The key benchmark indices slumped to fresh day's low in early afternoon trade after the Reserve Bank of India did away with some special liquidity steps that it had announced in the aftermath of the global financial crisis. The RBI had 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.
The BSE 30-share Sensex was down 189.65 points or 1.13%, off close to 150 points from the day's high. Banking stocks fell as the RBI did not relax mark-to-market rules for bank's debt holdings. The market has been agog with talks of the central bank hiking the ceiling on the portion of government securities that banks can park in held-to-maturity (HTM). Rate sensitive realty stocks slumped. Index heavyweight Reliance Industries also declined. FMCG, cement, construction stocks also fell.
The Reserve Bank kept its benchmark lending and borrowing rates on hold at a quarterly monetary policy review on Tuesday, 27 October 2009. It also kept steady cash reserve ratio at 5% but raised the statutory liquidity ratio to 25% from 24% with effect from 7 November 2009.
Finance Secretary Ashok Chawla said after the policy announcement that the economy is on recovery path and that the policy was in line with expectations. He said SLR hike will not impact banks much.
RBI kept 2009/10 GDP forecast at 6% with upside bias and said sees modest decline in agriculture. RBI said economy has begun to stabilize despite falling exports and poor monsoon. It said services sector growth still below trend and the industrial performance has improved markedly. It further said bank credit growth remained sluggish and urged banks to step up credit expansion efforts. RBI raised projection of inflation to 6.5% with an upside bias at end March 2010.
Effective immediately, it ended a special repurchase facility for banks and another for the funding needs of non-bank financial companies, mutual funds and housing finance companies.
It also ended a forex swap facility for banks, and cut an export credit refinance facility to a pre-crisis level of 15 % from 50 % with immediate effect.
Volatility may remain high this week as traders rollover positions in the derivatives segment from October 2009 series to November 2009 series ahead of the expiry October 2009 contracts on Thursday, 29 October 2009.
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 declined on Tuesday as raw material prices fell and Hong Kong enacted measures to curtail property speculation. Down payments for homes priced above HK$20 million ($2.58 million) will be raised to 40% from 30%, Hong Kong Monetary Authority Chief Executive Norman Chan said. Key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan, were down by between 0.14% to 1.93%.
Prices for the luxury property in Hong Kong have exceeded their former historical peak, set in 1997. Prices in the mass market, meanwhile, have risen about 30% since the start of the year, matching highs seen in the run up to the global financial crisis last year, but they remain below their 1997 levels.
US index futures turned green. Trading in US index futures indicated Dow could rise 4 points at the opening bell on Tuesday, 27 October 2009.
US markets retreated on Monday, led by financials and commodities, as the dollar rebounded. Financials were the day's biggest decliner after Rochdale Securities analyst Richard Bove downgraded three of the industry's bigger names- Suntrust, Fifth Third Bancorp, and US Bancorp. The Dow Jones dropped 104.22 points, or 1.05%, to 9,867.96. The S&P 500 Index shed 12.65 points, or 1.17%, to 1,066.95. The Nasdaq Composite Index fell 12.62 points, or 0.59%, to 2,141.85.
Back 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 recently 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 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 189.65 points or 1.13% to 16550.85. The Sensex fell 41.41 points at the day's high of 16,699.09 in early trade. The barometer index fell 207.55 points at the day's low of 16,532.95 in early afternoon trade.
The S&P CNX Nifty was down 63.65 points or 1.28% to 4,907.25.
The market breadth, indicating the overall health of the market was weak. On BSE, 466 shares advanced as compared with 1906 that declined. A total of 58 shares remained unchanged.
Among the 30-member Sensex pack, 17 fell while rest rose.
The BSE Mid-Cap index fell 2.9% and the BSE Small-Cap index fell 2.96%.
Energy major Reliance Industries fell 1.35% extending recent losses as partner Hardy Oil said late last week a D9 well will be plugged and abandoned. Hardy holds a 10% participating interest in the D9 block, which is located in the Krishna Godavari basin on the east coast of India. Reliance Industries is the operator and holds a 90% stake.
The continued pressure on gross refining margins, or the difference between the price of crude and the price of refined petroleum products, is seen weighing on the company's bottom-line in Q2 September 2009, in spite of higher gas production and refining throughput. RIL unveils Q2 results on Thursday, 29 October 2009.
A total of eight brokerages expect a between a 9% fall to a 1.4% rise in RIL's net profit at between Rs 3752.10 crore to Rs 4178 crore in Q2 September 2009 over Q2 September 2008. Their expectations peg a between 23% fall to a rise of 19.8% in revenue at between Rs 34292.90 crore to Rs 53667.70 crore in Q2 September 2009 over Q2 September 2008.
Meanwhile, RIL told the Supreme Court, last week, it had no knowledge of the pact between its chairman Mukesh Ambani and his younger brother Anil.
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 20 October 2009, 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.
Anil Ambani's Reliance Natural Resources claims the contract is valid and wants the court to direct Reliance Industries to supply it with 28 mmscmd of gas for 17 years at almost half the government-set price of $4.2 per mmBtu.
The Supreme Court will resume hearing the case today, 27 October 2009, with Reliance Industries expected to conclude its initial arguments by Thursday, 29 October 2009. The court will then hear arguments by Reliance Natural Resources, following which it will consider a petition by the government to become a party to the dispute.
Bank stocks fell after Reserve Bank held steady key rates. RBI said there is no increase in hold to maturity CAP for banks as HTM limit already higher than statutory liquidity ratio. India's largest private sector bank by operating income ICICI Bank fell 4.63% after Singapore's Temasek cut its stake to 5.76% as of 30 September 2009 from 7.6%as of end of June 2009. Temasek said in a statement in Singapore that any stake sales are part of regular moves to review and rebalance its portfolio.
