Market gains for the second straight day

The key benchmark indices staged a strong intraday rebound albeit in choppy trade, extending gains for the straight second day, as European stocks and US index futures rose. Closer home, investors also heaved a sigh of relief as the central bank kept key interest rates unchanged at a quarterly policy review. There was also an increase in economic growth forecast for the current fiscal year from the central bank. State Bank of India chairman O P Bhatt said he did not see any upward pressure on lending rates in the next six months.

The BSE 30-share Sensex rose 51.09 points or 0.31%, up close to 375 points from the day's low and off close to 35 points from the day's high. Banking, realty and capital goods stocks gained. Index heavyweight Reliance Industries (RIL) edged higher. But FMCG and metal stocks fell.

The Reserve Bank of India at its quarterly monetary policy review today raised banks' cash reserve ratio (CRR) by 75 basis points to suck out excess liquidity from the banking system. Soon after the announcement at about 11:15 IST, the BSE Sensex fell below the psychological 16,000 mark in mid-morning trade. It soon regained that mark.

Intraday volatility on the bourses was high today. The market edged lower at the onset of the trading session tracking weak Asian stocks. The market cut losses in morning trade on the eve of the central bank's policy announcement. A bout of volatility was witnessed as the market cut losses after an initial steep fall triggered by the central bank's decision to raise the CRR. The market weakened again in early afternoon trade. The market once again pared losses in afternoon trade. The market slipped into the red after turning positive for a brief period in mid-afternoon trade. The market regained positive zone later.

India VIX, a volatility index based on the S&P CNX Nifty index option prices, declined for the second day in a row after a steep rise on Wednesday, 27 January 2010. It declined 3.08% to 26.13. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days

Stocks had recovered slightly on Thursday, 28 January 2010, after a steep fall in the preceding six trading sessions. The BSE 30-share Sensex rose 17.05 points or 0.1% to 16,306.87 on Thursday, 28 January 2010. Earlier, from a high of 17,641.08 on 18 January 2010, the Sensex had lost 1,351.26 points or 7.65% to 16,289.82 on Wednesday, 27 January 2010.

At a press conference after the policy review RBI chief D Subbarao said interest rate rise would have had unpredictable impact on liquidity and said it is important to absorb predictable amount of liquidity before taking other steps.

The Reserve Bank of India (RBI) hiked the cash reserve ratio (CRR) by 75 basis points in two stages to 5.75% to absorb excess liquidity from the banking system. The first phase of 50 basis points CRR hike is effective from 13 February 2010 and the second stage effective from 27 February 2010. The two-phased CRR hike will soak Rs 36000 crore from the banking system. The CRR is the percentage of deposits which banks must keep with the central bank.

The central bank kept the key policy rates viz. the repo rate, the reverse repo rate and the bank rate unchanged.

Finance secretary Ashok Chawla said the Reserve Bank of India (RBI) has taken a balanced view on managing economic recovery and prices. He added that cash reserve ratio hike was appropriate and adequate, but said interest rate are unlikely to go up after the RBI's policy review. He agreed that food inflation was a matter of concern and added that economic growth was on track.

Though the inflationary pressures in the domestic economy stem predominantly from the supply side, the consolidating recovery increases the risks of these pressures spilling over into a wider inflationary process, RBI said in its third quarter review today. The central bank lifted its wholesale price index inflation forecast for the end of the fiscal year in March 2010 to 8.5% from its earlier forecast of 6.5%, but said it expected inflation to moderate starting in July 2010, assuming a normal monsoon and global oil prices holding at current levels.

It also lifted its forecast for GDP growth in the current year to 7.5%, from an earlier target of 6%, and said that the current rate of growth is likely to be sustained in the financial year that ends in March 2011.

The RBI joins other central banks in Asia in taking steps to start unwinding ultra-loose monetary policy. On Thursday, the Philippines raised a short-term lending rate, and this month China started to tighten policy by raising banks' reserve requirements and accepting higher yields at bill auctions. Australia was the first Group of 20 country to begin raising rates as the global economy recovers from its worst downturn since the Great Depression. The Reserve Bank of Australia has raised its key cash rate by 75 basis points since October 2009.

The Reserve Bank of India called on the government to get its fiscal house in order and said monetary policy would be ineffective unless the government rolls back its borrowing, which is on track to hit a record Rs 4.5 lakh crore ($96.9 billion) this fiscal year.

