Sensex, Nifty in a strong uptrend: Monday Closing Report

If the Nifty closes below any previous day’s low, we may see the upmove slowing

The benchmarks settled higher on buying support from rate sensitive sectors, helping the market close in the green for the third day in a row. If the Nifty closes below any previous day’s low, we may see the upmove slowing. The National Stock Exchange (NSE) reported a higher volume of 54.54 crore shares and advance-decline ratio of 799:552.


The domestic market opened lower on the back of weak economic indicators—contraction in industrial production, rise in retail inflation, dip in exports and a decline in auto sales—released on Friday. On the other hand, markets in Asia were higher in morning trade as Chinese GDP data for the second quarter was in line with analysts’ expectations.


The Nifty opened 18 points lower at 5,991 and the Sensex started the day at 19,926, a fall of 32 points from its previous close. The indices touched their lows in the first half hour with the Nifty falling to 5,981 and the Sensex slipping to 19,883. The benchmarks remained in the negative for the entire morning session as investors booked profits after two consecutive days of gains.


Meanwhile, headline inflation rose to 4.86% in June, driven mainly by rising prices of food articles, especially vegetables including onion. Inflation based on the Wholesale Price Index (WPI) had stood at 4.70% in May. In June, 2012, it was 7.58%.


The market emerged into the positive terrain in noon trade as buying in fast moving consumer goods, realty, technology and healthcare sectors. A green opening of the key European markets also supported the gains back home.


The indices hit their intraday highs at around 2.30pm on across-the-board buying. The Nifty rose to 6,038 and the Sensex regained the 20,000 level, climbing to 20,072 at their respective highs.


The benchmarks settled near their highs and in the green for the third day in a row. The Nifty gained 22 points (0.36%) to 6,031 and the Sensex closed the session at 20,034, up 76 points (0.38%).


Among the broader indices, the BSE Mid-cap index climbed 0.90% and the BSE Small-cap index advanced 0.80%.


Except for BSE Power (down 0.78%) and BSE IT (down 0.03%) all the other sectoral indices closed in the green. The top sectoral gainers were BSE Realty (up 1.94%); BSE FMCG (up 1.19%); BSE Capital Goods (up 0.89%); BSE Oil & Gas (up 0.72%) and BSE Bankex (up 0.72%).


Out of the 30 stocks on the Sensex, 19 stocks settled higher. The main gainers were Hindalco Industries (up 3.69%); Sterlite Industries (up 3.28%); Bharti Airtel (up 3.20%); Mahindra & Mahindra (up 2.46%) and TCS (up 2.20%). The top losers were NTPC (down 2.64%); Coal India (down 2.50%); Infosys (down 2.17%); Tata Steel (down 2.07%) and Tata Power (down 1.17%).


The top two A Group gainers on the BSE were—HDIL (up 7.93%) and Muthoot Finance (up 7.37%).

The top two A Group losers on the BSE were—Gitanjali Gems (down 4.97%) and MMTC (down 4.94%).


The top two B Group gainers on the BSE were—Opto Circuits (up 34.51%) and Archidply Industries (up 20%).

The top two B Group losers on the BSE were—Automotive Stampings & Assemblies (down 19.86%) and Rishabdev Technoable (down 19.64%).


Of the 50 stocks on the Nifty, 33 ended in the in the green. The major gainers were Punjab National Bank (up 5.30%); Bank of Baroda (up 4.31%); Cairn (up 3.96%); Jaiprakash Associates (up 3.91%) and Hindalco Industries (up 3.34%). The key losers were Coal India (down 2.57%); NTPC (down 2.22%); Tata Steel (down 2.13%); Infosys (down 2.08%) and BHEL (down 1.35%).


Markets in Asia closed in the green as China’s second quarter GDP growth came in at 7.5%, in line with analysts’ expectations. Positive comments from the People’s Bank of China that it would use a mix of policy tools to tackle liquidity in order to keep credit growth steady also supported the sentiments.


The Shanghai Composite climbed 0.98%; the Hang Seng rose 0.12%; the Jakarta Composite and the KLSE Composite added 0.06% each; the Nikkei 225 gained 0.23%; the Straits Times added 0.02%; the Seoul Composite advanced 0.28% and the Taiwan Weighted settled 0.42% higher.


At the time of writing, the key European markets were up between 0.34% and 0.50% and the US stock futures were trading with minor gains.


Back home, foreign institutional investors were net buyers of shares totalling Rs664.82 crore on Friday whereas domestic institutional investors were net sellers of equities amounting to Rs144.97 crore.


SpiceJet has clarified to the news item titled “Kuwait Airways enters the fray to buy stake in SpiceJet”. The company clarified that few investors have evinced interest in the company post government allowing FDI in civil aviation sector to foreign airlines, however, it will be very pre-mature to comment on the possibilities of any fresh equity issuance to such interested parties or confirm/deny names of any specific entity. The stock rose 7.94% to close at Rs29.90 on the BSE.


