The key benchmark indices pared gains in mid-morning trade after government announced the infrastructure output rose 4% in September 2009 over September 2008. The BSE 30-share Sensex was down 57.79 points or 0.35%, up close to 150 points from the day's low. The market breadth was weak. Metal stocks fell on slide in commodity prices on London Metal Exchange on Tuesday. But IT stocks rose on a weak rupee. Index heavyweight Reliance Industries extended early gains on bargain hunting.
Concerns that interest rates may rise sooner-than-expected weighed on the bourses for the second day in a row after the Reserve Bank of India at a quarterly policy review on Tuesday sharply raised inflation forecast. However, analysts says that monetary policy could be ineffectiveness in reining in a rise in inflation caused by supply shortage. A surge in food prices caused by production shortage has been a key reason for the rise in inflation in the past few weeks
Meanwhile, a heightened volatility in the rupee against the dollar in the past few days has raised worries that the corporate sector may suffer losses on hedging. The rupee weakened past the 47 per dollar mark for the first time in three weeks in early trade on Wednesday, 28 October 2009, as Asian stocks fell
Bank stocks fell for the second straight day 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). Another trigger for the sharp slide in banking stocks was the central banks' decision to streamline provisioning requirement on non-performing assets. The RBI asked banks to ensure by September 2010 that the total provisioning coverage against non-performing or bad loans aren't less than 70% of the outstanding amount.
Market was volatile. It extended Tuesday (27 October 2009)'s steep losses in early trade on weak Asian stocks. Market pared gains in mid-morning trade.
The challenge at the current juncture was to revive private credit demand, a Reserve Bank deputy governor Shyamala Gopinath said on Wednesday,
The Reserve Bank of India (RBI) on Tuesday withdrew emergency liquidity support measures that were implemented in the aftermath of the global financial crisis. The central bank warned of possible asset price bubbles and raised banks' provisioning requirements for commercial real estate loans. The central bank said the precise challenge for the Reserve Bank of India is to support the economic recovery process without compromising on price stability. Growth drivers warrant a delayed exit, while inflation concerns call for an early exit, it said. Premature exit will derail the fragile growth, but a delayed exit can potentially engender inflation expectations, the RBI said.
The RBI raised the statutory liquidity ratio (SLR) to 25% from 24% with effect from 7 November 2009. SLR is the minimum share of bank deposits to be held in approved government securities. By hiking the SLR, the RBI seems to be sending a signal that the high fiscal deficit will continue. The SLR hike will ensure easy funding of the government's borrowing programme for not just this year but the next fiscal as well
The RBI raised projection of inflation to 6.5% with an upside bias at end March 2010 from earlier 5%.
Volatility may remain high on the bourses over the next two days 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 share markets were lower Wednesday as shipping stocks and shipbuilders fell on worries about the strength of the global economic recovery, though Honda was buoyant in Tokyo after lifting its earnings forecast. The key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 0.85% to 2.39%.
A Wall Street Journal report that GMAC Financial Services and the US Treasury Department were in advanced talks to prop up the lender with its third helping of taxpayer money was adding to the cautious tone, serving as a reminder of how some battered financial firms remain dependent on government lifelines.
Trading in US index futures indicated a flat opening of US stocks on Wednesday, 28 October 2009.
US stocks closed mostly lower in volatile trade on Tuesday as a weaker-than-expected consumer confidence report undermined the market outlook on the pace of economic recovery from recession. The technology sector was under pressure following downside guidance from internet search engine baidu.com. Consumer-discretionary and tech stocks declined even as energy stocks rose along with oil prices. The Dow rose 14.21 points, or 0.1%, to 9,882.17. The S&P 500 index fell 3.54 points, or 0.3%, to 1,063.41, while Nasdaq fell 25.76 points, or 1.2%, to 2,116.09.
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 11:20 IST, the BSE 30-share Sensex was down 57.79 points or 0.35% to 16,295.61. The Sensex fell 17.62 points at the day's high of 16,335.78 in early trade. At the day's low of 16144.17 Sensex fell 209.23 points in early trade.
The S&P CNX Nifty was down 19.15 points or 0.4% to 4,827.55.
The market breadth, indicating the overall health of the market was weak. On BSE, 451 shares advanced as compared with 1701 that declined. A total of 42 shares remained unchanged.
Among the 30-member Sensex pack, 19 fell while rest rose.
The BSE Mid-Cap index fell 1.17% and the BSE Small-Cap index fell 1.52%.
Energy major Reliance Industries rose 1.62% to Rs 2022.60 after the government on Tuesday allocated an additional 50 million cubic metres a day (mmscmd) of gas from Reliance Industries-operated east coast block D6. Power plants and refineries will get the bulk of Reliance Industries' gas from the Krishna-Godavari basin beyond the previously allotted 40 million metric standard cubic metres per day (mmscmd).
