided to specify a maximum tenure of 12 months for such warrants. Currently, Sebi regulations for public and rights offerings don't specify any tenure for warrants. The regulator added that the issuer of the public or rights offering will also have to disclose how the funds raised would be used, both in the offer document and on an ongoing basis. The regulator also decided to prescribe a minimum allotment size of Rs 5 crore to anchor investors during a share sale, and the maximum number of anchor investors allowed, in slabs. It didn't specify what the slabs would be.

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.

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 fell on Friday, 25 November 2011, as investors continued to fret over euro-zone troubles and as Hungary suffered a downgrade. Key benchmark indices in UK, France and Germany were down by between 0.57% to 0.81%.

European stocks had ended on a weak note on Thursday, 24 November 2011, after leaders of the euro zone's three biggest nations ruled out calling on the European Central Bank to intervene and help tackle region's sovereign debt crisis. German Chancellor Angela Merkel again criticized calls for the issuance of euro-bonds, and a ratings agency downgrade for Portugal damaged sentiment, while Hungary was also issued with a debt-rating late Thursday.

Bond yields were creeping up across the board again in Europe as another downgrade added some anxiety to trading. Late Thursday, Moody's Investors Service cut Hungary's government bond rating one notch to Ba1. The ratings firm retained a negative outlook on Hungarian bonds, saying it's looking increasingly uncertain the country will meet its fiscal consolidation and debt reduction targets. Earlier Thursday, Fitch Ratings cut Portugal's credit rating to junk status.

Asian stocks dropped on Friday, 25 November 2011, with energy and banking stocks notable decliners, as lingering concerns over Europe's debt crisis kept investors sidelined. Key benchmark indices in China, Hong Kong, Indonesia, Malaysia, Japan, Singapore, South Korea and Taiwan were down by between 0.06% to 1.59%.

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.

Trading in US index futures indicated that the Dow could fall 79 points at the opening bell on Friday, 25 November 2011. US markets are open for half-day on Friday, 25 November 2011. US markets were closed on Thursday, 24 November 2011, for the Thanksgiving Day holiday