A broad-based decline

Relentless bear onslaught triggered a sell-off on the bourses, with the key benchmark indices diving to 7-month lows. The sentiment was hit by media reports of a possible probe into two new cases involving the allocation of telecoms spectrum. Mounting concerns about slowing corporate profits and fears of further monetary tightening to tame high inflation, also kept investors away. The BSE 30-share Sensex was down 261.49 points or 1.45%, off close to 365 points from the day's high and up close to 35 points from the day's low. The Sensex fell below the psychological 18,000 mark. European markets were trading mixed while most Asian markets were in the red.



From its close of 20509.09 on 31 December 2010, the BSE Sensex has tumbled 2733.39 points or 13.32% in 2011 so far. The BSE Mid-Cap index has slumped 16.21% and the BSE Small-Cap index has lost 17.32% in 2011.

Today's decline in share prices was broad-based, with many stocks hitting yearly lows and some stocks hitting lifetime lows. The market breadth was weak. Reliance Communications hit a record low today while NTPC and Reliance Infrastructure touched 52-week lows. Banking stocks declined on worries higher cost of funds may negatively impact net interest margin. Interest rate sensitive auto stocks also edged lower. Oil exploration major ONGC turned ex-bonus (for a liberal 1:1 bonus) and ex-split (for a 2-for-1 share split) today. Software pivotals outperformed the Sensex after unlisted IT services provider Cognizant Technology Solutions Corp forecast 2011 results above Wall Street estimates, after beating the market with a solid fourth quarter.

Early gains were fizzled out as the key benchmark indices slipped into the red. The market soon regained positive zone. The market moved in a narrow range in morning trade. The key benchmark indices came off lows soon after hitting 5-month lows in mid-morning trade. Renewed selling dragged the market to fresh multi-month low in early afternoon trade. The market weakened once again after trimming losses in afternoon trade. The market once again came off lows in mid-afternoon trade. The key benchmark indices slumped to 7-month lows in late trade.

There are no fears of contraction in industrial output growth as the manufacturing sector is doing well, Trade Minister Anand Sharma said on Tuesday. Sharma also said anti-government unrest in Egypt would not impact Indian exports.

Meanwhile, media reports on Tuesday said the government is probing two new cases involving the allocation of telecoms spectrum, increasing the pressure on the government already hit by a telecoms graft scandal. The Indian Space Research Organisation (ISRO), overseen by the ministry of space, is reportedly being probed by the government auditor for a 2005 allocation of mobile internet spectrum without a proper bidding process that may have cost the exchequer up to Rs 2 trillion ($44.2 billion). The government is also reportedly probing whether state-run telecom firm Bharat Sanchar Nigam (BSNL) appointed franchises for broadband wireless access without charging any upfront payment. BSNL had appointed franchises on a revenue-share basis, even after paying Rs 8000 crore ($1.77 billion).

Foreign institutional investors (FIIs) bought shares worth a net Rs 0.70 crore on Monday, 7 February 2011, much lower than an inflow of Rs 224.40 crore on Friday, 4 February 2011. FII outflow in February 2011 totaled Rs 485.40 crore (till 7 February 2011). FIIs had sold equities worth Rs 4813.20 crore in January 2011. FII outflow in the calendar year 2011 totaled Rs 5298.40 crore (till 7 February 2011).

Investors pulled $7 billion out of emerging market equity funds in the week ended 2 February 2011, the biggest outflow in three years, data from fund tracker EPFR Global showed, putting a sizeable dent in the record inflows seen in this category in 2010. The large outflow included an outflow of $4.6 billion from exchange-traded funds (ETFs) focused on emerging markets, the largest such outflow these ETFs have ever seen. Among some of the major emerging market countries, Indian equity funds had their biggest outflow since early June 2010 as commercial lenders started passing on the central bank's latest rake hike, EPFR said. India equity funds had net outflows of $207 million in the week ended 2 February 2011.

Meanwhile, the Securities and Exchange Board of India (SEBI) on Monday, 7 February 2011, deferred decision on important issues such as the MCX-SX case, Takeover Code and Jalan Committee report. It also overlooked the life insurance IPO norms and rights issue norms for Indian depositary receipts.

