Sensex at one-week trough on caution ahead of RBI's policy review

Comments from Finance Minister Pranab Mukherjee that inflation is expected to remain high between August-December 2011 pulled the market lower in what was a choppy trading session. The barometer index BSE Sensex reached its lowest closing level in more than a week. The Sensex was down 151.49 points or 0.81%, off close to 260 points from the day's high and up close to 30 points from the day's low. The market breadth was negative. Mukherjee's comments that India's exports growth may not be sustained on lingering concerns over the euro zone debt woes, also weighed on the sentiment.

Wipro slumped more than 4% on a muted bottom line growth in Q1 June 2011. Other IT stocks too fell. Dr Reddy's Laboratories (DRL) dropped as its Q1 result fell short of market expectations. Many other pharma stocks fell after disappointing Q1 results from DRL. FMCG stocks rose on defensive buying, with cigarette major ITC hitting a record high. Auto stocks fell on concerns higher interest rates could crimp sales of automobiles. Bank shares dropped amid worries high interest rates could hurt loan growth. Capital goods stocks also declined.

Indian stocks fell despite firm global shares. World stocks rose on upbeat earnings reports from US tech firms, on latest data showing a sharp rise in US housing starts and on signs of progress on talks to lift the US debt ceiling.

The market trimmed gains after a firm start triggered by higher Asian shares. The market further pared gains to hit fresh intraday low in morning trade. The market slipped into the red to hit fresh intraday low in mid-morning trade. The market regained positive terrain in early afternoon trade. Volatility ruled the roost as the key benchmark indices recovered from lower level after hitting fresh intraday lows in afternoon trade. The market hit a fresh intraday low in mid-afternoon trade. Weakness continued in late trade.

The BSE Sensex was down 151.49 points or 0.81% to 18,502.38, its lowest closing level since 12 July 2011. The index fell 179.97 points at the day's low of 18,473.90 in mid-afternoon trade. The Sensex jumped 111.73 points at the day's high of 18,765.60 in early trade, its highest level since 15 July 2011.

The S&P CNX Nifty was down 46.50 points or 0.83% to 5,567.05, its lowest closing level since 18 July 2011. The Nifty hit a low of 5,555.10 in intraday trade. The Nifty hit a high of 5,645.40 in intraday trade, its highest level since 14 July 2011.

The BSE Mid-Cap index fell 0.88% and underperformed the Sensex. The BSE Small-Cap index shed 0.36% and outperformed the Sensex.

BSE clocked turnover of Rs 3149 crore, higher than Rs 2863.12 crore on Tuesday, 19 July 2011.

The market breadth, indicating the overall health of the market, was negative. On BSE, 1,710 shares declined and 1,197 shares advanced. A total of 119 shares remained unchanged. The breadth was strong in early trade.

Among the 30-member Sensex pack, 26 stocks fell while the rest of them rose.

Index heavyweight Reliance Industries (RIL) fell 0.44% Rs 875.30. The stock hit high of Rs 886.90 and low of Rs 869.05 so far during the day. The company unveils Q1 June 2011 results on 25 July 2011.

Larsen & Toubro fell 0.68%. The company announced during market hours today that its power transmission and distribution independent company has bagged a Rs 1210-crore order for supply and construction of thirteen extra high voltage substations in Qatar. The initial public offer (IPO) of L&T Finance Holdings, a unit of L&T, opens for biding on 27 July 2011. The IPO closes on 29 July 2011. The share sale to raise up to Rs 1245 crore is an important part of L&T's plan to spin off some of its non-core businesses into self-sustaining units with independent access to capital markets.

Among other capital goods stocks, ABB, BEML, Bhel, Punj Lloyd and Suzlon Energy shed by between 0.68% to 2.69%.

