Volatile week ends with gains

The government's decision to allow qualified foreign investors to invest directly in local equities helped the market register gains on the first trading week of the New Year. Data showing a sharp improvement in manufacturing activity in December 2011 and a steep decline in food inflation in late December 2011 underpinned sentiment.

Comments by Reserve Bank of India governor that the central bank is likely to begin easing monetary policy to address concerns about economic growth also boosted sentiment. However, concerns about upcoming Q3 December 2011 earnings kept gains in check. Trading was volatile throughout the week.



The BSE Sensex rose 412.81 points or 2.67% to 15,867.73 in the week ended Friday, 6 January 2012. The S&P CNX Nifty rose 129.80 points or 2.81% to 4,754.10.

The BSE Mid-Cap index underperformed the Sensex, rising 2.42%. The BSE Small-Cap index outperformed the Sensex, rising 2.78%.

Foreign institutional investors (FIIs) bought shares worth Rs 381.42 crore on Thursday, 5 January 2012, as per provisional data from the stock exchanges. FII inflow totaled Rs 775.78 crore in three trading sessions on 3 to 5 January 2012, as per provisional data from the stock exchanges. Earlier, FIIs had offloaded shares worth a net Rs 1287.84 crore in three trading sessions from 29 December 2011 to 2 January 2012.

Starting off the New Year on a positive note, the government on Sunday, 1 January 2012, announced its decision to allow qualified foreign investors (QFIs) to directly invest in the Indian equity market from 15 January 2012. A QFI is an individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. QFIs include pension funds which normally tend to stay invested for a longer period of time. 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.

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.

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 plunged into the negative territory in the fourth week of December mainly due to base effect, data released by the Government showed on Thursday, 5 January 2011. Fuel inflation edged up though. Food inflation shrank by 3.36% in the week ended 24 December 2011, after rising by 0.42% in the preceding week. Inflation in the Primary Articles group fell to 0.1% in the week under review, from 2.7% in the week ended 17 December 2011. Inflation in the Fuel & Power group stood at 14.60% in the week ended 24 December 2011, versus 14.37% in the previous week.

The RBI 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 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 had 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.

Meanwhile, market regulator Securities & Exchange Board of India (Sebi) has allowed auctioning of securities through stock exchanges and introduced a new method for institutional placement of stocks. As per the auctioning route, a special window can be used by promoter stakeholders to sell at least 1% of the paid-up capital of a company. This will be similar to the block-deal mechanism for secondary stock market transactions, but with lesser restrictions. Under the institutional placement programme (IPP), shares can be sold only to qualified institutional buyers.

Exchanges will provide a separate window for the offer for sale of shares which will co-exist with the normal trading hours. But, promoter or promoter group of companies will not be allowed to bid for the shares. Sebi also said the auction method can be only used by promoters of top 100 companies based on average market capitalisation for sale of their stakes. The regulator said the IPP method can be used to increase public holding by 10% and could be offered to only qualified institutional buyers with 25% being reserved for mutual funds and insurance companies. Issuers will have to announce an indicative floor price or price band at least one day before the opening of the offer.

Trading for week began on a rousing note. 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 on Monday, 2 January 2012. The BSE Sensex rose 63 points or 0.41% to settle at 15,517.92. The S&P CNX Nifty rose 12.45 points or 0.27% to settle at 4,636.75.

Key benchmark indices advanced for the second day in a row to scale their highest closing level in more than one-week on firm global stocks on Tuesday, 3 January 2012. The government's decision on Sunday, 1 January 2012, to allow qualified foreign investors to invest directly in local equities, underpinned sentiment. The BSE Sensex rose 421.44 points or 2.72% to settle at 15,939.36. The S&P CNX Nifty rose 128.55 points or 2.77% to settle at 4,765.30.

Volatility ruled the roost Wednesday, 4 January 2012, as key benchmark indices flip-flopped between negative and positive territory. After a choppy start, the barometer index, BSE Sensex, shot up to the psychological 16,000 mark in mid-afternoon trade. Gains could not be sustained as the market soon reversed direction. Concerns about upcoming Q3 December 2011 earnings and weak European stocks hit investor sentiment adversely. The BSE Sensex lost 56.72 points or 0.36% to settle at 15,882.64. The S&P CNX Nifty shed 15.65 points or 0.33% to settle at 4,749.65.

Weakness in European shares weighed on domestic bourses during the second half of the trading sessions on Thursday, 5 January 2012. The BSE Sensex lost 25.56 points or 0.16% to settle at 15,857.08. The S&P CNX Nifty gained 0.30 points or 0.01% to settle at 4,749.95.

Key benchmark indices edged higher amid volatile trading session on higher European shares on Friday, 6 January 2012. Wild intraday gyrations were witnessed in the latter part of the trading session as the market staged a strong intraday rebound. The BSE Sensex was up 10.65 points or 0.07% to 15,867.73. The S&P CNX Nifty was up 4.15 points or 0.09% to 4,754.10.

Among the 30 Sensex shares, 22 rose and the rest declined.

India's largest commercial vehicles maker by sales Tata Motors was the top Sensex gainer last week. The stock jumped 13.87% to Rs 203.15. 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. However, exports declined 3% to 5,615 units compared to 5,809 in December 2010.

India's largest car maker by sales Maruti Suzuki India rose 3.16% to Rs 949.15. Maruti on Thursday unveiled XA Alpha -- a concept for a compact sports utility vehicle (SUV). Together with Ertiga, the XA Alpha signals Maruti Suzuki's plans to expand into the utility vehicles space, Maruti said.

Maruti'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.

