Weak global stocks drags market lower

The key benchmark indices tumbled on Thursday tracking weak global stocks in anticipation of further monetary tightening by China, the world's second largest economy. After Indian bourses closed, the China's central bank announced increase in the reserve requirement ratio for its commercial banks by another 50 basis points, extending its campaign to calm prices despite initial signs of slowing in the economy. The efforts to calm inflation by China could affect global economic recovery. The BSE 30-share Sensex was down 249.17 points or 1.34% off close to 275 points from the day's high and up close to 20 points from the day's low. The 50-unit Nifty dropped below the psychological 5,500 mark.

The increase in bank reserve ratio by China was the eighth since October which will raise the reserve requirement ratio to a record 21% for China's biggest banks. The increase will take effect from 18 May 2011.

Coming back to today's trade, the market breadth was weak. Index heavyweight Reliance Industries (RIL) was weak. Hindustan Unilever rose on defensive buying. Metal shares slumped after global metal prices declined on Wednesday, 11 May 2011. Bank shares dropped amid worries rising interest rates would hurt future profits.

Political uncertainty ahead of the counting of votes of assembly elections in Tamil Nadu, Puducherry, Kerala, Assam and West Bengal on 13 May 2011 also played the spoilsport. The result of state elections hold key for the ruling United Progressive Alliance (UPA) government whose image has been tarnished by a slew of corruption scandals.

Meanwhile, Factory output in March 2011, as measured in terms of the index of industrial production (IIP) released Thursday, witnessed lower growth of 7.3%, compared to 15.5% expansion in the same month a year ago. Industrial output had risen 3.6% in February 2011. Poor performance of the manufacturing and mining sectors pulled down overall growth of industry to 7.8% in the year ended March 2011 from 10.5% in the previous fiscal.

In separate economic data, annual rate of inflation in food articles declined to 7.7% in the week ended 30 April 2011 from 8.53% in the preceding week, government data showed. The primary articles price index was up 11.96%, compared with an annual rise of 12.11% a week earlier. The fuel price index advanced 12.25% over the same week last fiscal year, but the pace of increase decelerated from the preceding week's 13.53%.

The BSE 30-share Sensex was down 249.17 points or 1.34% to 18,335.79. The index lost 270.62 points at the day's low of 18,314.34 in late trade. The Sensex rose 25.06 points at the day's high of 18,610.02 in mid-morning trade.

The S&P CNX Nifty was down 78.90 points or 1.42% to 5,486.15 after oscillating between 5,572.50 and 5,476.30 during the day.

The BSE Mid-Cap index 0.91% and the BSE Small-Cap index declined 1.06%. Both these indices outperformed the Sensex.

The market breadth, indicating the health of the market, was weak. On BSE, 1849 shares declined while 950 shares advanced. A total of 124 shares remained unchanged.

Among the 30-member Sensex pack, 26 declined while only four of them gained.

The total turnover on BSE amounted to Rs 2161 crore lower than Rs 2792.50 crore on Wednesday, 11 May 2011.

Index heavyweight Reliance Industries (RIL) declined 1.03% to Rs 944.85 after gyrating between Rs 941.70 and Rs 954.90 during the day. Falling in line with an oil ministry order, RIL has reportedly cut natural gas supplies to non-core users like refineries and steel plants so that full demand of fertiliser and power plants can be met. RIL started implementing the ministry's priority allocation order which had asked it to first supply natural gas from its eastern offshore KG-D6 fields to priority sector like urea-making units and power plants. The oil ministry directive followed a sharp drop in output at KG-D6 fields. Production fell from 61.5 million metric standard cubic meters per day (mmscmd) achieved in March 2010 to under 50 mmscmd currently, instead of rising to about 69 mmscmd as was projected previously.

Interest rate sensitive banking shares dropped amid worries rising interest rates would hurt future profits. Top three banks have recently announced hike in interest rates after a steep 50 basis points hike in the key short term rates by the Reserve Bank of India on 3 May 2011. BSE Bankex fell 1.39% and underperformed the Sensex.

India's second largest private sector bank by net profit HDFC Bank slipped 0.65%. The bank said during market hours today that it has issued on a private placement basis unsecured, redeemable, non-convertible, subordinated bonds in the nature of debentures towards Tier-II capital of Rs 3650 crore. The bank on Wednesday said it has raised its base rate by 55 basis points (bps) to 9.25% per annum and prime lending rate (PLR) by 50 bps to 17.75%. The bank said rate hike comes into effect from Thursday. India's largest private sector bank by net profit ICICI Bank fell 1.9%. The bank raised its benchmark base rate by 50 basis points to 9.25% per annum effective 7 May 2011. It has also announced an increase of 0.50% in its benchmark prime lending rate and in its Floating Reference Rate for consumer loans (including home loans) with effect from 7 May 2011.

India's largest bank by net profit and branch network State Bank of India declined 1.19%. The bank had increased its base rate and its benchmark prime lending rate (BPLR) by 75 basis points (bps) each. The bank's base rate, or the minimum lending rate, will be 9.25% while the BPLR will be 14% from 12 May 2011.

Metal shares declined after LMEX, a gauge of six metals traded on London Metal Exchange, fell 1.86% to $3994.60 on Wednesday, 11 May 2011. BSE Metal index slumped 2.99% and underperformed the Sensex. India's largest aluminum maker by sales. India's largest non-ferrous metals maker by sales Sterlite Industries slumped 4.76% and was the top loser from the Sensex pack.

Hindalco Industries, Hindustan Zinc, Sesa Goa, Steel Authority of India, Tata Steel and National Aluminium Company fell by between 1.5% to 4.66%.

