The key benchmark indices continued their down trend in 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. Weak global stocks also weighed on sentiment.
The BSE 30-share Sensex was down 307.88 points or 1.84%, off close to 265 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 and auto stocks fell. Metal stocks also declined. Index heavyweight Reliance Industries, edged lower.
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. The central bank said an accommodative monetary policy stance is required as the ongoing economic recovery was fragile
The RBI kept 2009/10 GDP forecast at 6% with upside bias and said it sees modest decline in agriculture. The RBI raised projection of inflation to 6.5% with an upside bias at end March 2010 from earlier 5%.
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.
The balance of judgement at the current juncture is that it may be appropriate to sequence the exit in a calibrated way so that while the recovery process is not hampered, inflation expectations remain anchored, the RBI said in its quarterly review. The 'exit' process can begin with closure of some special liquidity support measures, it said.
The finance secretary Ashok Chawla said on Tuesday, one percentage point increase in banks' statutory liquidity ratio (SLR) by Reserve Bank of India (RBI) on Tuesday would not impact banks much.
Volatility may remain high on the bourses 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.
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 2.83%.
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.
Trading in US index futures indicated a flat opening of US stocks 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 13:20 IST, the BSE 30-share Sensex was down 307.88 points or 1.84% to 16432.62. The Sensex fell 41.41 points at the day's high of 16,699.09 in early trade. The barometer index fell 321.26 points at the day's low of 16,419.24 in afternoon trade.
The S&P CNX Nifty was down 71.40 points or 1.44% to 4,899.50.
The market breadth, indicating the overall health of the market was weak. On BSE, 397 shares advanced as compared with 2106 that declined. A total of 61 shares remained unchanged.
Among the 30-member Sensex pack, 21 fell while rest rose.
The BSE Mid-Cap index fell 3.53% and the BSE Small-Cap index fell 2.92%.
Energy major Reliance Industries fell 1.51% 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 key rates unchanged. India's largest private sector bank by operating income ICICI Bank fell 4.88% 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 4.02%. 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
India's second largest private sector bank by net profit HDFC Bank fell .42% 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.
Rate sensitive realty stocks fell after the central bank raised the provisioning requirement for banks' advances to the commercial real estate sector classified as ˜standard assets' from the present level of 0.40% from 1%. Indiabulls Real Estate,DLF, Ackruti City, Unitech, Omaxe fell by between 4.62% to 10.17%.
In view of large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely non-performing assets (NPAs), the central bank said.
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 drugmaker by sales Ranbaxy Laboratories fell 3.32% even after the company reported net profit of Rs 186.08 crore in Q3 September 2009 as against a net loss of Rs 352.93 crore in Q3 September 2008. The result hit the market during trading hours on Monday.
Ranbaxy Laboratories CEO and Managing Director Atul Sobti said revenue growth in some strategic geographical markets and a sharp focus on cost efficiency, were the underlying themes in the third quarter. With good achievements in these fronts, the company is confident that it is on the path to recovery.
Cadila Healthcare gained 1.64%, after consolidated net profit surged 39.04% to Rs 131.92 crore in Q2 September 2009 over Q2 September 2008.
Rate sensitive auto stocks fell on profit taking. Hero Honda Motors fell 0.26% even as net profit jumped 95% to Rs 597.14 crore on 26.8% rise in revenue to Rs 4059.44 crore in Q2 September 2009 over Q2 September 2008. The company announced result after market hours on 21 October 2009.
India's largest car maker by sales Maruti Suzuki India fell 0.28% even after net profit rose 92.5% to Rs 570 crore on 46.6% rise in sales to Rs 7080.67 crore in Q2 September 2009 over Q2 September 2008. The company announced the results on Saturday, 24 October 2009
Maruti said the company remains cautiously optimistic with regard to volume growth in the near future. It said margins in the future may be under pressure due to hardening of commodity prices and strengthening of the Japanese yen. The company said it continues to focus on cost optimization.
Bajaj Auto fell 1.67%. Bajaj Auto's net profit jumped 117.85% to Rs 402.83 crore in Q2 September 2009 over Q2 September 2008. The company announced the Q2 results during trading hours on 15 October 2009.
But, India's largest commercial vehicle maker by sales Tata Motors rose 1.6% after its net profit jumped 110.13% to Rs 729.14 crore on 11.87% rise in total income to Rs 8399.75 in Q2 September 2009 over Q2 September 2008. Rsults were announced after market hours on Monday.
Tata Motors said its operating margins surged 580 basis points at 13.4% in Q2 September 2009 over Q2 September 2008. Stable input costs and accelerated cost reduction efforts boosted margins, the company said. It said higher volumes and improved realizations contributed to growth in revenue.
The company said a change in accounting policy with respect to foreign exchange transaction contributed to a massive 153.3% surge in profit before tax (PBT) to Rs 906.85 crore in Q2 September 2009 over Q2 September 2008. The year-on-year growth in PBT would have been much lower at 49.7% if the company had followed the current accounting policy with respect to foreign exchange transaction in Q2 September 2008, Tata Motors said.
Sales volume in the domestic market rose on the back of revival of the industrial activity in the country, improvement in liquidity in the financial system, introduction of new products and new variants of existing products. However, exports continue to be impacted by slowdown in the company's prime export markets and also due to volatility in exchange rates.
Tata Motors said its market share in the domestic commercial vehicles sector surged to 65.5% in Q2 September 2009 from 62% in Q2 September 2008. In the passenger car segment, Tata Motors said it has commenced deliveries of British brands Jaguar and Land Rover in the domestic market which has received encouraging response.
India's largest tractor maker by sales Mahindra & Mahindra rose 0.68%. Total sales rose 10.94% to 28434 vehicles in September 2009 over September 2008. The company unveiled the sales figures during trading hours on 1 October 2009.
Metal stocks fell on profit taking after recent strong gains. Hindustan Zinc, National Aluminum Company, Hindalco Industries fell by between 0.61% to 3.61%.
India's largest copper maker by sales Sterlite Industries fell 4.5%. The company recently 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.
Steel Authority of India (Sail) fell 2.66%. The steel minister said last week the government has approved a follow-on public offering of 20%. The government holds 85.82% stake in Sail.
India's largest steel maker by sales Tata Steel fell 3.89% ahead of its Q2 September 2009 result today.
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