Sensex settles at 20-month low as FIIs resume selling

Key benchmark index fell for the fourth straight day amidst high volatility as data showing a decline in service sector activity in September 2011, data showing resumption of selling by foreign funds at the beginning of this month, and likely muted-to-weak Q2 earnings weighed on sentiment. The market breadth was weak. The barometer index BSE Sensex hit 20-month closing low. The S&P CNX Nifty hit 5-1/2-week closing low. The Sensex lost 72.45 points or 0.46%, off close to 250 points from the day's high and up about 30 points from the day's low.



From a recent high of 16,698.07 on 29 September 2011, the Sensex has lost 905.66 points or 5.42% in four trading sessions. The index has slumped 4,716.68 points or 22.99% in calendar 2011. From a 52-week high of 21,108.64 on 5 November 2010, the Sensex has lost 5,316.23 points or 25.18%. From a 52-week low of 15,765.53 on 26 August 2011, the Sensex has risen 26.88 points or 0.17%. The Sensex declined 222.99 points or 1.33% in September 2011. The barometer index tumbled 2,392.11 points or 12.69% in the quarter ended September 2011, as euro-zone debt worries and weakness in the US economy, the world's biggest, pulled markets lower across the globe.

Coming back to today's trade, index heavyweight Reliance Industries (RIL) edged lower. Interest rate sensitive banking stocks declined on worries that elevated interest rates would hurt borrowers' ability to repay loans and increase delinquencies, with ICICI Bank and Axis Bank hitting 52-week low. State Bank of India (SBI) hit 52-week low, with the stock extending Tuesday's 4.08% losses triggered by a downgrade from rating agency Moody's Investors Service. Bhel, Jindal Steel & Power, Sterlite Industries and Hindalco Industries, too, hit 52-week lows.

Cement stocks rose on higher cement shipments in September 2011. Realty stocks rose on bargain hunting after recent losses triggered by worries that higher interest rates could dent demand for residential and commercial properties.

Intraday volatility was high. The market pared gains after a firm start triggered by speculation Europe will recapitalize its banks to tame euro-zone debt crisis. Key benchmark indices regained strength in morning trade after erasing almost the entire initial gains. Intraday volatility continued as key benchmark regained strength soon after trimming gains in mid-morning trade. The market was range bound in early afternoon trade. Intense volatility was witnessed as the market reversed direction soon after extending gains in early afternoon trade. Intraday volatility continued as the Sensex regained positive terrain in mid-afternoon trade. The market once gain slipped into the red later.

The stock market remains closed tomorrow, 6 October 2011, on account of Dassera.

Foreign institutional investors (FIIs) sold shares worth net Rs 979.80 crore on Tuesday, 4 October 2011, as per latest data from Securities & Exchange Board of India (Sebi), higher than an outflow of Rs 779.40 crore on Monday, 3 October 2011. FIIs had offloaded shares worth Rs 3088.88 crore in September 2011, as per data from stock exchanges. The outflow in August 2011 came on the top of heavy sales in August 2011. FIIs had dumped shares worth a massive Rs 10905.50 crore in August 2011, as per Sebi data.

The BSE Sensex lost 72.45 points or 0.46% to settle at 15,792.41, its lowest closing level since 5 February 2010. The index fell 104.33 points at the day's low of 15,760.53 in afternoon trade. The index gained 180.05 points at the day's high of 16,044.91 in early afternoon trade.

The S&P CNX Nifty was down 20.85 points or 0.44% to 4,751.30, its lowest closing level since 26 August 2011. The Nifty hit a high of 4,827.80 and a low of 4,741 in intraday trade.

The BSE Mid-Cap index fell 0.97% and the BSE Small-Cap index declined 0.9%. Both these indices underperformed the Sensex.

BSE clocked turnover of Rs 2364 crore, lower than Rs 2613.94 crore on Tuesday, 4 October 2011.

The market breadth, indicating the overall health of the market, was weak. On BSE, 1,667 shares fell and 1,085 rose. A total of 115 shares were unchanged. The breadth was strong earlier in the day.

