Market slides for the second straight day on political worries

Firm European equities and higher US index futures helped Indian stocks trim intraday losses triggered by political worries. Volatility was high during the last one hour or so of trade as traders rolled positions in the futures & options (F&O) segment ahead of the expiry of the near-month April 2011 contracts on Thursday, 28 April 2011. The BSE 30-share Sensex was down 38.96 points or 0.2%, up close to 240 points from the day's low and off close to 80 points from the day's high. The market breadth was negative. Indian stocks fell for the second straight day today, 26 April 2011.



Index heavyweight Reliance Industries (RIL) declined for the second straight day after reporting lower-than-expected numbers for Q4 March 2011. Some bank stocks recovered. UltraTech Cement and ACC rose after both the cement majors predicted strong outlook for cement demand. FMCG and capital goods stocks declined. Telecom stocks rose, shrugging off the latest CBI action on telecom scam. IT stocks fell. Realty stocks also declined on worries higher interest rates could dent demand for residential and commercial properties.

Political worries pulled the market at the onset of the trading session after the Central Bureau of Investigation (CBI) on Monday, 25 April 2011, charged Kanimozhi Karunanithi, a Rajya Sabha member and daughter of M. Karunanidhi, who leads the Dravida Munnetra Kazhagam (DMK) political party, in connection with an allegedly rigged sale of telecom licenses and bandwidth in 2008. The market extended initial losses to hit fresh intraday low in morning trade.

The market trimmed losses in mid-morning trade. The key benchmark indices were near their day's lows in early afternoon trade. The market recovered soon after hitting fresh intraday low in early afternoon trade. The intraday recovery gathered steam in mid-afternoon trade as European shares rose. The market slipped into the red once again after turning positive for a brief period in late trade.

The BSE 30-share Sensex was down 38.96 points or 0.2% to 19,545.35. The index lost 277.39 points at the day's low of 19,306.92 in afternoon trade, its lowest level since 20 April 2011. The index gained 41.82 points at the day's high of 19,626.13 in late trade.

The S&P CNX Nifty was down 6.10 points or 0.1% to 5,868.40. The Nifty hit a low of 5,791.55 in intraday trade, its lowest level since 20 April 2011

BSE clocked turnover of Rs 3096 crore, higher than Rs 2736.77 crore on Monday, 25 April 2011.

The BSE Mid-Cap index fell 0.03%. The BSE Small-Cap index also shed 0.03%. Both these indices outperformed the Sensex.

The market breadth, indicating the health of the market, was negative. On BSE, 1582 shares declined while 1276 shares advanced. A total of 118 shares remained unchanged.

Among the 30-member Sensex pack, 20 declined while the rest advanced.

Index heavyweight Reliance Industries (RIL) lost 0.83%, extending Monday's 2.97% losses triggered by disappointing Q4 March 2011 results. RIL reported a 14.14% rise in net profit to Rs 5376 crore on 26.47% rise in total income to Rs 73591 crore in Q4 March 2011 over Q4 March 2010. Net profit of RIL was below expectations due to gross refining margin (GRMs) being at $9.2 per barrel, lower than expected, for Q4 March 2011 due to impact of FCCU (fluidized catalytic cracking unit) shutdown for 46 days. The Q4 result was announced after market hours on Thursday, 21 April 2011

Meanwhile, RIL on Monday 25 April 2011, said it is drawing up a plan to raise gas production from its D6 deepwater block in the Krishna Godavari basin in the Bay of Bengal, off India's east coast. RIL said the reservoirs in the block are more complicated than previously expected and continuous and significant efforts are underway for understanding these reservoirs. RIL said it is trying to "identify well locations for incremental production and sustenance."

Gas output from the block touched a peak of 60 million metric standard cubic meters a day last year. Production has now fallen to 50 MMSCMD as against a target of 69.8 MMSCMD, S.K. Srivastava, head of India's upstream regulator, said last week. He also said that Reliance hasn't given any "satisfactory response" on the matter.

