Market slips to 2-year lows

Key benchmark indices tumbled to hit their lowest level in more than two years after the Reserve Bank of India (RBI) spoiled sentiments by keeping cash reserve ratio (CRR) unchanged, despite tight liquidity in the system, in its much awaited mid-quarter monetary policy review on Friday (16 December 2011). Data showing higher-than-expected inflation reading for November 2011 and a decline in industrial production in October 2011 also dampened sentiment.

Data showing selling by foreign funds recently also spooked investors. Foreign institutional investors (FIIs) sold shares worth Rs 323.28 crore on Thursday, 15 December 2011, as per the provisional data from the stock exchanges. FII outflow totaled Rs 1701.09 crore in five trading sessions from 9 to 15 December 2011, as per provisional data from the stock exchanges. The recent outflow followed sustained inflow early this month.



FIIs inflow in December 2011 totaled Rs 860.40 crore (till 15 December 2011). FIIs had sold shares worth a net Rs 4197.90 crore in November 2011. FII outflow in calendar 2011 totaled Rs 1951.70 crore (till 15 December 2011).

The BSE Sensex fell 722.11 points or 4.45% to 15,491.35 in the week ended Friday, 16 December 2011. The 50-share S&P CNX Nifty fell 215.10 points or 4.42% to 4,651.60.

The BSE Mid-Cap index fell 6.11% while the BSE Small-Cap index fell 6.03%. Both these indices underperformed the Sensex.

The RBI on Friday (16 December 2011) left its main lending rate unchanged in order to support faltering economic growth as inflation shows signs of cooling. The central bank also refrained from cutting the cash reserve ratio (CRR) despite tight liquidity in the system. The repo rate has been left steady at 8.5% after increasing it 13 times since March 2010. The bank rate also remains static at 6%. The central bank kept its end-March 2012 inflation forecast unchanged at 7%.

While inflation remains on its projected trajectory, downside risks to growth have clearly increased, RBI said in a statement. The guidance given in the second quarter review of the monetary policy was that, based on the projected inflation trajectory, further rate hikes might not be warranted. In view of the moderating growth momentum and higher downside risks to growth, this guidance is being reiterated, RBI said. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth, RBI said.

However, it must be emphasized that inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces, the central bank said in statement. Also, the rupee remains under stress, RBI said. The timing and magnitude of further actions will depend on a continuing assessment of how these factors shape up in the months ahead, RBI said. The RBI has raised rates 13 times since March 2010.

RBI said there are currently no significant signs of stress in the money market. However, in view of the fact that borrowings from the LAF are persistently above the RBI's comfort zone, further open market operations (OMOs) will be conducted as and when seen to be appropriate, RBI said.

The annual inflation declined in November 2011 from the previous month but remained above the 9% mark, data released by the government showed on 14 December 2011. Inflation, as measured by the wholesale price index (WPI), was at 9.11% in November as against 9.73% in October. Inflation figure for September 2011 was revised upwards to 10% from initial estimate of 9.72%.

Industrial production shrank 5.1% in October versus 11.3% growth in the same period a year earlier, data released by the Commerce Ministry showed on 12 December 2011. It was the first decline in industrial production in more than two years. Industrial output last fell in June 2009, when it shrank 1.8%. Manufacturing output, which has a 75.5% weight in the index of industrial production, fell 6% from a year earlier in October, compared with a 2.4% rise the previous month. Mining output shrank 7.2%, after falling 5.6% in September. September's industrial production growth was revised upwards marginally to 2%, from 1.9% earlier.

Coming back to equity market, trading for the week began on weak note. Key benchmark indices declined for the third straight day to settle at their lowest level in more than 2 weeks on Monday, 12 December 2011, as data showing decline in industrial production in October 2011 for the first time in more than two years and weak European stocks dampened sentiment. The BSE Sensex lost 343.11 points or 2.12% to settle at 15,870.35. The S&P CNX Nifty lost 102.10 points or 2.1% to settle at 4,764.60.

Key benchmark indices snapped a three-day losing streak on Tuesday, 13 December 2011, on speculation the RBI will start cutting interest rates next year to support flagging economic growth. The market was volatile. The BSE Sensex jumped 132.16 points or 0.83% to settle at 16,002.51. The S&P CNX Nifty advanced 36 points or 0.76% to settle at 4800.60.

