Sensex off 3.9% in 2 days on EU summit uncertainty

Key benchmark indices fell for the second straight day to settle at their lowest level in more than a week on uncertainty on whether European leaders will be able to cobble up a far-reaching plan at a crucial European Union (EU) summit to tackle the region's festering debt crisis. A cut in economic growth forecast for the current year from the Indian government also weighed on the sentiment. Index heavyweight Reliance Industries (RIL) slumped more than 3%. The barometer index, BSE Sensex, shed 274.78 points or 1.67%, up close to 70 points from the day's low and off about 170 points from the day's high. All the 13 sectoral indices on BSE were in the red.



From a recent high of 16,877.06 on 7 December 2011, the Sensex has tumbled 663.60 points or 3.93% in two trading sessions. The Sensex has risen 90 points or 0.55% so far this month. The Sensex has slumped 4,295.63 points or 20.94% in calendar 2011. From a 52-week high of 20,664.80 on 3 January 2011, the Sensex has lost 4,451.34 points or 21.54%. From a 52-week low of 15,478.69 on 23 November 2011, the Sensex has risen 734.77 points or 4.74%.

Coming back to today's trade, auto stocks fell on profit taking after recent gains triggered by strong vehicle sales in November. Capital goods stocks extended Thursday's steep losses triggered by reports that the capital goods sector led a decline in industrial output in October 2011. Interest rate sensitive realty and banking stocks fell on profit taking after recent gains triggered by hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases next week. Airline stocks tumbled.

Stocks were volatile. The market slumped in early trade to hit its lowest level in more than a week. Volatility ruled the roost as key benchmark indices weakened once again after recovering sharply from initial steep losses to hit fresh intraday high in morning trade. The market was range bound in mid-morning trade. The market weakened after remaining range bound in negative zone in mid-morning trade. Key benchmark indices hit fresh intraday lows in afternoon trade after the government cut GDP growth target for the fiscal year through March 2012 (FY 2012). The market trimmed losses in mid-afternoon trade as European shares reversed initial losses. High volatility was witnessed in late trade.

The third advance tax installment is due on 15 December 2011, which may provide cues on Q3 December 2011 corporate earnings. Advance taxes are collected in four installments -- 15% by 15 June; 40% by 15 September; 75% by 15 December and 100% by 15 March.

The BSE Sensex lost 274.78 points or 1.67% to settle at 16,213.46, its lowest closing level since 30 November 2011. The index fell 345.92 points at the day's low of 16,142.32 in afternoon trade. The index declined 105.67 points at the day's high of 16,382.57 in late trade.

The S&P CNX Nifty shed 76.95 points or 1.56% to settle at 4,866.70, its lowest closing level since 30 November 2011. The Nifty hit a low of 4,841.75 in intraday trade. The Nifty hit a high of 4,918.35 in intraday trade.

The BSE Mid-Cap index fell 0.86% and the BSE Small-Cap index declined 0.89%. Both these indices outperformed the Sensex.

BSE clocked turnover of Rs 1885 crore, lower than Rs 1995.04 crore on Thursday, 8 December 2011.

The market breadth, indicating the overall health of the market, was weak. On BSE, 1,710 shares fell and 1017 shares rose. A total of 129 shares were unchanged.

From the 30-member Sensex pack, 26 shares declined and only four rose. Tata Power Company, Jaiprakash Associates and HDFC fell by between 2.21% to 4.67%.

Index heavyweight Reliance Industries (RIL) shed 3.05%, extending Thursday's 3.71% losses. The company late last month said that it has initiated arbitration proceedings against the government to seek an independent view of a tribunal on the issue of the company's entitlement of recovery of entire costs on KG-D6 gas blocks from the revenue generated from the blocks. RIL said it has initiated arbitration proceedings against the Government of India (GoI) in a bid to finally resolve the cost recovery issue so as not to hinder future investments in this block.

RIL said its investment in KG-D6 production facilities has been only partly recovered and the return on the investment so far is less than the cost of the capital. The production sharing contract (PSC) with the Government of India (GoI) contains no provision which entitles the GoI to restrict the costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities are utilised, RIL said.

FMCG stocks declined in a weak market. United Spirits, Dabur India, Nestle India and ITC shed by between 0.91% to 3.45%.

