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MARKET REVIEW 7th Feb, 2011

Trading for the week began on a positive note as the Sensex registered small gains in a volatile trading session. Gains in European stocks and a slide in crude oil prices to one-week low triggered bargain hunting in some blue chips after the Sensex hit 5-month low on Friday, 4 February 2011. US index futures were in green. The BSE 30-share Sensex was up 29.04 points or 0.16%, up close to 60 points from the day’s low and off close to 140 points from the day’s high. The market breadth was weak, in contrast with strong breadth earlier in the day.

Index heavyweight Reliance Industries (RIL) gained over 1% while another heavyweight Infosys advanced 1.5%. But, ICICI Bank shed over 1.5%. Cipla slumped close to 3% after poor Q3 earnings. Auto , IT and banking stocks were mixed.

Intraday volatility was high. The key benchmark indices slipped into the red after a firm start. The market bounced back into the green instantly, with the Sensex hitting a fresh intraday high. The market pared gains in morning trade. The Sensex regained strength amid volatility in mid-morning trade. The market held positive in early afternoon trade. The market pared gains in afternoon trade. The market retreated to the day’s low after striking day’s high in late trade.

The GDP growth in the first half of the current fiscal year to end-March is expected to be revised downwards from 8.9% provisional estimate, Chief Statistician of India T.C.A. Anant said on Monday. Anant also said the government will release a new monthly CPI data series from 18 February 2011.

The government today, 7 February 2011, estimated GDP growth for the fiscal year ending March 2011 at 8.6%. Farm output is expected to grow 5.4%, while industry growth this fiscal is expected at 6.2%. The service sector growth is projected to grow 11%.

Finance Minister Pranab Mukherjee on Sunday, 6 February 2011, said inflation and the current account deficit might become causes of concern if crude oil prices keep rising.

Oil traded near the lowest in a week as receding violence in Egypt eased concern that supplies of crude from the Middle East will be disrupted. New York March 2011 crude futures were up 21 cents at $89.24 a barrel. US President Barack Obama said Sunday he is confident the US can work with Egypt’s next government, though he stopped short of calling for President Hosni Mubarak’s immediate departure, which protesters in Egypt are demanding.

Investors pulled $7 billion out of emerging market equity funds in the week ended 2 February 2011, the biggest outflow in three years, data from fund tracker EPFR Global showed, putting a sizeable dent in the record inflows seen in this category in 2010. The large outflow included an outflow of $4.6 billion from exchange-traded funds (ETFs) focused on emerging markets, the largest such outflow these ETFs have ever seen. Among some of the major emerging market countries, Indian equity funds had their biggest outflow since early June 2010 as commercial lenders started passing on the central bank’s latest rake hike, EPFR said. India equity funds had net outflows of $207 million in the week ended 2 February 2011.

On the corporate front, the results announced so far showed that the combined net profit of a total of 1,920 companies rose 22.30% to Rs 76052 crore on 20.50% rise in sales to Rs 634831 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.

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 empowered committee will convene in New Delhi on 11 February 2011 to discuss the revised 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.

Meanwhile, Finance Minister Mukherjee has reportedly convened a meeting of leaders of political parties on 8 February 2011 to resolve the deadlock in Parliament on the issue of Joint Parliamentary Committee (JPC) probe into the 2G spectrum scam. Lok Sabha Speaker Meira Kumar has convened a meeting of leaders of some of the political parties on Monday, 7 February 2011, to ensure smooth functioning of the budget session after the longest shutdown of Parliament in the winter session on the JPC issue.

European shares neared a two-and-a-half year high on Monday, extending Friday’s rise on the back of Asian and US gains, with surging mining stocks led higher by a dividend-raising Randgold Resources . They key benchmark indices in UK, Germany and France were up by between 0.8% to 0.99%.

Asian stocks were mixed on Monday, 7 February 2011. The key benchmark indices in South Korea and Japan rose 0.47% and 0.46% respectively. The key benchmark indices in Indonesia, Hong Kong and Singapore fell by between 0.24% to 1.49%. Markets in China, Taiwan and Vietnam remained shut on account of last week’s Lunar New Year.

US stocks rose on Friday, 4 February 2011, reversing losses and sending the Standard and Poor’s 500 Index to the highest level since June 2008, after unemployment rate unexpectedly dropped and more companies beat earnings estimates. The Dow Jones industrial average rose 29.89 points, or 0.25%, at 12,092.15. The S&P 500 index added 3.77 points, or 0.29%, at 1,310.87 and the Nasdaq Composite index climbed 15.42 points, or 0.56%, at 2,769.30.

The Labor Department said on Friday, 4 February 2011, the US unemployment rate fell to 9% in January 2011 from 9.4% in December 2010.

US index futures reversed early losses. Trading in US index futures indicated that the Dow could rise 35 points at the opening bell on Monday, 7 February 2011.

Back home, on the macro front, there are concerns that high inflation will trigger more monetary tightening from the Reserve Bank of India this year. Prime Minister Manmohan Singh on Friday, 4 February 2011, said the country’s high inflation posed a “serious threat” to the growth momentum, and was driven by supply-side shortages.

Reserve Bank of India (RBI) deputy governor Subir Gokarn on Sunday, 6 February 2011, said events in Egypt will have an impact on monetary policy. “After making the policy announcement on 25th Jan, a whole set of events unfolded in the Middle East, which are starting to have an impact on oil prices, obviously, which we did not anticipate at the time we made the announcement,” Gokarn said. “So, a completely new environment has emerged in a very short time after the announcement. It is going to have an impact on our thinking, our action going forward,” Gokarn added. The central bank holds a mid-quarter policy review on 17 March 2011.