Among the 30-share Sensex pack, 16 fell while the rest rose. Sun Pharmaceutical Industries, Tata Power Company and Coal India gained by between 1.39% to 1.7%.

Index heavyweight Reliance Industries (RIL) fell 0.67% to Rs 767.25, off the day's high of Rs 776.65. BP PLC last week said it expects its partnership with RIL to boost natural gas output at the D6 block in the Krishna Godavari basin, off India's east coast. BP Chief Executive Robert Dudley and RIL Chairman Mukesh Ambani met trade minister Anand Sharma in New Delhi on 28 September 2011.

RIL is fighting a decline in gas output at the D6 block. BP and RIL on Wednesday, 28 September 2011, pitched for permission from the government to develop satellite fields adjacent to the D6 block. RIL, last month, closed a deal with UK-based BP to sell a 30% stake in its 21 oil and gas exploration blocks in India. RIL recently denied inflating costs on its D6 gas field in the Krishna-Godavari (KG) basin. RIL made the clarification after CAG said in its final report submitted to the parliament on 8 September 2011 that RIL initially estimated capital expenditure of D-1 and D-3 gas discovery at $2.4 billion, which it later revised to $8.8 billion.

RIL's advance tax payment rose 37.6% to Rs 1800 crore in Q2 September 2011 over Q2 September 2010, hinting at good Q2 results from the diversified firm.

Bhel declined 2.36% to Rs 315.10. The stock hit 52 week low of Rs 310.50 today.

Metal shares were mixed. India's largest steel maker by sales Tata Steel rose 0.86% to Rs 400.65. The stock had hit 52 week low of Rs 391.10 in intraday trade on Tuesday.

Jindal Steel & Power fell 2.55% to Rs 445.35. The stock hit 52 week low of Rs 441.55 in intraday trade today.

JSW Steel rose 0.12% to Rs 553.75. The stock had hit 52 week low of Rs 532.05 in intraday trade on Tuesday, 4 October 2011. The company, after market hours on Monday, 3 October 2011, said its promoters have pledged 15.27% outstanding shares of the company.

JSW Steel said during trading hours on Monday, 3 October 2011, denied CBI raids at Vijayanagar unit at Bellary. In a statement, JSW Steel said that a CBI team visited the company's Vijayanagar works on Monday morning and sought certain information about procurement of iron ore. The company said it has been procuring iron ore from various sources for production requirements and every tonne of the iron or purchases had been accounted for in compliance with applicable laws. The company said it will fully cooperate and provide all the information that may be sought by the authorities concerned.

India's largest non-ferrous metals producer Sterlite Industries (India) fell 0.81% to Rs 104.50. The stock hit 52-week low of Rs 103.70 in intraday trade today.

Hindalco Industries declined 3.65% to Rs 120.15. The stock hit 52 week low of Rs 119.50 today.

Interest rate sensitive banking stocks fell on worries that elevated interest rates would hurt borrowers' ability to repay loans and increase delinquencies. India's largest private sector bank by net profit ICICI Bank declined 2.72% to Rs 778.95, extending Tuesday's 4.59% losses. The stock hit a 52-week low of Rs 762.05 today. Rating agency Moody's has reportedly reaffirmed C- rating of ICICI Bank.

India's second largest private sector bank by net profit HDFC Bank fell 2.65%. Axis Bank shed 0.74% to Rs 952, extending Tuesday's 3.19% losses. The stock hit a 52-week low of Rs 946.35 today.

India's largest bank by branch network and net profit State Bank of India (SBI) shed 4% to Rs 1715.30, extending Tuesday's 4.08% losses triggered by a downgrade from rating agency Moody's Investors Service. Moody's cut bank financial strength rating (BFSR), or stand-alone rating of SBI, to D+ from C- because of concerns over its capital situation and deteriorating asset quality. The stock hit a 52-week low of Rs 1,708.55 in intraday trade today. SBI's non-performing assets were at a three-year high as of 30 June 2011, at 3.5% of loans, according to Moody's said on Tuesday. This will likely increase the bank's potential credit costs in the near-term, it said.

