RIL, ADAG shares slide as Sensex snaps 3-day rally

A likely increase in interest rates by the Reserve Bank of India (RBI) at a mid-quarter policy review on 16 September 2010 triggered profit taking on the bourses after the key benchmark indices struck 2-1/2-year highs at the onset of the trading session. Stock-specific buying continued based on the first quarter result announcements/expectations about first quarter results of individual firms. Two Sensex stocks - TCS and State Bank of India (SBI) scaled record highs.



Seven out 13 sectoral indices on BSE closed in negative terrain. The market breadth was positive, having weakened when compared to a strong breadth earlier during the trading session. The BSE 30-share Sensex lost 44.61 points or 0.24%, off close to 123 points from the day's high and up about 16 points from the day's low.

The market today, 5 August 2010, snapped a three-day rally. The Sensex had jumped 349.15 points or 1.9% in three trading sessions to 18,217.44 on Wednesday, 4 August 2010, from a recent low of 17,868.29 on 30 July 2010.

The market opened on a firm note, tracking gains in Asian stocks. The market extended gains in morning trade, with the key benchmark indices hitting 2-1/2-year highs. The market trimmed gains in mid-morning trade. The Sensex came off lows in early afternoon trade. The market moved in a tight range in afternoon trade. The movement was confined to a narrow range in mid-afternoon trade. The market weakened in late trade, with the Sensex hitting a fresh intraday low at the fag end of the trading session.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, rose 3.93% to 17.71. The index had declined 2.91% to 17.04 on Wednesday, 4 August 2010. The index had lost 2.45% at 17.55 on Tuesday, 3 August 2010. The index had lost 5.02% at 17.99 on Monday, 2 August 2010. India VIX is calculated based on the S&P CNX Nifty options prices. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

Analysts expect the central bank to raise interest rates by 25 basis points at a mid-quarter monetary policy review on 16 September 2010, to rein in inflation and inflation expectations. The latest data showed the food price index rose 9.53% in the year to 24 July 2010 while the fuel price index climbed 14.26%. Food inflation eased from the week-ago figure of 9.67% and fuel inflation also eased from the previous week's reading of 14.29%. The primary articles index rose 14.36%, compared with the week-ago reading of 14.5%.

The Reserve Bank of India (RBI) at its Q1 monetary policy on 27 July 2010 raised its key interest rates to curb surging inflation. With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation and anchoring inflationary expectations, the RBI said at that time. The RBI also signaled its strong preference for tight liquidity, saying it would ensure that excess liquidity in the system doesn't dilute the effectiveness of policy-rate actions.

The Indian economy is under inflationary pressure, Finance Minister Pranab Mukherjee told parliament on Thursday, 5 August 2010. The finance minister on Wednesday, 4 August 2010, said rising prices were a cost of rapid expansion of the economy.

The good news is that the vital monsoon rains were 16% above normal in the week to Wednesday, 4 August 2010, the second highest in the current season, the weather office said on Thursday, 5 August 2010. Rains were 38% above normal in the week to 28 July 2010, the highest in this season.

The revival of monsoon rains in the crucial sowing month of July 2010 augurs well for the Indian economy which is driven by strong domestic demand. Over 64.7 million hectares had been brought under the crop cover by 22 July 2010. This is about 5.4 million hectares more compared with 59.3 million hectares planted last year till this date.

An overall 1% above-normal rainfall in whole July has facilitated extensive crop sowing even in the traditionally arid tracks of Rajasthan, Gujarat and Maharashtra. This has facilitated higher area coverage under rain-dependent, but high priced crops like cotton, pulses and coarse cereals. Kharif sowing is expected to be largely over by the middle of this month in most parts of the country.

The cumulative rainfall during the period from 1 June 2010 to 4 August 2010 was 2% below normal. Rainfall over the country as a whole for the second half (August to September) of the 2010 southwest monsoon season is likely to be normal, the India Meteorological Department (IMD) said late last week. Quantitatively, rainfall for the country as a whole during the period August-September 2010 is likely to be 107% of long period average (LPA) with a model error of plus/minus 7%, it said.

The Southwest monsoon was vigorous over Saurashtra & Kutch and active over Arunachal Pradesh, Nagaland, Manipur, Mizoram & Tripura, Himachal Pradesh, West Rajasthan, Gujarat Region, Konkan & Goa, Madhya Maharashtra, Coastal Karnataka and Kerala during the past 24 bours, the IMD said in its daily update on Wednesday, 4 August 2010. The weather office expects fairly widespread rainfall over northwest & west India and northeastern states over the next few days

The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The weather office expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

Water level in main reservoirs was at 27% of capacity in the week to 29 July 2010, up from 19% in the previous week. Reservoirs are important for hydropower, which accounts for a quarter of the nation's generation capacity. They also provide water to irrigate winter crops such as wheat and rapeseed.

