Market gains on hopes of rate cut, easing euro-zone debt worries

The market edged higher last week on receding euro-zone debt worries. Positive sentiment was also supported by a steep decline in food inflation in late December 2011, which underpinned hopes that the Reserve Bank of India (RBI) will start cutting interest rates in the coming months to prop up slowing economy. A stronger-than-expected growth in industrial production in November 2011 also strengthened investors' sentiment.

The BSE Sensex rose 286.89 points or 1.81% to 16,154.62 in the week ended Friday, 13 January 2012. The S&P CNX Nifty rose 111.90 points or 2.35% to 4,866.

The BSE Mid-Cap index rose 6.14% and the BSE Small-Cap index rose 8.19%. Both these indices outperformed the Sensex.



Food inflation remained in the negative territory in the last week of December mainly due to base effect, data released by the government showed on Thursday, 12 January 2012. Fuel inflation also softened slightly. Food inflation shrank by 2.9% in the week ended 31 December 2011 after shrinking by 3.36% in the preceding week, the Commerce & Industry Ministry said on Thursday. Inflation in the Primary Articles group fell to 0.51% in the week under review, from 0.1% in the week ended 24 December. Inflation in the Fuel & Power group stood at 14.45% in the week ended 31 December versus 14.60% in the previous week.

Stronger-than-expected growth in industrial production in November 2011 has raised doubts about the timing and pace at which the Reserve Bank of India would likely ease its monetary policy. Industrial output rose 5.9% in November 2011, compared with a revised contraction of 4.74% in October 2011, data released by the government on Thursday, 12 January 2012, showed. Manufacturing output, which constitutes about 76% of the industrial production, grew an annual 6.6% in November 2011. Industrial production had contracted in October 2011, snapping consistent growth for the preceding 29 months in a row.

The RBI, which raised rates a record 13 times between March 2010 and October 2011 before pausing in December 2011, is scheduled to meet on 24 January 2012 to review policy.

At its mid-quarterly monetary policy review meet on 16 December 2011, the RBI left its main lending rate unchanged in order to support faltering economic growth as inflation shows signs of cooling. While inflation remains on its projected trajectory, downside risks to growth have clearly increased, RBI had said in a statement on 16 December 2011. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth, RBI had said.

Trading for the week started on a dull note. Key benchmark indices registered small losses to reach one-week closing lows on Monday, 9 January 2012, on expectations of weak Q3 results. The BSE Sensex lost 34.08 points or 0.22% to settle at 15,814.72. The S&P CNX Nifty shed 4.10 points or 0.09% to settle at 4,742.80.

Key benchmark indices surged on Tuesday, 10 January 2012, as firm global stocks boosted sentiment. The market sentiment was also boosted by media reports that state governments in India have given their in-principle approval to a proposed national goods and service tax (GST), raising hopes that the ambitious tax reform could be included in the upcoming budget. The BSE Sensex jumped 350.37 points or 2.22% to settle at 16,165.09. The S&P CNX Nifty jumped 106.75 points or 2.25% to settle at 4,849.55.

Key benchmark indices registered small gains to attain their highest level in more than 4-1/2 weeks on Wednesday, 11 January 2012. The BSE Sensex rose 10.77 points or 0.07% to settle at 16,175.86. The S&P CNX Nifty advanced 11.40 points or 0.24% to settle at 4,860.95.

Key benchmark indices edged lower in choppy trade on Thursday, 12 January 2012, with IT stocks leading the decline after IT bellwether Infosys issued a muted outlook for Q4 March 2012 at the time of reporting Q3 December 2011 results before trading hours on 12 January 2012. Nonetheless, the market staged intraday recovery with the barometer index, BSE Sensex, regaining the psychological 16,000 level after falling below that level in intraday trade. The BSE Sensex lost 138.35 points or 0.86% to settle at 16,037.51. The S&P CNX Nifty was down 29.70 points or 0.61% to settle at 4,831.25.

Key benchmark indices edged higher on Friday, 13 January 2012, as stocks rose across the globe on receding euro-zone debt worries. The BSE Sensex jumped 117.11 points or 0.73% to settle at 16,154.62. The S&P CNX Nifty surged 34.75 points or 0.72% to settle at 4,866.