"Our expectations that non-performing assets are likely to continue rising in the near term--due to higher interest rates and a slower economy--have caused us to adopt a negative view of SBI's creditworthiness," Beatrice Woo, vice president and senior credit officer, Moody's Investors Service said, in a statement. Moody's also lowered its hybrid debt rating on the bank to Ba3 (hyb) from Ba2 (hyb), following the reduction in financial strength rating. The revised standalone rating carries a stable outlook and the hybrid rating a negative outlook, Moody's said.

SBI Chairman Pratip Chaudhuri today, 5 October 2011, said that the bank has no immediate plan to tap overseas debt markets but hopes to receive as much as Rs 10000 crore in equity capital infusion from the government by the end of the fiscal year through March 2012. SBI expects to get between Rs 3000 crore and Rs 10000 crore from the government to help shore up its capital base, Chaudhuri added. He also said that the bank does not see any need to pass on interest rate increases to customers as the bank's margins are strong. The Reserve Bank of India (RBI) last month raised key lending rate for the 12th time in the last 18 months to fight near double-digit inflation.

Some FMCG stocks rose on expectations of higher rural sales after good rains this year. ITC, United Spirits, Marico and Nestle India gained by between 0.14% to 1.46%.

Cement stocks rose on higher cement shipments in September 2011. India Cements rose 2.46%. ACC rose 0.59% as the company's cement dispatches rose 9.5% to 1.73 million tonnes in September 2011 over September 2010. Jaiprakash Associates gained 3.85% as the firm's cement shipments in September rose 17% to 1.35 million tonnes. Ambuja Cement fell 0.17%. The company's cement dispatches rose 2.3% to 1.55 million tonnes in September 2011 over September 2010.

Realty stocks rose on bargain hunting after recent losses triggered by worries that higher interest rates could dent demand for residential and commercial properties. Purchases of both residential and commercial property are largely driven by finance. Orbit Corporation, Unitech, HDIL and DLF gained by between 0.2% to 2.63%.

The BSE Realty index had lost 7.3% in the preceding three sessions to 1668.97 on 4 October 2011 from a recent high of 1800.46 on 29 September 2011.

State-run oil marketing companies (PSU OMCs) fell as crude prices gained. HPCL, Indian Oil Corporation and BPCL fell by between 0.52% to 1.63%. Higher crude oil prices will result in higher under-recoveries for 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.

Crude oil for November delivery rose $2.09 a barrel or 2.69% to $77.76 a barrel in Asian electronic trading today.

A news agency quoted an unnamed senior finance ministry official as saying on Tuesday, 4 October 2011, that the government plans to limit its fuel subsidies at Rs 40000 crore this fiscal year through March 2012, scaling down its initial estimate by Rs 5000 crore following easing crude oil prices in recent weeks and a higher borrowing aim. The finance ministry has already committed to give Rs 15000 crore as the first installment to state-run oil marketing companies, which are mandated to sell products at discounted rates.

Cairn India rose 0.3% as higher crude oil prices will result in higher realizations from crude sales for oil exploration firms.

Shares of air carriers rose following reports of the Department of Industrial Policy and Promotion (DIPP) has written to the aviation ministry asking the latter to allow foreign airlines to pick up stakes in domestic airlines. SpiceJet (up 1.66%), Jet Airways (India) (up 1.65%) edged higher. Kingfisher Airlines fell 0.5%, reversing initial gains.

Kingfisher straddled with a debt of around Rs 6000 crore has been lobbying with the government to get permission for international carriers to pick up stakes in Indian airlines. Currently, foreign direct investment (FDI) is not allowed in Indian airlines. DIPP Secretary R P Singh has reportedly written a letter to his colleague in the aviation ministry stating that private equity firms cannot be expected to pick up equity stake in domestic Indian carriers as it is a risky sector. Singh believes only foreign airline companies will be willing to pick up stake as they are better equipped to understand the sector. They will be willing to derive synergy because of these alliances. The letter goes onto say that many Indian airline companies are in dire need of capital and if any of these carriers in India collapse, then it will also impact the Indian financial sector as a lot of Indian financial institutions have provided debt to these companies.