Crompton Greaves plunged 14.78% to Rs 176.95, extending Tuesday's 14.23% fall triggered by the company's poor Q1 June 2011 results declared during the trading hours on that day. The stock hit 52 week low of Rs 171.10 today. Crompton Greaves' consolidated net profit plunged 58.4% to Rs 79.47 crore on 5.9% rise in net sales to Rs 2437.74 crore in Q1 June 2011 over Q1 June 2010. Net profit slumped due to 34.54% increase in cost of consumption of raw materials to Rs 1610.37 crore and 46.40% surge in depreciation to Rs 60.77 crore in Q1 June 2011 over Q1 June 2010.

Sudhir Trehan who retired from the company recently as managing director and is now a non-executive vice-chairman, sold his entire holding of 1.8 lakh shares of Crompton Greaves in three tranches between 29 June 2011 to 1 July 2011.

FMCG stocks rose on defensive buying. Cigarette maker ITC rose 0.93% to Rs 205.75. The stock hit record high of Rs 207.35 today. Hindustan Unilever gained 0.03%.

Petronet LNG rose 3.27% after the company announced during market hours that net profit surged 111.37% to Rs 256.70 crore on 83.15% growth in total income to Rs 4649.55 crore in Q1 June 2011 over Q1 June 2010.

Dr Reddy's Laboratories (DRL) fell 2.05% as consolidated net profit as per International Financial Standards rose a lower-than-expected 25% to Rs 262.70 crore in Q1 June 2011 over Q1 June 2010. Revenue rose 18% to Rs 1978.30 crore in Q1 June 2011 over Q1 June 2010. Both revenue and bottom line growth lagged market expectations. Dr Reddys Laboratories' consolidated net profit as per International Financial Reporting Standards (IFRS) was expected to surge 31.97% to Rs 276.56 crore on 18.3% growth in revenue at Rs 1990.67 crore in Q1 June 2011 over Q1 June 2010 according average estimate of seven brokerages.

Many other pharma stocks fell after disappointing Q1 results from DRL. Aurobindo Pharma, Lupin, Biocon, Ranbaxy Laboratories, Bilcare, Sun Pharmaceuticals Industries, Dishman Pharmaceuticals, Sun Pharma Advanced Research Company, Cipla, Sterling Biotech, Divi's Labs, Glenmark Pharmaceuticals, Wockhardt, Orchid Chemicals & Pharmaceuticals, and Piramal Healthcare fell by between 0.6% to 3.96%.

Auto stocks fell on concerns higher interest rates could crimp sales of automobiles. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing. India's largest tractor maker by sales Mahindra & Mahindra fell 1.59%.

India's largest motorbike maker by sales Hero Honda Motors declined 1.9% ahead of its Q1 result tomorrow, 21 July 2011. Hero Honda is seen reporting 10.85% growth in net profit to Rs 545.06 crore on 32.92% growth in operating income to Rs 5711.34 crore in Q1 June 2011 over Q1 June 2010, as per average estimate of 11 brokerages. Input cost pressures, increasing selling expenses and higher royalty amortization will lead to lower profitability even as strong volume growth and a price hike drives a healthy top line growth at the two-wheeler major.

Truck and buses maker Ashok Leyland fell 1.68% extending Tuesday's 2.69% losses triggered by weak Q1 results. Net profit fell 29.67% to Rs 86.25 crore on 6.28% increase in net sales to Rs 2495.50 crore in Q1 June 2011 over Q1 June 2010. The result was announced during trading hours on Tuesday, 19 July 2011. The company said a change in accounting policy on amortization of the value of leasehold land in Q1 June 2011, resulted in a reduction in expenditure by Rs 9.46 crore during the quarter.

India's largest commercial vehicle maker by sales Tata Motors declined 1.55%. Chairman Ratan Tata said in the company's annual report for year ended 31 March 2011 (FY 2011), which was released Monday, 18 July 2011, that Tata Motors is considering a joint engine development program with its UK-based Jaguar Land Rover unit. Tata Motors bought Jaguar Land Rover from Ford Motor Co. for $2.3 billion in 2008. The goal is "to optimize the synergetic strengths between JLR and Tata Motors in India," Tata said. The program could have engine manufacturing facilities in the UK and India, he added.

India's largest small car maker by sales Maruti Suzuki India rose 0.09% in volatile trade.

