Market sharply off high as CBI arrests Raja in 2G scam case

The key benchmark indices came sharply off the day's highs to hit fresh intraday lows in late trade after reports filtered in that the Central Bureau of Investigation (CBI) has arrested former telecom minister A Raja over an alleged telecom scam. Anil Dhirubhai Ambani group telecom firm Reliance Communications hit record low and another group firm Reliance Infrastructure hit 52 week low. Hero Honda Motors tumbled 6% after poor Q3 results. Other auto stocks, too, fell.

Capital goods stocks edged lower. Banking stocks came off day's the day's highs. IT, metal and realty stocks edged higher. Index heavyweight Reliance Industries (RIL) held firm, with the stock rebounding from last six days' losses. The BSE 30-share Sensex was provisionally up 61.63 points or 0.34%, off close to 220 points from the day's high and up close to 40 points from the day's low. The market breadth was positive, having weakened compared with strong breadth earlier in the day. World stocks rose on receding worries about the unrest in Egypt.

Bharti Airtel rose 2.75% after the company said underlying earnings before interest, taxation, depreciation and amortization (EBITDA) margin was sustained at 33.8% in Q3 December 2010.

Stocks were volatile. The market edged higher in early trade, rebounding from a recent steep slide, on firm Asian stocks. The market came off highs later. The market soon surged to a fresh intraday high. The market once again pared gains in morning trade. The market surged to hit fresh intraday high in mid-morning trade. The market trimmed gains in early afternoon trade. The key benchmark indices firmed up in mid-afternoon trade after moving in a range in afternoon trade as European stocks rose. The market came sharply off the day's high in late trade.

Former telecom minister A Raja has been arrested by the Central Bureau of Investigation (CBI) in the 2G spectrum scam case. Raja was arrested in new Delhi on Wednsday afternoon along with his personal secretary RK Chandolia and former telecom secretary Siddharth Behuria. Raja has been arrested under sections 120B, 13(2), 13(1D) of Prevention of Corruption Act on the charges of criminal misconduct, violation of policies and favouring some specific companies during the grant of 2G spectrum licences. He has been arrested just two days after Tamil Nadu Chief Minister and DMK supremo M Karunanidhi met Prime Minister Manmohan Singh and Congress President Sonia Gandhi.

Raja was forced to resign on 14 November 2010 in the wake of a Comptroller and Auditor General (CAG) report which held that the spectrum allocation at undervalued prices resulted in a notional loss of Rs 1.76 lakh crore to the exchequer. The Supreme Court has asked the CBI and the Enforcement Directorate to submit status reports on their investigations into the 2G spectrum case to it by 10 February 2011 when the case will come up for further hearing. In its FIR, CBI mentioned the loss as Rs 22000 crore based on CVC findings which had referred the case to it.

On the corporate front, the results announced so far showed that the combined net profit of a total of 1,555 companies rose 21.8% to Rs 71374 crore on 20.9% rise in sales to Rs 5,83,448 crore in Q3 December 2010 over Q3 December 2009.

As per provisional figures, foreign funds sold shares worth Rs 1036.80 crore and domestic funds bought shares worth Rs 630.40 crore on Tuesday, 1 February 2011, when the market hit five-month low. Foreign funds have dumped shares worth a net Rs 9940.39 crore in 2011 so far, as per data from the stock exchanges, with domestic funds absorbing part of the selling. Domestic funds have bought shares worth a net Rs 5867.58 crore.

European shares rose on Wednesday, extending the previous session's near three-week high, as strong macroeconomic data and buoyant corporate earnings continued to fuel investor risk appetite. The key benchmark indices in France, Germany and UK rose by between 0.01% to 0.62%.

Asian stocks rose on Wednesday after companies reported higher earnings and US manufacturing expanded, boosting confidence in a global economic recovery. The keybenchmark indices in Hong Kong, Indonesia, Japan and Singapore rose by between 0.83% to 1.81%.

Receding worries about the unrest in Egypt also helped underpin demand for riskier assets. However, investors continued to watch the unfolding drama in that country. Egyptian President Hosni Mubarak's announcement he will step down from power after his term expires this fall did little to appease the crowd gathered in Cairo's Tahrir Square, a focal point for demonstrators calling for Mubarak's long rein to end immediately.

The Chinese stock markets are shut for a week starting today for the Lunar New Year holiday. The market will reopen on 9 February 2011. South Korean and Taiwanese markets are also closed for the Lunar New Year holidays this week.

In US market action, the Dow Jones and S&P 500 closed at their highest levels since June 2008 on Tuesday and looked poised for more gains after strong earnings and signs of a surge in US manufacturing. Signaling improvement in economic growth, the US manufacturing sector expanded at its fastest pace in nearly seven years in January, according to the Institute for Supply Management. The index's employment component rose to its highest since 1973.

Trading in US index futures indicated that the Dow could rise 10 points at opening of US stocks on Wednesday, 2 February 2011.

