RIL gains in choppy market

The key benchmark indices drifted lower in choppy trade after US consumer confidence data dampened investor appetite for riskier assets like equities and high-yielding and growth-related currencies. Most global stocks were in red. The BSE 30-share Sensex fell 69.91 points or 0.43%, off close to 125 points from the day's high and up close to 140 points from the day's low. The market extended losses for the third day in a row. From a recent high of 16810.81 on 23 October 2009, the Sensex has lost 527.32 points or 3.13% in three trading sessions

The market breadth was weak. Index heavyweight Reliance Industries (RIL) jumped. Realty stocks also rose. But, metal and auto 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 at a quarterly policy review on Tuesday. The market was been agog with talks over the past few days 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.

Intraday volatility was high as traders rolled 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.

After a weak opening, the market extended losses in early trade before staging a strong rebound. The market moved into the green from red in early afternoon trade. The market slipped into the red once again after hitting fresh intraday high in early afternoon trade. Volatility remained high in the last one hour of trade.

Concerns that interest rates may rise sooner-than-expected had spooked the market on Tuesday, 27 October 2009, after the Reserve Bank of India at a quarterly policy review sharply raised inflation forecast. However, analysts say that monetary policy could be ineffective 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.

Finance Secretary Ashok Chawla on Wednesday said that any further measures by the Reserve Bank of India to withdraw special liquidity measures could come in January 2010, the month when the next monetary policy review is scheduled. Chawla also said the Centre and state governments do not need to borrow more than planned in the fiscal year ending March 2010. He said the states would borrow Rs 60,000 crore between November 2009 and March 2010.

Reserve Bank of India deputy governor Shyamala Gopinath today said the challenge at the current juncture is to revive private credit demand.

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%.

Meanwhile, the latest economic data showed infrastructure sector output grew 4% in September 2009 from a year earlier, slower than upwardly revised annual growth of 7.8% in August 2009. The infrastructure sector accounts for 26.7% of the industrial output. During April-September, the first half of the 2009/10 year, output rose 5% compared with 3.4% in the same period in 2008/09.

Global consumer confidence is rebounding, and in the United States has risen for the first time since 2007, amid signs the world economy is picking up although spending is still restrained, according to a quarterly survey by The Nielsen Company, conducted between 28 September 2009 and 16 October 2009. Confidence was highest in India, followed by Indonesia and Norway, and was weakest in Japan, Latvia, Portugal and South Korea, although in Korea it had improved markedly, the survey showed.

In the United States - the world's biggest consumer market - consumer sentiment rose from three months ago for the first time since early 2007. The data contrasts with a Conference Board index of US consumer confidence, released on Tuesday, which showed a sharp deterioration in confidence this month.

European shares hit a three-week low on Wednesday as investors digested a slew of earnings news, including results from BG Group and Banco Santander, with energy and banking stocks the biggest fallers. The key benchmark indices in France, Germany and UK were down by between 1.68% to 1.79%.

Asian share markets edged 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 Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 1.39% to 2.41%.

But, China's Shanghai Composite rose 0.33%, erasing earlier losses, as airlines, brokerages and coal producers advanced on higher profits.

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 the Dow could fall 57 points 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.

The BSE 30-share Sensex fell 69.91 points or 0.43% to 16,283.49. The Sensex rose 57.74 points at the day's high of 16,411.14 in afternoon trade. The Sensex fell 209.23 points at the day's low of 16144.17 in early trade.

The S&P CNX Nifty fell 20.55 points or 0.42% to 4,826.15. Nifty October 2009 futures were at 4,832.95, at a premium of 6.80 points as compared to the spot closing of 4,826.15. Turnover in NSE's futures & options (F&O) segment was Rs 1,06,431.02 crore, lower than Rs 1,21,614.13 crore on Tuesday, 27 October 2009.

BSE clocked turnover of Rs 5413 crore, lower than Rs 5932.36 crore on Tuesday, 27 October 2009.

The market breadth, indicating the overall health of the market was weak. On BSE, 1054 shares advanced as compared with 1622 that declined. A total of 72 shares remained unchanged.

Among the 30-member Sensex pack, 19 fell while rest rose.

From a 17-month closing high of 17,326.01 on 17 October 2009, the Sensex has lost 1,042.52 points or 6.01% in seven trading sessions to current 16,283.49. Yet, with foreign funds making heavy purchases, the Sensex is up 6636.18 points or 68.78% in calendar year 2009, as on 28 October 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 8123.09 points or 99.54%, as on 28 October 2009. FII inflow in the calendar year 2009 totaled Rs 69,272.20 crore (till 27 October 2009).

Coming back to today's trade, the BSE Mid-Cap index rose 0.15% and outperformed Sensex. The BSE Small-Cap index shed 0.44%, which was almost equal to the fall in the Sensex.

Sectoral indices on BSE displayed mixed trend. The BSE Realty index (up 0.88%), the BSE Teck index (up 0.73%), the BSE Oil & Gas index (up 0.69%), the BSE Capital Goods index (up 0.65%), the BSE IT index (up 0.53%), the BSE Healthcare index (up 0.48%), the BSE FMCG index (down 0.2%), outperformed the Sensex.