European shares edged higher on Thursday, 5 August 2010, after some well-received corporate results and status quo on lending rates from the Bank of England. The key benchmark indices in UK, France and Germany were up by between 0.49% to 1.11%.

Bank of England maintained status quo on interest rates as well as on its quantitative easing program. The UK central bank said its Monetary Policy Committee voted to leave the lending rate at record low of 0.5%. The MPC also left its 200 billion pound (US$318 billion) bond-purchase program on hold. Both decisions were widely expected by the markets.

The European Central Bank (ECB) is seen as virtually certain to leave its key lending rate unchanged at a record low 1% when its governing council meets in Frankfurt later in the global day today, 5 August 2010.

Asian stocks were mixed after reports the China Banking Regulatory Commission has ordered Chinese banks to conduct a round of stress tests. The Shanghai Composite fell 0.67%, on reports the China Banking Regulatory Commission has ordered banks to conduct a round of stress tests to gauge the impact of a fall in house prices of up to 50% in cities that have seen sharp gains. Meanwhile, another report suggested that Chinese banks have been ordered to halt lending for purchases of third homes in Beijing, Shanghai, Shenzhen and Hangzhou.

The key benchmark indices in Taiwan and South Korea were down by between 0.3% to 0.45%. But, the key indices in Indonesia, Singapore, Hong Kong and Japan were up by 0.01% to 1.73%.

US index futures reversed initial losses. Trading in US index futures indicated the Dow could rise 17 points at the opening bell on Thursday, 5 August 2010.

US stocks rose in thin trade on Wednesday, 4 August 2010, as retailers' earnings and a report showing a slight improvement in private employment boosted optimism ahead of Friday's influential non-farm payrolls report. Data from the Institute for Supply Management showed the services sector grew at a faster pace than expected in July. In a separate report, payroll-processing company ADP said private employers added more jobs in July than forecast.

The Dow Jones Industrial Average gained 44.05 points, or 0.41% to 10,680.43. The Standard & Poor's 500 Index added 6.78 points, or 0.61% to 1,127.24. The Nasdaq Composite Index advanced 20.05 points, or 0.88% to 2,303.57.

Back home, foreign funds continue to mop up Indian equities. As per provisional figures on NSE, foreign funds bought shares worth Rs 688.69 crore on Wednesday, 4 August 2010. Domestic funds sold shares worth Rs 275.89 crore that day.

Foreign funds bought equities worth a net Rs 2024.24 crore in the first three trading days this month, till 4 August 2010, absorbing selling of Rs 601.22 crore from domestic funds, as per data from the stock exchanges.

Foreign funds bought shares worth a net Rs 8320.50 crore in July 2010, absorbing selling by domestic institutional investors. Domestic funds sold shares worth a net Rs 6323.13 crore in July 2010.

Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010, absorbing selling by domestic funds in that month. Domestic funds had dumped shares worth a net Rs 4777.05 crore in June 2010.

On the corporate front, the combined net profit of a total of 1990 companies fell 9.3% to Rs 56,981 crore on 20.7% rise in sales to Rs 7,03,803 crore in Q1 June 2010 over Q1 June 2009.

On the macro front, the surging services industry expanded for the 15th month in July, but at a slower pace than the two-year peak in June, with only growth in input prices picking up speed, a survey showed on Wednesday, 4 August 2010. The HSBC Markit Business Activity Index, based on a survey of 400 Indian firms, eased to 61.7 in July from 64 the previous month, staying comfortably above the 50 mark that divides growth from contraction.

The prices charged index saw a negligible fall from last month's levels, but the survey said it still pointed to another solid increase in rates charged by Indian service providers. Employment and outstanding business growth nearly ground to a halt, the survey showed.

The manufacturing expansion picked up pace in July 2010, driven by new orders, stronger factory output and rising prices even as hiring stagnated, a survey showed on Monday, 2 August 2010. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, edged up to 57.6 in July 2010 from 57.3 in June 2010 when it slipped from a multi-year high.

The factory output index jumped to a four-month high of 62.3 in July from 60.5 in the prior month, pointing to a rate of expansion in production that was above the trend since the end of the financial crisis, according to survey compilers Markit. But, Indian manufacturers shed jobs for the first time in four months in July.

