Market snaps four-day losing streak; two- wheeler makers skid

Data showing a sharp improvement in manufacturing activity in December 2011 and comments by Reserve Bank of India governor that the central bank is likely to begin easing monetary policy to address concerns about economic growth, helped Indian stocks register gains on the first trading session of the New Year. The government's decision to allow qualified foreign investors to invest directly in local equities and gains in European shares underpinned sentiment as the market snapped a four-day losing streak. The BSE Sensex rose 63 points or 0.41%, up close to 160 points from the day's low and off about 25 points from the day's high. The market breadth turned positive from negative in late trade.



Concerns about upcoming Q3 December 2011 earnings had pulled the market lower recently. From a recent high of 15,970.75 on 26 December 2011, the Sensex had declined 515.83 points or 3.22% in four trading sessions to settle at 15,454.92 on Friday, 30 December 2011. The Sensex lost 668.54 points or 4.14% in December 2011. The barometer index slumped 5,054.17 points or 24.64% in calendar 2011. From a 52-week high of 20,664.80 on 3 January 2011, the Sensex has lost 5,146.88 points or 24.91%. From a 52-week low of 15,135.86 on 20 December 2011, the Sensex has risen 382.06 points or 2.52%.

Coming back to today's trade, index heavyweight Reliance Industries (RIL) jumped more than 2%. L&T gained after winning new orders totaling Rs 2056 crore. Shares of motorcycle makers tumbled on a likely hike in petrol prices. Motorcycle major Bajaj Auto tumbled more than 7% after a company official reportedly said that the company doesn't expect to meet its vehicle sales target for this financial year through March. Shares of another bike major -- Hero MotoCorp plunged over 3%. Another two-wheeler maker TVS Motor Company tumbled more than 7% after the company reported decline in overall automobile sales for the month just gone by.

IT stocks rose on a weak rupee. Interest rate sensitive realty stocks declined on expectations of weak Q3 results. Realty major DLF fell over 2%, extending Friday's 2% losses triggered by a downgrade from credit rating agency CRISIL. Cement stocks reversed intraday losses ahead of the announcement of cement dispatches data for December 2011. Copper and aluminium major Hindalco Industries hit a 52-week low.

The market regained positive zone after slipping into the red briefly after a positive start. Intraday volatility continued as key benchmark indices regained positive zone after slipping into the red to hit fresh intraday lows in morning trade. Volatility continued as key benchmark indices alternately moved between positive and negative terrain in mid-morning trade. The market skidded to hit its lowest level in nearly two weeks in early afternoon trade.

Key benchmark indices recovered in afternoon trade after a survey showed that manufacturing activity picked up sharply in December 2011. Key benchmark indices once again slipped into the red after regaining positive zone in early afternoon trade. The market soon regained positive zone.

The BSE Sensex rose 63 points or 0.41% to settle at 15,517.92, its highest closing level since 29 December 2011. The index rose 87.93 points at the day's high of 15,542.85 in late trade. The index fell 96.90 points at the day's low of 15,358.02 in afternoon trade, its lowest level since 20 December 2011.

The S&P CNX Nifty rose 12.45 points or 0.27% to settle at 4,636.75, its highest closing level since 29 December 2011. The index hit a high of 4,645.95 in intraday trade. The index hit a low of 4,588.05 in intraday trade, its lowest level since 20 December 2011.

The BSE Mid-Cap index fell 0.07% while the BSE Small-Cap index rose 0.11%. Both these indices underperformed the Sensex.

The market breadth, indicating the overall health of the market, turned positive from negative in late trade. On BSE, 1,408 shares rose and 1,259 shares fell. A total of 124 shares were unchanged.

BSE clocked turnover of Rs 1363 crore, lower than Rs 1490.68 crore on Friday, 30 December 2011.

Among the 30-member Sensex pack, 19 rose while the rest of them declined.

Index heavyweight Reliance Industries (RIL) rose 2.03% to Rs 706.95 on bargain hunting. The stock had 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 recently citing a status report filed by the company with the Oil Ministry. The director general of hydrocarbons S.K. Srivastava recently 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 in November 2011 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.

