Nifty falls below 5,500 mark in choppy trade; breadth weak

The key benchmark indices slumped to hit fresh intraday lows in late trade on political worries after reports the Central Bureau of Investigation (CBI) has raided offices of Kalaignar TV -- a TV channel owned by the family of DMK as a part of 2G scam probe. The market breadth, indicating the health of the market, was weak in contrast with a strong breadth earlier in the day. Index heavyweight Reliance Industries (RIL) dropped.



The BSE 30-share Sensex was provisionally down 267.85 points or 1.45%, off close to 450 points from the day's high and up close to 80 points from the day's low. The 50-unit S&P CNX Nifty fell below 5,500 mark. Auto, consumer durables, realty and capital goods stocks declined. Banking stocks reversed initial gains. The BSE Mid-Cap and Small-Cap indices underperformed the Sensex. Essar group shares dropped after the CBI on Thursday questioned Essar Group CEO Prashant Ruia in 2G scam probe. Reliance Anil Dhirubhai Ambani (ADA) group shares also tumbled.

Intraday volatility was high. The market surged to three-week highs in early trade, tracking firm Asian stocks. The market extended gains in morning trade. The market reversed direction in mid-morning trade on reports the Central Bureau of Investigation (CBI) has raided offices of Kalaignar TV. The market edged lower once again after moving between positive and negative terrain in early afternoon trade. The market hit a fresh intraday low later. A strong intraday rebound pushed the Sensex into the green for a short while. The market soon weakened again. The market hit a fresh intraday low in late trade.

The Central Bureau of Investigation (CBI) reportedly raided the offices of Kalaignar TV on Thursday night as part of the investigation in the 2G spectrum scam. The allegations are that one of the beneficiaries of the 2G spectrum scam, Swan Telecom, a company of DB group, had transferred about Rs 200 crore to Kalaignar TV through another company Cineyug Films. The money, it is being alleged, is part of the kickbacks received by former telecom minister A Raja for favoring the Mumbai-Based realty company in the grant of 2G spectrum. Kalaignar TV has said that it has no links with the case.

A deepening probe into the DMK could tense links with Congress. The Congress party depends on the DMK to help ensure a parliamentary majority.

The Central Bureau of Investigation (CBI) on Thursday questioned Essar Group CEO Prashant Ruia in connection with the company's alleged role in conniving with Loop Telecom to get 2G licences in 21 circles in January 2008. Intensifying its investigation into the 2G spectrum allocation scam, ahead of the 1 March 2011 deadline set by the Supreme Court, the CBI questioned Ruia about Essar's alleged connection with Loop Telecom. In a press statement, the Essar Group said, "Essar is in full compliance with DoT license norms and all other applicable laws. As and when any information is sought, Essar will provide the same to the authorities."

Ruia's questioning comes a day after Anil Dhirubhai Ambani Group (ADAG) chairman Anil Ambani's was quizzed by the CBI officials in the national capital. The investigating agency has thus far questioned top officials of telecom and real estate firms including Unitech, DB Realty, Tata Realty and Infrastructure, S-Tel and Loop Telecom as part of its investigation into the 2G allocation.

The next major trigger for the stock market is Union Budget 2011-2012 to be unveiled by finance minister Pranab Mukherjee on 28 February 2011. Investors will watch if the Finance Minister announces measures to rein in inflation and inflationary expectations.

Pawan Kumar Bansal, the minister of parliamentary affairs said on Friday said the government will introduce a legislation on goods and service tax (GST) in the parliament session beginning 21 February 2011. Finance Minister Pranab Mukherjee had said that the government intends to implement goods and service tax from April 2012. 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.

The government will also introduce new Mines Bill in the session, Bansal said today. Separately, Trade and Industry Minister Anand Sharma said in an interview to a news agency that talks to open up the country's multi-brand retail sector to foreign investors were at an advanced stage, but he did not give a deadline.

On the corporate earnings front, 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.

As per provisional figures, foreign funds bought shares worth Rs 37.99 crore and domestic funds bought shares worth Rs 244.40 crore on Thursday, 17 February 2011.

Malaysia and India signed a free trade agreement on Friday to help strengthen economic ties and double bilateral trade to $15 billion by 2015. The pact, which follows India's signing of a similar agreement with Japan two days earlier, covers trade in goods and services, investment and economic cooperation.

European stock markets reversed initial gains on Friday as losses for miners and car makers weighed on the main indexes, though Lafarge SA rallied after returning to profit. The key benchmark indices in Germany, France and UK fell by between 0.16% to 0.41%.

Asian markets rose on Friday extending solid gains this week, with higher US stocks overnight boosting sentiment. The key benchmark indices in Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan rose by between 0.06% to 1.95%. China's Shanghai Composite fell 0.92%.

South Korean shares shrugged off reports that North Korea could launch more military attacks against South Korea. "Seeing the situations in North Korea, there is a chance of its military provocation again," Yonhap news agency quoted Seoul's prime minister Kim Hwang-sik as saying at an annual defense meeting.

US index futures reversed initial gains. Trading in US index futures indicated that the Dow could fall 8 points at the opening bell on Friday, 18 February 2011.

US stocks finished higher Thursday after a strong manufacturing report overshadowed a bigger than expected rise in the number of people applying for unemployment benefits. Data showed US core consumer prices rose at the quickest pace in 15 months in January. A separate report showed factory activity in the US Mid-Atlantic region rose in February to its highest since January 2004, with an employment sub-index reaching its highest point since April 1973.

