BSE Mid-Cap, Small-Cap indices reverse initial gains

Profit taking after recent strong gains pulled the key benchmark indices more than 1% lower in what was a choppy trading session. IT, metal, realty and banking stocks led the decline. The market breadth turned weak, in total contrast with a strong breadth earlier in the day. Index heavyweight Reliance Industries reversed initial gains. The BSE 30-share Sensex fell 227.76 points or 1.11%, off close to 270 points from the day's high and up close to 40 points from the day's low.



Intraday volatility was high. The market slipped into the red after opening marginally higher. A bout of volatility was witnessed as the key benchmark indices recovered, soon after hitting fresh intraday lows in morning trade. Volatility continued as the key benchmark indices recovered after hitting fresh intraday lows in mid-morning trade. The key benchmark indices extended intraday recovery to regain positive zone in early afternoon trade.

The market once again slipped into the red in afternoon trade, led by selling in some index pivotals. The market hit a fresh intraday low in mid-afternoon trade. The market extended losses in late trade.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, rose 3.31% at 22.45. The index had declined 1.98% to 21.73 on Wednesday, 6 October 2010. The index had fallen 2.76% to 22.17 on Tuesday, 5 October 2010. It had risen 6.39% to 22.80 on Monday, 4 October 2010. The index had dropped 3.68% to 21.43 on Friday, 1 October 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.

Foreign funds continue to aggressively mop up Indian stocks. Foreign institutional investors (FIIs) bought shares worth a net Rs 2285.40 crore on Wednesday, 6 October 2010, much higher than Rs 970.20 crore on Tuesday, 5 October 2010.

Net equity inflow in 2010 now stands at a record $21.03 billion, above last year's $17.45 billion, as per data from the Securities & Exchange Board of India (Sebi). The Sebi data includes FII inflow through primary and secondary market route.

A sizable chuck of FII inflow this year is from India-focused exchange traded funds as well as long-only funds.

But, a section of the market is concerned that a strong equity issuance pipeline over the next six months will soak liquidity from the secondary equity markets. Indian companies are estimated to raise about Rs 36000 crore from share sales over the next three to six months. This includes a large initial public offer (IPO) from Coal India this month. The government plans to raise about Rs 15000 crore to Rs 16000 crore from divestment of 10% stake in Coal India. The Coal India IPO is billed as the country's largest issue ever. The issue is expected to open for subscription around 20 October 2010.

The next major trigger for the market is Q2 September 2010 results. Brokerage earnings estimates will now roll over to FY 2012 (year ending March 2012). The Q2 September 2010 earnings season kick-starts next week.

Reserve Bank of India deputy governor Subir Gokarn on Tuesday, 5 October 2010, said the central bank is considering measures to deal with an influx of foreign fund flows. A rising rupee is a bad news for exporters, particularly the labour-intensive segments such as textiles and leather. The government has recently extended sops to some of the labour intensive export sectors.

On Monday, 4 October 2010, Finance Minister Pranab Mukherjee said there was no need to intervene in the foreign exchange market or cap foreign portfolio inflows. "As long as the capital flows are in excess of the current account deficit the pressure to appreciate will continue and it could potentially disrupt," RBI's Gokarn said on Tuesday.

India requires sustained foreign investment to plug its widening current account deficit, which has been worsened by a yawning trade deficit.

The rupee today, 7 October 2010, strengthened to its strongest level in 25 months. The partially convertible rupee was at 44.19/21 per dollar, after hitting 44.13, its strongest since 8 September 2008 and stronger than 44.49/50 at close on Wednesday, 6 October 2010.

The International Monetary Fund (IMF) on Wednesday, 6 October 2010, raised its India growth forecast for 2010. Indian economy will grow 9.7% in 2010, up from July forecast of 9.4%, the IMF said. IMF has forecast 8.4% growth for India in 2011. The world economy, led by emerging markets, is forecast to grow by 4.8% in 2010 and 4.2% in 2010 and a sharper global slowdown is unlikely, the IMF said.

European markets turned modest losses into modest gains on Thursday afternoon, with banks and drug stocks in the lead and no rate changes from the Bank of England and the European Central Bank. The key benchmark indices in UK, France and Germany were up by between 0.09% to 0.25%.

The Bank of England's Monetary Policy Committee made no changes to interest rates or the size of its asset-purchase program Thursday. The decision to leave the central bank's key interest rate at a record low 0.5% for the 20th consecutive month and to leave the bond-buying program at 200 billion pounds ($317 billion) was widely expected. But, attention will now turn to the minutes of the meeting, which are scheduled for release on 20 October 2010.