Auto stocks were mixed. Tata Motor rose 0.1% on bargain hunting after tumbling 4.35% on Tuesday. The company's total sales rose 22% to 78,786 units in September 2011 over September 2010. The homegrown firm's total passenger vehicles sales in the domestic market stood at 26,319 units in September, up 10.22% from 23,877 units in the same month last year. The company's total exports grew by 23% to 6,220 units in September 2011 over September 2010.

Mahindra & Mahindra gained 0.84% on bargain hunting after falling 3.89% on Tuesday. The company's total auto sales rose 25% to a record 44,137 units in September 2011 over September 2010. The company's domestic sales stood at 41,136 units during September 2011, as against 33,866 units during September 2010, an increase of 21%.

M&M's Passenger Vehicles segment (which includes the Utility vehicles and Verito) registered a growth of 11%, having sold 19,447 units in September 2011, as against 17,537 units during September 2010. The 4-wheeler commercial segment which includes the passenger and load categories registered a phenomenal growth of 45%.

Speaking on the numbers, Rajesh Jejurikar, Chief Executive, Automotive Division, Mahindra & Mahindra said, "We are delighted with the 28% growth that we have clocked for the first half of FY 2012 (year ending March 2012), and the record sales of 44,137 that we have clocked in September 2011. We are also very excited with the initial response to our global SUV the XUV5OO and do hope to further consolidate our position in the SUV market with this launch".

India's largest car maker by sales Maruti Suzuki India fell 1.95% in volatile trade. Maruti on Tuesday, 4 October 2011, started production at its second factory at Manesar in Haryana, which will help the auto maker cut the waiting time for its Swift hatchback. The Swift hatchback is the only car Maruti makes at the new factory in Manesar, on which it has spent Rs 1700 crore. The new facility will ramp up overall vehicle production at India's largest car maker to 1.65 million units a year when fully operational.

Maruti is also building another factory in Manesar with a capacity of 2,50,000 vehicles a year that is expected to be operational by September 2012. The Swift is one of Maruti's bestselling models. It has received 1,08,000 bookings since an upgraded variant was launched in August 2011. Output of the Swift was impacted recently due to labor issues at the Manesar factory, where it also makes the A-star small car and SX4 sedan. Maruti halted operations on 29 August 2011 after it asked 950 workers to sign a "good conduct bond" before they could enter the factory. The move came after the company said it discovered "serious and deliberate" quality problems in cars made at the plant. The workers strike ended on 1 October 2011 after the workers agreed to sign the bond.

Maruti Suzuki's total vehicle sales fell 20.8% to 85,565 units in September 2011 over September 2010. Maruti Suzuki, 54.2% owned by Japan's Suzuki Motor Corp, said disruption in production during September at one its plants due to labour unrest, adversely impacted sales. The company announced the monthly sales data during trading hours on Monday, 3 October 2011.

Bajaj Auto rose 0.33%. The company on Monday, 3 October 2011, said that its total sales rose 18% to a record 4,17,686 units in September 2011 over September 2010. Motorcycle sales rose 18% to a record 3,71,208 units. Commercial vehicle sales rose 21% to 46,478 units in September 2011 over September 2010. The company said it achieved record three-wheeler sales in September 2011. Exports rose 39% to 1,41,913 units in September 2011 over September 2010.

Bike maker Hero MotoCorp fell 0.52 %. The company's total sales jumped 26.75% to 5.49 lakh units in September 2011 over September 2010. Hero MotoCorp's total sales increased 20.10% to 15.44 lakh units in Q2 September 2011 over Q2 September 2010. The company expects sales growth to continue into the festive season.

Ashok Leyland skidded 0.8% after total vehicle sales fell 17% to 8,756 units in September 2011 over September 2010.

IT stocks were mixed. India's largest software services exporter TCS fell 0.23% in volatile trade. India's third largest software services exporter Wipro declined 1.91% in volatile trade.