Among the 30 Sensex shares, 23 stocks rose and rest declined.

Metal stocks rallied last week amid continued anticipation of further monetary policy easing in China. Tata Steel (up 14.45% to Rs 415.70), Hindalco Industries (up 12.17% to Rs 133.20), Sterlite Industries (up 8.96% to Rs 103.40) and Jindal Steel & Power (up 7.86% to Rs 502.90), edged higher.

China's inflation rate eased to a 15-month low in December. Latest data showed that Chinese consumer prices rose 4.1% in December compared to a year earlier and easing from November's 4.2% rise.

Recently, China's import growth showed an unexpectedly sharp drop in December in a new sign the world's second-largest economy is slowing. December growth in imports fell to 11.8%, compared with previous month's 22.1% gain. Exports rose 13.4%, down slightly from November's growth rate. The country's global trade surplus widened to $16.5 billion.

However, investors appeared unperturbed by data showing weaker than expected import growth and instead focused on speculation that Chinese authorities will soon act to ease monetary policy, which will, in turn, boost markets. China is the world's largest consumer of aluminum and copper.

Meanwhile, results from US aluminium producer Alcoa that met with forecasts provided impetus for metal stocks. Alcoa, at the time of announcing its Q4 results on Monday (9 January 2012), said it swung to a fourth-quarter loss as prices slumped and costs rose, but it has a bullish view of the global aluminium market.

State-run Coal India galloped 8% to Rs 343.60 on reports the company has agreed in-principle to increase the wages of its three lakh-odd mine workers by 25%, as against a 100% hike that the unions had demanded last year.

R. Mohan Das, director of personnel and industrial relations at Coal India was quoted by media as saying that the company is likely to sign a five-year wage pact with its leading workers' union in a meeting scheduled for the end of January 2012. The wage agreement, if signed, will be with retrospective effect from 1 July 2011, he added.

The unions had taken an aggressive stance earlier, seeking a whopping 100% hike citing surging profits of the coal miner on the back of successive price hikes and a large initial public offering. They then demanded that the floor for starting negotiations should be a 24% hike and not 10% as demanded by the management.

India's largest real estate developer by market capitalisation DLF climbed 12.50% to Rs 196.60. Realty stocks were in demand last week on expectations that the RBI will start cutting interest rates in the coming months to prop up slowing economy. Lower interest rates may help revive demand for properties as purchases of both residential and commercial property are largely driven by finance.

Hopes of possible rate cut in key interest rates by the RBI also prompted buying in banking shares. India's largest commercial bank by net profit and branch network State Bank of India (SBI) gained 6.03% to Rs 1,777.15. The bank early last week said it has cancelled the negotiations for establishing a joint venture entity with Visa Inc and Elavon Inc for conducting the merchant acquiring business. In terms of the bank's earlier letter dated 4 May 2010, a joint venture was proposed between SBI Payment Services, the wholly owned subsidiary of SBI and Visa Inc and Elavon Inc.

The government will infuse Rs 5000 crore ($942 million) to Rs 6000 crore ($1.13 billion) in SBI by the end of the current fiscal year in March, the bank's chairman Pratip Chaudhuri said on 5 January 2012. After the capital infusion, the government's share [in the bank] will increase to 64%, Chaudhuri told media reporters. The government currently owns 59% of India's largest lender by assets. Mr. Chaudhuri also said that the bank may raise further capital next fiscal year through a follow-on share sale or a private sale of shares to institutional investors.

India's largest private sector bank by branch network ICICI Bank rose 5.10% to Rs 789.65.

India's second largest private sector bank by branch network HDFC Bank rose 3.71% to Rs 469.30. The bank unveils Q3 results on 19 January 2012.

Capital goods shares rose after the recent data showed that capital goods production fell 4.56% in November 2011 from a year earlier, compared with a 26.45% decline in October 2011. L&T (up 8.72% to Rs 1172.60) and Bhel (up 6.72% to Rs 266.80), edged higher. Capital goods production had jumped 25.67% in November 2010 from a year earlier.