Key benchmark indices dropped in choppy trade on Wednesday, 14 December 2011, as higher-than-expected inflation reading for November 2011 dashed hopes that the RBI will advance a rate cut to early next year to stimulate the economy. Data showing selling by foreign funds recently and weak European shares also dampened sentiment. The BSE Sensex lost 121.37 points or 0.76% to settle at 15,881.14. The S&P CNX Nifty shed 37.35 points or 0.78% to settle at 4,763.25.

Key benchmark indices fell for the second straight session on Thursday, 15 December 2011, to settle at their lowest level in nearly three weeks as data showing selling by foreign funds recently weighed on sentiment. The BSE Sensex lost 44.67 points or 0.28% to settle at 15,836.47. The S&P CNX Nifty was down 16.80 points or 0.35% to 4,746.35.

Key benchmark indices tumbled to hit their lowest level in more than two years on Friday, 16 December 2011, after the RBI kept CRR and short-term lending rate steady after mid-quarter monetary policy review that day. The BSE Sensex fell 345.12 points or 2.18% to settle at 15,491.35. The S&P CNX Nifty fell 94.75 points or 2% to 4,651.60.

From the 30-share Sensex pack, 26 declined and the remaining rose.

Engineering and construction major L&T slumped 12.32% to Rs 1075.80. It was the major Sensex loser last week. State-run power equipment maker Bhel tumbled 8.95% to Rs 240.45.

Shares in capital goods sector slumped after the recent data showed that capital goods production shrank 25.5% in October 2011 from a year earlier, compared with a 6.5% decline in September 2011. Capital goods production had jumped 21.04% in October 2010 from a year earlier.

Interest rate sensitive banking stocks fell after the RBI kept CRR and short-term lending rate steady after mid-quarter monetary policy review on Friday. India's second largest private sector bank by net profit HDFC Bank declined 6.49% to Rs 415.95. The bank's advance tax reportedly rose 20% to Rs 900 crore in Q3 December 2011 over Q3 December 2010.

India's largest private sector bank by net profit ICICI Bank fell 7.59% to Rs 676.05. The stock hit a 52-week low of Rs 667 on Friday. The bank's advance tax reportedly remained flat at Rs 450 crore in Q3 December 2011.

India's largest bank by net profit and branch network State Bank of India (SBI) declined 9.84% to Rs 1680.45. The bank's advance tax reportedly fell 6.48% to Rs 1730 crore in Q3 December 2011 over Q3 December 2010.

Sterlite Industries (down 11.83%), DLF (down 8.97%), Tata Steel (down 8.36%), Tata Power Company (down 7.35%), Jaiprakash Associates (down 6.79%), Mahindra & Mahindra (down 6.32%) and Bharti Airtel (down 6.24%), edged lower from the Sensex pack.

Index heavyweight Reliance Industries (RIL) fell 4.30% to Rs 723. The company's advance tax payment reportedly fell 15.79% to Rs 1002 crore in Q3 December 2011 over Q3 December 2010. Oil minister Jaipal Reddy said in a written reply in the lower house of parliament on Thursday, 15 December 2011, that the decline in gas output from RIL's east coast block is due to the company drilling fewer number of wells than promised and stoppage of production at six wells.

RIL late last month said that it has initiated arbitration proceedings against the government to seek an independent view of a tribunal on the issue of the company's entitlement of recovery of entire costs on KG-D6 gas blocks from the revenue generated from the blocks. RIL said it has initiated arbitration proceedings against the Government of India (GoI) in a bid to finally resolve the cost recovery issue so as not to hinder future investments in this block.

RIL said its investment in KG-D6 production facilities has been only partly recovered and the return on the investment so far is less than the cost of the capital. The production sharing contract (PSC) with the Government of India (GoI) contains no provision which entitles the GoI to restrict the costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities are utilised, RIL said.

Sun Pharmaceuticals Industries (up 0.19%), Infosys (up 0.41%), Hindustan Unilever (up 1.70%) and Cipla (up 1.81%), edged higher from the Sensex pack.