Market tumbles on government's inability to implement policy reforms

The market tumbled last week on concerns over government's inability to continue with policy reforms after it suspended plans to allow foreign direct investment (FDI) in multi-brand retail sector. Concerns over outcome of European Union summit also spooked sentiments. Key benchmark indices declined for three out of four trading sessions. Equity market was shut on Tuesday, 6 December 2011, on account of Moharum.

The BSE Sensex fell 633.37 points or 3.76% to 16,213.46 in the week ended Friday, 9 December 2011. The 50-share S&P CNX Nifty fell 183.45 points or 3.63% to 4,866.70.



The BSE Mid-Cap index fell 2.47% while the BSE Small-Cap index fell 2.21%. Both these indices outperformed the Sensex.

Facing a harsh political reaction that paralysed the Indian Parliament, the governing Congress Party on Wednesday, 7 December 2011, suspended plans to allow foreign multibrand retailers like Wal-Mart to open stores in India.

The decision was a setback for Prime Minister Manmohan Singh and seemed certain to deepen criticism that his administration had become increasingly adrift and ineffective. Earlier, the Union Cabinet had approved 51% FDI in multi-brand retail and raised the cap to FDI in single brand retail to 100% from the 51% earlier.

Meanwhile, the Special Central Bureau of Investigation (CBI) court on Thursday, 8 December 2011, allowed Janata Party leader and complainant Subramanian Swamy to lead evidence against home minister P Chidambaram to prove his alleged complicity in the 2G spectrum allocation scam.

Swamy has sought to make the home minister an accused in the case, arguing the decision on spectrum pricing was taken in 2008 jointly by him (as the then Union finance minister) and then communications minister A Raja, an under trial lodged in Tihar Jail. Swamy has been asked to testify against Chidambaram on 17 December 2011.

The government on Friday, 9 December 2011, cut its economic growth forecast to 7.25%-7.75% from the previous 8% for the current year through March 2012 (FY 2012), and it also warned of possible fiscal slippage caused by global uncertainties. In a mid-year economic review presented in parliament on Friday, 9 December 2011, the finance ministry said that commitments on account of additional requirement on various subsidies will make it difficult to adhere to the total expenditure target for the current year. However the government promised to keep the slippage to a minimum as it broadly adheres to its long-term fiscal rigor, the report added. The government had pegged fiscal deficit at 4.6% of gross domestic product when it presented the Union Budget 2011-2012 in February 2011.

The reduction in GDP growth forecast for FY 2012 comes after the economy grew an annual 6.9% in the quarter ending September 2011, its slowest pace in more than two years. The government said headline inflation would decline from December 2011, expecting it to ease to 7% by March 2012.

The government also said that the Rs 40000-crore stakes sale target in state-run companies would be hard to achieve this fiscal year, while tax receipts would suffer from the impact of the global slowdown. The government is considering options other than share sales to meet its divestment target in state-run companies for the fiscal year ending March, the junior finance minister said on Friday.

A recent depreciation in the rupee may be seen as a lagged correction, the finance ministry said. The rupee had hit a record low of 52.73 on 22 November 2011 and has shed more than 14% of its value this year to remain the worst performer among major Asian peers.

Food inflation in India slid further in the fourth week of November, falling under the 7% mark, data released by the Government showed on Thursday. Fuel inflation remained steady. Food inflation declined to 6.6% in the week ended November 26 from 8% in the preceding week, the Commerce & Industry Ministry said on Thursday. Food inflation stood at 8.93% in the corresponding week last year. Inflation in the Primary Articles group fell to 6.92% in the week under review, from 7.74% in the week ended November 19, according to the Commerce Ministry statement. It was at 14.01% in the year-ago period. Inflation in the Fuel & Power group stood at 15.53% in the week ended November 26, unchanged compared to the previous week, the latest data showed. It was at 10.07% in the comparable week of the previous year.