There are expectations of higher tax rates and massive disinvestment in the coming Budget to help reduce the huge fiscal deficit from 6.8% of GDP this year to 3% over the next five years. Finance minister Pranab Mukherjee will reportedly package his higher indirect tax rates as an exit from the fiscal stimulus of 2008-09 and a return to the path of fiscal responsibility.

Meanwhile, the UPA government's proposed comprehensive indirect tax reform, goods and services tax (GST), will reportedly miss its scheduled rollout of 1 April, 2010, a temporary setback to creation of a unified national market for goods and services in the country, but experts say this will give more time to the centre and states to prepare a more robust framework.

RBI today said a consolidating economy recovery will encourage the central bank to clearly and explicitly shift its monetary policy stance from 'managing the crisis' to 'managing the recovery'. A growing confidence in the recovery justifies in moving further in reversing the crisis-driven expansionary stance, it said. The central bank said its policy instruments are all currently at levels that are more consistent with a crisis situation than with a fast-recovering economy. It is, therefore, necessary to carry forward the process of exit from the monetary policy further, the central bank said

The central bank also simultaneously said the economic recovery is yet to fully take hold. Strong anti-inflationary measures, while addressing one problem, may precipitate another by undermining the recovery, particularly by deterring private investment and consumer spending, it said. The Reserve Bank of India said it will continue to monitor macroeconomic conditions, particularly the price situation closely and take further action as warranted.

With regard to capital inflows, the central bank said the inflows so far have been absorbed by the current account deficit. However, sharp increase in capital inflows, above the absorptive capacity of the economy, may complicate exchange rate and monetary management, it said

European shares rose on Friday, bouncing back after their worst sell-off in a year, led by the banking sector as investors await US Q4 December 2009 GDP numbers to gauge the health of the global economy. The key benchmark indices in France, Germany and UK rose by beween 0.79% to 0.95%.

The US economy likely grew at its fastest pace in nearly four years in the fourth quarter as businesses made less aggressive cutbacks on inventories, a US government report is expected to show later in the global day

Meanwhile, there were signs on Friday that the economic backdrop is improving in the UK, with the Nationwide Building Society stating that UK house prices rose 1.2% in January, bringing an annual increase to 8.6%.

Also, the GfK NOP Consumer Confidence Index rose by two points this month to negative 17, according to research carried out by GfK NOP on behalf of the European Commission.

Asian shares fell on Friday, weighed down by tech stocks after lacklustre sales outlooks from some sector heavyweights and as worries about the fiscal health of Greece and Portugal undermined investor confidence. The key benchmark indices in Hong Kong, Japan, China, South Korea, Singapore and Taiwan fell by between 0.16% to 2.44%.

SouthGobi Energy made a disappointing debut in Hong Kong, falling 13.2% from its IPO price, hurt both by poor market sentiment and by its failure to stand out from other already-listed coal plays.

Japan's industrial production rose and unemployment fell in December, signaling a continued recovery, while central bankers considered the threat to the economy from exchange rates.

US index futures reversed early losses. Trading in US index futures indicated Dow could rise 14 points at the opening bell on Friday, 29 January 2010.

US stocks dropped on Thursday as poor outlooks from Motorola and Qualcomm dented optimism in the technology sector while worries about Greece's fiscal health dragged on sentiment. The Dow Jones industrial average fell 115.70 points, or 1.13%, to end at 10,120.46. The Standard & Poor's 500 Index lost 12.97 points, or 1.18%, to 1,084.53. The Nasdaq Composite Index declined 42.41 points, or 1.91%, to close at 2,179.00.

The government data showed new orders for durable goods, or long-lasting manufactured goods such as washing machines and refrigerators, edged higher in December, and the number of workers filing claims for jobless benefits fell last week, signalling that the US economy remains on the path to recovery. However the jobless claims were more than estimated.

The US Senate on Thursday backed Ben Bernanke for a second four-year term running the Federal Reserve, the world's most powerful central bank, despite deep misgivings over his perceived policy missteps. Bernanke survived a revolt by lawmakers angry at big banks and their regulators, including the Fed. He still faces acute political pressure to ease economic strains at a time when the US central bank is showing divisions over how much support the economy needs.

US President Barack Obama welcomed the Senate vote and said he looked forward to working with Bernanke going forward.