The central bank last month raised interest rates by 25 basis points to clamp down on resurgent inflation, which stood at 8.43 percent in December 2010, and warned of persistently high food prices unless steps are taken to boost supplies.

The BSE 30-share Sensex was up 29.04 points or 0.16% to 18,037.19. The index gained 172.79 points at the day’s high of 18,180.94 in late trade. The index fell 31.14 points at the day’s low of 17,977.01 in late trade.

The S&P CNX Nifty was almost unchanged at 5396. The Nifty hit a high of 5,440.35 and low of 5,376.95 in intra-day trade.

The BSE Mid-Cap index fell 0.52% and the BSE Small-Cap index declined 0.83%. Both these indices underperformed the Sensex.

The sectoral indices on BSE were mixed. The BSE Realty (up 1.67%), FMCG (up 1.42%), Power index (up 0.28%) and IT index (up 0.18%) outperformed the Sensex. The BSE Helathcare index (down 1.5%), Consumer Durables (down 1.32%), Capital Goods index (down 1.11%), Bankex (down 0.36%), Metal index (up 0.07%) and Auto index (up 0.12%) underperformed the Sensex.

The market breadth, indicating the health of the market, was weak. On BSE, 1720 shares declined while 1146 shares advanced. A total of 85 shares remained unchanged. The breadth was strong upto mid-morning trade.

Among the 30-member Sensex pack, 21 gained while the rest fell.

Index heavyweight Reliance Industries (RIL) rose 1.07% to Rs 929.30 after oscillating between Rs 914.40 and Rs 938.90 during the day. As per recent reports, RIL may challenge Chevron Corp’s bid for Atlas Energy Inc. RIL is said to have hired Perella Weinberg Partners and Kirkland & Ellis to evaluate its options. Last April, Reliance agreed to pay Atlas $1.7 billion to form a joint venture and own 40% of Atlas’s Marcellus Shale operations in the eastern United States. In November 2010, Chevron then announced plans to buy Atlas for $3.2 billion.

India’s largest dam builder by sales Jaiprakash Associates jumped 2.27%, reversing Friday’s 2.62% slide.

Auto stocks were mixed. India’s top bike maker by sales Hero Honda Motors gained 2.75%. India’s largest small care maker by sales Maruti Suzuki India advanced 0.87%. India’s top truck maker by sales Tata Motors shed 0.32% reversing initial gains. India’s second largest bike maker by sales Bajaj Auto fell 0.74%.

India’s top tractor maker by sales Mahindra & Mahindra was flat, paring initial gains. The company unveils its Q3 December 2010 earnings on 9 February 2011.

Some metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange, rose 1.16% on Friday, 4 February 2011. Jindal Steel & Power, JSW Steel and Tata Steel gained by between 0.07% to 0.94%.

India’s largest non-ferrous metal firm by sales Sterlite Industries (India) rose 0.36% after the company completed acquisition of a 74% interest in Black Mountain Mining in South Africa from Anglo Operations, a member of the Anglo American plc Group, for a total consideration of $348mn. The acquisition includes the Black Mountain zinc mine and the Gamsberg zinc project.

India’s largest private sector bank by net profit ICICI Bank lost 1.63% after its ADR declined 3.47% on the NYSE on Friday, 4 February 2011.

India’s largest bank by net profit and branch network State Bank of India rose 0.6% and India’s second largest private sector bank by net profit HDFC Bank rose 0.98%.

Software pivotals were mixed. India’s largest software firm by sales TCS shed 1.4%. India’s second largest software firm by sales Infosys rose 1.48% and India’s third largest software firm by sales Wipro lost 2.05%.

India’s largest FMCG company by sales Hindustan Unilever rose 0.46% on reports the company will soon launch its first fruit-based drink under the Kissan brand to cash in on the increasingly health-conscious mindset of the Indian consumer.

Among other FMCG stocks, Dabur India, ITC and Nestle India rose by between 0.6% to 3.07%.

Cipla lost 2.95% to Rs 314.65 after net profit fell 19.49% to Rs 232.69 crore on 11.70% rise in net sales to Rs 1501.36 crore in Q3 December 2010 over Q3 December 2009. Nevertheless, the stocks came off day’s low of Rs 308.50. It was the top loser from the Sensex pack.

Among other healthcare stocks, Lupin, Ranbaxy Laboratories, Sun Pharmaceutical Industries and Pfizer declined by between 0.04% to 2.63%.

Select interest rate sensitive realty stocks advanced on bargain hunting after recent steep losses. Indiabulls Real Estate, Unitech, DLF and HDIL rose by between 1.72% to 3.9%.

Telecom pivotals advanced. India’s largest listed cellular services by sales Bharti Airtel gained 0.66% and India’s second largest listed cellular services by sales Reliance Communications rose 0.7%.

Capital goods stocks edged lower. BEML, Thermax, ABB, Larsen & Toubro and Siemens shed by between 0.14% to 4.38%.

Shree Ashtavinayak Cine Vision clocked highest volume of 3.53 crore shares on BSE. SpiceJet (1.63 crore shares), Cals Refineries (1.11 crore shares), Suzlon Energy (1.02 crore shares) and Unitech (47.07 lakh shares) were the other volume toppers in that order.

Sun TV Network clocked highest turnover of Rs 123.07 crore on BSE. State Bank of India (Rs 110.31 crore), BF Utilities (Rs 98.46 crore), Tata Motors (Rs 93.14 crore) and Tata Steel (Rs 78.92 crore) were the other turnover toppers in that order.

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