Market slips as investors brace for weak Q3 earnings season

Bears tightened their grip on the market in the last week of the calendar year 2011 as investors were concerned about upcoming Q3 December 2011 corporate earnings season. Recent media reports that Indian and Mauritian tax officials have begun talks on revising the double taxation avoidance pact between the two countries also weighed on sentiment as it could adversely impact foreign fund flow into Indian equity market.

About 40% of foreign institutional investors (FIIs) inflows and around 42% of the foreign direct investment (FDI) in India are routed through Mauritius. While short-term capital gains are taxed at 15% in India, they are exempted in Mauritius. Several companies take advantage of the double taxation avoidance pact between the two countries and escape paying taxes in both the countries.



A weak rupee added to investors' woes. The rupee was at 53.20/21 against the dollar on Friday (30 December 2011). The currency slid over 15% this year, the worst performance among Asian currencies, on concern Europe's debt crisis will slow global growth and damp demand for emerging-market assets.

Foreign institutional investors (FIIs) sold shares worth a hefty Rs 1015.82 crore on Thursday, 29 December 2011, as per provisional data from the stock exchanges. Before Thursday's heavy sales, FIIs had bought stocks worth a net Rs 493.45 crore in four trading sessions from 23 to 28 December 2011, as per provisional data from the stock exchanges. Earlier, FIIs were net sellers for ten days in a row from 9 to 22 December 2011. FIIs have sold shares worth a net Rs 2208.98 crore so far this month (till 29 December 2011), as per provisional data from the stock exchanges.

The BSE Sensex fell 283.78 points or 1.80% to 15,454.92 in the week ended Friday, 30 December 2011. The S&P CNX Nifty fell 89.70 points or 1.90% to 4624.30.

The BSE Mid-Cap index fell 0.97% and BSE Small-Cap index dropped 1.15%. Both these indices outperformed the Sensex.

The Sensex slumped 24.64% and the Nifty tumbled 24.62% in the calendar year 2011.

Key benchmark indices reached their highest closing level in nearly two weeks on Monday, 26 December 2011, as strong economic data in the US boosted sentiment. US is the world's biggest economy. The BSE Sensex jumped 232.05 points or 1.47% to settle at 15,970.75. The S&P CNX Nifty jumped 65 points or 1.38% to settle at 4,779.

Key benchmark reversed direction after hitting 1-1/2-week highs in mid-morning trade on Tuesday, 27 December 2011, on concerns about upcoming Q3 December 2011 corporate earnings. The BSE Sensex shed 96.80 points or 0.61% to settle at 15,873.95. The S&P CNX Nifty lost 28.50 points or 0.6% to settle at 4,750.50.

Key benchmark indices fell for the second straight day on Wednesday, 28 December 2011, to reach their lowest closing level in one week on reports Indian and Mauritian tax officials have begun talks on revising the double taxation avoidance pact between the two countries. The BSE Sensex shed 146.10 points or 0.92% to settle at 15,727.85. The S&P CNX Nifty lost 44.70 points or 0.94% to settle at 4,705.80.

Key benchmark indices fell for the third straight trading session on Thursday, 29 December 2011, to reach their lowest closing level in more than one week as index heavyweight Reliance Industries (RIL) dropped more than 3%. The BSE Sensex lost 183.92 points or 1.17% to settle at 15,543.93. The S&P CNX Nifty shed 59.55 points or 1.27% to settle at 4,646.25.

Key benchmark indices fell on the last trading session of 2011 on Friday, 30 December 2011, extending losses for the fourth day in a row, as European stocks reversed initial gains. The BSE Sensex lost 89.01 points or 0.57% to settle at 15,454.92. The S&P CNX Nifty shed 21.95 points or 0.47% to settle at 4,624.30.

Among the 30 Sensex shares, 24 shares rose and the rest declined.

Index heavyweight Reliance Industries (RIL) was the biggest Sensex loser last week. The stock tumbled 7.17% to Rs 692.90. The stock hit a 52-week low of Rs 690 in intraday trade on Friday (30 December 2011). Gas output from Reliance Industries' eastern offshore KG-D6 gas field declined to a fresh low of 38.66 million cubic metres per day during the week ended 18 December 2011, as the company shut five wells due to water ingress, a news agency reported citing a status report filed by the company with the Oil Ministry. The director general of hydrocarbons S.K. Srivastava last week said that RIL is planning workover operations to revive sick wells at its D6 block in the Krishna-Godavari basin, off India's east coast. Srivastava said production at the KG-D6 block may increase post the workover program.

