Market slides to 4-1/2-month low as RBI hikes rates

The key benchmark indices tumbled to 4-1/2-month lows, weighed by concerns of further interest rate hike on high inflation and fears of slowing corporate earnings. Selling by foreign funds this month has also dampened sentiment. The BSE Small and Mid-cap indices underperformed the Sensex. The mood was bearish with the market logging declines in three out of 4 trading sessions in the week ended Friday, 28 January 2011. The market was closed on Wednesday, 26 January 2011 on account of Republic Day.



Foreign funds have dumped shares worth a net Rs 7,983.20 crore in this month (till 28 January 2011), as per data from the stock exchanges. Domestic funds have absorbed a part of the selling from foreign funds, with a inflow of Rs 4229.02 crore.

Volatility was high during the week as traders rolled over positions in the derivatives segment from January 2011 series to February 2011 series. The near-month January 2011 contracts expired on Thursday, 27 January 2011.

The BSE Sensex fell 611.56 points or 3.22% to 18,395.97 in the week ended Friday, 28 January 2011. The 50-unit S&P CNX Nifty fell 184.35 points or 3.23% to 5,654.55. The BSE Mid-Cap index fell 4.08% to 6,898.37 and the BSE Small-Cap index lost 4.47% to 8,546.29.

The results announced so far showed the combined net profit of 683 companies rose 20.10% to Rs 49158 crore on 20.20% rise in sales to Rs 415367 crore in Q3 December 2010 over Q3 December 2009.

The food price index rose 15.57% and the fuel price index climbed 10.87% in the year to 15 January 2011, government data on 27 January 2011 showed. In the prior week, annual food and fuel inflation stood at 15.52% and 11.53%. The primary articles price index was up 17.26% in the latest week, compared with an annual rise of 17.03% a week earlier.

RBI deputy governor Subir Gokarn on 27 January 2011, said the bond yield curve was reflecting the inflation expectations and there was no need to revisit the statutory liquidity ratio. The effect of policy actions taken by the Reserve Bank of India in the past is yet to be fully seen, he said. But, RBI Governor D Subbarao said demand side pressures were abating due to monetary policy actions.

There are inflationary pressures in India and the government will have to begin supply-side management to tackle food inflation, Finance Minister Pranab Mukherjee said on Tuesday, 25 January 2011. He also said the latest rate hike by RBI was in line with the government's thinking and policy.

To control surging inflation, the Reserve Bank of India (RBI) at its quarterly policy review on Tuesday, 25 January 2011, raised repo rate by 25 basis points to 6.5% and the reverse repo rate by 25 basis points to 5.5% with immediate effect. Repo rate is the rate at which the RBI lends money to banks. Reverse repo is the rate at which RBI borrows funds from banks. But, the central bank held the cash reserve ratio steady at 6%.

"As high food inflation persists, the prospect of it spilling over to the general inflation process is rapidly becoming a reality," Reserve Bank of India (RBI) Governor Duvvuri Subbarao said in the policy document. The RBI lifted its headline inflation projection for March 2011 to 7% from 5.5% previously. The central bank said inflation is likely to resume its moderating trend in the first quarter of 2011-12. The RBI stuck with its 8.5% GDP growth forecast for the current fiscal year, but with an upside bias.

In overseas news, Standard & Poor's on 27 January 2011 cut Japan's long-term sovereign credit rating to AA minus from AA, and reaffirmed the short-term ratings at A-1 plus. It said in a statement that it "expects Japan's fiscal deficits to remain high in the next few years, which will further reduce the government's already weak fiscal flexibility." It said its outlook on the long-term rating is stable, reflecting its view that "Japan's strong external balance sheet and monetary flexibility partially offset the pressures stemming from the fiscal side.

The US Federal Reserve left interest rates steady near zero in unanimous vote at the end of a two-day meeting on interest rates on Wednesday, 26 January 2011. Fed policy makers said that signs of an accelerating recovery don't warrant reducing efforts to reduce unemployment that is hovering near the highest levels since the early 1980s.

Trading for the week began on positive note with the key benchmark indices logging decent gains on Monday, 24 January 2011, on the back of good results from front-line banking firms and ahead of the Reserve Bank of India's monetary policy on Tuesday, 25 January 2011. But, index heavyweight Reliance Industries (RIL) declined on concerns about slow ramp up in gas production from the KG-D6 field due to technical and other issues. The BSE 30-share Sensex was up 143.75 points or 0.76% to 19,151.28 and the S&P CNX Nifty was up 46.75 points or 0.82% at 5,743.25.

The key benchmark indices dropped on Tuesday, 25 January 2011, with interest rate sensitive sectors banking, auto and realty stocks leading the fall as investors fretted over the possibility of more interest rate hikes by the Reserve Bank of India (RBI) to tame inflation. The Sensex fell below the psychological 19,000 mark and the 50-unit S&P CNX Nifty fell below 5,700 level. The BSE 30-share Sensex was down 181.83 points or 0.95% to 18,969.45 and the S&P CNX Nifty was down 55.85 points or 0.97% at 5,687.40.

The key benchmark indices slumped on Thursday, 27 January 2011, after data showed food price index remained at elevated levels, stroking fears the Reserve Bank of India (RBI) will continue to hike interest rates this year. The BSE 30-share Sensex was down 285.02 points or 1.5% to 18,684.43 and the S&P CNX Nifty was down 83.10 points or 1.46% at 5,604.30. Indian stocks underperformed mostly higher global stocks on that day.

