Market extends gains for the third day

Expectations that the deadlock in parliament may be ended ahead of the Budget session next week helped stocks extend gains for the third day in a row today, 15 February 2011. Interest rate sensitive banking and auto stocks extended recent strong gains on a view that a bulk of the monetary tightening from the Reserve Bank of India (RBI) is over. The market breadth, indicating the health of the market, was positive. Index heavyweights Reliance Industries (RIL) jumped nearly 3%. The BSE 30-share Sensex was up 71.60 points or 0.39%, up close to 220 points from the day's low and off close to 90 points from the day's high. Realty and capital goods stocks fell. Shares of Reliance Anil Dhirubhai Ambani (ADA) group shares edged higher.



Intraday volatility was high. The market slipped into the red soon after a positive start. The market soon regained positive zone. The market once again slipped into the red in morning trade. The market recovered later after hitting fresh intraday low. The market once again trimmed losses after hitting fresh intraday lows in mid-morning trade. A sharp intraday rebound took the key benchmark indices to fresh intraday highs in early afternoon trade. The key benchmark indices pared gains soon after hitting fresh intraday highs in afternoon trade. The market regained strength to hit fresh intraday high in mid-afternoon trade. Stocks pared gains in late trade.

Foreign institutional investors (FIIs) bought shares worth a net Rs 228.40 crore on Monday, 14 February 2011, as against an outflow of Rs 434.40 crore on Friday, 11 February 2011. FII outflow in February 2011 totaled Rs 2353.10 crore (till 14 February 2011). FIIs had sold equities worth Rs 4813.20 crore in January 2011. FII outflow in the calendar year 2011 totaled Rs 7166.10 crore (till 14 February 2011).

The Q3 December 2010 results season is almost over. The results announced so far showed that the combined net profit of a total of 3336 companies rose 19.7% to Rs 86686 crore on 18.4% rise in sales to Rs 975614 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.

On the political front, the government is likely to agree to the Opposition demand for a Joint Parliamentary Committee (JPC) probe into the 2G spectrum scam to break a parliament deadlock ahead of the onset of the Budget session of the parliament next week. The winter session of Parliament had ended with virtually no business done amid opposition's demand for a JPC probe into the 2G scam. The Budget session begins on 21 February 2011.

The growth outlook for major industrialised economies is picking up, although big differences in momentum remain between countries, the OECD's leading indicator for December showed on Monday. The Paris-based Organisation for Economic Development and Co-operation said its December composite leading indicator for 29 of its member countries rose to 102.8 from a revised 102.5 in November, pointing to stronger growth momentum. The report said the reading for India pointed towards a slowdown, that for Russia pointed to growth and the indicator for Brazil suggested the country will continue to perform close to its long-term trend.

European shares edged higher on Tuesday, extending the previous session's 29-month closing high, on encouraging results from corporate heavyweights Barclays and French food group Danone. The key benchmark indices in France ad Germany rose by between 0.2% to 0.42%. UK's FTSE 100 fell 0.02%.

Asian stocks were mixed as material shares gained on record copper prices, offsetting declines by Chinese financial shares on concerns the country will raise interest rates. The key benchmark indices in China, Japan and Taiwan rose by between 0.02% to 0.42%. The key benchmark indices in Hong Kong, South Korea and Singapore fell by between 0.2% to 0.96%.

Chinese consumer inflation rose at a lower-than-expected 4.9% in January 2011, though price pressures continued to build and will force the central bank to stick to its course of monetary tightening.

Japan's central bank on Tuesday decided to leave its benchmark interest rate unchanged at virtually zero as the economy continues to stutter. The Bank of Japan (BoJ) also kept the size of its asset purchase program unchanged at 5 trillion yen ($60 billion). Announcing the decision, the BoJ said Japan's economy is "gradually emerging from the current deceleration phase."

Trading in US index futures indicated that the Dow could gain 8 points at the opening bell on Tuesday, 15 February 2011. Energy and commodity shares lifted Wall Street to modest gains on Monday. US President Barack Obama proposed a federal budget that he said would cut the US deficit by $1.1 trillion over the next 10 years.