With a view to bring down the process time, the Sebi decided that ASBA (application supported by blocked amount) would be made mandatory for all non retail investors (QIB and HNI) for public and rights issues from 1 May 2011. The market regulator has also made a recommendation to the Ministry of Corporate Affairs on related party transactions. Sebi suggested that Clause 66 of the Companies Bill 2009 should be amended to disallow interested shareholders from voting on the special resolution of the prescribed third party transaction even if the interested shareholder happens to be the promoter.

On the corporate front, the results announced so far showed that the combined net profit of a total of 2,110 companies rose 22% to Rs 77140 crore on 20.50% rise in sales to Rs 649592 crore in Q3 December 2010 over Q3 December 2009.

There are concerns of slowdown in corporate profit growth going ahead. With the rise in key policy rates by the Reserve Bank of India (RBI) recently, interest cost will only rise in the coming quarters that could hurt earnings going forward. If raw material costs keep rising at a fast clip, companies will feel the heat of slowing sales growth and rising cost of operations that could start eating into profit growth.

The next major trigger for the stock market is Union Budget 2011-2012 to be unveiled by the finance minister Pranab Mukherjee on 28 February 2011. Investors will watch if the Finance Minister announces measures to rein in inflation and inflationary expectations. The Finance Minister may announce a new road map for the Goods & Services Tax (GST). The original deadline of 1 April 2010 for roll-out of GST has already been missed due to the lack of consensus between the Centre and states on the issue. GST is India's most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states.

The Centre has reportedly sent the empowered committee of state finance ministers yet another draft constitutional amendment on the proposed goods & services tax (GST) in a last-ditch attempt to reach a consensus before the Budget session of Parliament. The third draft reportedly proposes the creation of a GST Council through an Act of Parliament, instead of presidential order, as proposed in the previous draft. The empowered committee will convene in New Delhi on 11 February 2011 to discuss the revised draft.

The government may also announce some populist measures in the Budget given that assembly elections are due in Kerala, Tamil Nadu, West Bengal and Assam. In all these states, the Congress is potentially looking to regain power or to retain it.

European markets were trading mixed on Tuesday, 8 February 2011. The key benchmark indices in UK and France were down 0.25% and 0.03% respectively. Germany's DAX rose 0.1%.

Most Asian stocks declined on Tuesday, 8 February 2011. The key benchmark indices in South Korea, Indonesia, Taiwan, Hong Kong and Singapore fell by between 0.21% to 0.8%. But, Japan's Nikkei Average rose 0.41%. Chinese markets remained shut for the Lunar New Year holidays. Trading resumes in Chinese stocks after a week-long holiday on Wednesday, 9 February 2011.

As per reports, the Bank of Korea is likely to raise rates by at least 0.25% this month or next month to tame inflation.

China on Tuesday said it would raise key interest rates for the third time since mid-October in an effort to rein in rising inflation, according to news reports. The People's Bank of China said its one-year yuan lending rate would rise to 6.06% from 5.81%, while increasing its one-year yuan deposit rate to 3% from 2.75%.

Financials led US stocks to fresh multi-year highs on Monday, 7 February 2011, as the market got a lift from a stream of deals, corporate earnings and some relief that a degree of economic activity resumed in Egypt. The Dow Jones Industrial Average rose 69.48 points, or 0.57%, to 12,161.63, its highest close since 16 June 2008. The Nasdaq Composite advanced 14.69 points, or 0.53%, to 2783.99, its highest finish since 6 November 2007. The S&P 500 stock index rose 8.18 points, or 0.62%, to 1319.05, its highest close since 25 June 2008.

The gains were also supported by President Barack Obama's comments that he would seek corporates' help to tackle corporate taxes. He, however, did not specify any plan.

Trading in US index futures indicated that the Dow could rise 8 points at the opening bell on Tuesday, 8 February 2011.

Back home, aided by healthy economic growth, the net direct tax collection went up to Rs 3.17 lakh crore for the first 10 months of this fiscal between April 2010 and January 2011, registering a growth of more than 20%. The collection during the same period last year was Rs 2.64 lakh crore. The high growth has been possible due to rise in corporate income.