The European Central Bank kept interest rates on hold at a record low of 1% for the 17th month running on Thursday, as expected

Asian stocks edged lower on Thursday, 7 October 2010, as investors remained cautious ahead of the release of Friday's (8 October 2010) US job data for September 2010 and also ahead of the reopening of Chinese markets. The key benchmark indices in Singapore, South Korea Japan and Indonesia fell by between 0.16% to 0.73%. Taiwan's Weighted index was flat. Hong Kong's Hang Seng rose 0.02%. Chinese markets remained closed for a holiday and were slated to reopen Friday, 8 October 2010.

China faces risks of growing debt levels and surging investment, areas that could potentially be problematic for the country's credit rating in the event of an economic cooling, according to Fitch Ratings. The rating agency said there's little immediate threat to the nation's A+ rating, adding that it has assigned China a stable outlook, but added that it is aware of downside risks to China's growth profile, said Fitch's head analyst for Asia Pacific Sovereigns, Andrew Colquhoun, according to Dow Jones Newswires. "The banks and the investment are the two main downside areas that we look to," Colquhoun was cited as saying in the report. China grew its bank lending by about a third in 2009, and is one track for a double-digit increase this year, the report said.

Chinese Premier Wen Jiabao warned European Union leaders Wednesday not to pressure his country into pushing up the value of the yuan. "If the yuan is not stable, it will bring disaster to China and the world.... Don't join the chorus pressing to revalue the yuan," Wen said in a speech in Brussels, according a Wall Street Journal report. He said Chinese exporters operate under very thin profit margins and if hit by tariffs or forced appreciation of the yuan, "would have to close down [and] migrant workers would have to return to their village," the Financial Times quoted Wen as saying.

The IMF on Wednesday, 6 October 2010, said Asia faces policy challenges as capital flows to the region increase, raising the risk of inflation, asset price bubbles and financial sector instability. It estimates that capital inflows to emerging Asia in the past 12 months more than quadrupled from 2008 levels.

A more flexible currency, especially in countries with excessive external surpluses, could increase the "perception of exchange-rate risk and discourage speculative capital inflows," the IMF said. "Where large current-account imbalances may reflect an undervalued exchange rate, currency appreciation is the best response to capital inflows," the IMF said. The region should coordinate its response to capital inflows, the IMF said.

Trading in US index futures indicate that Dow could gain 11 points at opening on Thursday, 7 October 2010. US index futures moved between gains and losses.

Data overnight showed US private sector employment surprisingly shrank in September 2010. The weaker-than-expected private-sector jobs report for September 2010 has strengthened expectations that the US Federal Reserve will embark on another round of quantitative easing to support the ailing US economy.

Closer home, business activity in the Indian services sector expanded at a considerably slower pace in September 2010 than in the previous month, with the index falling to a 10-month low mainly due to weakness in incoming new business. The HSBC Markit Business Activity Index, based on a survey of 400 Indian firms, saw its third consecutive fall, easing to 55.6 from 59.3 the previous month, but staying above the 50 mark that divides growth from contraction for the 17th month.

India's manufacturing sector continued to expand although at a considerably slower pace than in preceding months, predominantly weighed down by a fall in new orders and output. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, slid to 55.1 in September 2010, which marks the lowest reading since November last year, from 57.2 in the August 2010 survey. Though the key index for manufacturing in Asia's third largest economy has slipped, this was the 18th consecutive month it has remained above the 50 mark that divides growth from contraction.

Bond yields edged higher in late trade. The yield on the benchmark 10-year bond was hovering at 7.95%, compared with Wednesday's (6 October 2010) close of 7.93%. The yield on the second most traded 8.13% 2,022 bond, too, was hovering at 8.07%, compared with Wednesday's (6 October 2010) close of 8.04%.

Annual food inflation eased in late September 2010 on improved supplies, which could soothe the Reserve Bank of India's concerns high food prices could spill over to other parts of the economy. The food price index rose 16.24% while the fuel price index climbed 10.73% in the year to 25 September 2010, government data released today, 7 October 2010, showed. In the prior week, annual food and fuel inflation stood at 16.44% and 10.73% respectively.

The primary articles index was up 18.53% in the latest week compared with an annual rise of 18.31% in the previous week, both under a new series of data with a different base year of 2004-05, new components and weightings. The wholesale price index, the most widely watched gauge of prices in India, rose 8.5% in August 2010.

India needs to take "drastic" action to control inflation, Reserve Bank of India deputy governor Gokarn said on Tuesday, 5 October 2010. He was giving a speech at a private equity conference. He said inflation remains well above the Reserve Bank's comfort zone. Gokarn said normalisation of monetary policy was now near completion, and further policy action would depend on upcoming data on growth and inflation.