India's largest bank by branch network State Bank of India fell 3.9%. State Bank of India (SBI) announced on 24 October 2009 that it has concluded the issue of $750 million fixed rate senior notes having a maturity of 5 years at a coupon of 4.50% under the Medium Term Notes (MTN) Programme in the form of Regulation S Global Note. The bonds have been issued through the bank's London branch as of 23 October 2009
But, India's second largest private sector bank by net profit HDFC Bank rose 0.2% even as its ADR fell 3.31% on Monday. The bank's net profit rose 30.2% to Rs 687.46 crore in Q2 September 2009 over Q2 September 2008. The results were more or less in line with market expectations.
Banks do not have to make any mark-to-market provisions on securities held in the HTM 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.
Meanwhile, a committee headed by RBI executive director Deepak Mohanty recently 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.
Global rating agency Moody's on 21 October 2009 assigned moderate credit risk rating to 13 Indian commercial banks, including the country's largest public sector lender State Bank of India and private entity ICICI Bank. The agency has given the supported ratings an assessment of the government's ability to support the banks to the 13 entities, following the review of systemic support for individual banking systems. Moody's Investor Service in a statement said it has changed the systemic support input for Indian banks' ratings to Baa2 from the A1 local currency deposit ceiling. Baa2 generally refers to moderate credit risk.
The RBI in its report on trend and progress of banking in India for 2008/09 released on Thursday, 22 October 2009, said it needs to assess and initiate measures to raise the capital base of state-run banks. The central bank said off-balance sheet exposures of local banks declined by 26% in 2008/09, but it was necessary to monitor and evaluate risks from such exposure
Rate sensitive realty stocks fell as RBI in its policy review hiked provision for real estate loans. Indiabulls Real Estate,DLF, Ackruti City, Unitech, Omaxe fell by between 4.83% to 9.97%.
Realty stocks have risen sharply over the past few weeks on reports that demand for residential projects in major cities is picking up on lower home loan rates, property price cuts by developers and a recovery in the job market. The housing market had slumped last year amid a global credit crunch and buyers fearing job losses
India's largest cigarette maker by sales ITC fell 0.55% on profit taking after recent jump as net profit rose 25.81% to Rs 1009.91 crore in Q2 September 2009 over Q2 September 2008. The result which hit market during market hours on Friday 23 October 2009, surpassed market expectations.
A surge in profit margins and a decent growth in revenue boosted the bottom line. ITC's operating profit margin surged to 36.59% in Q2 September 2009 from 31.4% in Q2 September 2008
Among other FMCG stocks, Nestle India, Marico, United Spirits, Tata Tea, Britannia Industries, fell by between 0.1% to 3.92%.
Construction stocks fell on profit taking. Hindustan Construction Company, Nagarjuna Construction Company Era Infra Engineering, Gayatri Projects fell by between 0.82% to 4.68%.
Construction shares rose steadily over the past few days on the government's thrust on the infrastructure sector. Higher government spending on infrastructure sector in the Union Budget 2009-2010 to provide a stimulus to the economy, may result in increase order flow for construction.
An expected fall in cement prices in the coming months due to capacity new capacity addition may boost margins for construction firms as cement is a key raw material
Jaiprakash Associates fell 2.86% extending recent steep losses. Net profit rose 327.9% to Rs 870.19 crore on 53% rise in sales to Rs 1824.26 crore in Q2 September 2009 over Q2 September 2008. The company announced result after market hours on 21 October 2009. The company also announced 1:2 bonus issue at the time of announcing Q2 results
India's largest engineering and construction firm by sales Larsen & Toubro rose 0.82% after company announced on Monday sale of its shares in Voith Paper Technology India (VPTIL) to its long term joint venture partner Voith GmbH, Heidenheim, Germany. VPTIL is a 50:50 joint venture partner between L&T and Voith GmbH providing design, consultancy and other value added services to Indian paper industry .
L&T's net profit rose 26.1% to Rs 580.4o crore on 3.54% rise in total income to Rs 8136.39 crore in Q2 September 2009 over Q2 September 2008. The result hit the market during trading hours on 22 October 2009.
UltraTech Cement fell 0.77%. The stock fell sharply in the past few days after the company issued a cautious outlook at the time of announcing Q2 results on 16 October 2009. Net profit jumped 53% to Rs 251 crore in Q2 September 2009 over Q2 September 2008.
UltraTech said the performance was affected on a sequential basis due to lower demand in Southern India. The net profit dropped 39.94% to Rs 250.90 crore in Q2 September 2009 over Q1 June 2009.
The company said the cement demand may grow 9% in the year ending March 2010 on the back of government's initiative to boost rural development, infrastructure and housing. It, however, said new capacities which at various stages of implementation will result in pressure on margins.
The company said its focus on higher volume growth, captive power generation and capital productivity will help offset the impact of lower prices on margins.
Among other cement stocks, ACC, Ambuja Cements, Birla Corporation and ACC fell by between 0.39% to 4.81%.
Kalindee Rail Nirman (Engineers) declined 4.71% after net profit tumbled 91.2% to Rs 0.28 crore on 70.4% slump in net sales to Rs 25.95 crore in Q2 September 2009 over Q2 September 2008.
Areva T&D India fell 6.76% after the net profit plunged 57.17% to Rs 22.40 crore on a 26.09% rise in total income to Rs 739.68 crore in Q3 September 2009 over Q3 September 2008.
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