India's second largest software services exporter Infosys rose 0.56%. India's software industry will be able to meet its 16%-18% export revenue growth target for this financial year through March as global businesses continue to spend on technology, Infosys' executive co-Chairman S. Gopalakrishnan said on Tuesday, 4 October 2011. Gopalakrishnan said he is optimistic about the Indian software industry's growth prospects in the medium- to long-term though there would be "challenges" in the short-term. He didn't elaborate.

Chandni Textiles clocked highest volume of 2.27 crore shares on BSE. Cals Refineries (1.26 crore shares), Prism Cement (46.78 lakh shares), Jaiprakash Associates (36.20 lakh shares) and Prakash Constrowell (33.68 lakh shares) were the other volume toppers in that order.

SBI clocked highest turnover of Rs 278.79 crore on BSE. RIL (Rs 101.36 crore), ICICI Bank (Rs 91.75 crore), Prakash Constrowell (Rs 61.86 crore) and Union Bank of India (Rs 51.99 crore) were the other turnover toppers in that order.

The near-term major trigger for the market is Q2 September 2011 results. The results are expected to be muted-to-weak due slower volume growth due to slowdown in domestic demand, higher input costs, rising wages, higher interest rates and slowdown in investment growth. Advance tax data from top 100 companies corroborates this view. The advance tax payment by top 100 companies rose a modest 9.9% in Q2 September 2011 from a year ago against 19% growth in Q1 June 2011, suggesting corporate profit growth is likely to be muted in the second quarter.

Among the big companies that have paid lower advance tax, indicating a drop in profits, include State Bank of India (SBI), Maruti Suzuki India and state-run Neyveli Lignite Corporation. SBI's advance tax payment declined 14.2% to Rs 1650 crore in Q2 September 2011. Maruti's tax payment fell 55.8% to Rs 120 crore. Neyveli Lignite tax payment plunged 50.1% to Rs 66 crore. But, Reliance Industries' (RIL) advance tax payment jumped 37.6% to Rs 1800 crore, hinting at good Q2 results from the diversified firm.

Investors will closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook. IT bellwether Infosys kickstarts the Q2 September 2011 earnings season on 12 October 2011. Housing finance major HDFC unveils Q2 results on 17 October 2011. HDFC Bank unveils Q2 results on 19 October 2011.

Bajaj Auto, Cairn India and Thermax unveil quarterly results on 20 October 2011. Asian Paints and Godrej Consumer Products reveal Q2 results on 21 October 2011. Axis Bank unveils Q2 results on 22 October 2011. DR. Reddy's Lab unveils unveils Q2 results on 25 October 2011. Maruti Suzuki reports Q2 results on 29 October 2011. Dabur India, Colgate Palmolive (India) and BPCL unveil Q2 results on 31 October 2011. Aditya Birla Nuvo unveils Q2 results on 1 November 2011.

Lower global commodity prices may ease pressure on corporate profit margins arising from higher raw material prices and at the macro level it could help ease inflation pressure. However, a weak rupee will offset the benefit of the recent steep fall in global commodity prices triggered by global growth worries. Most commodities imported by India, particularly oil, are denominated in dollars making these expensive for India. The rupee slumped 8.8% percent in July to September 2011 to 48.97/98, its largest quarterly fall since the same period in 2008.

The Standard & Poor's GSCI index of raw materials has dropped 24% from a 32-month high in April 2011 on concern that demand for energy, metals and crops will decline as Europe's escalating debt woes choke the global economy.

The market regulator Securities and Exchange Board of India recently set a minimum net worth of Rs 100 crore for companies that wish to issue structured products or market-linked debentures to raise funds. Sebi also set the minimum size for such issues at Rs 10 lakh. Market-linked debentures are hybrid products which have the features of usual debt securities, but offer market-linked returns like an exchange-traded derivative. The issuer company will have to appoint a third party, a credit-rating company registered with the regulator, which will provide the value of the security at least once a week, Sebi said in a circular.

A news agency recently quoted principal economic adviser to the ministry of finance Dipak Dasgupta as saying that the government has no plans to tax or impose restrictions on capital outflows. He said the government will instead focus on liberalising fund inflows into the economy, particularly via overseas borrowing.