Most automobiles firms including Tata Motors, Maruti Suzuki, Hero Honda and Bajaj Auto have reported strong sales in the month just gone by.

The Reserve Bank of India (RBI) at its Q1 monetary policy on 27 July 2010 raised its economic growth and inflation forecasts. The RBI raised GDP forecast to 8.5% for the year ending March 2011 (FY 2011), from 8% with an upside bias earlier.

The RBI also raised the baseline projection for inflation based on wholesale price index for March 2011 to 6% from 5.5% indicated in the April 2010 policy statement, taking into account the emerging domestic and external scenario. The RBI said its outlook on inflation will partly be shaped by the distribution of monsoon rains and their impact, as the agricultural harvest will be crucial to easing currently high food prices in the country.

The Reserve Bank of India said the economy could face a significant risk in the form of a slowdown in capital flows, at a time when the current account deficit is widening. In its first quarterly review of monetary policy, the Reserve Bank of India said that a potential slowdown in capital inflows could impact the current and trade deficit. The current deficit is already widening as imports continue to rise with the rebound in economic growth.

The RBI has said that the risk of capital flows runs both ways. Given the present state of the global economy, central banks in advanced economies are likely to maintain accommodative monetary policies for an extended period. With the strong growth potential of emerging market economies, including India, this is likely to trigger large capital inflows. Large capital inflows above the absorptive capacity of the economy will pose a challenge for monetary and exchange rate management. This also has implications for asset prices. In this scenario, a widening current account deficit will help absorb a larger proportion of the inflows.

The BSE 30-share Sensex declined 44.61 points or 0.24% to 18,172.83. The Sensex rose 77.99 points at the day's high of 18,295.43 in morning trade, its highest level since 19 February 2008. The index fell 60.99 points at the day's low of 18,156.45 in late trade.

The S&P CNX Nifty fell 20.75 points or 0.38% to 5,447.10. The Nifty hit a high of 5,487.15 in early trade, its highest level since 5 February 2008.

The BSE Mid-Cap index rose 0.05%. The Small-Cap index rose 0.47%. Both these indices outperformed the Sensex.

The market breadth, indicating the health of the market, was positive. On BSE, 1581 shares advanced while 1381 shares declined. A total of 107 shares remained unchanged. The breadth was much stronger earlier in the day.

From 30 share Sensex pack, 19 fell and the rest rose.

BSE clocked turnover of Rs 4791 crore, slightly lower than Rs 4796.23 crore on Wednesday, 4 August 2010.

The BSE Realty index (up 1.05%), IT index (up 0.47%), Auto index (up 0.32%), FMCG index (up 0.30%), Capital Goods index (up 0.01%), outperformed the Sensex. The BSE Consumer Durables index (down 0.24%), banking sector index Bankex (down 0.31%), Metal index (down 0.33%), Power index (down 0.40%), PSU index (down 0.49%), Healthcare index (down 0.53%),and Oil & Gas index (down 0.91%), underperformed the Sensex.

Index heavyweight Reliance Industries (RIL) fell 0.88% to Rs 1006.95, after company said before market hours today one of its units had signed definitive agreements to enter into a Marcellus Shale gas joint venture with United States-based Carrizo Oil & Gas Inc. The stock came off the day's high of Rs 1,028. Reliance will pay a total $392 million, comprising $340 million of cash and $52 million of drilling carry obligations, the company said.

Under the deal, Reliance will acquire a 60% interest in Marcellus Shale acreage in Central and Northeast Pennsylvania that is currently held in an equal joint venture between Carrizo and an affiliate of Avista Capital Partners. Reliance will acquire all of Avista's stake and 20% of Carrizo's stake in the existing joint venture, the statement said.

Shares of Anil Dhirubhai Ambani Group declined. India's second largest mobile services provider by sales Reliance Communications fell 2.01% and was the top loser from the Sensex pack. Reliance Infrastructure fell 1.94% and was the second biggest loser from the Sensex pack. Reliance Natural Resources lost 1.2% to Rs 39.70.

The Securities and Exchange Board of India (Sebi), early this week, issued a show cause notice (SCN) to Anil Ambani, chairman of the Reliance Anil Dhirubhai Ambani Group (ADAG), in the matter of dealings by his companies, Reliance Natural Resources (RNRL) and Reliance Infrastructure (R-Infra). Anil Ambani and other executives of its group have been asked to appear before Sebi on 3 September 2010.

