The key benchmark indices weakened in early afternoon trade after inflation rose above 1% mark. Weak Asian stocks also weighed on sentiment. The BSE 30-share Sensex was down 74.55 points or 0.44%, up close to 30 points from the day's low and off close to 100 points from the day's high. The Sensex was trading below the psychological 17,000 mark. But market breadth was positive.
Rate sensitive banking stocks fell after marginal rise in inflation. Index heavyweight Reliance Industries declined as the hearing on a gas dispute with Reliance Natural Resources (RNRL) continues in the Supreme Court. Another index heavyweight Larsen & Toubro fell despite strong Q2 result announced just a while back. FMCG and metal stocks rose.
After opening slightly higher, the market soon lost ground on lower Asian stocks. The market cut losses later after initial trends showed that the Congress-Nationalist Congress Party combine was surging ahead in assembly election in Maharashtra. Market weakened in early afternoon trade.
Hedge fund Galleon Group is winding down all its hedge funds and looking at alternatives for the business, company founder Raj Rajaratnam told employees and investors in a letter Wednesday. One of those alternatives is selling all or part of Galleon to another firm
Rajaratnam was one of six people arrested and charged last Friday in a massive insider-trading case. The charges had already caused many Galleon investors to try to withdraw their money. The deadline for redemption requests in most of Galleon's funds was 15 November 2009. The hedge fund has assets under management of about $3.7 billion
As far as Galleon's India operations are concerned, has a 7% stake in broking firm Edelweiss Capital, 4.6% stake in construction firm Shriram EPC and 0.3% stake in Pipavav Shipyard.
On the macro front, inflation based on the wholesale price index rose 1.2% in the year through 3 October 2009, higher than previous week's annual rise of 0.92% government announced today. Food articles index rose 13.34%. The government revised inflation for the week ended 27 August to -0.21% from -0.95%.
The Prime Minister's economic advisory council said on Wednesday that it sees inflation at around 6% by the end of the current fiscal year to March 2010. Faster industrial output growth and rising inflationary pressures have strengthened case for an end to the RBI's accommodative monetary stance next year. Industrial output grew at its fastest pace in 22 months in August 2009 at 10.4%.
The RBI pumped in massive liquidity in the banking system in the past one year or so to help revive the domestic economy in the aftermath of the global financial crisis. While as exit from the loose monetary policy is imminent, speculation on the bourses is the timing of the exit policy. The RBI is expected to keep its benchmark lending and borrowing rates on hold at a quarterly monetary policy review on 27 October 2009.
On the political front, the ruling Congress-Nationalist Congress Party alliance in Maharashtra appeared set to retain power with its candidates leading in 134 of the 288 assembly constituencies in the state. The results showed it won 7 seats so far.
Stock and sector-specific activity may dominate trade on the bourses in the coming days based on expectations on Q2 September 2009 results. Auto firms are seen reporting strong Q2 results on strong volume growth and on lower input costs. Lower interest rates and pay hike for government employees has boosted auto sales this year after last year's slowdown in demand. Government employees have started receiving the balance 60% of their wage arrears as per the recommendations of the VIth Pay Commission.
Cement firms, too, are seen reporting good Q2 numbers on the back of volume growth, higher realisation and decline in costs like imported coal. Metal firms are seen reporting fall in net profit due to a sharp fall in metal prices on year-on-year basis.
Fall in volumes in the commercial property segment and lower realisations in both commercial and residential property segments, will pull earnings of realty firms lower.
Banks are seen reporting a sedate growth in core lending amid sluggish credit offtake. On the flip side, PSU banks will benefit from treasury gains amid volatility in prices of government securities during the quarter.
Strong growth in new subscriber additions will aid topline growth of telecom firms. But falling average revenue per user (ARPU) and revenue per minute due to intense competition will cap bottom line growth.
Asian stocks fell as a batch of strong economic data in China raised the prospect that Beijing may begin to unwind its crisis-driven expansionary policies by year's end. The Shanghai Composite Index was down 0.37%. China's gross domestic product expanded 8.9% in the third quarter compared to the same period a year ago, according to data released by the National Bureau of Statistics. The increase was greater than the 7.9% expansion in the second quarter
In other figures released Thursday, urban fixed-asset investment in China rose 33.3% in the first three quarters, edging up from 33% growth in the first eight months of the year. Industrial production in September rose 13.9% on year, higher than expectations of a 13.3% rise and above August's 12.3% gain. For the first nine month of the year industrial production rose 8.7%.
The apparent economic pick-up could lead to inflation, which would add to pressure on Beijing for a tightening of policy. China's State Council said Wednesday the economy is firming, signaling that is may exceed its official 8% growth target this year, and raising possibility that Beijing is edging closer to a tightening stance. For the time being, China said it has no plans to walk back from its current expansionary lending policy and large fiscal stimulus.
In other Asian stocks, key benchmark indices in Hong Kong, South Korea, Singapore and Taiwan fell by between 0.18% to 1.21%.