Bank shares dropped amid worries high interest rates could hurt loan growth. HDFC Bank fell 1.56% to Rs 502.85, off the day's high of Rs 517.50. The stock had hit a record high of Rs 519.50 on Tuesday. HDFC Bank's net profit rose 33.67% to Rs 1084.98 crore on 31.2% growth in total income to Rs 7098 crore in Q1 June 2011 over Q1 June 2010. The result was announced during trading hours on Tuesday, 19 July 2011. The bank's asset quality remains healthy.

The bank's CASA (current and savings account) ratio stood at 49.1% at end June 2011. The CASA ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits. A high CASA ratio indicates that a higher portion of the banks' deposits come from current and savings accounts. This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.

India's largest commercial bank by branch network State Bank of India (SBI) declined 1.56%. SBI recently raised base rate by 25 basis points (bps) from 9.25% per annum to 9.50% per annum. The bank has also revised the Benchmark Prime Lending Rate upwards by 25 bps from 14% to 14.25%. The bank has also revised upwards deposit rates on some maturities by up to 100 basis points.

India's largest private sector bank by net profit ICICI Bank fell 1.55% to Rs 1044.40, off the day's high of Rs 1069. ICICI Bank raised its base rate by 25 basis points to 9.5% per annum with effect from 4 July 2011. The private sector bank also raised its benchmark prime lending rate (BPLR) and its floating reference rate (FRR) for consumer loans, including home loans. BPLR and FRR are used for determining interest rates on loans and advances sanctioned up to 30 June 2010.

LIC Housing Finance fell 2.81%. The company said during market hours today that net profit rose 20.98% to Rs 256.50 crore on 39.73% growth in total income to Rs 1418.18 crore in Q1 June 2011over Q1 June 2010.

India's third largest IT exporter by sales Wipro fell 3.95% after reporting a muted 1% growth in bottom line in Q1 June 2011. The company announced before market hours today that consolidated net profit as per International Financial Reporting Standards (IFRS) rose 1% to Rs 1335 crore on 18% growth in total revenue at Rs 8564 crore in Q1 June 2011 over Q1 June 2010. Wipro expects 1.98% to 3.97% growth in revenues from IT services business at $1.436 billion to $1.464 billion in Q2 September 2011 over Q1 June 2011.

Azim Premji, Chairman of Wipro, commenting on the results said, "We are seeing early signs of positive momentum after the re-organization. Clients continue to focus on optimizing operations, creating new products and getting access to newer markets. We will continue to make investments that bring superior value to our clients as they try to win in this market". Suresh Senapaty, Executive Director & Chief Financial Officer of Wipro, said, "Our investments in client mining are starting to show results, with 4 customers contributing more than $100 million of revenues. We have maintained our operating margins in the current quarter despite one month impact of salary revision".

T K Kurien, Executive Director & Chief Executive Officer of Wipro's IT business, said "Enterprises are variabalizing their IT to position themselves better for winning in the world of constraints. We are building assets that allow consumerization of enterprise technology and performance analytics, two trends that will help us differentiate".

Wipro also said that the technical problem which had affected the functioning of the Employees' State Insurance Corporation's (ESIC) insurance portal has been solved. The project was awarded to Wipro in 2009.

India's largest IT company by sales TCS fell 0.65%. TCS' consolidated net profit fell 7.9% to Rs 2415 crore on 6.3% growth in revenue at Rs 10797 crore in Q1 June 2011 over Q4 March 2011. Operating profit declined 2% to Rs 2820 crore in Q1 June 2011 over Q4 March 2011. The result was announced after trading hours on Thursday, 14 July 2011.

India's second largest IT company by sales Infosys Technologies shed 0.06%. The stock had witnessed selling pressure recently after disappointing Q1 June 2011 results announced early last week. Consolidated net profit as per International Financial Reporting Standards fell 5.3% to Rs 1722 crore on 3.2% growth in revenue to Rs 7485 crore in Q1 June 2011 over Q4 March 2011.