The key benchmark indices hit 4-1/2-month closing lows on Friday, 28 January 2011, sliding for the third straight day, as data showing heavy selling by foreign funds on Thursday, 27 January 2011, and fears of more rate hikes from the Reserve Bank of India to tame inflation, weighed on the sentiment. The BSE 30-share Sensex was down 288.46 points or 1.54% to 18,395.97. The S&P CNX Nifty was down 92.15 points or 1.64% at 5,512.15.

Among the 30-member Sensex pack, 26 declined while only four of them managed gains.

Index heavyweight Reliance Industries' (RIL) lost 7.30% to Rs 914.50 in the week ended Friday, 28 January 2011, on concerns about slow ramp up in gas production from the KG-D6 field. Gross natural gas production from RIL KG-D6 block, off India's east coast, declined 5.7% to 55.8 million metric standard cubic metres per day (mmscmd) in Q3 December 2010 from Q2 September 2010, as the company continues to struggle to find solution to problems related to the reservoir.

RIL's net profit rose 28.14% to Rs 5136 crore on 5.15% rise in net turnover to Rs 59789 crore in Q3 December 2010 over Q3 December 2009. Higher refining and petrochemicals margins boosted the performance. RIL's gross refining margin (GRM) improved to $9 per barrel in Q3 December 2010 from $5.9 per barrel in Q3 December 2009. The GRM was also higher compared to $7.6 per barrel in Q2 September 2010. The result was announced after trading hours on Friday, 21 January 2011.

India's largest state-run oil exploration company by market capitalisation ONGC advanced 2.76% to Rs 1135.60 after the company discovered shale gas at the Barren Measure shale, at Icchapur, near Durgapur, West Bengal. It was the top gainer from the Sensex pack during the week.

ONGC's net profit surged 131.96% to Rs 7083.23 crore on 38.75% spurt in total income to Rs 21473.41 crore in Q3 December 2010 over Q3 December 2009. The result was announced after trading hours on 28 January 2011.

Interest rate sensitive realty stocks declined after the Reserve Bank of India (RBI) raised the key policy rates on Tuesday, 25 January 2011. India's largest real estate developer DLF tumbled 11.59% to Rs 223.10 and was the top loser from the Sensex pack.

India's largest bank by net profit and branch network State Bank of India (SBI) rose 0.79%, after reporting strong operating performance for the third quarter on Saturday, 22 January 2011. Net profit rose 14.1% to Rs 2828.06 crore on 43.3% growth in net interest income to Rs 9049.80 crore in Q3 December 2010 over Q3 December 2009. On consolidated basis, net profit rose 12.2% to Rs 3710.48 crore on 14.7% growth in total income to Rs 36966.87 crore in Q3 December 2010 over Q3 December 2009.

India's largest private sector bank by net profit ICICI Bank fell 4.58%. Net profit jumped 30.51% to Rs 1437.02 crore on 8.78% rise in total income to Rs 8444.75 crore in Q3 December 2010 over Q3 December 2009. The result hit the market during trading hours on Monday, 24 January 2011.

India's second largest private sector bank by net profit HDFC Bank shed 1.92%. The bank's as net profit rose 32.91% to Rs 1087.83 crore on 28.9% rise in operating income to Rs 6357.78 crore in Q3 December 2010 over Q3 December 2009. The result was announced after trading hours on 27 January 2011.

India's third largest IT exporter by sales Wipro slipped 4.03% after the company announced resignations of the joint-CEOs of its information technology business at the time of announcing third quarter results before market hours on Friday, 21 January 2011.

India's largest software services exporter TCS shed 2.48% to Rs 1182.55 after striking a record high of Rs 1221 on 24 January 2011. On a consolidated basis, net profit rose 9.25% to Rs 2369.83 crore on 5.35% increase in total income to Rs 9857.56 crore in Q3 December 2010 over Q2 September 2010. The result was announced after trading hours on 17 January 2011.

India's second largest software services exporter Infosys declined 2.32%. Consolidated net profit rose 2.5% to Rs 1,780 crore on 2.3% rise in revenues to Rs 7106 crore in Q3 December 2010 over Q2 September 2010 as per International Financial Reporting Standards. The result was announced before market hours on 13 January 2011.

India's largest FMCG firm by sales Hindustan Unilever tumbled 8.45% after net profit declined 1.8% to Rs 638 crore on 12% rise in net sales to Rs 5027 crore in Q3 December 2010 over Q3 December 2009. The result was announced during trading hours on 25 January 2011.

Hindustan Unilever (HUL)'s operating margins were lower by 320 basis points (bps) in Q3 December 2010 over Q3 December 2009 due to a steep rise in input cost, and brand investments. Commenting on the results Harish Manwani, chairman of HUL said that in an inflationary environment, the company will manage the business dynamically through judicious pricing actions and increased focus on cost effectiveness while ensuring that the company remains competitive in the market place.

India's largest private sector steel maker by sales Tata Steel rose 1%. The company's follow-on public offer (FPO) was subscribed 6.03 times. The issue ended on Friday, 21 January 2011.

Shares of media firm Midvalley Entertainment settled at Rs 58.05 on BSE on its debut on 27 January 2011, a discount of 17.07% from the initial public offer price of Rs 70.