Integrated development plan for all other discoveries in KG-D6 is being conceptualized to augment production in the most capital efficient manner, RIL said on 25 April 2011. The company said it is studying various options such as "recompletion of wells and compression" to increase gas production.

India's largest IT exporter by sales TCS fell 0.78% on concerns about profit margins. At the time of announcing Q4 March 2011 results last week, TCS management said wage hikes and currency volatility are the main threats to profit margins. TCS plans to increase wages by 12% to 14% for India-based staff. The company plans to raise wages by 2% to 4% in major overseas markets and 2% to 14% in emerging markets. TCS said the demand environment continues to be vibrant.

India's second largest software services exporter and index heavyweight Infosys declined 0.13%, with the stock snapping last three days' gains. The stock had been under selling pressure recently after company's disappointing earnings growth forecast for the year ending March 2012 (FY 2012). India's third largest software services exporter Wipro fell 0.58%.

Realty stocks fell on worries higher interest rates could dent demand for residential and commercial properties. Purchases of both residential and commercial property are largely driven by finance. HDIL, Orbit Corporation, Ackruti City, Indiabulls Real Estate and DLF declined by between 0.43% to 3.08%.

Telecom stocks edged higher even as the CBI charged five more people in connection with an allegedly rigged sale of telecom licenses and bandwidth in 2008. Bharti Airtel and Reliance Communications rose 1.65% and 1.29%, respectively.

Capital goods stocks fell on profit taking. Thermax, BEML, Bhel and Larsen & Toubro declined by between 0.35% to 1.77%.

Some FMCG stocks also fell on profit taking. Hindustan Unilever, Marico, United Spirits, Dabur India and Nestle India shed by between 0.5% to 2.5%.

Bank stocks recovered. India's largest state run bank by net profit and branch network State Bank of India (SBI) rose 0.51% to Rs 2934.30, off the day's low of Rs 2888. The stock surged over the past two days on expectations of higher interest margins after the bank withdrew a special home loan scheme that offered borrowers a lower fixed rate for the initial tenure of the mortgage. SBI on 20 April 2011 announced withdrawal of special home loan schemes, or teaser rates, with effect from 1 May 2011 amid concerns expressed by the Reserve Bank of India. SBI Easy Home Loan and SBI Advantage Home Loan (teaser rate products) will be replaced by floating interest rate schemes on par with other commercial banks.

Under the teaser home loan scheme, SBI was offering lower rate of interest of 8-8.5% for the first three years. But, the scheme invited severe criticism from RBI, which had said the scheme could impact the asset quality of SBI's home loan portfolio. The withdrawal of teaser rates comes within a month of the new chairman Pratip Chaudhuri taking charge at SBI.

SBI on Tuesday 19 April 2011 said that it is raising benchmark prime lending rate and base rate by 25 basis points (bps) each to 13.25% per annum and 8.5% per annum respectively, effective from 25 April 2011.

Among other PSU stocks, Punjab National Bank, Bank of Baroda and Bank of India rose by between 0.43% to 0.65%.

India's largest private sector bank by net profit ICICI Bank rose 0.71% to Rs 1121.05, off the day's low of Rs 1098.30. The bank will announce Q4 result on 28 April 2011.

India's second largest private sector bank by net profit HDFC Bank fell 1.24%, with the stock falling for the second straight day. The stock had rallied recently on the back strong Q4 results and on announcement of 5-for-1 stock split. Net profit rose 33.23% to Rs 1114.71 crore on 34.38% rise in total income to Rs 6724.31 crore in Q4 March 2010 over Q4 March 2010. The board of directors of the bank also approved a 5-for-1 stock-split while approving the results. The result and stock-split announcements were made on Monday, 18 April 2011.

Axis Bank's fell 1.59% extending Monday's 4.99% losses triggered by a sequential decline in interest margin. Axis Bank's net interest margin slipped to 3.44% in Q4 March 2011 from 3.81% in Q3 December 2010 due to sharp spike in the cost of funds. Net profit rose 33.37% to Rs 1020.11 crore on 48.31% rise in total income to Rs 5817.06 crore in Q4 March 2011 over Q4 March 2010. The Q4 result was announced on Friday, 22 April 2011.

