Market loses ground as RBI's latest measures disappoint

Key benchmark indices dropped in choppy trade as Reserve Bank of India's announcement of measures to attract greater foreign investment in government bonds and increase in the total amount that Indian companies can borrow by way of external commercial borrowing (ECB), fell short of investors' expectations. Weakness in world stocks also hit sentiment adversely. World stocks dropped on Monday, 25 June 2012, as investors grew concerned that a key European summit later this week to deal with the ongoing euro-zone debt crisis may not come up with strong measures to resolve euro-zone debt woes. Intraday volatility was high as the barometer index the BSE Sensex settled below the psychological 17,000 mark, which it had crossed in opening trade. The BSE Sensex was down 90.35 points or 0.53%, off 248.99 points from the day's high and up 29.11 points from the day's low. Index heavyweight Reliance Industries (RIL) reversed intraday gains. The market breadth was positive. Index heavyweight and cigarette major ITC retreated after scaling a record high. Interest rate sensitive banking pivotals dropped on worries of rising defaults in a slowing economy. Metal shares fell. Shares of iron ore major Sesa Goa and copper major Sterlite Industries saw divergent trend. Software pivotals edged lower amid ongoing sovereign debt crisis in Europe. Capital goods pivotals edged lower. Auto stocks declined. Shares of two-wheeler pivotals fell amid intensifying competition in the segment. Cement shares were mixed after seeing an across the board slide on Friday, 22 June 2012, after the Competition Commission of India on Thursday, 21 June 2012, levied a penalty of over Rs 6000 crore on 11 cement companies due to violation of the provisions of the Competition Act, 2002, which deals with anti-competitive agreements including cartels. The market opened on a firm note after Finance Minister Pranab Mukherjee said over the weekend that the government, in consultation with the Reserve Bank of India, will announce a clutch of measures on Monday, 25 June 2012, to help revive market sentiment. The market extended gains in morning trade. The market further extended gains in mid-morning trade, with the Sensex and the Nifty hitting 7-½-week highs. The Sensex pared gains after a sudden slide in mid-morning trade. The market regained strength in early afternoon trade. Key benchmark indices pared gains in afternoon trade to hit the day's low after European market opened lower. Market regained strength in mid-afternoon trade. The market regained strength in mid-afternoon trade. The market reversed direction later as Reserve Bank of India's announcement of measures to attract greater foreign investment in government bonds and increase in the total amount that Indian companies can borrow by way of external commercial borrowing (ECB), fell short of investors' expectations. The Reserve Bank of India (RBI) today, 25 June 2012, said it has decided in consultation with the Government of India (GoI), to allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of external commercial borrowing (ECB) for repayment of outstanding rupee loans towards capital expenditure and/or fresh rupee capital expenditure under the approval route. The overall ceiling for such ECBs would be $10 billion, RBI said in a statement. The RBI in consultation with GoI has also decided to raise the existing limit for investment by Securities and Exchange Board of India (Sebi ) registered foreign institutional investors (FIIs) in government securities (G-Secs) by a further amount of $5 billion. This would take the overall limit for FII investment in G-Secs from $15 billion to $20 billion, RBI said. In order to broad base the non-resident investor base for G-Secs, it has also been decided to allow long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks to be registered with Sebi, to also invest in G-Secs for the entire limit of $20 billion, RBI said. The sub-limit of $10 billion (existing $5 billion with residual maturity of 5 years and additional limit of $5 billion) would have the residual maturity of three years, RBI said. The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity, RBI said. Further, Qualified Foreign Investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25% of their assets (either in debt or in equity or both) in infrastructure sector under the current $3 billion sub-limit for investment in mutual funds related to infrastructure, RBI said. The stock market had expected other measures, including steps to