Interest rate sensitive banking stocks fell on profit taking after recent gains triggered by hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases next week. India's largest private sector bank by net profit, ICICI Bank, dropped 1.69%, extending Thursday's 3.07% losses. India's second largest private sector bank by net profit, HDFC Bank fell 2%, extending Thursday's 2.59% losses. India's largest bank by net profit and branch network State Bank of India (SBI) declined 0.1% in volatile trade.

A parliament panel has reportedly agreed to remove the 10% cap on voting rights for investors in private sector banks. The panel has proposed a voting rights cap of 26% in private banks. The government version of the legislation, known as the Banking Laws (Amendment) Bill, had proposed scrapping a 10% cap on voting rights for investors in private sector banks and making it proportionate to the shareholding. The standing committee rejected this version, proposing instead to cap shareholding at 26%. The current cap for investors in public sector banks is 1%.

IT stocks declined on worries that the European leaders will struggle to resolve the regions' debt crisis. Europe is the second largest outsourcing market for the Indian IT firms after US. India's third largest software services exporter by revenue Wipro fell 2.19%. Wipro Technologies, the global information technology, consulting and outsourcing business of Wipro, recently announced its plans to create a focused global unit called Business Operation Unit, which will enable Wipro to deliver differentiated value for clients with seamless, predictable execution. It will consolidate its business application services, global delivery, quality and IS teams under the newly formed Business Operation Unit.

India's largest software services exporter TCS declined 0.48%. Tata group holding firm, Tata Sons, recently named Cyrus Pallonji Mistry as the successor to Tata Group Chairman Ratan Tata.

India's second largest software services exporter by revenue Infosys dropped 0.65%.

Meanwhile, the rupee fell on Friday, dragged by the dip in euro and local equities, on growing concerns that European leaders may not be able to cobble up a far-reaching plan at summit later in the day to tackle the region's festering debt crisis. The partially convertible rupee was at 52.22/23 per dollar, sharply weaker from Thursday's closing of 51.75/76. The unit had touched a record low of 52.73 on 22 November 2011. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

Auto stocks fell on profit taking after recent gains triggered by strong vehicle sales in November. India's largest truck maker by sales Tata Motors fell 3.07%. The company's total sales rose 41% to 76,823 units in November 2011 over November 2010.

India's largest tractor maker by sales Mahindra & Mahindra declined 3.62%. The company's total auto sales jumped 52.7% to 40,722 units in November 2011 over November 2010.

Ashok Leyland dropped 1.75%. The company reported 53.36% jump in commercial vehicle sales at 7,878 units in November 2011 over November 2010.

India's largest motorcycle maker by sales Bajaj Auto fell 3.2%. Bajaj Auto's total vehicle sales jumped 25% at 374,477 units in November 2011 over November 2010. India's largest motorcycle maker by sales Hero MotoCorp shed 1.02%. The company's sales rose 27.4% to 536,772 units in November 2011 over November 2010. TVS Motor Company fell 0.62%. The company's total sales rose 12% to 175,535 units in November 2011 over November 2010.

India's largest car maker by sales Maruti Suzuki India rose 1.08%, reversing initial losses. The company's total sales fell 18.5% to 91,772 units in November 2011 over November 2010.

Car sales in India rose in November, the first monthly rise in five, an industry body said on Thursday, as the industry rebounded strongly from the biggest fall in over a decade the month before. Domestic passenger car sales increased by 7% to 1,71,131 units in November, 2011, from 1,59,939 units in the same month last year. According to figures released by the Society of Indian Automobile Manufacturers (SIAM) on Thursday, motorcycle sales in the country grew by 22.67% to 8,69,070 units during the month from 7,08,476 units in the corresponding month last year. Total two-wheeler sales grew by 25.27% to 11,63,294 units last month from 9,28,660 units in November 2010, as per the data. Sales of commercial vehicles grew by 34.99% to 66,264 units in the month under review from 49,087 units in the year-ago period, SIAM said.

Interest rate sensitive realty stocks fell on profit taking after recent gains triggered by hopes a slowing economy could prompt the Reserve Bank of India (RBI) to pause on rate increases next week. Purchases of both residential and commercial property are largely driven by finance. HDIL, DLF, Unitech, and Phoenix Mills fell by between 0.81% to 3.86%.

Capital goods stocks extended Thursday's steep losses triggered by reports that the capital goods sector led a decline in industrial output in October 2011. The government is set to unveil industrial production data for October 2011 on Monday, 12 December 2011.