Japan's Nikkei 225 Stock Average slumped 0.64%. Japan's exports fell at the slowest pace in 10 months in September 2009 as stimulus spending in China drove demand for the nation's cars and machinery. Shipments abroad dropped 30.7% from a year earlier, compared with a 36% decline in August 2009, the Finance Ministry said today in Tokyo. Exports to China, Japan's biggest market, fell 13.8%, half the pace of the previous month.
Trading in US index futures indicated a flat opening of US stocks on Thursday, 22 October 2009.
US markets finished lower on Wednesday on profit taking despite strong earnings from Morgan Stanley. The Dow Jones industrial average fell 92.12 points, or 0.9%, to 9,949.36. The S&P 500 index was down 9.66 points, or 0.9%, to 1,081.40. The Nasdaq Composite index slipped 12.74 points, or 0.6%, to 2,150.73.
Morgan Stanley reported better-than expected quarterly profit on strong fixed income sales and trading revenue.
The US economy is firmly poised for a recovery from its deep recession but growth may be moderate and the job market will not revive immediately, senior White House aide Lawrence Summers predicted on Wednesday. In an interview to a news agency, Summers said job growth would lag behind a broader economic recovery. Summers, who heads the White House's National Economic Council, also gave strong backing to the beleaguered US dollar, which has fallen to a 14-month low against major currencies.
A high-level commission on the World Bank on Thursday called for sweeping changes to reflect the world's new economic order and said European countries are overrepresented in the decision-making executive board. In a long-awaited report, the 11-member commission, led by former Mexican president Ernesto Zedillo, said the Bank's effectiveness was undermined by a hierarchy dominated by the United States and Europe offering many member countries too little voice and too few opportunities for participation.
Closer home, the supply of paper by Indian firms appear limitless, raising concerns that additional share sales will suck liquidity from the secondary equity market. As per reports, Indian firms have garnered about $9 billion (Rs 32,400 crore at the current exchange rates) through sale of shares and convertible bonds to institutional buyers since April 2009. Indian companies are taking advantage of a surge in liquidity to recapitalize and fund capital expenditure after being starved of cash last year.
Most of these companies - from industries ranging from liquor and spirits to infotech - issued equity shares to a select group of investors by way of qualified institutional placement or QIP. If the enabling resolutions passed by the companies are any indication, Indian firms are gearing up to raise $15 billion (Rs 69,427 crore) in the next six months. The list includes Hindalco (Rs 2,900 crore), JSW Steel ($1 billion), India Cements ($100 million), Essar Oil ($2 billion), Tata Steel (Rs 5,000 crore), Jet Airways ($ 400 million) and Bharat Forge ($150 million).
Unlisted Reliance Infratel announced on 22 September 2009 its intention to raise Rs 5,000 crore from the primary market. Divestment of state-run firms by the government may also increase the supply of paper in the market.
The government on Monday approved stake sales in state-run power producer NTPC and another unlisted power firm Satluj Jal Vidyut Nigam which reflects the country's resolve to speed up reforms and raise more resources for social schemes. On Monday, Trade Minister Anand Sharma said the Union Cabinet had approved a 5% stake sale in NTPC, and 10% in, an unlisted power producer. On Friday, 16 October 2009, Prime Minister Manmohan Singh said many state-run firms are eager to list their shares in the stock market as it would help unlock their value.
The government has approved a follow-on public offering of 20% of state run Steel Authority of India, the steel minister said on Wednesday, 21 October 2009. The Government of India owns nearly 86% of Sail.
At 12:20 IST, the BSE 30-share Sensex was down 74.55 points or 0.44% to 16937.03. The Sensex rose 22.37 points at the day's high of 17,031.54 in early trade. The barometer index fell 104.48 points at the day's low of 16,904.69 in early trade.
The S&P CNX Nifty was down 25.30 points or 0.5% to 5, 038.30.
The market breadth, indicating the overall health of the market was positive. On BSE, 1327 shares advanced as compared with 1125 that declined. A total of 76 shares remained unchanged.
Among the 30-member Sensex pack, 18 fell while the rest rose.
The BSE Mid-Cap index rose 0.05% andt he BSE Small-Cap index rose 0.52%.
Index heavyweight Reliance Industries fell 1.06% to Rs 2159.30 after a lawyer for the firm said company he will conclude initial arguments before the Supreme Court in a gas-pricing dispute with Reliance Natural Resources by 29 October 2009. But the stock came off the day's low of Rs 2140.
Mukesh Ambani-controlled Reliance Industries, India's top conglomerate, is fighting with Reliance Natural Resources, led by younger brother Anil Ambani, over the terms of a deal to sell gas to Reliance Natural at below the price set by the government. Reliance Industries has been presenting initial arguments in the case before the Supreme Court since Tuesday, saying the private deal between the Ambani brothers is not binding on the company, and it can sell the gas only at the government-approved price.
The government, which has the power to decide who can buy gas and at what price, had filed an application asserting it is the rightful owner of the disputed gas.