The BSE 30-share Sensex was up 71.60 points or 0.39% to 18,273.80, its highest level since 3 February 2011. The index rose 159.46 points at the day's high of 18,361.66 in mid-afternoon trade. The Sensex lost 151.72 points at the day's low of 18,050.48 in mid-morning trade.

The S&P CNX Nifty was up 25 points or 0.46% to 5,481, its highest level since 3 February 2011. The Nifty hit a high of 5,506.50 in mid-afternoon trade.

The BSE Mid-Cap index fell 0.07% and underperformed the Sensex. The BSE Small-Cap index gained 0.59% and outperformed the Sensex.

Sectoral indices on BSE were mixed. The BSE Oil & Gas index (up 1.85%), banking sector index Bankex (up 1.53%), PSU index (up 1.1%), and Auto index (up 0.71%), outperformed the Sensex. The BSE Power index (up 0.14%), Consumer Durables index (up 0.13%), FMCG index (down 0.29%), Metal index (down 0.36%), Healthcare index (down 0.39%), IT index (down 0.4%), Realty index (down 1.33%) and Capital Goods index (down 1.75%), underperformed the Sensex.

The market breadth, indicating the health of the market, was positive. On BSE, 1585 shares advanced while 1305 shares declined. A total of 96 shares remained unchanged. The breadth had turned negative in mid-morning trade from positive breadth in early trade.

Among the 30-member Sensex pack, 16 rose while the rest fell.

BSE clocked turnover of Rs 3755 crore, higher than Rs 3466.36 crore on Monday, 14 February 2011.

Index heavyweight Reliance Industries rose 2.9%. The stock had fallen 1.6% on Monday on reports the stock market regulator Sebi could levy a record penalty on Reliance Industries if it is able to establish that the company was involved in insider trading.

Tata Motors rose 2.41% after company said on Tuesday its global vehicle sales rose 16% in January 2011 to 98,998 units. Jaguar and Land Rover sales rose 25% to 20,377 units, driven by a 30% rise in Land Rover sales. The stock had surged 5.6% on Monday after consolidated net profit jumped 272.9% to Rs 2424 crore on 22% rise in consolidated revenue to Rs 31685 crore in Q3 December 2010 over Q3 December 2009. The company announced the Q3 result at the fag end of the trading session on Friday, 11 February 2011, when the stock had jumped 3.79%.

Car maker Maruti Suzuki India rose 1.34%. The stock had hit a 52-week low of Rs 1146 on Thursday, 10 February 2011.

India's second biggest two-wheeler maker by sales, Bajaj Auto gained 2.16%. India's top bike maker by sales Hero Honda Motors declined 0.81% to Rs 1515.85. The stock had hit a 52-week low of Rs 1412.20 on Wednesday, 9 February 2011.

Mahindra and Mahindra (M&M) shed 1.81%. The company recently unveiled plans to acquire a 38% stake in BSE-listed EPC Industrie. The acquisition would be through preferential allotment of shares by EPC, following which M&M will make the mandatory open offer to acquire a 20% stake in the Nashik-based micro-irrigation firm.

Most Reliance Anil Dhirubhai Ambani (ADA) group shares rose. Reliance Communications jumped 3.59%, reversing initial losses. Consolidated net profit fell 56.65% to Rs 480.27 crore on 5.75% decline in total income to Rs 5004.09 crore in Q3 December 2010 over Q3 December 2009. The company announced the Q3 result after market hours on Monday.

Reliance MediaWorks, Reliance Power and Reliance Capital rose by between 2.72% to 10.68%.

Reliance Infrastructure rose 1.12% in volatile trade. The company on Monday announced buyback of shares at a price not exceeding Rs 725 per share. Consolidated net profit rose 10.16% to Rs 405.25 crore on 11.2% rise in total income to Rs 3871.64 crore in Q3 December 2010 over Q3 December 2009. The company announced Q3 result during market hours on Monday.

Interest rate sensitive banking stocks rose across the board extending recent gains on a view that a bulk of the monetary tightening from the Reserve Bank of India is over. India's largest commercial bank by branch network State Bank of India rose 1.38%, after surging 4.12% on Monday. State Bank of India has recently raised term deposit rates on two maturity buckets -- 555 days and 1,000 days -- by 25 basis points. Simultaneously, to protect its margins, the bank has marked up its lending rate by 25 basis points. All rate hikes are effective from 14 February 2011.