India's second largest listed cellular services provider by sales Reliance Communications fell 0.27%. The company during market hours today said that it drew the second tranche of Rs 1,780 crore from China Development Bank underwritten facility of Rs 8,700 crore.

India's largest oil exploration firm by sales Oil and Natural Gas Corporation rose 0.58% and was the top gainer from the Sensex pack. Reports indicated the government is likely to divest its stake in ONGC as a part of its disinvestment program in July 2011.

India's largest FMCG maker by sales Hindustan Unilever rose 0.52% on defensive buying.

Most realty stocks fell on worries higher interest rates could dent demand for residential and commercial property. BSE Realty index rose 0.48% and outperformed the Sensex. Purchases of both residential and commercial property are largely driven by finance. D B Realty, Indiabulls Real Estate, Ackruti City and Unitech fell by between 0.82% to 4.87%.

Interest rate sensitive auto stocks fell across the board on concerns higher interest rates could crimp sales of automobiles. Automobile purchases, including that of cars, two-wheelers, utility vehicles and commercial vehicles are substantially driven by financing. BSE Auto index declined 0.99% and outperformed the Sensex. India's largest truck maker by sales Tata Motors skidded 148%. India's second largest bike maker by sales Bajaj Auto declined 0.62%. India's largest car maker by sales Maruti Suzuki India fell 0.5%. India's largest tractor maker by sales Mahindra & Mahindra (M&M) shed 1.27%. India's top bike maker by sales Hero Honda Motors declined 1.39%.

IT stocks also fell in a weak market. The BSE IT index fell 1.16% and underperformed the Sensex. Wipro declined 1.33%. The company announced on Wednesday that the company has signed an agreement to acquire majority stake of Brazil based Hydraulic Cylinder manufacturer R.K.M. Equipamentos Hidraulicos. The acquisition is expected to be completed during the quarter. The acquisition will be a part of Wipro's Infrastructure Engineering division. Wipro Infrastructure Engineering is a global leader in precision engineered hydraulic cylinders and components. It is a Tier-1 supplier to global Original Equipment Manufacturers (OEMs) of construction and earth moving machinery, material handling equipment, forestry equipment, heavy and medium commercial vehicles among other industries, across Asia and Europe. India's second largest software services exporter Infosys shed 0.75%. India's largest IT exporter by sales TCS fell 2.31%.

Reliance Infrastructure fell 0.21%. The company announced after market hours today that it bought back 1 lakh shares today. It bought back 15 lakh shares so far under the buyback program. The company has announced a buyback program of upto Rs 1000 crore.

Servalaksh Paper clocked highest volume of 12.18 crore shares on BSE. Birla Cotsyn (1.53 crore shares), Cals Refineries (73.41 lakh shares), Paramount Print packaging (60.41 lakh shares) and Resurgent Mines (54.40 lakh shares) were the other volume toppers in that order.

Servalaksh Paper clocked highest turnover of Rs 231.52 crore on BSE. State Bank of India (Rs 124.92 crore), Jubilant Food (Rs 74.35 crore), Larsen & Toubro (Rs 61.69 crore) and Tata Steel (Rs 35.57 crore) were the other turnover toppers in that order.

Foreign institutional investors (FIIs) bought shares worth Rs 125.07 crore and domestic funds bought shares worth Rs 89.12 crore on Wednesday, 11 May 2011 as per provisional figures on stock exchanges.

Meanwhile, a report indicated that Life Insurance Corporation of India (LIC), the largest institutional investor in the country, plans to invest Rs 60,000 crore in equities during the current financial year ending March 2011. The company's equity investment had declined by 30% to Rs 43,000 crore in the year ended March 2010 from a year ago.

The Reserve Bank of India (RBI) at its annual 2011-2012 monetary policy review on 3 May 2011, raised repo rate, the rate at which the RBI provides credit to banks, by 50 basis points to 7.25% and the reverse repo rate, the rate at which bank park funds with RBI, by 50 basis points to 6.25%. The RBI kept cash reserve ratio and bank rate unchanged at 6% each. The RBI increased savings banks deposit rate to 4% from 3.5% effective immediately.

The corporate results announced so far have been good. The combined net profit of a total of 1334 companies rose 16% to Rs 58698 crore on 23.6% rise in sales to Rs 510309 crore in the quarter ended March 2011 over the quarter ended March 2010.

European shares declined Thursday led by mining and energy shares after a weakening demand outlook hit commodity prices. The key benchmark indices in France, Germany and UK fell by between 1.19% to 1.48%.

Asian share markets tumbled on Thursday after a second big sell-off in commodities in less than a week curbed investor appetite for riskier investments. The key benchmark indices in Indonesia, Japan, Singapore, South Korea, China and Hong Kong fell by between 0.77% to 2.03%. Taiwan's Taiwan Weighted rose 0.15%.

US markets ended lower Wednesday on a fall in commodity prices. The Dow Jones industrial average declined 130.33 points or 1.02% to 12,630.03. The S&P 500 tumbled 15.08 points or 1.11% at 1,342.08 and the Nasdaq fell by 26.83 points or 0.93% to 2,845.06.

Trading in US index futures indicates that Dow could fall 68 points at the opening bell on Thursday, 12 May 2011.

US crude futures were down $2.52 or 2.57% at $95.69 a barrel on Thursday. India imports majority of its crude oil requirements and high oil prices have raised concerns about widening current account deficit (CAD). High oil prices raise concerns about higher oil subsidy bill for the government and its negative impact on the government's fiscal position