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MARKET REVIEW 14th Feb, 2011

Bargain hunting and firm global stocks helped domestic bourses clock smart gains for the second straight day. Global stocks were mostly higher on positive China’s trade data and as Egypt worries faded. Domestic data showing slowing inflation in January 2011 eased worries of further monetary tightening by the central bank also aided rally. The investors bargain hunt beaten down stocks after the recent sell off saw market slumping to their eight month lows on Thursday, 10 February 2011. Reliance Infrastructure gained on good Q3 results. Today’s rally was broad based with all the 13 sectoral indices on the BSE clinching gains with shares from capital goods, metal, auto and banking in the forefront. The market breadth was strong with the BSE Mid-Cap and Small-Cap indices outperforming the Sensex. The BSE 30-share Sensex was up 473.59 points or 2.67% to 18,202.20. The Sensex regained psychological 18000 mark.

The market opened on a firm note on positive Asian stocks. It was hovering near the day’s high after hitting fresh intraday highs in morning trade. It surged to hit fresh intrday highs in mid-morning trade. It extended gains in early afternoon trade. Market extended gains to strike fresh day’s high in afternoon trade. It was hovering near the day’s high in mid-afternoon trade. It surged to hit fresh intraday highs in late trade.

The headline inflation eased slightly in January on some moderation in manufactured products. The wholesale price index (WPI), India’s main inflation gauge, rose 8.23% in January from a year earlier. The index rose 8.43% in December from a year earlier. Food prices in the WPI index jumped 15.7% in January compared with 13.6% in December. As per provisional figures, foreign funds sold shares worth Rs 537.71 crore while domestic funds bought shares worth Rs 519.67 crore on Friday, 11 February 2011.

The government expects headline inflation to ease to 7% by end March, Finance Minister Pranab Mukherjee said on Monday, matching other government forecasts.

The Q3 December 2010 results season is drawing towards a close. The results announced so far showed that the combined net profit of a total of 2,983 companies rose 21.2% to Rs 86112 crore on 18.8% rise in sales to Rs 938018 crore in Q3 December 2010 over Q3 December 2009.

There are concerns of slowdown in corporate profit growth going ahead. With the rise in key policy rates by the Reserve Bank of India (RBI) recently, interest cost will only rise in the coming quarters that could hurt earnings going forward. If raw material costs keep rising at a fast clip, companies will feel the heat of slowing sales growth and rising cost of operations that could start eating into profit growth.

European shares edged lower after hitting 29-month high early on Monday as talk of slower-than-expected Chinese inflation data and strong China trade figures supported market. The key benchmark indices in France and UK fell by between 0.19% to 0.22%. Germany’s DAX up 0.24%.

Asian stocks rose on Monday as investors greeted news of Egyptian President Hosni Mubarak’s resignation with relief. The key benchmark indices in Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan rose by between 0.88% to 1.89%.

China’s Shanghai Composite jumped 2.53% after China’s trade surplus fell to its lowest in nine months in January after imports surged, supporting the government’s case ahead of a G20 meeting that it is doing enough to spur domestic demand without speeding up currency appreciation. The trade surplus shrank to $6.5 billion from $13.1 billion in December, well short of forecasts for a $10.7 billion gap.

Japan’s economy shrank slightly in the final quarter of 2010 but analysts expect a recovery this year as stronger exports to China and other parts of fast-growing Asia offset persistently weak domestic demand. Gross domestic product (GDP) shrank 0.3% in October-December from the previous quarter, slightly less than a 0.5% fall expected by markets but still the first contraction in five quarters.

Mubarak handed power over to the army, bowing to escalating pressure from the military and protesters demanding he goes. His departure was seen partially reviving investors’ appetite for risk. Two weeks of anti-government protests in Egypt sparked concerns the unrest could spread across the Middle East, contributing to volatility in markets and commodity prices worldwide.

US index futures reversed initial gains. Trading in US index futures indicated that the Dow could fall 3 points at the opening bell on Monday, 14 February 2011.

U.S. stocks closed out their second straight week of gains on Friday with a rally sparked after Egyptian President Hosni Mubarak resigned, easing tension around the region for now.

The BSE 30-share Sensex was up 473.59 points or 2.67% to 18,202.20. The index gained 499.01 points at the day’s high of 18227.62 in late trade. The Sensex rose 128.51 points at the day’s low of 17857.12 in early trade.