RIL late last month said that it has initiated arbitration proceedings against the government to seek an independent view of a tribunal on the issue of the company's entitlement of recovery of entire costs on KG-D6 gas blocks from the revenue generated from the blocks. RIL said it has initiated arbitration proceedings against the Government of India (GoI) in a bid to finally resolve the cost recovery issue so as not to hinder future investments in this block.

RIL said its investment in KG-D6 production facilities has been only partly recovered and the return on the investment so far is less than the cost of the capital. The production sharing contract (PSC) with the Government of India (GoI) contains no provision which entitles the GoI to restrict the costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities are utilised, RIL said.

Jindal Steel & Power (JSPL) tumbled 6.77% to Rs 453.10 on report the government is proposing to cap tariffs for power supplied from projects that have captive coal blocks and assured fuel supply from Coal India. Jindal Power (JPL), a subsidiary of JSPL, runs a 1,000 megawatts power plant on captive coal. It reportedly sells 67% of the power in the merchant market.

Property developer DLF fell 5.62% to Rs 183.05. DLF after trading hours on Wednesday, 28 December 2011, said that the company along with its joint venture partner Hubtown have sold 100% of their respective shareholding in DLF Ackruti Info Parks (Pune) for an aggregate consideration of Rs 810 crore to an entity controlled by real estate fund affiliated with the Blackstone Group, BRE/Mauritius Investment II, after obtaining all necessary approvals. Prior to the sale of their respective shareholding, DLF and Hubtown held 67% and 33% equity shares in 'DLF Ackruti' respectively. 'DLF Ackruti' owns a notified IT/ITES SEZ located in Pune, Maharashtra. DLF said that the sale of stake in the SEZ is in line with the company's objective of divesting its non-strategic assets.

India's largest small carmaker by sales Maruti Suzuki India declined 5.58% to Rs 920.05. Maruti plans to launch a new multi-utility vehicle Ertiga at the New Delhi Auto Expo 2012 next month. It will also display two small cars based on the K-car platform that are sold in Japan.

Hindalco Industries (down 4.93%), Tata Steel (down 3.46%), Tata Motors (down 3.38%), Cipla (down 3.34%), Jaiprakash Associates (down 2.33%), Sterlite Industries (down 2.13%) and M&M (down 1.92%), edged lower from the Sensex pack.

Interest rate sensitive banking stocks declined last week. India's largest commercial bank by net profit and branch network State bank of India (SBI) fell 1.75% to Rs 1619.50. SBI expects the government to inject capital "any time", although it is yet to get a formal commitment on the amount, SBI's chief financial officer Diwakar Gupta said in an interview to a news agency. Gupta said the government will ensure the bank has 8% tier I capital adequacy by March-end. At the end of September 2011, it stood at 7.47%.

India's second largest private sector bank by branch network HDFC Bank declined 2.41% to Rs 427.05. The bank raised interest rates on non-resident savings deposits to 9% from 3.82% from Friday, 23 December 2011, taking advantage of recent deregulation to attract dollars.

India's largest private sector bank by branch network ICICI Bank fell 5.17% to Rs 684.60. ICICI Bank has raised the interest rate for NRE deposits. ICICI Bank is now offering up to 9.25% on non-resident external (NRE) deposits.

Banks are announcing sharp hikes in deposit rates for the Indian diaspora following a Reserve Bank of India move to deregulate interest rates on NRE deposits earlier this month to attract more dollars into the economy in its bid to arrest steep fall in the rupee value.

Bharti Airtel (up 3.53%), Hero MotoCorp (up 2.95%), NTPC (up 0.95%) and Coal India (up 0.25%), edged higher from the Sensex pack.

IT pivotals, Infosys (up 2.60%) and TCS (up 0.43%), edged higher, tracking weakness in rupee. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports. However, another IT major Wipro fell 1.60%.