ACC rose 1.06% after the cement major said it is well placed to benefit from an expected strong growth in cement demand. ACC said capacity has risen at the company's units in Wadi and Chanda. Consolidated net profit fell 10.87% to Rs 350.17 crore on 14.10% increase in sales turnover to Rs 2556.21 crore in Q1 March 2011 over Q1 March 2010. The result was announced during trading hours today, 26 April 2011.

UltraTech Cement rose 2.43% after the company said profit before interest and tax rose 5.36% to Rs 904 crore on 6.75% growth in net sales to Rs 4490 crore in Q4 March 2011 over Q4 March 2010. The results for Q4 March 2010 have been recasted to include Samruddhi Cement's performance for like-to-like comparison. The result was announced during trading hours today, 26 April 2011.

The company said cement industry is likely to grow more than 8.5% on the back of government initiatives in rural development, infrastructure and housing. It added that the pricing environment may remain challenging and with the impact of surplus capacity, margins may continue to remain under pressure.

UltraTech Cement said the company has a capital outlay of around Rs 11000 crore to be spent over the next three years. This includes setting up of additional clinkerisation plants at Chhattisgarh and Karnataka together with grinding units, bulk packaging terminals and ready mix concrete plants across the country. Orders have been placed for major equipment for setting up the projects. These expansions are expected to be operational from early FY 2014 (year ending March 2014) and will enhance the company's cement capacity by 9.2 million tonnes per annum.

Reliance Infrastructure fell 1.55%. The company said after market hours on Monday that it bought back 1 lakh shares on Monday under the buyback program. It added it so far bought back 8 lakh shares under the buyback program. The company has announced buyback of shares for an aggregate amount of upto Rs 1000 crore.

Copper maker Sterlite Industries fell 1.56% on profit taking. The stock had jumped 4.4% on Monday after company announced during market hours on Monday that consolidated net profit jumped 35.05% to Rs 1925 crore on 38.54% rise in total income to Rs 10781.51 crore in Q4 March 2011 over Q4 March 2010.

Among other metal shares, Sail, Hindustan Zinc and Nalco shed by between 0.16% to 1.59%.

Tata Steel fell 0.19%. The company will reportedly continue to hold its stake in Australian mining entity Riversdale, which was acquired by Anglo-Australian miner Rio Tinto earlier this month. Tata Steel, through its wholly-owned subsidiary TS Global Minerals Holdings, holds 27.14% stake in Riversdale.

Sesa Goa fell 1.1% on profit taking after decent Q4 results. Consolidated net profit rose 20.52% to Rs 1461.76 crore on 52.15% rise in total income to Rs 3792.63 crore in Q4 March 2011 over Q4 March 2010. The company announced Q4 result after market hours on Monday, 25 April 2011.

Jindal Steel & Power (JSPL) rose 1.1% after declining 0.76% on Monday. Consolidated net profit rose 3.97% to Rs 1001.70 crore on 22.12% rise in total income to Rs 3915.15 crore in Q4 March 2011 over Q4 March 2010. The Q4 result was announced after market hours on Thursday, 21 April 2011. JSPL said its power generation unit Jindal Power reported net profit of Rs 495.54 crore on turnover of Rs 827.99 crore in Q4 March 2011. Jindal Power achieved plant load factor of 100.84% in Q4 March 2011.

Auto stocks were mixed. India's largest bike maker by sales Hero Honda Motors fell 0.21%.

India's largest car maker by sales Maruti Suzuki India declined 1.91% after company said adverse currency movement (particularly on exports), higher commodity prices and new model launches impacted the company's profits in the year ended March 2011. Net profit fell 8.4% to Rs 2288.60 crore on 24.60% increase in total income, net of excise, to Rs 37522.40 crore in the year ended March 2011 (FY 2011) over the year ended March 2010. The company announced the FY 2011 results during trading hours on Monday, 25 April 2011.