boost exports and cut excise duty on certain products to increase local consumption, but there was no immediate announcement of these on Monday, 25 June 2012. Expectations of a major move to revive faltering economic growth were fired on Saturday, 23 June 2012, when Finance Minister Pranab Mukherjee told reporters in Kolkata that that the government in consultation with the Reserve Bank of India, will announce a clutch of measures on Monday, 25 June 2012, to help revive market sentiment. The stock market may remain volatile this week as traders roll over positions from the near-month June 2012 series to July 2012 series. The June 2012 derivatives contracts expire on Thursday, 28 June 2012. The BSE Sensex lost 90.35 points or 0.53% to settle at 16,882.16, its lowest closing level since 19 June 2012. The index gained 158.64 points at the day's high of 17,131.15 in mid-morning trade, its highest level since 3 May 2012. The index lost 119.46 points at the day's low of 16,853.05 in late trade. The S&P CNX Nifty lost 31.40 points or 0.61% to settle at 5,114.65, its lowest closing level since 19 June 2012. The index hit a high of 5,194.60 in intraday trade, its highest level since 3 May 2012. The Nifty hit a low of 5,105.65 in intraday trade. The market breadth, indicating the overall health of the market, was positive. On BSE, 1,471 shares gained and 1,358 shares declined. A total of 127 shares were unchanged. Breadth was strong until mid-afternoon trade. The BSE Mid-Cap index shed 0.03% and the BSE Small-Cap index rose 0.24 %. Both these indices outperformed Sensex. The total turnover on BSE amounted to Rs 1908 crore, lower than Rs 2086.61 crore on Friday, 22 June 2012. Among the 30-share Sensex pack, 23 declined while the remaining shares gained. Cipla (down 2.28%), and Bharti Airtel (down 0.95%) edged lower from the Sensex pack. GAIL (India), HDFC (up %), and Dr Reddy's Labs (up 0.24%) edged higher from the Sensex pack. Index heavyweight Reliance Industries (RIL) rose 0.77% to Rs 716.55, off day's high of Rs 722.90. RIL bought back 9 lakh shares from the secondary equity markets on Friday, 22 June 2012, under its ongoing share buyback program at an average price of Rs 710.3252, RIL said after trading hours on Friday, 22 June 2012. The company has cumulatively bought back a total of 3 crore equity shares under the ongoing buyback program (till 22 June 2012). RIL chairman Mukesh Ambani said at the company's Annual General Meeting in Mumbai early this month that the company's buyback program represents a highly accretive use of cash by the company and it will supplement earnings growth from operations, for higher EPS (earnings per share), in the near future. Oil exploration giant ONGC fell 2.09%, with the stock sliding on profit booking after a sharp 14.97% rally in the past one month. State-run Coal India (CIL) shed 0.33%. Reportedly the company has hiked the prices by an average of 10-15% for non-coking coal mined from selected blocks in Western Coalfields. The increase in the prices came into effect from midnight of 21 June 2012. It was the top gainer from the Sensex pack. Interest rate sensitive banking pivotals dropped on worries of rising defaults in a slowing economy. India's largest private sector bank by net profit ICICI Bank fell 1.04%. India's second largest private sector bank by net profit HDFC Bank declined 1.15%. India's largest commercial bank in terms of branch network State Bank of India (SBI) lost 2.17%. As per recent reports, the bank has slashed interest rates on term loans, agriculture loans and loans to small and medium enterprises (SMEs) by 50-350 basis points (bps), or 0.5%-3.5% with effect from 1 June 2012. SBI has kept the base rate unchanged at 10%. Axis Bank shed 0.34%. The bank today informed that shareholders and unsecured creditors have approved the Scheme of Arrangement between Axis Bank, Enam Securities, Axis Securities and Sales and their respective shareholders and creditors. Indian Bank fell 2.64% after the stock turned ex-dividend today, 25 June 2012, for a dividend of Rs 7.50 per share for the year ended March 2012. Manappuram Finance spurted 10.37%. The company announced during trading hours today, 25 June 2012, that ratings firm ICRA has removed the company from the rating watch with developing implications. ICRA's outlook on the long term rating is stable. Metal shares fell. Jindal Steel & Power (down 1.50%), Hindustan Zinc (down 0.93%), Sail (down 0.56%), JSW Steel (down 0.42%), and Tata Steel (down 1.52%), declined. Shares of iron ore major Sesa Goa and copper major