Finance Minister Pranab Mukherjee said last month that central banks in emerging economies have been forced to raise interest rates repeatedly as they battle high inflation, exposing them to volatile capital flows. "An issue of immediate concern for emerging economies is managing large capital flows," he said. "Large and volatile capital flows to emerging markets can be destabilizing as they lead to high exchange rate volatility and in some cases make it incumbent to maintain high levels of foreign exchange reserves as an insurance against sudden and large-scale flight of international capital."

The government last month raised the limit of overseas borrowing for companies to $750 million from $500 million. Indian companies can also now raise loans up to $1 billion in Chinese yuan.

Given the lackluster initial FII response to the government's sharply raising the ceiling of FII investment in long-term corporate bonds issued by the companies in the infrastructure sector in March 2011, the government on 12 September 2011, further relaxed the norms on FII investment in such bonds. Sebi had in early August 2011 allowed Qualified Foreign Investors (QFIs) to subscribe to Mutual Fund Debt Schemes which invest in the infrastructure sector subject to a total overall ceiling of $3 billion within the total ceiling of $25 billion.

The government, last week, raised its borrowing target for the current fiscal year by Rs 52800 crore, surprising the market and fueling worries that it may even overshoot the new estimate because of muted revenue growth amid a slowing economy and swelling subsidies. The government will borrow Rs 2.2 lakh crore during October 2011-March 2012 period, or the second half of the fiscal year, compared with the target of Rs 1.67 lakh crore announced in budget in February 2011. C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, on 29 September 2011 said it is going to be difficult to achieve fiscal deficit target of 4.6% of GDP for the year ending March 2012.

The government's new borrowing programme may crowd out private borrowers who come into the market in the second half of the year. Credit growth normally picks up after October every year when the busy season starts.

Atsi Sheth, a New York-based vice president and senior analyst at Moody's Investors Service said in a media interview last week that Moody's is unlikely to change its rating outlook on India for now, though the extent of the increase in the government's borrowing target is a surprise. The possibility of fiscal slippage is, however, already factored into the sovereign rating, Sheth said.

Standard & Poor's Ratings Services on Monday, 3 October 2011, said it is maintaining its view that India will struggle to meet its fiscal deficit target. Takahira Ogawa, director of Sovereign and International Public Finance Ratings at S&P said India must prove its intent to continue with the process of fiscal consolidation in the medium term.

Monsoon rains at the end of the June-September season were 1% above the 50-year average, raising hopes of improved crop supplies at a time when the country is battling high food prices. The rains normally start subsiding in the first week of September, but they continued two weeks longer this year. This has boosted the prospects of not only summer-sown crops such as rice, but also winter-sown staples like wheat, because of good soil moisture.

Sowing of winter crops usually starts in October and picks up between the end of November and the first half of December. Apart from wheat, rapeseed and pulses are among other important crops grown during the winter season. India is aiming for a record foodgrain output of 245 million tons in the crop year that started on 1 July.

Rangarajan on 29 September 2011 said there has to be definite signs of inflation falling before the Reserve Bank of India can reverse its current policy. Reserve Bank of India (RBI) deputy governor Subir Gokarn on 28 September 2011 said poor supply responses to rising demand for protein-rich food aren't helping to lower the inflation rate. His comment underscores the central bank's growing dismay over the government's loose fiscal stance that is diluting monetary policy moves and weakening its battle against inflation. "Energy prices have remained very steady. I think (it) is a huge problem to deal with because it certainly reduces the space that monetary policy has," Mr. Gokarn said at a conference.

RBI said at a monetary policy review on 16 September 2011 that it is imperative to persist with the current anti-inflationary stance because a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. The RBI raised repo rate by 25 basis points on 16 September 2011.

Going forward, the stance of the monetary will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments, RBI said in its 16 September 2011 policy statement. The overall tone of the RBI's latest policy was softer than the previous policy announcement which was extremely hawkish.