The BSE 30-share Sensex was down 261.49 points or 1.45% to 17,775.70, its lowest closing level since 8 July 2010. The Sensex lost 295.01 points at the day's low of 17,742.18 in late trade. The index gained 104.32 points at the day's high of 18,141.51 in early trade.

The S&P CNX Nifty was down 83.45 points or 1.55% to 5,312.55, its lowest level since 8 July 2010. The Nifty hit a low of 5,303.40 in late trade.

The BSE Mid-Cap index fell 2.42% and the BSE Small-Cap index declined 3.23%. Both these indices underperformed the Sensex.

All the sectoral indices on BSE were in the red. The BSE IT index (down 0.1%), Teck index (down 0.34%), FMCG (down 0.86%) and Healthcare index (down 1.3%), outperformed the Sensex. The BSE Consumer Durables (down 3.81%), Realty (down 3.08%), Auto index (down 2.7%), Bankex (down 2.28%), Oil & Gas index (down 2.06%), Metal index (down 1.95%), Capital Goods index (down 1.91%), PSU index (down 1.9%) and Power index (down 1.88%) underperformed the Sensex.

The total turnover on BSE amounted to Rs 2793 crore lower than Rs 2823.33 crore on Monday, 7 February 2011.

The market breadth, indicating the health of the market, was weak. On BSE, 2368 shares declined while 540 shares rose. A total of 80 shares remained unchanged.

Among the 30-member Sensex pack, 25 declined while the rest advanced.

Index heavyweight Reliance Industries (RIL) slipped 1.48% to Rs 915.50, after gyrating between Rs 911.60 and Rs 938.80 during the day. As per reports, RIL's ambitions to become a key shale gas player will push it to accept the $3.2 billion deal between Chevron Corp and Atlas Energy despite concerns but RIL would finalise the strategy later this week. RIL had acquired shale acreages from Atlas Energy last April, outbidding Chevron. Later US oil major announced acquisition of Atlas.

India's largest oil exploration firm by sales ONGC settled at Rs 281.80 as the stock turned ex-bonus (for a liberal 1:1 bonus) and ex-split (for a 2-for-1 share split) today. The stock had settled at Rs 1193.85 on Monday, 7 February 2011.

Power Grid Corporation declined 2.2%. The company's net profit rose 21.18% to Rs 591.19 crore on 21.52% rise in total income to Rs 2145.23 crore in Q3 December 2010 over Q3 December 2009. The company announced Q3 results after market hours today.

Most auto stocks edged lower. India's top tractor maker by sales Mahindra & Mahindra slumped 5.97% to Rs 625.65 and was the top loser from the Sensex pack. Reportedly, Mahindra & Mahindra has entered the construction equipment business with the launch of earth moving machines on Monday, 7 February 2011. The company unveils its Q3 December 2010 earnings on Wednesday, 9 February 2011.

India's top bike maker by sales Hero Honda Motors slipped 4.06%. India's largest small care maker by sales Maruti Suzuki India slipped 1.25%. India's top truck maker by sales Tata Motors shed 2.86%. But, India's second largest bike maker by sales Bajaj Auto rose 1.69%. Ashok Leyland lost 5.02% and TVS Motor fell 6.63%.

Telecom pivotals declined. India's second largest mobile telecom services provider by sales Reliance Communications shed 4.2% to Rs 110.70 after sliding to a record low of Rs 110.20 today. India's largest mobile telecom services provider by sales Bharti Airtel fell 0.22%.

Banking stocks declined on worries higher cost of funds may negatively impact net interest margin. India's largest private sector bank by net profit ICICI Bank shed 2.98% and India's second largest private sector bank by net profit HDFC Bank declined 1.72%. India's largest bank by net profit and branch network State Bank of India fell 0.9%.

India's largest private sector aluminium maker by sales Hindalco Industries gained 0.82%. Copper prices scaled record highs in London on Monday, 7 February 2011, before retreating.

Software pivotals outperformed the Sensex after unlisted IT services provider Cognizant Technology Solutions Corp forecast 2011 results above Wall Street estimates, after beating the market with a solid fourth quarter. India's second largest software services exporter by sales Infosys rose 0.24% in volatile trade.

India's largest software services exporter by sales TCS fell 0.32% and India's third largest software services exporter by sales Wipro slipped 0.25%.