While the key European Union summit has failed to secure the full backing of the 27 nations for treaty changes to help fight euro-zone debt crisis by coordinating fiscal policy, many members reached an agreement to provide up to an extra 200 billion euros ($266.73 billion) to fight the crisis and to form a new fiscal compact. European Council President Herman Van Rompuy said in a press conference after the end of the first day of the summit on Thursday, 8 December 2011, that euro-area and other European states will aim to make the extra money available to the International Monetary Fund. Additionally, European Financial Stability Facility leverage will be rapidly available, he said.

Van Rompuy added that the participating states also agreed to new strong fiscal rules for Europe, including member states submitting draft budget plans to the commission for scrutiny. Excessive deficit procedure rules will be reinforced more automatically, he said. Van Rompuy also referred to private-sector involvement (PSI) in bailouts and said that the members in the new compact would "strictly adhere to IMF practice." Van Rompuy said that members hadn't yet come to an agreement on euro bonds but that euro-area member states would continue to work on fiscal integration. There would be an update on this issue in June 2012, he said.

A full agreement on close fiscal ties within the EU fell through after the UK asked for concessions that France and Germany weren't willing to give, according to reports. The two-day summit is billed as crucial for the debt-stricken region.

The European Union will pursue an intergovernmental deal without all members, French president Nicolas Sarkozy said at a press conference on Friday, 8 December 2011. "We're doing everything we can to save the euro," he said. Sarkozy was speaking at a press conference after a European Union summit.

Trading for the week began on weak note. Key benchmark indices snapped a three-day rally in a volatile trading session on Monday, 5 December 2011, as investors booked profit. The BSE Sensex fell 41.50 points or 0.25% to 16,805.33. The S&P CNX Nifty fell 11 points or 0.22% to 5,039.15.

Market remained closed on Tuesday, 6 December 2011, on account of Moharum. Key benchmark indices edged higher in a volatile trading session on Wednesday, 7 December 2011, on firm global cues. The BSE Sensex rose 71.73 points or 0.43% to 16,877.06. The S&P CNX Nifty rose 23.45 points or 0.47% to 5,062.60.

Key benchmark indices tumbled on Thursday, 8 December 2011, after a newspaper report suggested that industrial output declined by 7% in October 2011, falling for the first time since June 2009. The BSE Sensex lost 388.82 points or 2.3% to settle at 16,488.24. The S&P CNX Nifty fell 118.95 points or 2.35% to settle at 4,943.65.

Key benchmark indices fell for the second straight day on Friday, 9 December 2011, after the government cut economic growth forecast to 7.25%-7.75% from its previous forecast of 8% for the current year through March 2012 (FY 2012), and warned of possible fiscal slippage caused by global uncertainties. The BSE Sensex was down 274.78 points or 1.67% to 16,213.46. The S&P CNX Nifty was down 76.95 points or 1.56% to 4,866.70.

From the 30-member Sensex pack, 28 shares declined and only two rose.

India's largest listed cellular services provider by number of customers Bharti Airtel was the top Sensex losers last week. The stock lost 8.06% to Rs 358.70. The African unit of Bharti Airtel said on Thursday, 8 December 2011, that it is partnering with South Korea's Samsung Electronics Co. to offer a range of products. The agreement gives Bharti, India's largest listed cellular services provider by number of customers, the exclusive distribution rights for some Samsung products for six months after they are launched in Africa. The two companies will also work together to provide market-specific products based on consumer preferences.

Interest rate sensitive banking stocks fell on profit taking after recent gains triggered by hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause further rate hikes. India's largest private sector bank by net profit, ICICI Bank, fell 7.12% to Rs 731.55. India's second largest private sector bank by net profit, HDFC Bank, fell 4.50% to Rs 444.80. India's largest bank by net profit and branch network State Bank of India (SBI) declined 1.20% to Rs 1863.95.

The Indian economy expanded at a substantially lower rate in the second quarter of the current fiscal year as a series of rate increases by the RBI and a global slowdown hurt local demand. India's economy grew 6.9% in Q2 September 2011, in line with expectations, after expanding by 7.7% in the first quarter, government data showed on 30 November 2011. India's GDP growth in the first six months of fiscal year ending March 2012 stood at 7.3% versus 8.6% in the corresponding period of the last financial year, the CSO data showed on 30 November 2011.