Media conglomerate Zee Entertainment Enterprises fell 2.24% ahead of its Q1 result tomorrow, 21 July 2011. The company is seen reporting a 16.5% growth in adjusted consolidated net profit at Rs 141.08 crore, a 6.08% growth in operating profit to Rs 198.42 crore and a 12.15% growth in revenue at Rs 759.28 crore in Q1 June 2011 over Q1 June 2010, as per average estimate of 5 brokerages. The incremental hours of programming as well as the telecast of the India-West Indies cricket series will exert pressure on operating profit margin.

Metal stocks declined. JSW Steel, Sesa Goa, Hindalco Industries, Sail, Sterlite Industries, Jindal Steel & Power, Tata Steel, shed by between 0.09% to 2.92%.

Hospitality shares were in demand on expectations of good Q1 results. EIH Associated Hotels, EIH and Hotel Leelaventure gained by between 1.17% to 7.35%. Improvement in occupancy levels and average room rates (ARRs) will drive decent to strong earnings growth of hospitality firms in Q June 2011.

Foreign tourist arrivals in India registered a growth of 10.6% in Q1 June 2011. The average occupancy rate (OR) in six major destinations viz. Mumbai, Delhi, Kolkata, Chennai, Bengaluru and Goa jumped to 65% in Q1 June 2011 from 60% in Q1 June 2010.

PSU OMCs declined as higher crude oil prices could increase under-recoveries of state-run oil marketing companies (PSU OMCs) on domestic sale of diesel, LPG and kerosene at controlled prices. The government has already freed pricing of petrol. BPCL, HPCL and Indian Oil Corporation dropped by between 0.8% to 1.18%.

The oil ministry has reported asked the finance ministry for a cash subsidy of Rs 29000 crore to help PSU OMCs trim losses on discounted fuel sales in Q1 June 2011. The oil ministry has asked the upstream companies to bear a subsidy burden of Rs 14000 crore in Q1 June 2011. PSU OMCs sell diesel and cooking fuels at below market prices to help the government control inflation. This leads to revenue losses, which are partly compensated by upstream companies and partly by the government through cash subsidies.

Airline stocks fell as a rise in crude oil prices raised concerns about the impact of higher jet fuel prices on operating costs. Jet Airways, Kingfisher Airlines and SpiceJet shed by between 1.93% to 4.89%. Aviation turbine fuel, or jet fuel constitutes more than 50% of operating cost for airliners. Prices of jet fuel are directly linked to crude oil prices.

Oil rose $1.57, or 1.6%, on Tuesday, 19 July 2011, after the release of better-than-expected data on the US housing market.

Cals Refineries clocked highest volume of 13.09 crore shares on BSE. Crompton Greaves (1.32 crore shares), Sanraa Media (84.53 lakh shares), Rushil Decor (75.06 lakh shares) and Resurgence Mines (51.05 lakh shares) were the other volume toppers in that order.

Crompton Greaves clocked highest turnover of Rs 233.84 crore on BSE. TTK HealthCare (Rs 127.45 crore), Rushil Decor (Rs 112.29 crore), Atlas Cycles (Rs 102 crore) and LIC Housing Finance (Rs 88.69 crore) were the other turnover toppers in that order.

As the crucial corporate earnings season gathers steam, investors will closely watch the post-Q1 June 2011 result management commentary to gauge the future earnings outlook at a time when Indian firms are witnessing cost pressures amid rising interest rates and staff costs. A hike in transportation costs will add to cost pressure of India Inc. As per reports, freight rates have gone up by 8% to 9% on all routes across India following the recent hike in diesel prices.

Zee Entertainment Enterprises, JSW Energy, Biocon, Hero Honda, Hindustan Zinc and Kotak Mahindra Bank unveil Q1 results on 21 July 2011. Private sector bank Axis Bank reports Q1 results on 22 July 2011. Godrej Consumer Products reports Q1 earnings on 23 July 2011. Reliance Industries, Sterlite Industries and Rural Electrification Corporation will announce Q1 results on 25 July 2011. Car major Maruti Suzuki, steel major JSW Steel, power equipment major Bhel, decorative paints major Asian Paints and Shriram Transport Finance Company are set to unveil Q1 results on 26 July 2011.