Sterlite Industries saw divergent trend. Sesa Goa rose 0.54%. The company today said valid voting of 91.70% representing 79.12% votes in value voted in favor of the resolution approving the a proposal to merge their firm with Vedanta Resources flagship Sterlite Industries and its various subsidiaries. The merger will create the world's seventh largest diversified metals and mining conglomerate. At least 75% of shareholders need to approve the merger for it to become effective. Sterlite Industries (India) fell 1.10%. The stock turned ex-dividend for a final dividend of Re 1 per share for the year ended 31 March 2012. The company today said shareholders have approved the scheme of amalgamation and arrangement with valid voting of 89.75% representing 92% votes in value voted in favor of the resolution approving the scheme. Private sector aluminium major Hindalco Industries shed 2.30%. The company will announce its audited consolidated results for the year ended 31 March 2012 on 27 June 2012. Iron ore miner NMDC rose 0.48% on reports the finance ministry is considering removal of customs duty on iron ore. Software pivotals edged lower amid ongoing sovereign debt crisis in Europe. Europe is the second biggest outsourcing market for Indian IT services firms after the US. India's second largest software services exporter by revenues, Infosys fell 0.65%. India's third largest software services exporter by revenue, Wipro, fell 0.15%. India's largest IT company by revenue Tata Consultancy Services (TCS) shed 1.52%. India's top small-car maker by sales Maruti Suzuki India advanced 0.77% on reports the company has accelerated work at its Gurgaon factory to introduce a fuel-efficient and technologically superior 800cc car around Diwali, as it seeks to boost sales of cars in a segment where its aging Alto hatchback is losing market share. Auto stocks declined. India's largest utility vehicles maker Mahindra & Mahindra (M&M) fell 1.13%. The company early this month said it has received an overwhelming 7,200 plus bookings for its cheetah-inspired XUV500 from customers within just 2 days of opening all India bookings for the vehicle. All India bookings for the XUV500 were opened from 8 June 2012. India's largest truck maker by sales Tata Motors declined 0.61%. After market hours on Thursday, 21 June 2012, the company said that P.M. Telang, Managing Director of Tata Motors' India Operations retired from the company on Thursday 21 June 2012 on attaining the age of superannuation and stepped down from the board of the company. Tata Motors said it has appointed two new Executive Directors. Ravindra Pisharody, President - Commercial Vehicles Business Unit, has been appointed Executive Director (Commercial Vehicles). Satish Borwankar, Senior Vice-President (Manufacturing Operations - Commercial Vehicles Business Unit), has been appointed Executive Director - Quality, Vendor Development & Strategic Sourcing for Tata Motors. Tata Motors on 15 June 2012 intimated to the Bombay Stock Exchange (BSE) that Chairman Ratan N Tata purchased additional 4.25 lakh equity shares of Tata Motors from open market purchases on Thursday, 14 June 2012, for about Rs 9.94 crore. After the latest acquisition, Ratan N Tata now holds a total of 13.61 lakh ordinary equity shares of Tata Motors and 1.09 lakh 'A' Ordinary shares of Tata Motors, aggregating to 0.05% of voting rights of Tata Motors. Tata Motors on 15 June 2012 said sales of its luxury vehicles -- Jaguar Land Rover -- jumped 35% to 30,094 in May 2012 over May 2011. Tata Motors derives almost two-third of its revenue from its British unit Jaguar Land Rover. Tata Motors' global vehicle sales rose 12% to 96,089 units in May 2012 over May 2011. The company's overall global passenger vehicles sales rose 21% to 51,064 units in May 2012 over May 2011. Commercial vehicle sales rose 3% to 45,025 in May 2012 over May 2011 Shares of two-wheeler makers fell amid intensifying competition in the segment. Unlisted Yamaha Motor Co. plans to develop its cheapest motorcycle globally in India, to be sold for about $500, as the Japanese two-wheeler maker battles with rivals such as Honda Motor Co. for a bigger share of the market. Yamaha has a target of a 10% market share by 2016 from 3.5% now. India's second largest motorcycle maker by sales Bajaj Auto slipped 0.28%. The company early this month said its total sales fell 2% to 3,52,219 units in May 2012 over May 2011, as exports to Sri Lanka were nil in May 2012 against a typical monthly average of 10,000 motorcycles and 3-wheelers each per month. The company