The S&P CNX Nifty gained 146 points or 2.75% to 5,456.

The BSE Mid-Cap index rose 3.52% and the BSE Small-Cap index rose 3.94%. Both these indices outperformed the Sensex.

The market breadth, indicating the health of the market, was strong. On BSE, 2449 shares advanced while 495 shares declined. A total of 61 shares remained unchanged.

All the 30 members from the Sensex pack 29 stocks logged gains and one fell.

BSE clocked turnover of Rs 3448 almost same as that of Rs 3445.18 crore on Friday, 11 February 2011.

Index heavyweight Reliance Industries (RIL) rose 0.51% to Rs 915.20 reversing initial losses. The stock had fallen to the day’s low of Rs 895 on reports stock exchange regulator Sebi could levy a record penalty on RIL if it is able to establish that the company was involved in insider trading. The penalty could be worth Rs 25 crore or three times the amount of profit the company made from insider trading – whichever is higher.

Reliance Communications rose 0.26%. The consolidated net profit fell 56.65% to Rs 480.27 crore on 5.75% decline in total income to Rs 5004.09 crore in Q3 December 2010 over Q3 December 2009. The company announced Q3 result after market hours today.

Tata Power Company jumped 3.74%. The consolidated net profit jumped 377.87% to Rs 442.37 crore on 0.77% decline in total income to Rs 4519.18 crore in Q3 December 2010 over Q3 December 2009. The company announced Q3 result after market hours today.

Diversified Jaiprakash Associates surged 6.79%, extending Friday’s 7.35% gains. The stock had hit 52 week low of Rs 70.25 on 9 February 2011.

Reliance Infrastructure rose 1.85% to Rs 627.10 after company announced buyback of shares at a price of Rs 725, at a premium over the current ruling price. The consolidated net profit rose 10.16% to Rs 405.25 crore on 11.2% rise in total income to Rs 3871.64 crore in Q3 December 2010 over Q3 December 2009. The company announced Q3 result during market hours today.

India’s largest engineering and construction firm by sales Larsen & Toubro jumped 6.7% after company announced during market hours today that it bagged Rs 1100 crore EPC order from GSECL.

Among other capital goods stocks, Bhel, Usha Martin, ABB, BEML and Thermax rose by between 3.35% to 6.28%.

Inerest rate sensitive auto stocks rose across the board after data showed inflation moderated in the month of January. Car maker Maruti Suzuki India rose 3.06%. The stock had hit a 52-week low of Rs 1146 on Thursday, 10 February 2011. India’s second largest bike maker by sales Bajaj Auto gained 3.12%. India’s top bike maker by sales Hero Honda Motors rose 3.79%. The stock had hit a 52-week low of Rs 1412.20 on Wednesday, 9 February 2011.

Mahindra and Mahindra (M&M) gained 1.71%. The company recently unveiled plans to acquire a 38% stake in BSE-listed EPC Industrie. The acquisition would be through preferential allotment of shares by EPC, following which M&M will make the mandatory open offer to acquire a 20% stake in the Nashik-based micro-irrigation firm.

Tata Motors jumped 5.6% after consolidated net profit jumped 272.9% to Rs 2424 crore on 22% rise in consolidated revenue to Rs 31685 crore in Q3 December 2010 over Q3 December 2009. The company announced the Q3 result at the fag end of the trading session on Friday, 11 February 2011. The stock had jumped 3.79% on Friday.

Interest rate sensitive banking stocks rose after data showed inflation moderated in the month of January. India’s largest private sector bank by market capitalisation ICICI Bank was up 3.06%. India’s second largest private sector bank by market capitalisation HDFC Bank was up 2.28%. India’s largest commercial bank by branch network State Bank of India gained 4.12%. State Bank of India has raised term deposit rates on two maturity buckets — 555 days and 1,000 days — by 25 basis points. Simultaneously, to protect its margins, the bank has marked up its lending rate by 25 basis points. All rate hikes are effective from 14 February 2011.

Among other banks, Federal Bank Yes Bank, Bank of India, Canara Bank, IDBI Bank, Indian Overseas Bank, Axis Bank, Kotak Mahindra Bank, Bank of Baroda, Union Bank of India and Punjab National Bank rose by between 2.44% to 5.6%.