UltraTech Cement, HCL Technologies, GAIL (India), Bank of Baroda, Infrastructure Development Finance Company (IDFC), Oil India and Lupin unveil results on 27 July 2011. State-run oil exploration giant ONGC, FMCG giant Hindustan Unilever, Cigarette major ITC, Sun Pharma, cement majors--ACC and Ambuja Cements, Jindal Steel & Power, state-run Punjab National Bank and GSFC unveil results on 28 July 2011. ICICI Bank, Power Finance Corporation and TVS Motor unveil Q1 results on 29 July 2011. Bharti Airtel unveils Q1 results on 3 August 2011. IL&FS Transportation Networks announces Q1 results on 5 August 2011. M&M announces Q1 results on 8 August 2011. ABB announces Q2 results on 9 August 2011. Tata Power unveils Q1 results on 10 August 2011. Hindalco and Coal India unveil Q1 results on 12 August 2011.

Mukherjee's latest comments on inflation come just a few days ahead of a likely 25 basis points hike in its key lending rate by the Reserve Bank of India (RBI) at its first quarter review of the monetary policy 2011-12 on 26 July 2011, to tame inflation, which remains much above the central bank's perceived comfort level of 5% to 6%.

Food Minister K.V Thomas on Tuesday said that the proposed food security law will result in a food subsidy of Rs 94987 crore during the first year of the implementation of the act. The government will require Rs 2.5-3 lakh crore over a period of two years for its implementation, he said.

Investors will continue to monitor the progress of the monsoon rains. Monsoon rains were above average in June 2011, but dropped to 3% below average after slowing in the first week of July. Rainfall between July 7 and July 13 was 19% below average, while it was 25% below average between June 30 and July 6. As per reports, the rainfall distribution so far has been good except for areas in the country's extreme northwest and southeast, mainly in Gujarat's Saurashtra region and the Andhra Pradesh coast. While Gujarat is India's largest groundnut and cotton producer, Andhra Pradesh is a key rice-producing region.

The central state of Chhattisgarh and the Vidarbha region in Maharashtra are also rainfall-deficient, but the gap is expected to be bridged over the next few days. The grainbowl northern states of Punjab and Haryana, as well as parts of Uttar Pradesh, have all received above normal to normal rains, while eastern rice-growing states, including key producer West Bengal, have received good rains. Oilseed-growing regions in central India have also been lashed by abundant rains.

Rainfall in the month of July is considered crucial as sowing of a number of crops starts in June and good July rains determine the soil moisture and ensure proper development of the crops planted in June.

European shares rose on Wednesday, building on gains in the previous session, after Wall Street rose sharply, boosted by hopes that an agreement on the budget will avert a US default. The key benchmark indices in UK, France and Germany were up by 0.47% to 1.67%.

A meeting of euro-zone leaders is scheduled on Thursday, 21 July 2011, to finalize a bailout package for Greece in an effort to contain the region's ongoing debt crisis.

Asian markets advanced on Wednesday, with technology stocks among the leading advancers after upbeat earnings reports from the US. The key benchmark indices in Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan rose by between 0.46% to 2.13%. China's Shanghai Composite fell 0.10%.

Apple Inc. posted above-forecast earnings late Tuesday while International Business Machines Corp released well-received results late Monday.

Trading in US index futures indicated that the Dow could gain 68 points at the opening bell on Wednesday, 20 July 2011. US stocks recorded their best day since March on Tuesday after strong corporate results and renewed hope for an agreement in Washington on thorny budget issues. President Barack Obama suggested progress was being made toward a $3.75 trillion deficit reduction deal centered around entitlement reform. The White House and Congress also need to sign an agreement that includes an increase in the federal debt ceiling by 2 August 2011 or the United States could default on its debt.

On the macro front, a sharp rise in US housing starts improved sentiment on the outlook for the US economy.