Shares of power generation firms rose after the recent data showed that electricity generation jumped 14.6% in November 2011 from a year earlier, compared with a 5.6% rise in October 2011. NTPC (up 5.77% to Rs 165.95) and Tata Power (up 4.68% to Rs 96.20), edged higher. Electricity generation had increased 4.6% in November 2010 from a year earlier.

Index heavyweight Reliance Industries (RIL) rose 2.11% to Rs 732.05. The company announces Q3 results on 20 January 2012. RIL last week said it has scheduled a planned maintenance turnaround of one of the crude distillation unit of its SEZ Refinery at Jamnagar complex for a period of approximately three weeks starting mid February 2012. This maintenance turnaround is planned for the first time after its commissioning during the Financial Year 2008-09, RIL said. This opportunity would also be utilised to take up productivity improvement related jobs in other secondary processing units as necessary, RIL said. During this period, other three crude distillation units at Jamnagar refining complex are expected to sustain normal operations, RIL added.

RIL had announced early last week that it is divesting a part of the interest in ETV channels in favour of TV18 Broadcast, a Network18 Group firm. RIL said that as a part of the deal with TV18 Broadcast, Infotel Broad Band Services (Infotel), a subsidiary of RIL, has entered into a Memorandum of Understanding with TV18 Broadcast and Network18 Media and Investments for preferential access to all content of the latter for distribution through the 4G Broadband Network being set up by RIL.

IT stocks tumbled after IT bellwether Infosys cut earnings and revenue growth guidance for the year ending March 2012. Infosys fell 8.66% to Rs 2,585.55 after the company projected a marginal 1.25% growth in non-annualised earnings per American Depositary Share at $0.81 in Q4 March 2012 over Q3 December 2011. The company has projected a flat to 0.22% growth in consolidated revenue in dollar terms at $1.806 billion to $1.81 billion in Q4 March 2012 over Q3 December 2011. The IT major issued its outlook for the quarter ending March 2012 at the time of announcing Q3 December 2011 results before trading hours on Thursday, 12 January 2012.

The company has revised downwards both earnings as well as revenue growth guidance in dollar terms for the year ending March 2012 (FY 2012). The company has projected 14.5% growth at $3 per American Depositary Share in FY 2012 over FY 2011 (year ended March 2011). The company has projected 16.4% growth in revenue at $7.029 billion to $7.033 billion in FY 2012 over FY 2011

Infosys' consolidated net profit as per International Financial Reporting Standards (IFRS) rose 11.4% to $458 million on 3.4% growth in revenue to $1.806 billion in Q3 December 2011 over Q2 September 2011.

In rupee terms, Infosys' consolidated net profit as per International Financial Reporting Standards (IFRS) jumped 24.4% to Rs 2372 crore on 14.8% growth in revenue to Rs 9298 crore in Q3 December 2011 over Q2 September 2011.

Thanks to a weak rupee, Infosys has revised upwards both earnings and revenue growth guidance in rupee terms for FY 2012. The company has projected 23.2% growth in EPS at Rs 147.13 in FY 2012 over FY 2011. The company has forecast 24.6% to 24.7% growth in revenue at Rs 34273 crore to Rs 34294 crore in FY 2012 over FY 2011. Infosys has projected 1.46% growth in non-annualised EPS at Rs 42.12 in Q4 March 2012 over Q3 December 2011. The company has projected 1% to 1.22% growth in revenue at Rs 9391 crore to Rs 9412 crore in Q4 March 2012 over Q3 December 2011.

Among other IT stocks, India's largest software services exporter by revenues Tata Consultancy Services (TCS) fell 7.20% to Rs 1,086.60. The company unveils Q3 December 2011 results on 17 January 2012.

India's third largest software services exporter by revenues Wipro fell 1.11% to Rs 401. The company unveils Q3 December 2011 results on 20 January 2012.

A firm rupee also weighed on IT stocks. The Indian rupee rose to its highest level in nearly six weeks against the dollar on Friday, 13 January 2012, a day after the central bank was seen aggressively selling the greenback. The rupee was at 51.46/47 to the dollar, stronger than Thursday's close of 51.60/61. A firm rupee adversely affects operating profit margins of IT firms as the sector derives a lion's share of revenue from exports.