Market hits 7-month low as telecom probe widens

The key benchmark indices fell for the second straight day, tumbling to 7-month lows in choppy trade after the Central Bureau of Investigation (CBI) widened its probe in 2G scam with the arrest of Shahid Balwa, managing director of DB Realty and vice chairman of Etisalat DB. Shares of Anil Dhirubhai Ambani group (ADAG) stocks took a heavy drubbing. ADAG said after trading hours that a series of baseless and motivated rumors were spread by rivals, which was accompanied by vicious and illegal bear hammering of the group shares. It said it had asked the Securities and Exchange Board of India and the stock exchanges to investigate.



The BSE 30-share Sensex was down 182.93 points or 1.03%, off close to 270 points from the day's high and up close to 85 points from the day's low. The market breadth was extremely weak, with a number of small-cap and mid-cap stocks extending recent steep losses. Weak Asian stocks also dampened sentiment on the domestic bourses.

From its close of 20,509.09 on 31 December 2010, the BSE Sensex has tumbled 2,916.32 points or 14.21% in 2011 so far. The BSE Mid-Cap index has slumped 19.26% and the BSE Small-Cap index has lost 20.87% in 2011.

Coming back to today's trade, all the 13 sectoral indices on BSE were in red. Hero Honda Motors, Maruti Suzuki, NTPC and Reliance Infrastructure hit 52-week lows. Reliance Communications touched record low. Index heavyweight Reliance Industries (RIL) edged slightly lower amid high volatility in late trade. Tractor & utility vehicles major Mahindra & Mahindra jumped on strong Q3 results.

The market drifted lower in early trade, tracking lower Asian stocks. The Sensex and the 50-unit S&P CNX Nifty hit 7-month lows as the market extended losses in early trade. The market staged a strong rebound from lower level later. The market swung between gains and losses in mid-morning trade. The market moved in a narrow range in early afternoon trade. The market dropped in choppy mid-afternoon trade. Immense volatility was witnessed in late trade as the key benchmark indices recovered after a steep slide.

The Central Bureau of Investigation (CBI) said on Wednesday it had arrested overnight the managing director of DB Realty and vice chairman of Etisalat DB Shahid Balwa. Etisalat DB is a joint venture between DB Group and Abu Dhabi's Etisalat. DB Group sold a 45% stake in Swan Telecom to Etisalat after the operator was granted a licence. Swan Telecom has since been renamed Etisalat DB.

The Comptroller and Auditor General of India's (CAG) report in November 2010 said rules were flouted when telecom licences were awarded, which led to many ineligible firms winning licences. Telecoms minister A Raja was sacked soon after the report was released. He was arrested this month on charges of misuse of ministerial office and criminal misconduct.

DB Realty said today, 9 February 2011, that its chief has been wrongly implicated in the case and is not involved in anything ''illegal''. The company said Balwa will strongly contest the CBI charges. DB Realty shares ended 5.8% lower on BSE at Rs 129.05.

Foreign institutional investors (FIIs) sold shares worth a net Rs 531.60 crore on Tuesday, 8 February 2011, as against an inflow of Rs 0.70 crore on Monday, 7 February 2011. FII outflow in February 2011 totaled Rs 1017 crore (till 8 February 2011). FIIs had sold equities worth Rs 4813.20 crore in January 2011. FII outflow in the calendar year 2011 totaled Rs 5830 crore (till 8 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.

The Q3 December 2010 results season is drawing towards a close. The results announced so far showed that the combined net profit of a total of 2,280 companies rose 21.3% to Rs 79336 crore on 20% rise in sales to Rs 713846 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.

European markets edged lower on Wednesday, 9 February 2011, from their 29-month high, as technical indicators signalled that the market looked overbought. The key benchmark indices in France, UK and Germany fell by between 0.08% to 0.32%.

Asian stocks declined on Wednesday, 9 February 2011, on concern about further policy tightening from China after the Chinese central bank lifted interest rates late Tuesday, 8 February 2011. The key benchmark indices in South Korea, China, Japan, Indonesia, Taiwan, Hong Kong and Singapore fell by between 0.17% to 1.36%.