Private sector power utility major Reliance Infrastructure shed 3.3% to Rs 658.40. The stock hit 52-week low of Rs 654.80 today.

India's largest power generation firm by capacity NTPC declined 2.59% to Rs 174.70 after sliding to a 52-week low of Rs 173.80 today.

Steel stocks fell after the world's largest steel maker ArcelorMittal reported a loss in Q4 December 2010. JSW Steel, Bhushan Steel, Tata Steel, Jindal Steel & Power and Steel Authority of India shed by between 1.5% to 6.42%.

ArcelorMittal today, 8 February 2011, reported $780 million net loss in Q4 December 2010 against $1.1 billion net profit in Q4 December 2009. Net sales, however, rose 18.72% to $20,699 million in Q4 December 2010 over Q4 December 2009.

Consumer durables stocks declined. Blue Star, Videocon Industries, Titan Industries, Gitanjali Gems and Rajesh Exports shed by between 0.42% to 6.02%.

Interest rate sensitive realty stocks fell on concerns higher interest and higher property prices may dent demand for residential units. Indiabulls Real Estate, DLF and HDIL fell by between 1.4% to 4.29%. Unitech tumbled 7.09%. The stock hit 52 week low of Rs 40.80 today.

High beta infrastructure stocks dropped on concerns of slowdown in project execution and higher borrowing costs. India's largest dam builder by sales Jaiprakash Associates lost 5.21%.

Larsen & Toubro (down 2.34%), Bhel (down 0.51%), Lanco Infratech (down 16.76%), declined.

Punj Lloyd tumbled 10.84% after the company reported a consolidated net loss Rs 62.13 crore in Q3 December 2010 compared with a net profit Rs 12.48 crore in Q3 December 2009. The result was announced after trading hours on Monday, 7 January 2011.

Railway related stocks tumbled. Beml, Kalindee Rail Nirman, Texmaco and Titagarh Wagons fell by between 7.01% to 12.84%.

Cals Refineries clocked highest volume of 1.38 crore shares on BSE. Unitech (71.99 lakh shares), Shree Ashtavinayak Cine Vision (66.46 lakh shares), Suzlon Energy (66.01 lakh shares) and Sanraa Media (58.96 lakh shares) were the other volume toppers in that order.

State Bank of India clocked highest turnover of Rs 152.40 crore on BSE. ICICI Bank (Rs 79.93 crore), Tata Steel (Rs 79.06 crore), Tata Motors (77.61 lakh shares) and Reliance Industries (Rs 66.41 crore) were the other turnover toppers in that order.

On the macro front, the GDP growth in the first half of the current fiscal year to end-March is expected to be revised downwards from 8.9% provisional estimate, Chief Statistician of India T.C.A. Anant said on Monday. Anant also said the government will release a new monthly CPI data series from 18 February 2011.

The government on Monday, 7 February 2011, estimated GDP growth for the fiscal year ending March 2011 at 8.6%. Farm output is expected to grow 5.4%, while industry growth this fiscal is expected at 6.2%. The service sector growth is projected to grow 11%.

Finance Minister Pranab Mukherjee on Sunday, 6 February 2011, said inflation and the current account deficit might become causes of concern if crude oil prices keep rising.

There are concerns that high inflation will trigger more monetary tightening from the Reserve Bank of India this year. Prime Minister Manmohan Singh on Friday, 4 February 2011, said the country's high inflation posed a "serious threat" to the growth momentum, and was driven by supply-side shortages.

Reserve Bank of India (RBI) deputy governor Subir Gokarn on Sunday, 6 February 2011, said events in Egypt will have an impact on monetary policy. "After making the policy announcement on 25 January 2011, a whole set of events unfolded in the Middle East, which are starting to have an impact on oil prices, obviously, which we did not anticipate at the time we made the announcement," Gokarn said. "So, a completely new environment has emerged in a very short time after the announcement. It is going to have an impact on our thinking, our action going forward," Gokarn added. The central bank holds a mid-quarter policy review on 17 March 2011.

The central bank last month raised interest rates by 25 basis points to clamp down on resurgent inflation, which stood at 8.43% in December 2010, and warned of persistently high food prices unless steps are taken to boost supplies.