As per provisional figures, the BSE 30-share Sensex was up 61.63 points or 0.34% to 18,083.85. The index gained 283.78 points at the day's high of 18,306 in mid-morning trade. The index rose 20.39 points at the day's low of 18,042.61 in late trade.

The S&P CNX Nifty was up 9 points or 0.17% at 5,426.20 as per provisional figures.

The BSE Mid-Cap index fell 0.42%. The BSE Small-Cap index gained 0.02%. Both these indices underperformed the Sensex.

The market breadth, indicating the health of the market, was positive compared with a strong breath earlier in the day. On BSE, 1469 shares advanced while 1364 shares declined. A total of 120 shares remained unchanged.

Among the 30-member Sensex pack, 17 fell while rest rose.

BSE clocked turnover of Rs 3446 crore, lower than Rs 3456.44 crore on Tuesday, 1 February 2011.

Index heavyweight Reliance Industries (RIL) rose 3.14% to Rs 923.75, with the stock recovering from last six days' losses. The stock had struck a 52-week low of Rs 888.55 on NSE on Tuesday, 1 February 2011. RIL has reportedly offered to buy American shale gas company Atlas Energy's assets in the US, rivaling a bid by Chevron Corporation. Atlas Energy disclosed this in a lengthy filing to the US Securities and Exchange Commission(SEC).

RIL had written a letter on 10 January 2011 where it mentioned that it wants to evaluate its options, including whether it "may be able to create incremental value for Atlas Energy and its constituencies." In the letter, RIL mentioned itself as the "most natural and obvious" partner to buy the company that oil behemoth Chervon has agreed to purchase.

The RIL stock had fallen recently on concerns about slow ramp up in gas production from the KG-D6 field. Gross natural gas production from RIL KG-D6 block, off India's east coast, declined 5.7% to 55.8 million metric standard cubic metres per day (mmscmd) in Q3 December 2010 from Q2 September 2010, as the company continues to struggle to find solution to problems related to the reservoir.

IT stocks rose on strong economic data in the US, the key market for Indian IT firms. India's second largest software services exporter Infosys gained 0.38% to Rs 3098 on reports the company is likely to ask Chief Operating Officer S.D. Shibulal to become chief executive in April. The stock came off the day's high of Rs 3162. The report said that Infosys has a practice of changing its chief executives regularly, mainly to give its founders a chance of running the company from the top. Shibulal as well as current Chief Executive Kris Gopalakrishnan are some of the founders of Infosys. Gopalakrishnan took over the top job from Nandan Nilekani in 2007, the report said. The report said that a decision is likely to be taken before Chief Mentor N.R. Narayana Murthy retires in August.

India's largest software services exporter TCS rose 2.66%. On a consolidated basis, net profit rose 9.25% to Rs 2369.83 crore on 5.35% increase in total income to Rs 9857.56 crore in Q3 December 2010 over Q2 September 2010. The result was announced after trading hours on 17 January 2011.

India's third largest IT exporter by sales Wipro gained 1.88% on bargain hunting after recent sharp losses triggered by resignations of joint-CEOs of its information technology business. The resignations were announced at the time of announcing third quarter results before market hours on Friday, 21 January 2011. Wipro's net profit as per International Financial Reporting Standards rose 10% to Rs 1319 crore on 12% increase in total revenue to Rs 7829 crore in Q3 December 2010 over Q3 December 2009.

Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange, gained 1.76% on Tuesday, 1 February 2011. Copper extended gains to a record in London on Wednesday, 2 February 2011. Jindal Steel & Power, Hindustan Zinc,JSW Steel, National Aluminum Company, Sterlite Industries and Hindalco Industries rose by between 1.01% to 3.28%.

Tata Steel fell 0.94% to Rs 625 as shares allotted in the follow-on public offer (FPO) of the steel giant were admitted to trading today. A total of 5.7 crore shares allotted in the FPO will be listed. The issue closed on 21 January 2011. The steel major raised Rs 3,477 crore through issue which was priced at the top end of the Rs 594-610 per share price band. The FPO was subscribed 6.03 times.

Meanwhile, Tata Steel has raised its UK reversing mill plate prices on stronger-than-expected demand. The company raised its heavy plate prices by 95 pounds in the United Kingdom for all orders placed from 1 February 2011 as steel demand was higher than expected in 2010 and is forecast to continue to grow in 2011, it said in a statement.

Interest rate sensitive realty stocks recovered after declining for the last five days on concerns higher interest and higher property prices may dent demand for residential units. DLF, Unitech and HDIL rose by between 2.08% to 4.53%.

Capital goods stocks edged lower, extending recent losses. Siemens, Larsen & Toubro, Bhel, ABB and Crompton Greaves shed by between 0.1% to 2.86%.

Some auto stocks tumbled. Hero Honda Motors slumped 6.08% and was the major loser from the Sensex pack after net profit fell almost 20% to Rs 429 crore on 34.13% increase in total income to Rs 5223.69 crore in Q3 December 2010 over Q3 December 2009. The stock hit 52 week low of Rs 1500.10 today. The result was announced during trading hours today, 2 February 2011.