FMCG stocks declined on profit taking after recent gains. Godrej Consumer Products (down 3.65%), Nestle India (down 2.70%), ITC (down 1.44%), Hindustan Unilever (down 1.32%), Colgate Palmolive (India) (down 0.72%) and Britannia Industries (down 0.03%), edged lower. Shares of Hindustan Unilever had risen nearly 32% and shares in cigarette maker ITC had gained 15% in the year to 30 December 2011.

Bank stocks were mixed after the Reserve Bank of India on Friday, 30 December 2011, issued draft guidelines outlining proposed implementation of Basel III capital regulation in India. India's largest private sector bank by branch network ICICI Bank gained 1.73%. 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.

India's largest commercial bank by net profit and branch network State Bank of India (SBI) rose 0.63%. 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 a recent 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, it stood at 7.47%.

India's second largest private sector bank by branch network HDFC Bank rose 0.04%. 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.

Yes Bank (down 2.68%), Kotak Mahindra Bank (down 2.48%), Punjab National Bank (down 2.32%), Axis Bank (down 1.55%) and Federal Bank (down 0.41%), edged lower from the Sensex pack.

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.

RBI has issued draft guidelines on Basel III capital regulation norms for banks. The central bank has suggested that Common Equity Tier 1 (CET1) capital must be at least 5.5% of risk-weighted assets (RWAs). Tier 1 capital must be at least 7% of RWAs and total capital must be at least 9% of RWAs, according to the draft guidelines. RBI has suggested capital conservation buffer in the form of Common Equity of 2.5% of RWAs.

RBI said the implementation period of minimum capital requirements and deductions from Common Equity will begin from January 1, 2013 and be fully implemented as on March 31, 2017. Capital conservation buffer requirement is proposed to be implemented between March 31, 2014 and March 31, 2017. Instruments which no longer qualify as regulatory capital instruments will be phased-out during the period beginning from January 1, 2013 to March 31, 2022.

For OTC derivatives, in addition to the capital charge for counterparty default risk under Current Exposure Method, banks will be required to compute an additional credit value adjustments (CVA) risk capital charge. The parallel run for the leverage ratio will be from January 1, 2013 to January 1, 2017, during which banks would be expected to strive to operate at a minimum Tier 1 leverage ratio of 5%. The leverage ratio requirement will be finalized taking into account the final proposal of the Basel Committee.

Most metal stocks rose as a Chinese manufacturing gauge rose in December 2011. China is the world's largest consumer of copper and aluminum. JSW Steel, Nalco, Coal India, Tata Steel, Jindal Steel & Power, Sterlite Industries, Bhushan Steel and Sail rose by 0.06% to 5.90%. LMEX, a gauge of six metals traded on the London Metal Exchange rose 2.07% on Friday, 30 December 2011.

Hindalco Industries fell 3.02% to Rs 112.25. The stock hit a 52-week low of Rs 111.25 today.

Shares of iron ore miners edged lower after the government raised export tax on iron ore fines and lumps to 30% from 20%. Sesa Goa (down 3.66%) and NMDC (down 3.29%), dropped.

Aviation stocks were mixed after state-owned oil companies cut jet fuel price by over 1% in line with softening in the commodity's international rates. Jet Airways (India) rose 1.65%. SpiceJet fell 2.97%. Kingfisher Airlines was flat at Rs 21.05. Jet fuel or aviation turbine fuel (ATF) typically makes up almost half of an airline's operating cost and the latest cut in prices will slightly ease burden on the cash-strapped airlines.

PSU OMCs were mixed after these companies deferred the decision on petrol price hike till later today, and if approved the petrol prices will go up by Tuesday. HPCL, Indian Oil Corporation (IOC) and BPCL rose by between 0.15% to 0.70%.

The three state-owned oil marketing companies (PSU OMCs) meet every fortnight to revise the petrol rates based on the international crude oil prices. The three PSU OMCs -- HPCL, IOC and BPCL met on Saturday, 31 December 2011, to consider an upward revision, as the imports have become more expensive due to falling rupee against the dollar. At the current international rates, a revision of around Rs 2 is expected in the petrol prices.