expects recovery in Sri Lankan exports from July 2012 onwards. The company's exports rose 3% to 1,30,573 units in May 2012 over May 2011. India's largest motorcycle maker by sales Hero MotoCorp (HMCL) dropped 2.80% to Rs 2026.15 and was the top loser from the Sensex pack. The board of directors of the company recently approved a proposal to merge Hero Investments (HIPL), the investment arm of the Hero Group, into HMCL. The shareholders of HIPL include the partnership firm Brijmohan Lall Om Prakash (BMOP) which holds 71.63%, and private equity (PE) investors BC India Private Investors (19.81%) and Lathe Investment (8.56%). BC India Private Investors is an affiliate of Bain Capital LLC, while Lathe Investment is a wholly-owned subsidiary of Government of Singapore Investment Corporation (GIC). Hero MotoCorp reported its best-ever monthly sales in May 2012, thus underlining the robust momentum the company has sustained since embarking on its solo journey. Marking its 10th consecutive month of over five lakh sales, Hero MotoCorp total sales rose 11.3% to 5,56,644 two-wheelers in May 2012 over May 2011. The company's sales in May this year surpassed its previous highest of 5,51,557, recorded only last month (April 2012). Index heavyweight and cigarette major ITC slipped 0.52% to Rs 249.25. The stock retreated after scaling a record high of Rs 253.80 in intraday trade today, 25 June 2012. Capital goods pivotals edged lower. Larsen & Toubro (L&T) slipped 0.49%. Reportedly L&T has decided to initiate a fund-raising exercise for L&T Infrastructure Development Projects (L&T IDPL) to help it raise US$400-500 million for a minority stake in the company from financial sponsors like large sovereign funds or long-term infrastructure-sector-focused private equity investors or even deep-pocket global pension funds India's largest capital goods maker by capacity Bhel declined 1.83%. Hindustan Construction Company rose 1.28% on report that lenders agreed to provide an additional Rs 1500 crore under the corporate debt restructuring scheme if the promoters infuse Rs 302 crore equity. Suzlon Energy jumped 2.88% after the company said that the Suzlon Group would sell stake in its China manufacturing unit to China Power New Energy Development Company for Rs 340 crore. The announcement was made on Saturday, 23 June 2012. Cement shares were mixed after seeing an across the board slide on Friday, 22 June 2012, after the Competition Commission of India on Thursday, 21 June 2012, levied a penalty of over Rs 6000 crore on 11 cement companies due to violation of the provisions of the Competition Act, 2002, which deals with anti-competitive agreements including cartels. Ambuja Cements (up 0.63%), J K Cements (up 1.70%), UltraTech Cement (up 1.09%), India Cements (up 0.84%), edged higher. Madras Cement (down 1.10%), Shree Cement (down 1.52%), Jaiprakash Associates (down 2.38%) and ACC (down 0.20%), declined. CCI has imposed penalty on 11 cement manufacturers at 0.5 times of their profit for the year 2009-10 and 2010-11. The news of penalty hit the market after trading hours on Thursday, 21 June 2012. The cement manufacturers upon whom the penalty has been imposed are ACC, Ambuja Cements, UltraTech Cements, Grasim Cements (now merged with UltraTech Cements), JK Cements, India Cements, Madras Cements, Century Cements, Binani Cements, Lafarge India and Jaypee Cements. Sun TV Network jumped 4.21% on report the company has proposed to spend Rs 180-200 crore as capital expenditure for the current financial year, which will mostly be spent on programming operations and upgrading equipment. Besides, the company has lined up Rs 250-260 crore to acquire movies for distribution. Wockhardt rose 3.61% to Rs 900.20. The stock hit a record high of Rs 906.45 in intraday today, 25 June 2012. Natco Pharma fell 6.12% after a ruling by a US District Court that the company's generic version of Copaxone infringes all the asserted claims of Teva Pharmaceuticals who holds the patent on the drug. The company made this announcement during trading hours today, 25 June 2012. On the political front, Congress President Sonia Gandhi has reportedly convened a meeting of the Congress Working Committee today, 25 June 2012, at 11:00 IST to bid a formal and fond farewell to Pranab Mukherjee from the Congress party and from active politics. Pranab Mukherjee will tomorrow, 26 June 2012, step down as the country's Finance Minister before filing nomination papers for the July 19 Presidential election. Foreign institutional investors (FIIs) sold shares worth a net 174.22 