Hero Honda MD & CEO, Pawan Munjal said the industry has faced a multitude of issues over the past few months, with constraints in supply of components and rising input costs. This has impacted company's margins adversely. Munjal said the company's profit margins are likely to remain under pressure in the short term even as the demand for two-wheelers is likely to remain strong.

Bajaj Auto was down 2.99%. Total sales rose 18% to 3.13 lakh units in January 2011 over January 2010. The company announced January sales figures during market hours today.

Maruti Suzuki India fell 2.09%, extending initial losses. Total vehicle sales rose 14.7% to Rs 1.09 lakh units in January 2011 over January 2010. Domestic sales rose 23.8% to 1 lakh units in January 2011 over January 2010. The company announced the monthly sales data during market hours on Tuesday.

Tractor and utility vehicles maker Mahindra & Mahindra fell 0.65% to Rs 700.50, off the day's high of Rs 720. The company's total sales rose 21.7% to 57,217 units in January 2011 over January 2010, aided by 21.8% growth in automotive sales to 36,718 units and 21.4% growth in tractor sales to 20,499 units.

Banking stocks reversed initial gains. India's biggest commercial bank in terms of branch network, State Bank of India, fell 1.42% to Rs 2559, off the day's high of Rs 2634.

India's second largest private sector bank by net profit HDFC Bank declined 1.28%. Net profit rose 32.91% to Rs 1087.83 crore on 28.9% rise in operating income to Rs 6357.78 crore in Q3 December 2010 over Q3 December 2009. The result was announced after trading hours on Thursday, 27 January 2011.

India's largest private sector bank by net profit ICICI Bank rose 1.37% to Rs 1007, off the day's high of Rs 1022.50.

Reliance Communications fell 1.82%, reversing initial gains on reports Supreme Court has directed two Anil Ambani group firms Reliance Communications and Reliance Telecom to deposit 50% of the increased spectrum usage charge demanded by Department of Telecommunications (DoT) and to submit a bank guarantee for the rest within two weeks. The RCom stock had hit a record low of Rs 115.85 today. A three-judge bench headed by Chief Justice S H Kapadia also issued notice to DoT directing it to file reply over enhancing spectrum usage charge.

Reliance Infrastructure fell 1.09%. The stock hit 52 week lows of Rs 677 today.

In macro news, exports in December rose an annual 36.4% to $22.5 billion, while imports for the month fell 11.1% on the year to $25.1 billion, the latest government data showed. The trade deficit in December narrowed to $2.6 billion compared with $8.9 billion in November. Exports rose an annual 29.5% to $164.7 billion in April-December 2010.

The manufacturing sector expanded at a slightly faster pace in January 2011 on the back of output and new order growth but inflationary pressures persisted, a business survey showed. The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 companies, edged up to 56.8 in January from 56.7 in December. That was the 22nd consecutive month the key index of manufacturing has been above the reading of 50 that divides growth from contraction.

The GDP growth for the 2009/10 fiscal year has been provisionally revised upwards to 8% from 7.4%, a government statement said on Monday. "The estimates of GDP and other aggregates for the previous years have been revised on account of using the new series of wholesale price index (WPI) with base 2004-05 and also subsequent revision in index of industrial production (IIP)," the Central Statistical Organisation said in a statement on Monday.

The food price index rose 15.57% and the fuel price index climbed 10.87% in the year to 15 January 2011, government data, last week, showed. In the prior week, annual food and fuel inflation stood at 15.52% and 11.53%, respectively. The primary articles index was up 17.26% in the latest week, compared with an annual rise of 17.03% a week earlier.

To control surging inflation, the Reserve Bank of India (RBI) at its quarterly policy review on 25 January 2011 raised repo rate by 25 basis points to 6.5% and the reverse repo rate by 25 basis points to 5.5%. Repo rate is the rate at which the RBI lends money to banks. Reverse repo is the rate at which RBI borrows funds from banks. The central bank held the cash reserve ratio steady at 6%.

"As high food inflation persists, the prospect of it spilling over to the general inflation process is rapidly becoming a reality," Reserve Bank of India (RBI) Governor Subbarao said in the policy document released on Tuesday, 25 January 2011. The RBI lifted its headline inflation projection for March 2011 to 7% from 5.5% previously. The RBI stuck with its 8.5% GDP growth forecast for the current fiscal year, but with an upside bias.

The combined risks from inflation, the high current account deficit (CAD) and fiscal situation contribute to an increase in uncertainty about economic stability that consumers and investors will have to deal with, RBI said. To the extent that this deters consumption and investment decisions, growth may be impacted. While slower growth may contribute to some dampening of inflation and a narrowing of the CAD, it can also have significant impact on capital inflows, asset prices and fiscal consolidation, thereby aggravating some of the risks that have already been identified, it said.

Capital flows, which so far have been broadly sufficient to finance the CAD, may be adversely affected, the RBI said. Faster than expected global recovery may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India. This may increase the vulnerability of India's external sector. Hence, the composition of capital inflows needs to shift towards longer-term commitments such as foreign direct investment (FDI), the RBI said.