Although, the petrol prices have been deregulated, oil companies still require an informal nod from the government to implement a hike. Prices were slashed twice in November 2011, but petroleum ministry declined a price hike around December 15. Post meeting on New Year's Eve, the revised rates should have been applicable from 1 January 2012.

Consumer durables stocks edged higher on renewed buying. Gitanjali Gems, Rajesh Exports, and Titan Industries gained by between 0.72% to 3.46%.

IT stocks rose on a weak rupee. India's second largest software services exporter by revenue Infosys rose 1.44%. The company announces Q3 December 2011 results on 12 January 2012. The company said recently its business process outsourcing subsidiary -- Infosys BPO has signed a definitive agreement to acquire all of the outstanding share capital in Australia-based Portland Group Pty, a leading provider of strategic sourcing and category management services. The purchase consideration for the deal is Australian dollar (AUD) 37 million. Portland Group reported revenue of about AUD 31.3 million for the year ended 30 June 2011.

India's largest software services exporter by revenues Tata Consultancy Services (TCS) gained 1.46%. TCS recently announced that it will expand its operations in the state of Maharashtra by building a new software development campus in Nagpur with an investment of Rs 600 crore in the first phase.

India's third largest software services exporter by revenues Wipro fell 0.10%.

The partially convertible rupee was at 53.17/18 to the dollar, weaker than its previous close of 53.08/09. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

Realty major DLF fell 2.13%, extending Friday's 2% losses triggered by a downgrade from credit rating agency CRISIL. The rating agency has downgraded short-term and long-term debt rating of the company on an assessment that debt levels of the company may continue to remain high due to a delay in disposal of non-core assets and weakness in operating cash flows due to the weak macro economic environment.

DLF, however, said that the company is firmly committed to its target of raising Rs 6000-7000 crore from divestment of non-strategic assets over 3 years starting from 2011-12 to help prune debt. DLF said it expects that its operating cash flow will strength following the launch of new projects in Mullapur, Panchkula, Lucknow, Jalandhar, Chennai, Bangalore, Hyderabad and Gurgaon over the next 3-4 months.

Cement stocks reversed intraday losses ahead of the announcement of cement dispatches data for December 2011. Jaiprakash Associates, Saurashtra Cement, Heidelberg Cement, Prism Cement, India Cements, Madras Cement, Ambuja Cements and ACC rose by 0.15% to 5%.

L&T rose 1.37% after company said during market hours today that L&T Construction bagged new orders worth over Rs 2056 crore across various business segments during December 2011. The Water and Affluent Treatment business has won two major orders totaling Rs. Rs 1262 crore. The Building and Factories segment has bagged a new order valued at Rs. 388 crore while the Rail Infrastructure segment has won orders aggregating to Rs. 406 crore.

Coal India rose 3.61% and was the top gainer from the Sensex pack after the company's board of directors at a meeting held on 30 December 2011 approved switching over of non-coking coal pricing from useful heat value (UHV) based grading system to gross caloric value (GCV) based classification with effect from 1 January 2012. It is difficult to assess the exact impact as it will be based on the calorie value, Coal India said.

Maruti Suzuki India rose 1.82% on reports that the car major will take a call on price hike of its products on 4 January 2012. The company's total vehicle sales fell 7.1% to 92,161 units in December 2011 over December 2010. Domestic sales dropped 13.4% to 77,475 units. Exports surged by 50.5% to 14,686 units.

Tata Motors rose 3.03% as the company's total sales of commercial and passenger vehicles jumped 22% to 82,278 units in December, 2011 over December 2010. The domestic sales of the vehicles in both categories for the month stood at 76,663 cars, a 24% jump compared to 61,685 in December 2010, the company said in a statement. However, exports declined 3% to 5,615 units compared to 5,809 in December 2010.

Mahindra & Mahindra fell 1.35%. The company's total automobile sales jumped 26% to 42,761 units in December 2011 over December 2010, Speaking on the numbers, Rajesh Jejurikar, Chief Executive, Automotive Division, Mahindra & Mahindra, said, "We are delighted with the 26% growth in December, thanks to the great all round performance of all our brands. We thank our customers for their support and loyalty and wish them a prosperous new year".