India's largest engineering and construction firm by sales Larsen & Toubro fell 2.55% even after it announced during market hours today its net profit rose 26.1% to Rs 580.4o crrore in Q2 September 2009 over Q2 September 2008.
India's largest power maker by sales Bharat Heavy Electricals fell 1.23%. Strong project execution, fall in input costs and lower employee costs are seen driving growth in Bhel's top line and bottom line in Q2 September 2009. Metal prices were sharply on year on year basis which will help boost margins of the power equipment major. Further, Bhel had provided Rs 116 crore for wage hike provisions in Q2 September 2008 which had pulled down profit in that quarter. The margins will rise with no such provision in Q2 September 2009.
A total of seven brokerages expect a between 10.8% to 32.4% growth in Bhel's net profit at between Rs 681.50 crore to Rs 815.40 crore in Q2 September 2009 over Q2 September 2008. Their expectations peg a between 24.8% to 28% growth in revenue at between Rs 6667.70 crore to Rs 6838.60 crore in Q2 September 2009 over Q2 September 2008. Bhel unveils Q2 September 2009 results on Friday, 23 October 2009
FMCG stocks rose on hopes of rising consumer demand. Hindustan Unilever, ITC, Tata Tea, Dabur India, United Spirits rose by between 0.14% to 2.96%.
Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange, rose 3.17% on Wednesday. Tata Steel, National Aluminum Company, Hindalco Industries rose by between 0.38% to 1.76%.
India's largest copper maker by sales Sterlite Industries rose 1.83%. The company, last week, raised $500 million in convertible senior notes and plans to use the proceeds primarily for expansion of its copper business. The notes are convertible into American depositary shares at $23.33 per share.
But, Steel Authority of India (Sail) fell 2.13% after the steel minister on Wednesday said the government has approved a follow-on public offering of 20%. The government holds 85.82% stake in Sail.
Hindustan Copper spurted 6.50%, extending recent gains, on reports the government is considering divesting its stake in the company.
Bank stocks fell for second straight day on concern a proposed new interest rate system will intensify competition among lenders. A Reserve Bank of India (RBI) panel on Tuesday proposed a transparent pricing structure for floating rate loans wherein benchmark rates get automatically revised on shrinking cost of funds. India's largest private sector bank by net profit ICICI Bank fell 1.93% as its ADR fell 4% on Wednesday. The bank recently reduced auto loan rates by 50 basis points.
India's largest bank by branch network State Bank of India fell 1.44%. SBI has reportedly raised $750 million (around Rs 3500 crore) in the overseas market through five-year bonds as part of its medium-term note programme (MTN). SBI's $5 billion MTN programme was launched in 2004. It targets investors, including banks, insurance companies, hedge funds and private equities in the global market.
State Bank of India has got the finance ministry's clearance to start talks to merge its subsidiary, State Bank of Indore, with itself.
Among other PSU Stocks, Bank of India, Bank of Baroda and Punjab National Bank, fell by between 0.19% to 0.4%.
But, India's second largest private sector bank by net profit HDFC Bank rose 0.79% even as its ADR fell 3.35% on Wednesday. The bank's net profit rose 30.2% to Rs 687.46 crore in Q2 September 2009 over Q2 September 2008. The results, which hit the market last week, were more or less in line with market expectations.
The committee headed by RBI executive director Deepak Mohanty has suggested discontinuing the usage of a bank's prime lending rate (PLR) as the benchmark for variable rate loans. Instead, it wants banks to arrive at a base rate that reflects the cost of one-year deposits and price loans over this base rate.
The panel has also proposed a ceiling on the extent of loans that can be granted below the benchmark rate. Most banks typically pass on the benefit of falling rates only to fresh customers. RBI governor D Subbarao has repeatedly said though the central bank has slashed its repo rate (at which it lends to banks) by 425 basis points in the last one year, prime lending rates of banks have fallen by only around 200 basis points.
Lenders currently offer loans at less than the benchmark prime lending rate to about 10 categories of borrowers, according to the central bank. Some of these loans are at rates that don't make much commercial sense for the banks, according to the report.
Meanwhile, the central bank may hike the ceiling on the portion of government securities that banks can park in held-to-maturity (HTM) category, possibly at a quarterly monetary policy review on 27 October 2009. Banks do not have to make any mark-to-market provisions on securities held this basket if prices of securities fall. Provisions have to be made out of profit and therefore, impact a bank's bottom line. Yields on ten-year government bonds have risen sharply this year. Bond prices and bond yields are inversely related.
Indian banks can put bonds equal to 25% of the value of deposits in their HTM accounts. The market expectations is for an increase in the ceiling by up to 2 percentage points.
India's largest dedicated housing finance firm HDFC fell 0.73%. HDFC, last week, announced its net profit rose 24.27% to Rs 663.94 crore in Q2 September 2009 over Q2 September 2008. The results beat market expectations.
WABCO-TVS India surged 6.41%, after net profit rose 4.2% to Rs 18.99 crore in Q2 September 2009 over Q2 September 2008.
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