Meanwhile, the parliament panel reportedly agreed to remove the 10% cap on voting rights for investors in private sector banks. The panel has proposed a voting rights cap of 26% in private banks. The government version of the legislation, known as the Banking Laws (Amendment) Bill, had proposed scrapping a 10% cap on voting rights for investors in private sector banks and making it proportionate to the shareholding. The standing committee rejected this version, proposing instead to cap shareholding at 26%. The current cap for investors in public sector banks is 1%.

Metal and mining shares declined as prices of industrial metals fell. Sterlite Industries (down 7.35% to Rs 101.40), Coal India (down 5.31% to Rs 316.65), Tata Steel (down 4.92% to Rs 398.25), Hindalco Industries (down 2.48% to Rs 131.95) and Jindal Steel & Power (down 0.58% to Rs 530.80), edged lower.

Auto stocks fell on profit taking after recent gains triggered by strong vehicle sales in November. India's largest tractor maker by sales Mahindra & Mahindra declined 5.92% to Rs 703.75. The company's total auto sales jumped 52.7% to 40,722 units in November 2011 over November 2010.

India's largest truck maker by sales Tata Motors fell 4.34% to Rs 182.95. The company's total sales rose 41% to 76,823 units in November 2011 over November 2010.

India's largest motorcycle maker by sales Hero MotoCorp shed 2.42% to Rs 2033.10. The company's sales rose 27.4% to 536,772 units in November 2011 over November 2010.

India's largest motorcycle maker by sales Bajaj Auto fell 2.29% to Rs 1673.30. Bajaj Auto's total vehicle sales jumped 25% at 374,477 units in November 2011 over November 2010.

India's largest car maker by sales Maruti Suzuki India fell 0.62% at Rs 985.70. The company's total sales fell 18.5% to 91,772 units in November 2011 over November 2010.

Car sales in India rose in November, the first monthly rise in five, an industry body said on Thursday, as the industry rebounded strongly from the biggest fall in over a decade the month before. Domestic passenger car sales increased by 7% to 1,71,131 units in November, 2011, from 1,59,939 units in the same month last year. According to figures released by the Society of Indian Automobile Manufacturers (SIAM) on Thursday, motorcycle sales in the country grew by 22.67% to 8,69,070 units during the month from 7,08,476 units in the corresponding month last year. Total two-wheeler sales grew by 25.27% to 11,63,294 units last month from 9,28,660 units in November 2010, as per the data. Sales of commercial vehicles grew by 34.99% to 66,264 units in the month under review from 49,087 units in the year-ago period, SIAM said.

IT stocks outperformed the market on a weak rupee. India's third largest software services exporter by revenue Wipro rose 2.50% to Rs 404.20. Wipro Technologies, the global information technology, consulting and outsourcing business of Wipro, has announced its plans to create a focused global unit called Business Operation Unit, which will enable Wipro to deliver differentiated value for clients with seamless, predictable execution. It will consolidate its business application services, global delivery, quality and IS teams under the newly formed Business Operation Unit.

India's second largest software services exporter by revenue Infosys rose 0.35% to Rs 2706.15.

India's largest software services exporter TCS, however, declined marginally by 0.32% to Rs 1171.70. Tata group holding firm, Tata Sons, recently named Cyrus Pallonji Mistry as the successor to Tata Group Chairman Ratan Tata.

The rupee fell on Friday, dragged by the dip in euro and local equities, on growing concerns that European leaders may not be able to cobble up a far-reaching plan at summit later in the day to tackle the region's festering debt crisis. The partially convertible rupee was at 52.16/17 per dollar, sharply weaker from Thursday's closing of 51.75/76. The unit had touched a record low of 52.73 on 22 November 2011. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

Index heavyweight Reliance Industries (RIL) shed 6.83% to Rs 755.45. The company 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.