Maruti Suzuki will make efforts to protect and increase margins going forward, Maruti's Chief Executive Shinzo Nakanishi said on Monday at the time of announcing Q4 results.

India's largest truck maker by sales Tata Motors gained 1.5%, reversing initial losses. The company recently said its global vehicle sales rose 9% to 1.10 lakh units in March 2011 over March 2010. Global sales of commercial vehicles grew 19% to 56,814 in March, while sales of passenger vehicles were at 53,971 units, the company said in a statement. Jaguar and Land Rover (JLR) sales rose 2% to 24,101 units, driven by an 8% rise in Land Rover sales. Tata Motors bought the British luxury brand unit JLR from Ford Motor Co for $2.3 billion in 2008.

India's second largest bike maker by sales Bajaj Auto rose 0.58%, reversing initial losses. The company announces Q4 result on 18 May 2011.

M&M declined 1.48%. The company announced after market hours today that it launched its sedan "Verito,' erstwhile Logan with Mahindra badge.

Birla Power Solutions clocked highest volume of 2.12 crore shares on BSE. Birla Cotsyn (2.06 crore shares), HFCL (1.3 crore shares), Tata Tele Services Maharashtra (1.19 crore shares) and Teledata Technology Services (76.77 lakh shares) were the other volume toppers in that order.

Alstom Projects clocked highest turnover of Rs 193.90 crore on BSE. State Bank of India (Rs 95.81 crore), Infosys (Rs 91.99 crore), Uflex (Rs 76.01 crore) and Reliance Industries (Rs 70.75 crore) were the other turnover toppers in that order.

Volatility may remain high on the bourses in the near term as traders rollover positions in the futures & options (F&O) segment ahead of the expiry of the near-month April 2011 contracts on Thursday, 28 April 2011.

The near term major trigger for the market is Q4 March 2011 results of India Inc. Investors will scrutinize post-result management commentary to gauge outlook on earnings at a time when rising salaries, raw materials prices and interest rates are pressurizing profit margins of India Inc. High global commodity prices will add to pressure on profit margins of Indian firms.

The combined net profit of a total of 192 companies rose 23% to Rs 22235 crore on 28.5% rise in sales to Rs 187398 crore in Q4 March 2011 over Q4 March 2010.

The Central Bureau of Investigation (CBI) on Monday, 25 April 2011, charged five more people in connection with an allegedly rigged sale of telecom licenses and bandwidth in 2008. The five named by the CBI include Kanimozhi Karunanithi, a Rajya Sabha member and daughter of M. Karunanidhi, who leads the Dravida Munnetra Kazhagam (DMK) political party. The DMK supports the Congress-led United Progressive Alliance (UPA) government at the centre with 18 seats in the 543-member lower house of parliament, giving the coalition a narrow majority. The Congress has 207 seats.

The CBI has also named Kalaignar TV Managing Director Sharad Kumar. Kalaignar TV is jointly owned by Mr. Kumar and Mr. Karunanidhi's relatives. Also charged were Karim Morani of Cineyug Films and Rajiv Aggarwal and Asif Balwa, directors at Kusegaon Fruits and Vegetables and partners of Dynamix Realty, a unit of DB Group.

In addition to filing charges against these five people, the CBI filed a new set of charges against former telecom minister Mr. A Raja, Swan Telecom Director Vinod Goenka and Swan's co-founder, Shahid Balwa. Swan is now called Etisalat DB Telecom, in which the U.A.E.'s Emirates Telecommunications Corp. bought a stake in 2008. DB Realty, a real estate firm, is Etisalat's partner in Etisalat DB.

While the CBI has charged Mr. Raja, Kanimozhi and Mr. Kumar with accepting bribes, the DB Group executives have been accused of giving bribes.