crore on Friday, 22 June 2012, as per provisional data from the stock exchanges. They had sold shares worth a net Rs 257.29 crore on Thursday, 21 June 2012, as per provisional data from the stock exchanges. Moody's Investors Service today, 25 June 2012, said it is maintaining its stable outlook on India's sovereign rating as the growth slowdown and deteriorating business sentiment in the economy are likely to be temporary. The decision would give the Indian government the much-needed respite as it faces heat due to a cut in outlook to negative from stable by Standard & Poor's in April and by Fitch last week. Standard & Poor's and Fitch had warned that India could lose its investment grade rating if swift measures weren't taken to revive investment climate and boost growth in the economy. Moody's said India's Baa3 rating already reflected challenges such as a weak fiscal performance of the government, high inflation and an uncertain investment policy environment, which have characterized the economy for decades. "Certain recent negative trends -- such as lower growth, slowing investment and poor business sentiment -- are unlikely to become permanent or even medium-term features of the Indian economy, although global and domestic factors, including potential shocks in agriculture, could keep India's growth below trend for the next few quarters," Moody's said in a statement. Moody's said the slowdown in growth and high inflation will hurt India's credit profile, but not enough to lead to a revision in its rating. India's limited foreign currency debt is also likely to shield the government from any significant increase in its external debt burden due to the sharp fall in the rupee, the ratings firm added. The India Meteorological Department (IMD) on Friday, 22 June 2012, cut the expected quantum of total rainfall in the country for 2012. The timing, distribution and quantity of the rains are vital to India's agricultural sector and economy, as more than 60% of the country's farmland is rain-fed. IMD said monsoon rains in 2012 would be 96% of the long-term average overall, down from its April forecast of 99%. A normal or average monsoon means rainfall between 96-104 percent of a 50-year average of 89 centimetres in total during the four-month season from June, according to IMD's classification. The weather office has forecast normal rains in July and August, key months for planting and maturing of crops. July rains this year are likely to be 98% of the long period average, while the rainfall in August is forecast to be 96% of the average. Rainfall in the northwestern grain bowl region is likely to be a slightly deficient at 93% of the long-term average this season. Total amount of rain fall in the country as a whole was 24% below the long-term average as of 21 June 2012, IMD said. As per reports, sowing of most Kharif crops has been below last year's level so far, except sugarcane where it increased. The monsoon rains -- which make up around 70% of India's annual rainfall -- are crucial to the nation's agriculture sector and broader economy. The next major trigger for the stock market is Q1 June 2012 corporate earnings, which will start trickling from the second week of July 2012. HDFC announces Q1 results on 11 July 2012. HDFC Bank declares its Q1 results on 13 July 2012. Bajaj Auto reports Q1 results on 18 July 2012. Prime Minister Manmohan Singh at the G20 Plenary Session last week said that the Indian government is determined to create an environment that will boost investor sentiment and promote an atmosphere conducive to enterprise and creativity. He said that the government's policies will be transparent, stable and designed to provide a level playing field to both domestic and foreign investors. Singh said that the government is focusing heavily on infrastructure investment and it has set ambitious targets to keep infrastructure investment on track and also put in place a problem resolution mechanism to overcome implementation bottlenecks. Like other countries, we too allowed the fiscal deficit to expand after 2008 to impart a stimulus. We are now focussing on reversing the expansion. Singh said that the government is determined to take tough decisions, including on controlling subsidies The prospect of change of guard at the finance ministry has raised expectations of possible kick-starting of economic reforms in the country. Market men expect that either C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, or P Chidambaram, Union home minister, will become the country's next finance minister if