Inflation in India remains high and will probably remain in a range of 9% to 10% until November 2011, Gokarn said last month. RBI said on 16 September 2011 that corporate margins moderated across several sectors in Q1 June 2011 compared to levels in Q4 March 2011. However, barring a few sectors, significant pass-through of rising input costs is still visible, RBI said.

RBI governor D Subbarao, last week, said inflation rate remains above the level the central bank deems acceptable. Inflation has been fairly stubborn, Subbarao said in New York. "Above a threshold, you can't accept high inflation to have higher growth," he said, adding that the price-rise limit is as much as 6% for the nation. A rate of 4% to 6% is the short-term comfort range for inflation, Subbarao said. He said the central expects inflation to slow by March 2012, but more slowly than initially expected. Intervention in forex markets brings unexpected consequences, Subbarao said.

India's services sector contracted for the first time in more than two years as new business dried up and expectations weakened amid concern over a flagging world economy, a survey showed on Wednesday, 5 October 2011. The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of around 400 firms, plunged in September to 49.8 -- its lowest reading since April 2009 -- and below the 50 mark which separates growth from contraction.

The slowdown in growth has continued to broaden with the service sector seeing a further slowdown in economic momentum, HSBC economist Leif Eskesen said. The new business sub-index sank to a 28-month low of 51.6 in September, down from 54.9 in August. The weak expansion in new business -- the main cause of the stagnation in activity -- meant employment levels fell for a third consecutive month. Despite harsh conditions firms were able to pass on rising input costs to customers, albeit at a slightly lower pace than in August. "We are getting close to the end of the Reserve Bank of India's tightening cycle, but we are not quite there yet," Eskesen said.

The growth in manufacturing sector nearly stalled in September 2011, hitting its weakest spot since March 2009 on slowing output and orders growth following a series of interest rate hikes, data showed on Monday, 3 October 2011. The HSBC Markit India Manufacturing PMI fell more than two points to 50.4 in September 2011 from 52.6 in August 2011, very close to the 50 mark which divides growth and contraction. The output index plunged by its biggest amount in one month since November 2008, to 51.1 from 56.

Exports jumped 44.25% to $24.3 billion in August 2011 from a year earlier, while imports for the month rose 41.82% to $38.4 billion, leaving a trade deficit of $14 billion, the latest government data showed.

Afghan President Hamid Karzai signed a wide-ranging agreement with India on Tuesday to deepen ties between the two countries, including to help train Afghan security forces. On a two-day visit to New Delhi, Karzai and Indian Prime Minister Manmohan Singh sealed a strategic partnership that spanned closer political ties to fighting terrorism.

Banks led European stock markets higher on Wednesday, 5 October 2011, as hopes for a coordinated move to recapitalize the troubled sector outweighed worries over a downgrade of Italy by Moody's Investors Service. Key benchmark indices in UK, France and Germany were up by 2.32% to 3.73%.

Gains for European shares followed a late rally on Wall Street on Tuesday after the Financial Times reported that European finance ministers are looking at ways to coordinate a recapitalization of financial institutions. A sense of urgency appeared to be heightening in Europe as French-Belgian municipal lender Dexia SA became the first European bank to have to be bailed out due to the euro zone's sovereign debt crisis. The Dexia bailout came as euro-zone finance ministers delayed a vital aid payment to debt-stricken Greece, which could run out of cash shortly.

Moody's on Tuesday cut its rating on Italy to A2 from Aa2, citing a material increase in long-term funding risks for euro-zone sovereigns with high levels of public debt.

The European Central Bank and the Bank of England both hold meetings separately tomorrow, 6 October 2011, on interest rates.

Asian stocks were mixed on Wednesday, 5 October 2011. Key benchmark indices in Japan, Singapore, South Korea and Taiwan were down by between 0.09% to 2.33%. In Indonesia, the Jakarta Composite index was up 0.73% and in Malaysia the KLSE Composite index was up 1.05%. Markets in Hong Kong and mainland China were closed for holidays.

US index futures reversed initial losses. Trading in US index futures indicated that the Dow could gain 71 points at the opening bell on Wednesday, 5 October 2011.