Meanwhile, Mahindra & Mahindra is reportedly interested in buying at least part of bankrupt Swedish carmaker Saab Automobile. Saab was declared bankrupt by a court in early December 2011, ending a nine-month battle by its Dutch owner Swedish Automobile NV SWAN.NS to stay afloat. It has not made any vehicles since April and several rescues have failed.

Shares of motorcycle makers tumbled on a likely hike in petrol prices. India's largest bike maker by sales Hero MotoCorp tumbled 3.50%.

India's second largest bike makers by sales Bajaj Auto fell 7.4% and was the top loser from the Sensex pack. The stock tumbled after a company official reportedly said that the company doesn't expect to meet its vehicle sales target for this financial year through March. The company announced during market hours today that total sales rose 10% to 3.05 lakh units in December 2011 over December 2010. Motorcycle sales rose 8% to 2.63 lakh units and commercial vehicle sales rose 27% to 41,991 units. Exports jumped 25% to 1.19 lakh units.

TVS Motor Company plunged 7.32% after company's total sales declined 0.79% to 1.70 lakh units in December 2011 over December 2010.

Reliance Industries clocked a highest turnover of Rs 76.29 crore on BSE. State Bank of India (Rs 60.12 crore), JSW Steel (Rs 48.11 crore), Tata Steel (Rs 42.45 crore) and Bajaj Auto (Rs 42.19 crore), were the other turnover toppers on BSE in that order.

IFCI reported a highest volume of 1.52 crore shares on BSE. Cals Refineries (1.14 crore shares), Dazzel Confindive (44.34 lakh shares), Suzlon Energy (34.99 lakh shares) and GVK Power & Infrastructure (31.02 lakh shares), were the other volume toppers on BSE in that order.

Starting off the New Year on a liberalisation note, the government on 1 January 2012 announced its decision to allow Qualified Foreign Investors (QFIs) to directly invest in the Indian equity market from 15 January 2012. The move comes against the backdrop of significant foreign capital outflows from the domestic equity market in recent times, which has resulted in rupee volatility. A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. QFIs do not include FIIs/sub accounts. In August last year, the government allowed foreign investors to directly invest up to $13 billion in equity and debt schemes of mutual funds.

Qualified foreign investors, or QFIs, will now be able to invest individually up to 5% of the capital of the Indian company. Cumulatively, QFIs can invest up to 10% of the capital of the company being invested in. These limits are over and above the FII and NRI investment ceilings prescribed under the PIS route for foreign investment in India, a government statement said.

Foreign institutional investors (FIIs) sold shares worth Rs 178.15 crore on Friday, 30 December 2011, as per provisional data from the stock exchanges. FIIs sold shares worth a net Rs 2387.13 crore in December 2011, as per provisional data from the stock exchanges. FIIs sold shares worth Rs 26873.07 crore in calendar year 2011. Domestic funds absorbed selling from FIIs, with inflow of Rs 27814.88 in calendar year 2011.

The next major trigger for the market is Q3 December 2011 corporate earnings, which will start tricking from the second week of January 2012. The focus will be on guidance from the company managements on outlook for the remaining part of the year and for the next year. Analysts expect weak Q3 December 2011 results due to lower volume growth in a slowing economy, higher raw material costs and higher interest charges.

India's manufacturing activity surged to a six-month high in December thanks to a spike in factory output and new orders from domestic and international firms, a survey of purchasing managers showed on Monday. The HSBC Markit India Manufacturing PMI jumped to 54.2 from 51 in November, its biggest monthly rise since April 2009. The index has stayed above the 50 mark that separates growth from contraction for 33 months now.

Food inflation rose at its slowest pace in more than five years in the third week of December 2011, bolstering hopes of a steady easing in overall price pressures which could prompt Reserve Bank of India to consider cut in interest rates to revive a slowing economy. Food inflation eased to 0.42% in the week ended December 17 from 1.81% in the preceding week, the Commerce & Industry Ministry said on 29 December 2011. Inflation in the Primary Articles group eased to 2.7% in the week under review, from 3.78% in the week ended December 10. Inflation in the Fuel & Power group stood at 14.37% in the week ended December 17, from 15.24% in the previous week.