Pranab Mukherjee moves on to become the nation's next president after the upcoming presidential poll to be held next month. Election for the 13th President to succeed Pratibha Patil will be held on 19 July 2012. The counting of votes will be taken up on 22 July 2012, with the result to be out on the same day. Expectations are that if either Rangarajan or Chidambaram becomes the new finance minister, he would push through some economic reforms. Media reports suggest that Prime Minister Manmohan Singh is likely to handle the finance portfolio until a cabinet reshuffle which he is expected to announce in September 2012. The BJP has decided to support P A Sangma for President of India against Pranab Mukherjee. The Congress-led United Progressive Alliance (UPA) coalition this month named Finance Minister Pranab Mukherjee as its nominee for the post of president in the upcoming presidential poll. European stocks dropped on Monday, 25 June 2012, as investors grew concerned that a key European summit later this week to deal with the ongoing euro-zone debt crisis may not come up with strong measures to resolve euro-zone debt woes. Key benchmark indices in UK, France and Germany were down by 0.63% to 1.72%. Meanwhile, Italy is scheduled to sell inflation-linked securities maturing in 2016 and 2026 tomorrow, 26 June 2012 as well as 3 billion euros ($3.8 billion) of zero-coupon bonds. Spain will offer three- and six-month bills on the same day. The Swiss National Bank and the National Bank of Poland have concluded a Swiss franc/Polish zloty swap agreement that would allow the Polish central bank to provide Swiss franc liquidity to banks in Poland in the event of tensions in the Swiss franc interbank market, the two central banks announced Monday. All swap transactions would require the SNB's prior approval. The term of the swaps would be one week. "The two central banks do not anticipate that this agreement, which has been concluded as a precautionary measure, will need to be called upon," the banks said. Fitch Ratings on Monday cut Cyprus's credit rating to BB+ from BBB-, with a negative outlook maintained. The European Central Bank (ECB) said Friday, 22 June 2012, it will widen the range of securities it will accept from euro-zone banks in exchange for its loans with the aim of helping boost lending to companies and households. The ECB will now accept certain mortgage-backed securities, car loans and loans to small and medium-size firms. The measure is to come into force once approved in a legal act and expected to be adopted 28 June 2012, the ECB said. The Spanish government made its formal request Monday for bank aid from the European Union, but it mentioned no specific sum outside of the previously stated maximum of €100 billion ($125 billion). The government said a memo of understanding should be signed by July 9. A key summit of the European Union is scheduled on 28 and 29 June 2012 to discuss the ongoing European debt crisis. At the upcoming EU summit, European officials will reportedly launch the long process of deeper integration within Europe, starting with a push for a banking union, with the aim of finalizing a broad plan by December 2012. European nations will take all necessary measures to safeguard the integrity and stability of the euro zone, improve the functioning of financial markets and break the feedback loop between sovereign debts and banks, according to the statement released at the end of the G20 summit in the Mexican resort of Los Cabos on 19 June 2012. Asian stocks declined today as concerns about the global economy and the debt crisis in Europe continued to weigh on investor sentiment. Key benchmark indices in Singapore, Hong Kong, Japan, China, Taiwan, South Korea and Indonesia were down by 0.45% to 1.63%. An initial reading of HSBC's China manufacturing Purchasing Managers' Index on Thursday showed activity slowing in June from the previous month. HSBC China chief economist Hongbin Qu said the sharp fall in prices and moderation of new orders pointed to weak domestic demand. With external headwinds remaining strong, exports are likely to decelerate in the coming months, he said in a statement. Trading in US index futures indicated that the Dow could fall 83 points at opening bell on Monday, 25 June 2012. US stocks ended higher on Friday, led by gains in bank shares. The Dow Jones Industrial Average rose 67.21 points, or 0.5%, to 12640.78. The Standard & Poor's 500 Index gained 9.51 points, or 0.72%, at 1,335.02. The Nasdaq Composite Index advanced 33.33 points, or 1.17%, at 2,892.42.