The empowered group of ministers (eGoM) also made some allotments for Reliance's petrochemical plants and refineries.
Meanwhile, 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.
Reliance Industries on Tuesday told the Supreme Court that it would lose money by selling natural gas at $2.34 per million British thermal units or mmBtu. The company's lawyer Harish Salve told the court that RIL had not told the Bombay HC that sale at $2.34 per unit would be profitable and that the HC appeared to have misunderstood the matter.
The hearing before India's apex court was also marked by interjections by the justices. The judges observed that the natural gas belongs to the government and all contracts on sharing of gas are subject to the government's approval. The court also said that it may issue a direction to the two feuding companies, RIL and Reliance Natural Resources (RNRL), to arrive at a suitable arrangement.
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.
Metal stocks fell after a gauge of six metals traded on the London Metal Exchange fell 0.43% on Tuesday, 27 October 2009. Hindustan Zinc, Jindal Steel & Power, Hindalco Industries fell by between 1.05% to 1.43%.
India's largest copper maker by sales Sterlite Industries fell 4.39% as its ADR fell 6.67% on Tuesday. 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 1.68%. 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 3.7% extending Tuesday's 7.26% fall as net profit fell 49.49% to Rs 902.94 crore in Q2 September 2009 over Q2 September 2008. The results hit the market during market hours on Tuesday.
IT stocks rose on a weak rupee. India's largest software services exporter TCS rose 0.57%. The company after market hours on 16 October 2009, reported stronger-than-expected Q2 September 2009 results. Consolidated net profit as per US accounting standards rose 6.81% to Rs 1623.90 crore on 3.16% growth in revenue to Rs 7435.10 crore in Q2 September 2009 over Q1 June 2009.
TCS has a good business pipeline and is pursuing 20 to 25 large outsourcing deals, chief executive N. Chandrasekaran said at the time of announcing Q2 results. The management is seeing signs of recovery but it believes it will be slow. The discretionary spent is still tight but there is spent seen in banking, finance services and insurance (BFSI), retail, utility and pharma verticals, TCS said at a conference call after the results. However, a continuous improvement in volumes cannot be expected, it said. The company is seeing stability in demand environment. The management expects to maintain margins at current levels provided there is no adverse rupee movement.
India's third largest IT exporter by sales Wipro rose 1.49% extending Tuesday's 2.18% gains on better than expected results. As per consolidated Indian GAAP results, the company recorded 19% rise in net profit to Rs 1162 crore in Q2 September 2009 over Q2 September 2008. The net profit rose 14% to Rs 1162 crore in Q2 September 2009 over Q1 June 2009. The results hit the market before trading hours on Tuesday.
Wipro said order book has gone up and it is seeing a strong second half as pricing stabilises. Wipro expects its IT services revenue to rise 3.8% to 5.7% to $1.09-$1.11 billion in Q3 December 2009 ovfrom Q2 September 2009
IT bellwether Infosys Technologies rose 0.53% even as its ADR fell 2.17% on Tuesday. Infosys raised its earnings and revenue guidance in both dollar and rupee terms for the year ending March 2010 (FY 2010) at the time of announcing Q2 September 2009 results before trading hour on 9 October 2009. Infosys, however, said strengthening rupee is a big concern for its earnings.
A foreign brokerage said in a recent note that it expects 2010 IT budgets to be strong given a significant pent-up demand.
The Indian rupee weakened to new three-week lows on Wednesday as a lower opening in the stock market raised worries of foreigners repatriating funds while weaker Asian units added to the woes. The partially convertible rupee was trading at 47.13/47.14, weaker than its previous close of 46.88/90 per dollar. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.
Sasken Communication Technology rose 0.81% after the company acquired the multimedia software offerings and certain assets of US-based Ingenient Technologies for an undisclosed amount.
Bank stocks fell after Reserve Bank held key rates unchanged on Tuesday. India's largest private sector bank by operating income ICICI Bank fell 4.81% as its ADR fell 8.19% on Tuesday. 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 on Tuesday 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 2.95%. 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 0.71% as its ADR fell 2.21% on Tuesday. 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.
IFCI fell 2.12% after net profit declined 26.5% to Rs 190.48 crore in Q2 September 2009 over Q2 September 2008.
CEAT surged 3.24% after the company reported net profit of Rs 61.47 crore in Q2 September 2009 as compared to net loss of Rs 28.80 crore in Q2 September 2008.
Lanco Infratech rose 2.53% after the net profit soared 219.5% to Rs 127.38 crore on a 130.7% increase in total income to Rs 1483.16 crore in Q2 September 2009 over Q2 September 2008.
Everest Kanto Cylinder tumbled 13.54% after net profit slipped 95% to Rs 1.08 crore on a 14.3% decline in total income to Rs 95.38 crore in Q2 September 2009 over Q2 September 2008.
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