China's central bank on Tuesday said it will raise its benchmark deposit and lending rates by 25 basis points, the first rate increase this year as the country seeks to fend off rising inflation. The move, effective Tuesday indicates more tightening may follow in the months ahead if consumer prices continue to rise.

Stocks on Wall Street rose for a seventh day on Tuesday, 8 February 2011, as stronger-than-expected January sales from McDonald's trumped another round of monetary tightening from China. The Dow Jones Industrial Average was up 71.52 points, or 0.6%, to 12,223.15, its highest close since 16 June 2008. The Nasdaq Composite was up 0.5% to 2797.05, its highest close since 6 November 2007. The S&P 500 index added 0.4% to 1324.57, its highest close since 19 June 2008.

Trading in US index futures indicated that the Dow could fall 21 points at the opening bell on Wednesday, 9 February 2011.

Back home, 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.

The BSE 30-share Sensex was down 182.93 points or 1.03% to 17,592.77, its lowest closing level since 7 July 2010. The index rose 88.62 points at the day's high of 17,864.32 in mid-morning trade. The Sensex lost 267.35 points at the day's low of 17,508.35 in late trade.

The S&P CNX Nifty was down 59 points or 1.11% to 5,253.55, its lowest closing level since 7 July 2010. The Nifty hit a low of 5,225.65 in late trade.

The BSE Mid-Cap index fell 3.64% and the BSE Small-Cap index declined 4.3%. Both these indices underperformed the Sensex.

All the sectoral indices on BSE were in the red. Power index (down 4.29%), Metal index (down 3.87%), Realty (down 3.81%), Consumer Durables (down 3.57%), Capital Goods index (down 2.58%), PSU index (down 2.36%), Auto index (down 1.67%), Healthcare index (down 1.56%) and FMCG (down 1.15%) underperformed the Sensex. The BSE IT index (down 0.33%), Bankex (down 0.46%), Teck index (down 0.79%) and Oil & Gas index (down 0.91%), outperformed the Sensex.

The market breadth, indicating the health of the market, was extremely weak. On BSE, 2414 shares declined while 506 shares advanced. A total of 60 shares remained unchanged.

Among the 30-member Sensex pack, 22 declined while the rest gained.

The total turnover on BSE amounted to Rs 3930 crore higher than Rs 2824.15 crore on Tuesday, 8 February 2011.

Shares belonging to the Anil Dhirubhai Ambani group crashed. India's largest private sector power utility firm Reliance Infrastructure tumbled 18.79% to Rs 534.70 and was the top loser from the Sensex pack. The stock hit a 52-week low of Rs 492.85 today.

India's second largest listed cellular services provider by sales Reliance Communications lost 14.32% to Rs 94.85 after sliding to a record low of Rs 90.80 today. A Jaipur-based auditor that had examined the books of Reliance Communications (RCom) as part of a government-ordered investigation has reportedly approached the telecom ministry for the second time in six months complaining against the Anil-Ambani promoted company. The auditor Parakh & Co in its latest complaint has sought 'urgent intervention' from the telecom department to 'restrain RCom from adopting coercive tactics against it, and also withdraw proceedings against the firm at various forums'. RCom accused the audit firm of "sensationalising" the matter and of trying to derail the police probe.

Among other ADAG stocks, Reliance Power was down 8.93%, Reliance Capital tumbled 14.05% and Reliance MediaWorks tanked 16.11%.

Shares of Anil Dhirubhai Ambani group (ADAG) stocks took a heavy drubbing. ADAG said after trading hours that a series of baseless and motivated rumors were spread by rivals, which was accompanied by vicious and illegal bear hammering of the group shares. It said it had asked the Securities and Exchange Board of India and the stock exchanges to investigate.

Index heavyweight Reliance Industries (RIL) fell 0.4% to Rs 911.85 off the day's high of Rs 938.45. 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 tractor and utility vehicles maker by sales Mahindra & Mahindra (M&M) jumped 4.06% to Rs 654.20 and was the top gainer from the Sensex pack after consolidated net profit, excluding exceptional items jumped 57.4% to Rs 757.80 crore on 20.9% growth in gross revenue and other income at Rs 9865.40 crore in Q3 December 2010 over Q3 December 2009.