Meanwhile, top policymakers warned on Thursday the world economy is not out of the woods and a global recovery is still far from secure, urging caution as central banks work on withdrawing critical support. China's Vice Premier Li Keqiang, the man tipped to become the country's next premier, said there were still "twists and turns" ahead as the world pulls out of recession, echoing calls to caution from bankers and other leaders at the annual World Economic Forum in the Swiss ski resort of Davos.

Bankers, however, warned also of the risk of pulling out too late, potentially leading to distortions in competition.

Closer home, the BSE 30-share Sensex rose 51.09 points or 0.31% to 16,357.96. The Sensex rose 83.44 points at the day's high of 16390.31 in late trade. The Sensex fell 324.79 points at the day's low of 15,982.08 in mid-morning trade.

The S&P CNX Nifty gained 14.80 points or 0.3% to 4,882.05. Nifty February 2010 futures were at 4,886.75, at a premium of 4.70 points as compared to the spot closing of 4,882.05. Turnover in NSE's futures & options (F&O) segment was Rs 92,503.91 crore, much lower than Rs 1,66,193.03 crore on Thursday, 28 January 2010.

The BSE Mid-Cap index rose 1.01% and the BSE Small-Cap index rose 1.2%. Both the indices outperformed the Sensex.

Most of the sectoral indices on BSE were in green. Banking sector index Bankex (up 2.99%), BSE Realty index (up 2.6%), BSE Capital Goods index (up 1.26%), BSE Power index (up 1.12%), BSE PSU index (up 1.05%), BSE Oil & Gas index (up 0.43%), BSE Auto index (up 0.37%), and BSE Consumer Durables index (up 0.34%), outperformed the Sensex. BSE FMCG index (down 1.86%), BSE Metal index (down 1.56%), BSE IT index (down 0.76%), underperformed the Sensex.

The market breadth, indicating the overall health of the market, turned positive. The breadth was weak earlier in the day. On BSE, 1464 shares advanced as compared with 1385 that fell. A total of 63 shares remained unchanged.

Among the 30 share Sensex pack, 17 fell and rest rose.

BSE clocked a turnover of Rs 5679 crore, higher than Rs 5007.43 crore on Thursday, 28 January 2010.

Index heavyweight Reliance Industries (RIL) rose 0.88% to Rs 1046.55. The stock came off the day's low of Rs 1018. The company's net profit rose 15.77% to Rs 4008 crore on 89.77% surge in total income to Rs 57364 crore in Q3 December 2009 over Q3 December 2008. RIL said the results had been reworked and restated to include figures from Reliance Petroleum, which it absorbed last year. The company announced the Q3 result during market hours on 22 January 2010.

Rate sensitive banking shares jumped after RBI kept interest rates steady. India's largest private sector bank by net profit ICICI Bank jumped 5.29%. Its ADR fell 2.42% on Thursday. India's largest bank by net profit and branch network State Bank of India rose 2.72%. SBI chairman O P Bhatt said deposit rates may not go up immediately but there is no room for deposit rates to come down. India's second largest private sector bank by net profit HDFC Bank rose 2.25%. Its ADR fell 2.29% on Thursday.

India's largest power equipment maker by sales Bharat Heavy Electricals rose 3.1%. Bharat Heavy Electricals said on Wednesday it would sign an agreement with the Madhya Pradesh state utility to jointly set up a 1,600 megawatts thermal power plant in the central Indian state.

Among other capital goods stocks, Siemens, ABB, Thermax, BEML and Praj Industries rose by between 1.49% to 4.29%.

But, India's largest engineering and construction firm by sales Larsen & Toubro fell 0.43%. The government is reportedly considering selling its stakes in the firm in tranches to state-run financial institutions.

Rate sensitive realty shares reversed early losses after RBI kept interest rates unchanged. Ackruti City, Indiabulls Real Estate, Unitech, Housing Development & Infrastructure, rose by between 1.28% to 4.5%.

India's largest realty player by sales DLF rose 2.54%. The company's net profit rose 26.04% to Rs 224.43 crore on 109.03% rise in sales to Rs 887.16 crore in Q3 December 2009 over Q3 December 2008. The company announced the Q3 result after market hours on Wednesday.