India's largest power equipments maker by sales Bhel lost 3.45%, extending Thursday's 5.28% losses. Engineering and construction company major L&T slipped 2.85%, extending Thursday's 5.11% slide.

Among other capital goods shares, BGR Energy Systems, Crompton Greaves, Usha Martin, Suzlon Energy, BEML, ABB, Alstom Projects, Punj Lloyd, Havells India, Siemens, Praj Industries, Thermax and SKF India fell 0.13% to 6.06%.

Kingfisher Airlines lost 4.01% on reports that tax authorities have frozen bank accounts of Kingfisher Airlines for non-payment of service tax arrears. Jet Airways (India) lost 5.7% on reports tax officials are investigating the service tax arrears of the private sector airline. Shares of budget carrier SpiceJet tanked 4.88%.

Oil exploration stocks fell as crude oil price declined. Cairn India and ONGC fell by between 0.84% to 1.91%. Lower crude oil prices will result in lower realizations from crude sales for oil exploration firms.

Shares of state-run oil marketing companies rose after crude oil price fell more than 2% to settle at $98.34 per barrel on the New York Mercantile Exchange on Thursday, 8 December 2011. HPCL (up 2.88%), Indian Oil Corporation (up 1.48%) and BPCL (up 0.48%) edged higher. Lower crude oil prices will reduce under-recoveries of state-run oil marketing companies (PSU OMCs) on domestic sale of diesel, LPG and kerosene at controlled prices. However, a weak rupee will offset the benefit of lower oil prices as the crude oil that refineries process is either imported or priced on import-parity. Crude oil for January 2012 delivery settled at $98.34 a barrel, down $2.15 a barrel, or 2.14% on the New York Mercantile Exchange on Thursday, 8 December 2011.

Shares of organized retailers extended recent steep losses after the government on Wednesday suspended plans to open its $450 billion supermarket sector to foreign firms. Pantaloon Retail, Shoppers Stop, Trent, V2 Retail, Brandhouse Retail, Provogue (India) and Koutons Retail dropped by between 1.81% to 4.99%. Earlier, the Union Cabinet had approved 51% FDI in multi-brand retail and raised the cap to FDI in single brand retail to 100% from the 51% earlier.

Metal stocks extended Thursday's losses as LMEX, a gauge of six metals traded on the London Metal Exchange, dropped 1.1% on Thursday, 8 December 2011. Sail, Nalco, Sterlite Industries, NMDC, Tata Steel, JSW Steel, Jindal Saw, and Bhushan Steel dropped by between 0.47% to 5.08%.

Hindalco Industries rose 1%, reversing initial losses. Jindal Steel & Power gained 0.62%, reversing initial losses.

Coal mining firm Coal India rose 1.1% on bargain hunting after declining 6.33% in the prior three trading sessions.

Cals Refineries clocked highest volume of 1.2 crore shares on BSE. Farmax India (51.44 lakh shares), Unitech (45.01 lakh shares), Suzlon Energy (43.32 lakh shares) and VIP Industries (33.44 lakh shares) were the other volume toppers in that order.

SBI clocked highest turnover of Rs 177. 11 crore on BSE. RIL (Rs 91.56 crore), ICICI Bank (Rs 64.20 crore), L&T (Rs 58.44 crore) and Tata Steel (Rs 46.08 crore) were the other turnover toppers in that order.

A government statement in parliament last month dashed hopes of a relief in securities transaction tax (STT). Junior finance minister S.S. Palanimanickam has said that the government has no proposal to lower the securities transaction tax (STT). There has been a speculation that the government will reduce STT in Union Budget 2012-2013 in a bid to revive sagging volumes on the bourses. Palanimanickam said in a written reply to Rajya Sabha that the securities transaction tax receipts had declined by around 18% to Rs 2960 crore during the first six months in the current fiscal year from a year ago period.

The government today, 9 December 2011, cut its economic growth forecast to 7.25%-7.75% from the previous 8% for the current year through March 2012 (FY 2012), and it also warned of possible fiscal slippage caused by global uncertainties. In a mid-year economic review presented in parliament today, 9 December 2011, the finance ministry said that commitments on account of additional requirement on various subsidies will make it difficult to adhere to the total expenditure target for the current year. However the government promised to keep the slippage to a minimum as it broadly adheres to its long-term fiscal rigor, the report added. The government had pegged fiscal deficit at 4.6% of gross domestic product when it presented the Union Budget 2011-2012 in February 2011.