Fiat India Automobiles said early this week that it expects to conclude shortly discussions with Maruti Suzuki India for the supply of diesel engines for cars, a step that will allow the local unit of Suzuki Motor Corp. cut the waiting period on its Swift model. Maruti currently sources all its diesel engines from Suzuki Powertrain, a joint venture between Maruti and Suzuki. These engines are made using Fiat's technology.

India's largest tractor maker by sales Mahindra & Mahindra (M&M) fell 3.92% to Rs 656.25. M&M's total automobile sales jumped 26% to 42,761 units in December 2011 over December 2010. M&M's president for automotive and farm equipment Pawan Goenka Thursday, 5 January 2012, said that the company plans to start assembling SsangYong vehicles in China, Brazil and Russia in the next two years.

M&M last year picked up a 70.03% stake in South Korean auto maker SsangYong Motor Co. for 522.5 billion Korean won. It is slated to launch SsangYong's sport-utility vehicle Rexton in India in the second half of 2012 and the Korando C SUV in 2013.

Shares of two-wheeler makers slumped last week on concerns of increased competition as global two-wheeler makers on Thursday (5 January 2012) launched new models and announced expansion plans at the ongoing India auto show to attract more buyers in the world's second-largest market for motorcycles and scooters.

India's largest two-wheeler maker Hero MotoCorp declined 8.94% to Rs 1735. Hero MotoCorp expects double-digit percentage growth in sales for the fiscal year starting in April, Managing Director Pawan Munjal said at the New Delhi Auto Expo. The company last week unveiled its first concept hybrid scooter.

The company on Wednesday (4 January 2012) launched two motorcycle models and one scooter model. The company will start retail sales of the 110-cubic-centimeter scooter model Maestro later this month, while that of the 110cc motorcycle model Passion X Pro and 125cc motorcycle Ignitor will happen in the remainder of the year.

India's second largest two-wheeler maker by sales Bajaj Auto shed 8.39% to Rs 1459.20. The firm unveiled an ultra-low-cost car early this week, its first foray into the four-wheel market. The compact "RE60" boasts of high fuel efficiency and low carbon dioxide emissions, but the firm did not release a price tag.

Shares of Bajaj Auto had tumbled recently on reported comments by a company official that the company does not expect to meet its vehicle sales target for this financial year through March. The company's 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. The company announced the monthly sales data early this week.

India's largest private sector bank by branch network ICICI Bank jumped 9.75% to Rs 751.35. 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 second largest private sector bank by branch network HDFC Bank galloped 5.96% to Rs 452.50. 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 commercial bank by net profit and branch network State Bank of India (SBI) rose 3.50% to Rs 1676.15. The bank early this 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 State Bank of India by the end of the current fiscal year in March, the bank's chairman Pratip Chaudhuri said on Thursday. 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.

In its draft guidelines on Basel III capital regulation norms for banks unveiled recently, the RBI 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.

The 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.

Metal shares were in demand last week as a Chinese manufacturing gauge rose in December 2011. China is the world's largest consumer of copper and aluminum. Tata Steel (up 8.34%), Sterlite Industries (up 5.92%), Coal India (up 5.75%), Jindal Steel & Power (up 2.90%) and Hindalco Industries (up 2.59%), edged higher. China's purchasing managers' index climbed to 50.3 in December from 49 in November.

IT stocks rose after positive economic data in the US, the biggest outsourcing market for Indian IT firms.

India's second largest software services exporter by revenue Infosys rose 2.37% to Rs 2830.65. 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 third largest software services exporter by revenues Wipro rose 1.68% to Rs 405.50.

India's largest software services exporter by revenues Tata Consultancy Services (TCS) rose 0.84% to Rs 1170.95. 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.

Data last week showed US manufacturing activity and construction spending picked up, signaling the economic recovery was gaining steam. The pace of growth in the US manufacturing sector accelerated in December, its best month since June, while a rise in new orders suggested decent momentum in 2012. Separately, construction spending in November surged to a near 1-1/2 year high.

Engineering and construction major Larsen & Toubro (L&T) jumped 8.39% to Rs 1078.60. L&T early this week said its construction division bagged new orders worth over Rs 2056 crore across various business segments in 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.

India's largest state-run power equipment maker by sales Bhel jumped 4.60% to Rs 250.

Index heavyweight Reliance Industries (RIL) rose 3.46% to Rs 716.90. RIL on Wednesday (4 January 2012) 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 this 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.

RIL has reportedly stated that natural gas output from its eastern offshore KG-D6 fields has dipped below 39 million cubic meters a day as it shut five wells because of high water ingress. Reports stated that the natural gas production from the Dhirubhai-1 and 3 gas fields and the MA oilfield in Block KG-DWN-98/3, or KG-D6, in the Krishna-Godavari Basin of the Bay of Bengal was 38.43 mmcmd in the week ended 25 December 2011. The output comprised 31.58 mmcmd from the D1 and D3 gas fields and 6.85 mmcmd from the MA oilfield, reports said. The KG-D6 production is lower than 61.5-mmscmd rate achieved in March, 2010, says report. The report also stated that of the 18 wells drilled, completed and put on production in the D1 and D3 fields, five wells- A2, A10, B1, B2 and B13, were kept closed due to high water cut/sanding issues.

Stock markets in India are open for trading for a short period of time on Saturday, 7 January 2012, as the National Stock Exchange is upgrading the capacity of its futures and options trading system hardware and software. Trading will take place from 11:15 IST to 12:45 IST on that day. Trades done on Saturday, 7 January 2012, will be settled on Tuesday, 10 January 2012, as a separate settlement.