M&M said while the demand for the company's products remains strong, the recent hardening in the prices of commodities and oil causes a degree of concern. M&M said it will continue to be ever vigilant in its efforts to relentlessly fight cost pressures. On the whole the company remains positive in its future outlook, it said.

Other auto shares were subdued on fears spiraling input costs may weigh profitability. India's second largest bike maker by sales Bajaj Auto lost 2.58%. India's top truck maker by sales Tata Motors shed 3.21%.

Car maker Maruti Suzuki India declined 1.74% to Rs 1158.05. The stock hit a 52-week low of Rs 1151.10 today. India's top bike maker by sales Hero Honda Motors shed 24.86% after declining to a 52-week low of Rs 1412.20.

India's largest thermal power generator by sales NTPC fell 1.97% to Rs 171.25. The stock hit 52 week low of Rs 170.10 today.

Metal stocks fell on a view that if China tries to slow down growth, that will reduce demand for resources. China is the world's largest consumer of copper and aluminum. Sterlite Industries (down 2.94%), National Aluminum Company (down 3.2%) and Hindalco Industries (down 6.17%), declined.

Steel stocks fell for the second straight day after the world's largest steel maker ArcelorMittal reported a loss in Q4 December 201. Bhushan Steel, Jindal Steel & Power and Steel Authority of India shed by between 2.3% to 4.96%.

India's largest private sector steel maker by sales Tata Steel lost 3.39% to Rs 598.55, sliding below the follow-on public offer price of Rs 610.

ArcelorMittal on Tuesday, 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.

India's largest bank by net profit and branch network State Bank of India was down 1.81%. Reportedly, the bank may not launch its planned rights equity issue to raise Rs 20,000 crore in this fiscal year as it has not been able to get approval from the government, which is a majority shareholder in the bank.

Private sector banking pivotals advanced on bargain hunting. India's largest private sector bank by net profit ICICI Bank rose 0.69% and India's second largest private sector bank by net profit HDFC Bank rose 0.89%. Kotak Mahindra Bank surged 5.16%.

India's largest mortgage financier by total income HDFC jumped 3.16% on reports the company is its planning to sell its investments in unlisted companies to private equity firms.

High beta infrastructure stocks dropped for the second day on concerns of slowdown in project execution and higher borrowing costs. Jaiprakash Associates (down 10.68%), Bhel (down 4.26%), and Larsen & Toubro (down 1.25%), declined.

Telecom firms edged lower on reports the telecom regulator has recommended a new price for 2G spectrum, which will cost seven companies in excess of Rs 16,000 crore. Idea Cellular (down 3.07%), MTNL (down 7.45%) and Bharti Airtel (down 0.27%) dropped.

According to reports, Telecom Regulatory Authority of India (TRAI) late on Tuesday, 8 February 2011, sent its final recommendation on the pricing of 2G spectrum. TRAI had gone by a recommendation of a four member expert committee that gave its report to the regulator on 30 January 2011. The expert committee report suggested that all spectrum with existing telecom companies, which is more than the 6.2 megahertz (Mhz) that is being provided under the license be repriced.

As a result, Bharti Airtel is now facing a liability of Rs 4,000 crore, Idea Cellular Rs 1,316 crore, MTNL Rs 883 crore and Reliance Communications Rs 70 crore.

Cement stocks fell. ACC, UltraTech Cement and Ambuja Cements shed by between 0.34% to 5.36%.

Interest rate sensitive realty stocks extended recent steep losses on concerns higher interest and higher property prices may dent demand for residential units. Ackruti City, Indiabulls Real Estate and HDIL fell by between 5.92% to 7.49%. Unitech tumbled 8.36% extending Tuesday's 7.09% losses. The stock hit 52 week low of Rs 36.90 today.

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.

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 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 (RBI) this year. The central bank holds a mid-quarter policy review on 17 March 2011. Prime Minister Manmohan Singh on 4 February 2011 said the country's high inflation posed a "serious threat" to the growth momentum, and was driven by supply-side shortages.

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.