An unavoidable consequence of runaway inflation is that drastic action by the central bank and also by the government is needed to rein it in, which is bound to disrupt growth process, Gokarn said. His comments strengthened the possibility of a rate hike at the RBI's next policy review, on 2 November 2010. Food and energy price shocks have been a regular part of the economic landscape and may continue to be so in the future, Gokarn said.

Capacity constraints in the rapidly expanding economy are contributing to the sharp rise in prices, the International Monetary Fund said in its World Economic Outlook for 2010 released on Wednesday, 6 October 2010.

The BSE 30-share Sensex fell 227.76 points or 1.11% to 20,315.32. The index rose 38.21 points at the day's high of 20,581.29 in early trade. The Sensex fell 270.31 points at the day's low of 20,272.77 in late trade.

The S&P CNX Nifty fell 66.15 points or 1.07% to 6,120.30.

The BSE mid-cap and small-cap indices reversed initial gains. The BSE Mid-Cap index fell 0.68% and the BSE Small-Cap index fell 0.89%. Both these indices outperformed the Sensex.

Barring the BSE Healthcare index, all the other sectoral indices on BSE declined. The BSE Realty index (down 2.8%), Metal index (down 1.7%), IT index (down 1.3%), and Capital Goods index (down 1.26%), underperformed the Sensex. The BSE Healthcare index (up 0.34%), Oil & Gas index (down 0.52%), Power index (down 0.71%), FMCG index (down 0.75%), PSU index (down 0.77%), banking sector index Bankex (down 0.84%), Auto index (down 1.06%) and Consumer Durables index (down 1.1%), outperformed the Sensex.

The market breadth was weak, in complete contrast with a strong breadth earlier in the day. On BSE, 1814 shares declined while 1188 shares advanced. A total of 93 shares remained unchanged.

From 30 share Sensex pack, 23 fell and one rose.

BSE clocked turnover of Rs 6692 crore, lower than Rs 7422.92 crore on Wednesday, 6 October 2010.

Index heavyweight Reliance Industries (RIL) was down 0.58% to Rs 1038.50. The stock hit high of Rs 1055 and low of Rs 1032.10. RIL may reportedly be sitting on yet another gold mine - its D4 block. RIL is the operator of the block with 85% stake. RIL's partner Niko Resources, which owns 15% in the block located on the east coast of India, has raised initial estimates of gas reserves in the D4 block.

Edward S Sampson, Chairman and CEO of Canada-based Niko Resources, told investors in a conference that it feels that reserves at the D4 block are twice the size of the D6 block and have prospectivity of up to an exceeding potential for 100TCF gas. RIL said that the appraisal process is presently being undertaken and, therefore, will not comment at this juncture.

India's top mobile phone operator Bharti Airtel rose 0.51% after company said on Thursday it would partner with telecom gear makers Ericsson and Huawei to build and manage its mobile network in Bangladesh. Bharti did not give financial details of the agreements, but said in a statement Ericsson would manage majority of the company's network capacity in Bangladesh.

Last month, selected Ericsson, Nokia Siemens Networks and Huawei Technologies as its network equipment partners for third-generation (3G) mobile services in India.

IT stocks fell as the rupee hit a 25-month high against the dollar today, 7 October 2010. A firm rupee negatively impacts operating profit margin of IT firms as the sector derives a lion's share of revenue from exports.

India's largest IT exporter by sales Tata Consultancy Services (TCS) fell 1.07%. The company recently won a $50 million infrastructure management contract from AGL Energy, a leading renewable energy company in Australia.

India's second largest software services exporter by sales Infosys fell 1.5%. The stock hit record high of Rs 3162 on Monday, 4 October 2010.

India's third largest software services exporter by sales Wipro fell 1.42%. The stock hit 52-week high of Rs 471.75 on Monday, 4 October 2010.

Metal stocks reversed initial gains. Hindustan Zinc, Sterlite Industries, Hindustan Zinc, Sesa Goa, Sterlite Industries, National Aluminum Company, Jindal Steel & Power, and JSW Steel fell by between 0.6% to 3.41%.

Tata Steel, the world's seventh-largest steelmaker, fell 4.2%. The company said sales from its Indian operations rose 14% to 1.66 million tonnes in Q2 September 2010 over Q2 September 2009. The growth was driven by the highest-ever quarterly sales of long products, primarily used in construction, the company said in a statement.

The Indian operations account for about a quarter of the group's total annual global capacity of about 30 million tonnes, which includes unit Corus, Europe's second-largest steelmaker. Tata Steel's crude steel production in India rose 5% to 1.73 million in Q2 September 2010 over Q2 September 2009.