Metal stocks gained across the board after China’s trade data showed imports surged in the month of January. China is the World’s largest consumer of base metals. Hindalco Industries rose 3.88% after net profit rose 7.78% to Rs 460.34 crore on 12.53% rise in total income to Rs 6035.22 crore in Q3 December 2010 over Q3 December 2009. The company announced Q3 result on Saturday, 12 February 2011.

Steel giant Tata Steel rose 4.06% ahead of Q3 results on Tuesday, 15 February 2011.

Jindal Steel & Power, Hindustan Zinc, JSW Steel, Jindal Saw, Sterlite Industries Steel Authority of India, National Aluminum Company rose by between between 0.88% to 6.62%.

LMEX, a gauge of six metals traded on the London Metal Exchange rose 0.11% on Friday, 11 February 2011.

Consumer durables stocks gained on bargain hunting after recent losses. Rejesh Exports, Gitanjali Gems, Videocon Industries, Titan Industries and Blue Star rose by between 0.84% to 8.99%.

FMCG stocks too gained. United Spirits, ITC an Hindustan Unilever rose by between 1.58% to 14.76%.

Marico jumped 4.9% on reports the Emami group is close to sealing a deal for buying ‘Sweekar’, a refined sunflower oil brand of the company.

IT stocks rose on bargain hunting after last two days losses. India’s second largest IT exporter by sales Infosys gained 2.1%. India’s largest IT exporter by sales TCS rose 2.22%. India’s third largest IT exporter by sales Wipro rose 0.58%.

Mahindra Satyam spurted 11.66% after consolidated net profit surged 152.79% to Rs 58.90 crore on 2.97% increase in income from operations to Rs 1279.30 crore in Q3 December 2010 over Q2 September 2010.

Interest rate sensitive realty stocks rose on ease in inflation in the month of January 2011. Phoenix Mills, Sobha Developers DLF, HDIL and Indiabulls Real Estate rose by between 2.43% to 7.23%.

Unitech jumped 3.87% ahead of its Q3 result today.

Sanraa Media clocked highest volume of 1.54 crore shares on BSE. Unitech (94.99 lakh shares), Shree Ashtavinayak Cine Vision (94.86 lakh shares), Mahindra Satyam (78.21 lakh shares) and SpiceJet (70.61 lakh shares) were the other volume toppers in that order.

Gitanjali Gems clocked highest turnover of Rs 134.82 crore on BSE. ACC (Rs 125.32 crore), State Bank of India (Rs 120.59 crore), Reliance Industries (Rs 116.49 crore) and Tata Motors (Rs 95.36 crore) were the other turnover toppers in that order.

In macro news, the latest economic data showed industrial output in December 2010 rose a slower-than-expected 1.6% from a year earlier. Manufacturing output, which constitutes about 80% of the industrial production, rose an annual 1%, the statistics office said in a statement. Growth in industrial output in November 2010 was revised upwards to 3.62% from earlier 2.7%

The food price index rose 13.07% and the fuel price index climbed 11.61% in the year to 29 January 2011, government data on Thursday 10 February 2011 showed. In the prior week, annual food and fuel inflation stood at 17.05% and 11.61%. The primary articles price index was up 16.24% in the latest week, compared with an annual rise of 18.44% a week earlier.

The next major trigger for the stock market is Union Budget 2011-2012 to be unveiled by the finance minister Pranab Mukherjee on 28 February 2011. Investors will watch if the Finance Minister announces measures to rein in inflation and inflationary expectations. The Finance Minister may announce a new road map for the Goods & Services Tax (GST). The original deadline of 1 April 2010 for roll-out of GST has already been missed due to the lack of consensus between the Centre and states on the issue. GST is India’s most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states.

The Centre has reportedly sent the empowered committee of state finance ministers yet another draft constitutional amendment on the proposed goods & services tax (GST) in a last-ditch attempt to reach a consensus before the Budget session of Parliament. The third draft reportedly proposes the creation of a GST Council through an Act of Parliament, instead of presidential order, as proposed in the previous draft.

The government may also announce some populist measures in the Budget given that assembly elections are due in Kerala, Tamil Nadu, West Bengal and Assam. In all these states, the Congress is potentially looking to regain power or to retain it.

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