The BSE Consumer Durables index (down 1.79%), the BSE Bankex (down 1.5%), the BSE PSU index (down 1.15%), the BSE Auto index (down 0.94%), the BSE Power index (down 0.83%), the BSE Metal index (down 0.58%), underperformed the Sensex.

Energy major Reliance Industries rose 2.28% to Rs 2035.65 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.

Bank stocks fell after Reserve Bank held key rates unchanged on Tuesday. India's largest private sector bank by operating income ICICI Bank fell 3.12% 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 second largest private sector bank by net profit HDFC Bank fell 3.11% 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.

But, India's largest bank by branch network State Bank of India rose 0.69%. 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.

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.

Metal stocks fell after a gauge of six metals traded on the London Metal Exchange fell 0.43% on Tuesday, 27 October 2009. JSW Steel, Jindal Saw, Hindustan Zinc, Hindalco Industries fell by between 0.28% to 2.56%.

India's largest copper maker by sales Sterlite Industries fell 2.2% 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 2.77%. 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 3.73% 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.

Rate sensitive auto stocks fell on concerns hike in interest rates may crimp sales of automobiles. Most auto sales including that of cars, two-wheelers, utility vehicles and commercial vehicles are driven by financing by the buyer. Low interest rates has helped a solid rebound in sales across the auto industry this year

Bajaj Auto fell 0.61%. 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.

India's largest tractor maker by sales Mahindra & Mahindra fell 0.67%. 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.

Hero Honda Motors fell 0.58% 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 4.47% after the company said margins may come under pressure due to hardening of commodity prices and strengthening of the Japanese yen. At the time of announcing Q2 results, last week, the company said it continues to focus on cost optimization. Maruti said the company remains cautiously optimistic with regard to volume growth in the near future

Maruti's 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

India's largest commercial vehicle maker by sales Tata Motors rose 2.42% 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. The results were announced after market hours on 26 October 2009 when the stock had risen nearly 2% in an otherwise weak market.

Realty stocks rose on bargain hunting after a steep fall on Tuesday triggered by the central bank's decision to raise 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%. This will raise the borrowing costs for realty firms which depend heavily on borrowing. Indiabulls Real Estate, DLF, Unitech rose by between 0.31% to 2.96%.

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.

As per recent reports, 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 0.46% on profit taking after a recent strong rally triggered by robust Q2 results. 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, Hindustan Unilever, REI Agro, Dabur India fell by between 0.54% to 1.17%.

India's largest cement producer by sales ACC fell 1.63% as concerns that a glut in supply will put pressure on cement prices offset strong Q3 results from the cement major. Net profit rose 53.69% to Rs 435.63 crore in Q3 September 2009 over Q3 September 2008. The results hit market during market hours today.

At the time of announcing Q3 results, ACC today said a sizeable additional cement capacity is expected to materialise in all the regions withing the next one year. ACC, however, said it expects a significant surge in cement demand from the infrastructure sector and various development schemes of the government. It expects robust demand from smaller cities and semi-urban markets

IT stocks rose on a weak rupee. India's third largest IT exporter by sales Wipro rose 3.19% 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 0.55% 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.

India's largest software services exporter TCS rose 0.16%. 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.

The rupee tumbled against the dollar on Wednesday on increase in risk aversion after weak US consumer confidence data. The partially convertible rupee was trading at 47.36/47.39, 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.

Construction stocks rose 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. Hindustan Construction Company, Nagarjuna Construction Company Era Infra Engineering, Gayatri Projects rose by between 1.18% to 6.92%.

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 rose 0.14% on bargain hunting after recent sharp fall. 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 1.97%. The company announced on 26 October 2009 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.

But many other capital goods stocks fell. Bharat Heavy Electricals, BEML, Siemens and Praj Industries fell by between 1.1% to 4.19%.

Telecom stocks rose on bargain hunting after recent fall Tuesday's steep slide triggered by concerns about price war in the sector. Idea Cellular's Managing Director Sanjeev Aga, said on 26 October 2009 the price war in the teleocom sector which he described as a 'bloodbath' would cut local call charges, currently at 40 paise a minute, to 'unsustainable' levels. Idea Cellular rose 0.55%.

India's largest wireless operator by sales Bharti Airtel rose 3.42%. But India's second- largest wireless operator by sales Reliance Communications fell 2.5%. The company said early this week it does not have to pay any additional licence or spectrum fee to the government nor had it inflated its revenues. The statement came after the company said it had completed a "preliminary review" of a report issued by a government-appointed auditor which had accused it of various malpractices.

Some sugar stocks rose on reports the government is likely to cut the levy sugar quota for November 2009 by around 9%. Bajaj Hindustan, Balrampur Chini, Shree Renuka Sugars and Ponni Sugar rose by between 2.12% to 7.88%.

Cals Refineries clocked highest volume of 3.97 crore shares on BSE. Unitech (2.09 crore shares), Thinksoft Global (1.35 crore shares), Ispat Industries (1.13 crore shares) and NHPC (0.8 crore shares) were the other volume toppers in that order.

Thinksoft Global clocked highest turnover of Rs 287.94 crore o BSE. State Bank of India (Rs 275.06 crore), Unitech (Rs 182.32 crore), Housing Development & Infrastructure (Rs 176.04 crore) and Reliance Industries (Rs 175.56 crore) were the other turnover toppers in that order.