Shares of India's largest cigarette maker by sales ITC fell 1.67%. The government is reportedly considering selling its stakes in consumer goods maker ITC in tranches to state-run financial institutions. The company posted 26.67% rise in net profit to Rs 1144.17 crore in Q3 December 2009 over Q3 December 2008. The company announced Q3 result during market hours on 22 January 2010.

India's largest FMCG major by sales Hindustan Unilever fell 4.44%. The company's net profit rose 5.4% to Rs 649 crore in Q3 December 2009 over Q3 December 2008.

Among other FMCG stocks, Tata Tea, United Spirits, Nestle India and Britannia Industries fell by between 0.68% to 2.28%.

Metal stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange, fell 3.59% on Thursday, 28 January 2010. India's largest private sector steel maker by sales Tata Steel fell 2.83%. The company's net profit surged 155.6% to Rs 1191.75 crore in Q3 December 2009 over Q3 December 2008. The company announced the result during market hours on Thursday. The stock had rallied 4.8 % on Thursday after forecast-beating third-quarter results.

Tata Steel will report consolidated third-quarter results, to include the Corus numbers, next month. The Indian operations account for a quarter of the group's annual global capacity of about 30 million tonnes.

Steel Authority of India (Sail) fell 2.57%. Sail on Wednesday reported a 99% jump in its net profit at Rs 1,675.55 crore in Q3 December 2009 over Q3 December 2008.

India's largest non-ferrous metal firm by capacity Sterlite Industries India fell 1.43%. The company's net profit slumped 77.16% to Rs 46.59 crore on a 39.83% increase in sales to Rs 3611.99 crore in Q3 December 2009 over Q3 December 2008. The stock had lost 4.04% on Wednesday.

India's largest private sector aluminum maker by sales Hindalco Industries fell 0.54%. The company's net profit fell 21.60% to Rs 427.10 crore on a 29.56% increase in sales to Rs 5286.10 crore in Q3 December 2009 over Q3 December 2008.

National Aluminium Company fell 0.2%. The company's net profit declined 29.3% to Rs 155.18 crore in Q3 December 2009 over Q3 December 2008.

NTPC fell 0.67%. The company's net profit rose 5.06% to Rs 2364.98 crore in Q3 December 2009 over Q3 December 2008. The company announced the result during market hours today.

IT stocks extended recent losses on fears the Obama administration's bank reform plan will crimp outsourcing demand. India's largest IT exporter by sales Tata Consultancy Services fell 0.67%. India's second largest IT exporter by sales Infosys lost 0.71% as its ADR fell 3.84% on Thursday. India's third largest software services exporter Wipro fell 3.8% as its ADR fell 2.26% on Thursday. Wipro said on Wednesday it signed a multi-year outsourcing deal with British American Tobacco Plc, the world's second-biggest cigarette maker.

Stocks from interest rate sensitive auto sector were mixed after RBI's quarterly monetary policy review. India's largest tractor maker by sales Mahindra and Mahindra (M&M) fell 0.34%. The stock had slumped 5.64% on Wednesday after Monday's over 5% slide

M&M's net profit surged 849% to Rs 413.70 crore on a 56.32% rise in sales to Rs 4478.70 crore in Q3 December 2009 over Q3 December 2008. The result was announced during trading hours on Monday, 25 January 2010. Meanwhile, the company on Monday also approved a 2-for-1 stock split.

India's top truck marker by sales Tata Motors fell 2.92% ahead of its Q3 December 2009 earnings today, 29 January 2010. India's top small car maker by sales Maruti Suzuki India rose 0.3%.

India's largest motorbike maker by sales Hero Honda Motors rose 1.38%. After market hours on 25 January 2010, the company reported a 78.34% rise in net profit to Rs 535.77 crore on a 32.72% rise in sales to Rs 3814.42 crore in Q3 December 2009 over Q3 December 2008.

State Bank of India clocked the highest turnover of Rs 255.18 crore on BSE. ICICI Bank (Rs 212.81 crore), Aban Offshore (Rs 210.96 crore), Tata Steel (Rs 177.16 crore) and Housing Development & Infrastructure (Rs 125.61 crore) were the other major turnover toppers in that order.

Cals Refineries clocked the highest volume of 2.34 crore shares on BSE. Unitech (1.36 crore shares), IFCI (1.33 crore shares), Hindustan Fertiliser & Chemicals (1.19 crore shares) and Suzlon Energy (0.92 crore shares) were the other volume toppers in that order.