The reduction in GDP growth forecast for FY 2012 comes after the economy grew an annual 6.9% in the quarter ending September 2011, its slowest pace in more than two years. The government said headline inflation would decline from December 2011, expecting it to ease to 7% by March 2012.

The government also said that the Rs 40000-crore stakes sale target in state-run companies would be hard to achieve this fiscal year, while tax receipts would suffer from the impact of the global slowdown. The government is considering options other than share sales to meet its divestment target in state-run companies for the fiscal year ending March, the junior finance minister said on Friday.

A recent depreciation in the rupee may be seen as a lagged correction, the finance ministry said. The rupee had hit a record low of 52.73 on 22 November 2011 and has shed more than 14% of its value this year to remain the worst performer among major Asian peers.

Food inflation in India slid further in the fourth week of November, falling under the 7% mark, data released by the Government showed on Thursday. Fuel inflation remained steady. Food inflation declined to 6.6% in the week ended November 26 from 8% in the preceding week, the Commerce & Industry Ministry said on Thursday. Food inflation stood at 8.93% in the corresponding week last year. Inflation in the Primary Articles group fell to 6.92% in the week under review, from 7.74% in the week ended November 19, according to the Commerce Ministry statement. It was at 14.01% in the year-ago period. Inflation in the Fuel & Power group stood at 15.53% in the week ended November 26, unchanged compared to the previous week, the latest data showed. It was at 10.07% in the comparable week of the previous year.

Easing food inflation could nudge the central bank to reverse its tight monetary policy stance as economic growth is stuttering. Food inflation has been a key driver of headline inflation in India over the past few years.

Data due on Monday 12 December 2011 on industrial production for October 2011 and on Wednesday 14 December 2011 on headline inflation for November 2011, will provide cues on the central bank's likely policy stance at its mid-quarter monetary policy review on 16 December 2011.

Industrial production is seen falling 0.6% in October 2011 as per the median estimate of a total of 14 economists polled by Capital Market. The last time the industrial production had reported a decline was way back in June 2009. Industrial production grew 1.9% in September 2011.

Inflation based on the wholesale price index (WPI) is projected to ease to 9% in November 2011, as per the median estimate of the poll carried out by Capital Market. Inflation, as measured by the wholesale price index (WPI), stood at 9.73% in October 2011 and 9.72% in September 2011.

The Indian economy expanded at a substantially lower rate in the second quarter of the current fiscal year as a series of rate increases by the RBI and a global slowdown hurt local demand. India's economy grew 6.9% in Q2 September 2011, in line with expectations, after expanding by 7.7% in the first quarter, government data showed on 30 November 2011. The manufacturing sector grew an annual 2.7% during the July-September quarter while farm output rose an annual 3.2% the data showed. India's GDP growth in the first six months of FY 2012 stood at 7.3% versus 8.6% in the corresponding period of the last financial year, the CSO data showed on 30 November 2011.

India's manufacturing sector expansion slowed in November as factory output grew at its slowest pace in nearly three years although export demand should provide some cheer for factories, a survey showed on 1 December 2011. The HSBC Markit India Manufacturing PMI fell to 51 in November from 52 in October, but has stayed above the 50 mark that divides growth from contraction for 32 months. The PMI was 50.4 in September.

On the flip side, India's services sector expanded in November for the first time in two months as new business accelerated despite persistent inflationary pressures, a survey showed on Monday. The seasonally adjusted HSBC Markit Business Activity Index -- based on a survey of around 400 firms -- stood at 53.2 in November, above the 50-mark that separates growth from contraction. It had fallen to 49.1 in October after contracting for the first time in more than two years in September to 49.8. Despite tight monetary conditions, the sub-index for new business accelerated to 52.3 in November from 51 in October, driving the turnaround in the service sector.

India's November exports are seen at $22.3 billion while imports for the month are seen at $35.9 billion, leaving a trade deficit f $13.6 billion, Trade Secretary Rahul Khullar told media reporters on Friday. Exports between April and November are seen up 33.2 percent from a year earlier to $192.7 billion, Khullar said, citing provisional data.

India's merchandise exports in October rose by 10.8% to $19.87 billion, while imports during the same month climbed by 22% to $39.51 billion, data released by the government showed on 1 December 2011.