India's largest private sector bank by market capitalisation ICICI Bank was up 2.02%. India's second largest private sector bank by market capitalisation HDFC Bank gained 0.17%.

Among other banking stocks, Federal Bank Yes Bank, Bank of India, Canara Bank, Indian Overseas Bank, Axis Bank, Kotak Mahindra Bank, Bank of Baroda, Union Bank of India and Punjab National Bank rose by between 0.34% to 3.51%.

India's largest engineering and construction firm by sales Larsen & Toubro fell 2.16%. The stock had jumped 6.7% on Monday after company announced during market hours on Monday that it had bagged a Rs 1100-crore EPC order from GSECL.

India's largest electric equipment maker by sales Bharat Heavy Electricals (Bhel) declined 2.45%. The company has bagged a $436 million EPC contract for Marib gas-based power project (Phase II) from Public Electricity Corporation under the Ministry of Electricity and Energy, Yemen. The EPC contract, which was won through international competitive bidding, is the largest value order secured by Bhel in international market for a gas turbine-based power plant.

Among other capital goods stocks, Punj Lloyd, Thermax and Siemens fell by between 0.56% to 1.16%.

Interest rate sensitive realty stocks edged lower. Ackruti City, DLF, Peninsula Land and Indiabulls Real Estate declined by between 0.16% to 2.8%.

Unitech lost 3.45%, after consolidated net profit slumped 36.9% to Rs 111.36 crore on 14.8% fall in total income to Rs 659.79 crore in Q3 December 2010 over Q3 December 2009.

Some FMCG stocks fell. ITC, Hindustan Unilever, Dabur India and United Spirits fell by between 0.02% to 1.53%.

IT stocks fell on profit taking. India's second largest IT exporter by sales Infosys shed 0.11%. India's largest IT exporter by sales TCS declined 1.5%. India's third largest IT exporter by sales Wipro was flat.

Metal stocks were mixed. Hindalco Industries declined 2.96%. The stock had jumped 3.88% on Monday after net profit rose 7.78% to Rs 460.34 crore on 12.53% rise in total income to Rs 6035.22 crore in Q3 December 2010 over Q3 December 2009. The company announced Q3 result on Saturday, 12 February 2011.

Steel giant Tata Steel declined 0.45% ahead of Q3 results today, 15 February 2011.

Jindal Steel & Power, Steel Authority of India, Bhushan Steel and National Aluminum Company rose by between 0.18% to 1.95%. Hindustan Zinc, Jindal Saw, Sterlite Industries shed by between between 0.52% to 2.15%.

LMEX, a gauge of six metals traded on the London Metal Exchange rose 1.83% on Monday, 14 February 2011.

Tata Power Company rose 2.14% after consolidated net profit jumped 377.87% to Rs 442.37 crore on 0.77% decline in total income to Rs 4519.18 crore in Q3 December 2010 over Q3 December 2009. The company announced the Q3 result after market hours on Monday.

Unitech clocked highest volume of 1.83 crore shares on BSE. Idea Cellular (1.56 crore shares), Reliance Communications (87.38 lakh shares), Birla Power Solutions (74.27 lakh shares) and LIC Housing Finance (70.10 lakh shares) were the other volume toppers in that order.

State Bank of India clocked highest turnover of Rs 190.23 crore on BSE. Reliance Capital (Rs 135.55 crore), LIC Housing Finance (Rs 133.62 crore), Tata Steel (Rs 111.73 crore) and Tata Motors (Rs 99 crore) were the other turnover toppers in that order.

On the macro front, the latest economic data showed that the headline inflation eased slightly in January 2011 on some moderation in prices of manufactured products. The wholesale price index (WPI), rose 8.23% in January 2011 from a year earlier. The index had risen 8.43% in December 2010. Food prices in the WPI index jumped 15.7% in January compared with 13.6% rise in December.

The industrial output in December 2010 rose a slower-than-expected 1.6% from a year earlier. Manufacturing output, which constitutes about 80% of the industrial production, rose an annual 1%, the statistics office said in a statement. Growth in industrial output in November 2010 was revised upwards to 3.62% from earlier 2.7%

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 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.