Steel Authority of India, India's largest domestic producer of the alloy, fell 0.42%. The company's sales rose 2.9% to 3.17 million tonnes in Q2 September 2010 over Q2 September 2009. The growth came on the back of higher sales of long products such as wire rods, rounds and bars, and structurals, the state-run firm said in a statement. These products are mainly used in the construction sector. Sales of special steels and value-added products rose 10% in the quarter from a year ago.

Banking stocks fell on profit taking. India's largest private sector bank by net profit ICICI Bank fell 1.27%. ICICI Bank, recently, hiked base rate by 25 basis points to 7.75%. ICICI Bank has also increased interest rates on its special home loan scheme by 25 basis points. The scheme now offers loans at the rate of 8.5% for the first year and 9.5% for the second year. From the third year onwards, home loans will be priced at 175 basis over the base rate.

All banks have to review their base rate in the first week of October 2010 as RBI has mandated that the base rate has to be reviewed every quarter. The new benchmark rate came into effect from 1 July 2010, replacing the prime lending rate and banks have to price all new loans in reference with base rate.

India's largest commercial bank by net profit and branch network State Bank of India (SBI) fell 0.48%. The stock hit a record high of Rs 3299 on Monday, 4 October 2010.

Bank of India, Bank of Baroda and Punjab National Bank fell by between 0.11% to 0.76%.

India's second largest private sector bank by net profit HDFC Bank fell 0.91%. HDFC Bank raised its key lending rate or the base rate by 25 basis points to 7.50% effective Tuesday, 5 October 2010. HDFC Bank had raised its rates on some deposits by up to 50 basis points effective 24 September 2010.

High beta realty stocks fell on profit taking. Ackruti City, DLF, Unitech and Indiabulls Real Estate fell by between 0.75% to 4.17%.

FMCG stocks reversed initial gains. Nestle India, Colgate-Palmolive India, Hindustan Unilever, ITC and United Spirits fell by between 0.12% to 2.07%.

India's largest engineering & construction firm by sales Larsen & Toubro fell 1.63%. The stock hit 52-week high of Rs 2117 on Monday, 4 October 2010.

India's largest electric equipment maker by sales Bharat Heavy Electricals fell 2.36%, reversing initial gains. The stock hit 52 week high of Rs 2695 today.

Cement stocks fell on profit taking after recent rally triggered by higher cement dispatches in September 2010. Ambuja Cements, India Cements and UltraTech Cement fell by between 0.29% to 2.2%.

Jaiprakash Associates fell 2.1% on profit taking after a recent strong rally. The company's cement dispatches grew 61% to 1.17 million tonnes in September 2010 over September 2009, aided by huge capacity additions by the company.

Auto stocks fell on profit taking. Bajaj Auto fell 1.59%. The stock hit all-time high of Rs 1,611.45 on Wednesday, 6 October 2010. Total sales rose 26% to 3,52,769 units in September 2010 over September 2009.

India's top car maker, Maruti Suzuki fell 1.71%. Total vehicle sales rose 29.6% to 1,08,006 units in September 2010 over September 2009. This is a record monthly sale from the car major.

Commercial vehicles major Tata Motors fell 0.94%. The stock hit a record high of Rs 1155.75 on Friday, 1 October 2010. The company, early this week, said it has acquired 80% stake in Italian design and engineering firm Trilix SRL, for 1.85 million euros. The acquisition will help enhance the company's styling and design capabilities to global standards, Tata Motors said in a statement.

Tata Motors announced early this week said it has increased the total size of ordinary and 'A' ordinary shares placement to $750 million from a base amount of $525 million following strong investor response. The company said the size of the 'A' ordinary shares issue has been raised to $550 million from $400 million.

India's largest tractor and utility vehicles maker Mahindra & Mahindra (M&M) fell 1.88%, with the stock falling for the second straight day. The stock hit all time high of Rs 758.70 on Wednesday, 6 October 2010. The company said on Friday, 1 October 2010, it sold 35,177 vehicles in September 2010, nearly 24% more from a year earlier.

But, India's leading bike maker by sales Hero Honda Motors rose 1.18%, with the stock gaining for the second straight day. Sales rose 8.1% to 4.33 lakh units in September 2010 over September 2009.

Cals Refineries clocked highest volume of 3.33 crore shares on BSE. Resurgence Mines (2.6 crore shares), IFCI (2.36 crore shares), Pipavav Shipyard (2.11 crore shares) and KingFisher Airlines (1.85 crore shares) were the other volume toppers in that order.

Career Point Infosystems clocked highest turnover of Rs 568.51 crore on BSE. Pipavav Shipyard (Rs 176.57 crore), Eros International (Rs 165.73 crore), IFCI (Rs 163.92 crore) and Reliance Industries (Rs 148.69 crore) were the other turnover toppers in that order.