The issue perhaps relates to transactions by offshore entities in the shares of two ADAG firms -- Reliance Natural Resources (RNRL) and Reliance Infrastructure. Last year, regulators and government agencies had investigated dealings by Pluri Emerging Companies, an obscure foreign institutional investor (FII) that purchased participatory notes, or PNs, with stocks like RNRL and Reliance Infrastructure as the underlying. PNs are instruments that allow offshore entities to trade in Indian stocks.

India's biggest commercial bank in terms of branch network, State Bank of India (SBI) rose 2%, extending a recent rally in the counter. The stock today, 5 August 2010, scaled a record high of Rs 2,663. The Lok Sabha on Monday, 2 August 2010, approved a bill that will allow the State Bank of India (SBI) to reduce government holding in the bank to 51% from 55% and raise funds from the capital markets.

India's largest private sector bank by market capitalisation ICICI Bank fell 1.45%.

IT stocks rose on positive economic data in the US, the biggest market for Indian IT firms. IT stocks had surged on Wednesday, 4 August 2010, after IT major Cognizant reported stellar results and raised its guidance significantly.

India's largest software services exporter TCS rose 0.81%, extending Wednesday's 4.43% surge. The stock today, 5 August 2010, hit a record high of Rs 882. India's second largest software services exporter Infosys Technologies rose 0.20% extending Wednesday's 2.99% gains. India's third largest software services exporter Wipro rose 0.50%, extending Wednesday's 3.96% surge.

Realty stocks rose on good Q1 June 2010 results reported by most realty companies. Phoenix Mills, Unitech, Anant Raj Industries, Indiabulls Real Estate, Ansal Properties, Peninsula Land and DLF rose by between 0.27% to 6.44%.

Auto stocks rose on strong vehicle sales in the month just gone by. Maruti Suzuki, India's top car maker, rose 1%. Managing Director Shinzo Nakanishi said on Wednesday that the company is looking to advance its capacity expansion plans. Its second unit in Haryana is scheduled to come up by April 2012. Nakanishi said the company is working on ways to advance that to an earlier date.

Maruti on Wednesday launched a new version of its best selling car Alto. The new version, Alto-K10 is powered by 998cc K10B engine and is priced between Rs 3.03 - Rs 3.16 lakh (ex-showroom Delhi).

Maruti's total vehicle sales rose 29.2% to 1,00,857 units in July 2010 over July 2009. The company announced the sales figures during market hours on Monday, 2 August 2010. Maruti Suzuki India has raised prices across models by 1% to 1.5% due to a sharp increase in input costs. The price rise would range between Rs 2,000 to Rs 7,500. The company has decided to keep prices of its best selling model Alto unchanged.

India's second largest bike maker by sales Bajaj Auto was almost flat Rs 2721.75. Total vehicle sales jumped 65% at 3.18 lakh units in July 2010 over July 2009.

India's biggest commercial vehicles maker in terms of market share, Tata Motors rose 2.10%, with the stock gaining for the second straight day. The company's total vehicle sales jumped 41% at 67,799 units in July 2010 over July 2009.

India's largest tractor maker by sales Mahindra & Mahindra fell 1.35%.

India's largest motorbike maker by sales Hero Honda Motors fell 1.21%, with the stock snapping last three days' gains. The company reported a jump of 16.60% in sales at 4,27,686 units in July 2010 over July 2009. The company has recorded dispatches of more than four lakh units in a single month for the third consecutive time.

Metal stocks fell on profit taking. National Aluminum Company, NMDC, Sesa Goa, Sterlite Industries, Steel Authority of India, Tata Steel, Jindal Saw and Jindal Steel & Power fell by between 0.33% to 1.58%.

Copper and aluminum maker Hindalco Industries fell 0.18%. Net profit rose 11.2% to Rs 534.40 crore in Q1 June 2010 over Q1 June 2009. The results were announced during trading hours on Tuesday, 3 August 2010.

Hindustan Zinc spurted 3.62% on reports the company has increased lead and zinc prices.

LMEX, a gauge of six metals traded on the London Metal Exchange rose 1.18% on Wednesday, 4 August 2010.

State Bank of India clocked a highest turnover of Rs 128.21 crore on BSE. Midfield Industries (Rs 126.77 crore), VIP Industries (Rs 103.85 crore), Jubilant FoodWorks (Rs 82.53 crore) and Essar Shipping Ports & Logistics (Rs 79.67 crore), were the other turnover toppers on BSE.

Cals Refineries reported a highest volume of 2.80 crore shares on BSE. Karuturi Global (1.85 crore), REI Agro (1.34 crore), Andrew Yule & Company (1.03 crore) and FCS Software (91.52 lakh), were the other volume toppers on BSE.