The Reserve Bank of India (RBI) announced a 25 basis points hike in its key policy rate viz. the repo rate to 8.5% after half-yearly review of the monetary policy on 25 October 2011. The central bank cut its GDP growth forecast for the current fiscal year through March 2012 to 7.6% from 8% earlier. But it retained its March-end inflation projection of 7%. RBI said the projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 (January 2012 release) and then continue down a steady path to 7% by March 2012. It is expected to moderate further in the first half of 2012-13. This reflects a combination of commodity price movements and the cumulative impact of monetary tightening. Further, moderating inflation rates are likely to impact expectations favourably. RBI unveils mid-quarter monetary policy review on 16 December 2011.

European stocks edged higher in volatile trade on Friday as a proposal for treaty changes to allow closer fiscal integration between European Union (EU) member countries failed to get the backing of all 27 EU countries. Key benchmark indices in Germany, France and UK rose by between 0.01% to 0.87%.

While the key European Union summit has failed to secure the full backing of the 27 nations for treaty changes to help fight euro-zone debt crisis by coordinating fiscal policy, many members reached an agreement to provide up to an extra 200 billion euros ($266.73 billion) to fight the crisis and to form a new fiscal compact. European Council President Herman Van Rompuy said in a press conference after the end of the first day of the summit on Thursday, 8 December 2011, that euro-area and other European states will aim to make the extra money available to the International Monetary Fund. Additionally, European Financial Stability Facility leverage will be rapidly available, he said.

Van Rompuy added that the participating states also agreed to new strong fiscal rules for Europe, including member states submitting draft budget plans to the commission for scrutiny. Excessive deficit procedure rules will be reinforced more automatically, he said. Van Rompuy also referred to private-sector involvement (PSI) in bailouts and said that the members in the new compact would "strictly adhere to IMF practice." Van Rompuy said that members hadn't yet come to an agreement on euro bonds but that euro-area member states would continue to work on fiscal integration. There would be an update on this issue in June 2012, he said.

A full agreement on close fiscal ties within the EU fell through after the UK asked for concessions that France and Germany weren't willing to give, according to reports. The two-day summit is billed as crucial for the debt-stricken region.

The European Union will pursue an intergovernmental deal without all members, French president Nicolas Sarkozy said at a press conference on Friday, 8 December 2011. "We're doing everything we can to save the euro," he said. Sarkozy was speaking at a press conference after a European Union summit.

Meanwhile, Moody's Investors Service downgraded the long-term debt ratings of BNP Paribas SA , Societe Generale SA and Credit Agricole SA by one notch each, with negative outlooks. The ratings firm said liquidity and funding conditions for the banks have "deteriorated significantly," against deteriorating macroeconomic fundamentals.

European and US stocks had ended with sharp losses Thursday, 8 December 2011, after European Central Bank President Mario Draghi said at a news conference in Frankfurt on Thursday, 8 December 2011, that the European Union treaty prohibits "monetary financing." Draghi made his comments after the central bank on Thursday announced a reduction in its key refinancing rate by a quarter of a percentage point to 1%, as widely expected, and said it would supply banks with unlimited cash for three years. Draghi also said that the ultimate decisions and political responsibility are in the hands of European Union leaders, which will wrap up a key summit in Brussels later in the global trading day.

Asian shares fell on Friday, 9 December 2011, after a closely-watched European Union summit failed to secure the full backing of the 27 nations for treaty changes to help fight euro-zone debt crisis by coordinating fiscal policy. Key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan fell by between 0.62% to 2.73%.

Meanwhile, Chinese data released on Friday afternoon showed the world's second-largest economy cooling more than expected in November. Industrial production for the month rose 12.4% from a year earlier, which fell short of market expectations. The result marked a slowing from October's 13.2% advance. Urban fixed-asset investment, a closely watched indicator of the Chinese economy, rose 24.5% during the January-November period, easing from 24.9% in January-October. Retail sales, however, rose faster in November, gaining 17.3% year-on-year, compared to a 17.2% gain in October.

China's annual inflation rate tumbled in November to 4.2% the lowest level in more than a year, fuelling expectations of further monetary policy easing to combat deteriorating domestic and international economic conditions.

Japan's economy grew less than the government's initial estimate last quarter. GDP rose at an annualized pace of 5.6% in the three months ended Sept. 30, the Cabinet Office said in Tokyo today. That compared with a preliminary figure of 6%. Economists had projected an increase of 5.2%.

Trading in US index futures indicated that the Dow could gain 45 points at the opening bell on Friday, 9 December 2011. US stocks fell on Thursday after the European Central Bank chief dashed hopes for more bond buying to support the euro zone.