Surging food prices could push millions of people in Asia into extreme poverty and threaten the durability of the region's world-leading economic recovery, the Asian Development Bank said on Tuesday. Domestic food price inflation in developing Asia averaged about 10% in the first two months of 2011, while international prices were up more than 30% in annual terms, the Manila-based ADB said in a report. The ADB said if a 30% increase in global food prices persisted in 2011, growth in some food-importing countries could be cut by up to 0.6 percentage points.

It also said if the level of oil and food price increases seen early this year continues, growth in developing Asia in 2011 "could be reduced by up to 1.5 percentage points." "Food prices have become highly volatile, and the Asian food system's vulnerability to price shocks and natural calamities has increased significantly," the report said. While countries had taken short-term measures such as cuts in import duties or sales taxes, subsidies and aid programs, the ADB said the frequency of food price shocks highlighted the need for long-term solutions such as more investment and higher agricultural productivity to secure food supplies.

A good news on the macro front is that the India Meteorological Department (IMD) has predicted the southwest monsoon 2011 to be 98% (normal) of the long period average (LPA) with a model error of plus/minus 5%. IMD has indicated that there is very low probability for the season rainfall to be deficient (below 90% of LPA) or excess (above 110% of LPA). The IMD released its initial forecast for the June to September monsoon on Tuesday 19 April 2011. The forecast is made in two stages in April and in June. The forecast for the season as a whole (June-September) is issued in the first stage.

Normal monsoon this year could help ease food inflation and boost rural income. The quantity and geographical spread of rainfall during the monsoon season is crucial for India's agriculture sector as the country lacks irrigation facilities on more than half of its farm land. The South Asia Climate Outlook Forum predicted that South Asia is likely to receive normal monsoon rains in 2011. It said the La Nina weather phenomenon, which aids monsoon in the region, would continue until June.

Nine of 14 economists polled by Capital Market expect 25 basis points (bsp) hike in key short-term interest rates and 5 expect 50 basis points hike in short-term rates on 3 May 2011 when the Reserve Bank of India (RBI) undertakes its annual 2011-2012 monetary policy review. A cumulative hike of 75-100 bsp in short-term rates is expected during the financial year ending March 2012 (FY 2012). Economists expect inflation based on the wholesale price index (WPI) to slide to a median 7.8% in FY 2012 from 9.4% in the year ended March 2011 (FY 2011). The poll shows that economists expect inflation to remain high in the first half of the year and slide in the second half of the year.

A sharp surge in global crude oil prices over the past few months has raised macroeconomic worries. India imports majority of its crude oil requirements and high oil prices had raised concerns about widening current account deficit. High oil prices had also raised concerns about higher oil subsidy bill for the government and its negative impact on the government's fiscal position. US crude futures were down 38 cents or 0.34% at 111.90 a barrel.

European stocks rose, with shares of UBS rallying after it reported results, and Aegon NV gaining on deal news. The key benchmark indices in France, Germany and UK were up by between 0.33% to 0.42%.

Asian stock markets inched lower on profit taking on Tuesday before this week's Federal Reserve meeting where investors will look for indicators on its plans to exit the ultra-easy monetary policy. The key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan fell by between 0.03% to 1.17%.

US index futures reversed initial losses. Trading of US index futures indicated that the Dow could gain 21 points at the opening bell on Tuesday, 26 April 2011.

In the lightest volume session of the year, US stocks fell on Monday after a lowered outlook from Kimberly-Clark increased concerns about higher commodity costs squeezing profits in coming quarters.

Investors will parse the US Federal Reserve's policy statement and every word Fed Chairman Ben Bernanke says in a news conference that follows a two-day meeting of the Fed on interest rates on Tuesday-Wednesday (26-27 April 2011). Global markets will react favorably to some indication that the Fed feels inflation is under control, and recent spikes are only temporary. Any signs of worry about rising prices will telegraph a faster end to the ultra-low rate policy.

Another reason why the Fed policy is in focus is because the US central bank's Treasury-buying program -- its second round of quantitative easing, or QE2, is scheduled to end in June 2011.