The Reserve Bank of India is likely to begin easing monetary policy to address concerns about economic growth, Governor D Subbarao said in an interview to a foreign electronic media house, reiterating comments made by the RBI when it kept rates unchanged on 16 December 2011. At its mid-quarterly monetary policy review meet on 16 December 2011, the Reserve Bank of India (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.

RBI said inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces. RBI also said that the rupee remains under stress. The timing and magnitude of further actions will depend on a continuing assessment of how these factors shape up in the months ahead, RBI said. The RBI has raised rates 13 times since March 2010.

Credit rating agency Moody's Investors Service on 14 December 2011 said that the sharp decline in the value of the Indian rupee against the dollar over the past few months is generally exerting only a moderate impact on rated Indian companies. Risks for companies holding large amounts of dollar denominated debt are also manageable in the near term, given that debt maturities are limited for this time frame, Moody's said in a new report. This means Indian companies rated by Moody's do not have a significant dollar outflow at a time when the Indian rupee is losing ground.

The infrastructure sector output grew 6.8% in November from a year earlier, sharply higher than the annual growth of 3.7% in November last year, data released by the government on Monday, 26 December 2011, showed. The infrastructure sector accounts for 37.9% of India's industrial output.

India may face the risk of stagflation if the government doesn't take urgent steps to tame inflation and stimulate growth, a parliamentary panel on finance warned on 22 December 2011. The Standing Committee on Finance blamed the Reserve Bank of India's 13 interest-rate increases over the past 21 months for stalling economic growth. "Measures taken by the government and the RBI so far have squarely failed to rescue the economy from unabated inflation. Instead, monetary measures initiated for this purpose have only resulted in worsening the condition of the economy further," the report said.

The budget for 2012/13 ending March will be presented after elections scheduled in five states, Finance Minister Pranab Mukherjee said on Monday, 2 January 2012. State elections are scheduled between the end of January and early March. "We have not yet decided the time, but naturally it (the budget) will be after the elections," Mukherjee told media reporters. The annual budget is usually presented on the last working day of February.

The Election Commission on 24 December 2011 announced the dates for the assembly polls in Uttar Pradesh, Punjab, Uttarakhand, Manipur and Goa. Uttar Pradesh will have polling on February 4, 8, 11, 15, 19, 23 and 28, while Uttarakhand and Punjab will go to polls on January 30. Manipur will have polls on January 28 and Goa on March 3.

Foreign direct investment in India surged by 36% to $23.68 billion during the January-October period last year, notwithstanding uncertain global economic environment. During January-October 201O, the country had attracted Foreign Direct Investment (FDI) worth $17.36 billion.

India's November exports rose an annual 3.87% to $22.3 billion, while imports for the month rose 24.55% to $35.9 billion, the government said in a statement on Monday. India's trade deficit in November was at $13.6 billion.

European shares edged higher on Monday after making their biggest annual fall since 2008, with trading light due to British markets being shut for a bank holiday and defensive safe haven stocks the main performers on the index. Key benchmark indices in France and Germany rose by between 0.71% to 1.46% respectively.

The purchasing managers index for the 17-nation euro zone's manufacturing sector rose in December from a 28-month low the previous month but still signaled a further contraction in activity, data showed Monday. The Markit euro-zone manufacturing PMI rose to 46.9 in December from 46.4 in November, confirming an earlier, preliminary estimate. A reading of less than 50 indicates a contraction in activity, while a figure of more than 50 signals expansion.

Asian stocks were mixed on the first trading day of 2012 amid concern the global economic recovery will be hampered as Europe's debt crisis enters a new year. Key benchmark indices in Indonesia and Taiwan fell by between 0.34% to 1.69%. South Korea's Kospi rose 0.03%. Stock markets in China, Hong Kong, Japan and Singapore were closed today for a holiday.

Data yesterday showed China's purchasing managers' index climbed to 50.3 in December from 49 in November. South Korea said yesterday export growth will slow this year and Singapore's government said its economy grew less than previously forecast in 2011.

US stock market remains closed today for a holiday. US stocks edged lower on Friday, the last trading day of 2011, as investors waited for next year to begin making large bets.