G20 finance ministers and central bank governors gather for their first meeting of 2011 on Friday and Saturday.

As per provisional figures, the BSE 30-share Sensex was down 267.85 points or 1.45% to 18,238.97. The index rose 184.15 points at the day's high of 18,690.97 in morning trade, its highest level since 28 January 2011. The Sensex fell 347 points at the day's low of 18,159.82 in late trade.

The S&P CNX Nifty was down 79.35 points or 1.43% to 5,467.10 as per provisional figures. The Nifty hit high of 5,599.25 in early trade, its highest level since 28 January 2011.

The BSE Mid-Cap index fell 1.96% and the BSE Small-Cap index fell 2.32%. Both these indices underperformed the Sensex.

The market breadth, indicating the health of the market was weak, in contrsat with a strong breadth earlier in the day. On BSE, 2,156 shares declined while 724 shares advanced. A total of 75 shares remained unchanged.

Among the 30-member Sensex pack, 24 declined while the rest rose.

BSE clocked turnover of Rs 3710 crore higher than Rs 3314.22 core on Thursday, 17 February 2011.

Index heavyweight Reliance Industries (RIL) fell 1.22% to Rs 941.90, off the day's high of Rs 963. As per recent reports company is planning major investments, totalling up to $ 30 billion over next five years in its various businesses, including energy and telecom sectors. The investments would be mainly targetted at petrochemicals, exploration and production and telecom businesses of the corporate conglomerate. The company expects its five main businesses in the next 5-10 years to be petrochemicals, refining, oil exploration and production (E&P), retail and telecom.

Consumer durables stocks fell. Rajesh Exports, Titan Industries, Gitanjali Gems and Videocon Industries fell by between 2.02% to 3.66%.

Auto stocks fell on worries government may rollback fiscal stimulus by hiking excise duty in the Union budget 2011-12. The government had increased excise duty by 2% in the last budget. Mahindra and Mahindra (M&M) fell 2.58%. 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.

India's second biggest two-wheeler maker by sales, Bajaj Auto declined 1.54%. India's top bike maker by sales Hero Honda Motors shed 2.5%. India's largest car maker by sales Maruti Suzuki India was flat.

Tata Motors declined 3.96%. The stock had surged recently after company said 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%.

Realty stocks edged lower. DLF, Indiabulls Real Estate, Unitech and HDIL declined by between 1.76% to 6.8%.

India's largest engineering and construction firm by sales Larsen & Toubro fell 3%, reversing initial gains. 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.

Among other capital goods shares, Crompton Greaves, BEML, Thermax, Praj Industries, ABB and Punj Lloyd shed by between 0.15% to 5.13%.

Marketmen expect the government to continue thrust on development spending in the Union Budget 2011-2012 to be unveiled on 28 February 2011. The government may selectively raise import barriers for capital equipment, especially power equipment to facilitate domestic players. The government could also unveil policies to increase capital flows to the infrastructure sector at lower financing costs.

Interest rate sensitive banking stocks reversed initial gains. India's second largest private sector bank by market capitalisation HDFC Bank declined 0.72%. India's largest private sector bank by market capitalisation ICICI Bank shed 2.81%.

India's largest commercial bank by branch network State Bank of India fell 0.16%, snapping last five days' gains. State Bank of India 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.

Indian Overseas Bank, Allahabad Bank, IndusInd Bank, IDBI Bank, Axis Bank, Kotak Mahindra Bank and Punjab National Bank fell by between 0.13% to 4.2%.

City Union Bank surged 3.97% after the private sector bank opened a branch each in Karim Nagar, Andhra Pradesh and Perundurai, Tamil Nadu on Thursday, 17 February 2011.

It is anticipated that the government might reduce the tenure limit for tax exempt deposits from five years to three years in the Budget. Market men also expect government subsidy/concessions on interest rates to be provided on lending to State Electricity Boards (SEBs) given their weak financial health. Another expectation is that of a hike in limit of refinancing from India Infrastructure Finance Company (IIFCL) to commercial bank loans for public-private partnership (PPP) projects in critical sectors from the current Rs 6000 crore.

Essar group shares dropped after the Central Bureau of Investigation (CBI) on Thursday questioned Essar Group CEO Prashant Ruia in connection with the company's alleged role in conniving with Loop Telecom to get 2G licences in 21 circles in January 2008. Essar Shipping Ports & Logistics (down 5.47%) and Essar Oil (down 5.69%), declined.

Reliance Anil Dhirubhai Ambani (ADA) group shares fell across the board. Reliance Communications, Reliance Infrastructure, Reliance Capital, Reliance MediaWorks, Reliance Power and Reliance Broadcast Network were down by 5.07% to 8.03%.

Steel Authority of India declined 3.55% after Steel Minister Beni Prasad Verma said on Friday Steel Authority of India's planned share sale has been put off to next fiscal year, which begins in April.

In macro news, January consumer price index rose an annual 6% under a new measure rolled out on Friday to better reflect inflation.

Food inflation eased to a two-month low in early February 2011 on moderating prices of onions and other vegetables. The food price index rose 11.05% and the fuel price index climbed 11.92% in the year to 5 February 2011, government data on Thursday showed. In the previous week, annual food and fuel inflation stood at 13.07% and 11.61%. The primary articles price index was up 14.59% in the latest week, compared with an annual rise of 16.24% a week earlier.

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%.