The board of directors of MBL Infrastructures have recommended dividend of 30% (Rs3 per equity share of face value of Rs10 each) subject to the approval of the shareholders at the ensuing annual general meeting. The stock fell 2.62% to close at Rs115.25 on the NSE.


Tata Global Beverages today said it has entered into an agreement with group firm Tata Realty and Infrastructure for the development of the its property in Bangalore. The development of the company's property in Bangalore will be done through a special purpose vehicle (SPV), Tata Global Beverages said in a filing to exchanges. The stock jumped 4.17% to Rs153.75 on the NSE.


“WPI inflation picked up less than expected in June”

A 10% fall in the rupee against the dollar will raise headline inflation by around 60 basis points in the near term, says BNP Paribas in its report

WPI (wholesale price index) based inflation continued to surprise to the downside in June.

At 4.86% y/y, up from 4.70% in May, the headline rate was below the market expectation for a 4.94% gain and BNP Paribas’ forecast for a 5.1% increase. Moreover, the index’s back data were revised down for a second month in a row, with April’s headline WPI outturn marked down to 4.77% y/y from 4.89% initially reported. While far from considered the beginning of a trend, this suggests there is some probability that the May and June readings will also be pulled down, consistent with activity losing momentum rapidly around the turn of the fiscal year.


Drilling down into the report showed that the key factor driving today’s downward surprise was a sharper-than-anticipated slide of core inflation as primary food price inflation picked up as expected. Primary food inflation picked up from 8.25% in May to reach a four-month high of 9.74% y/y in June. Month-to-month swings in food inflation have been particularly volatile in recent months given the inter-play of large base effects, the lagged impact of last year’s deficient monsoon and then excess monsoon rain in the past couple of months.


The latter was particularly important in June, with fruit and vegetable inflation jumping from 2.8% y/y to 8.4% y/y reflecting a 4.3% m/m rise once the data are seasonally adjusted, the investment bank said in its report. The sequential surge suggests primary food articles inflation is likely to stay high in the near term. But, on the basis of a normal monsoon as projected by the IMD as we move further into the year, upside risks to food price inflation look limited.


BNP Paribas’ US-style, ex-food and energy gauge, which captures roughly 60% of the WPI basket, meanwhile, slipped to 2.4% y/y from 2.5% y/y in May; the lowest for 42 months. This measure had been around 5% y/y as recently as January this year. The Reserve Bank of India’s (RBI) preferred measure of underlying WPI inflation—non-food manufactured goods inflation—dropped to 2.1% y/y from 2.4% in May; its lowest reading since January 2010.


These softer-than-expected readings on core inflation are consistent with BNP Paribas’ estimate that sub-5% GDP growth has opened up an increasingly wide output gap, dragging down core inflationary pressure. With only a modest pick up in GDP growth expected over the next year (BNP Paribas targets FY2014 GDP growth of 5.5% against 5% in FY2013), the output gap should widen further, ensuring that core inflation moves lower through the balance of this year.  The investment bank’s base forecast anticipates RBI’s core measure should slide to close to 1% by end-FY2014.


The recent slump in the rupee remains the key upside inflation risk that the central bank will remain wary of. However, according to BNP Paribas and also RBI’s estimates, a 10% fall in the rupee against the dollar will raise headline inflation by around 60 basis points in the near term. The current 9% fall in the rupee vis-à-vis the dollar over the past quarter hence will, other things equal, add roughly 0.5 percentage points to headline WPI.


But other things are not equal, as the broadly commensurate fall in commodity prices over the same period is likely to largely neutralise the impact of currency weakness; an assessment corroborated by the limited sequential rises in the core measures in June. This, when set against the backdrop of sub-par domestic activity growth, means headline WPI is likely to remain below RBI’s 5%-5.5% comfort level for much of the current fiscal year or so.


Overall, today’s WPI report will further reassure the RBI that upside inflation risks are contained. However, since Fed chairman Ben Bernanke’s testimony to the Congress on 22 May, foreign institutional investors have almost consistently been net sellers of Indian bonds and overall net portfolio (debt and equity) outflows have since totalled over $9 billion according to the Securities and Exchange Board of India (SEBI) data.


BNP Paribas doubts if RBI will deliver a rate cut before it sees more evidence of global risk appetite stabilising. Cutting rates at this point could risk further capital outflows at a time when the nation’s gross external financing needs are estimated at over $250 billion over the next fiscal year.


No target in mind on number of bank licences: RBI

In the guidelines for issuing new banking licences, the RBI has put in a string of requirements to further its financial inclusion agenda, including making it mandatory for the proposed banks to open at least 25% of branches in unbanked areas

The Reserve Bank of India (RBI) does not have any target in mind on the number of banking licences to be issued in this round, a senior official of the central bank has said.


“As of now, we have received 26 applications. Financial inclusion has to be a pre-condition for such banks to come. How many banks will come, that depends upon their complete plan and analysis of their proposals,” RBI executive director R Gandhi said at an event in Mumbai today.


“We will have to wait for a few months before we decide how many banks will be given licence. There is no target number,” he added.


The number would depend on the proposal and business plans of the applicants. “It depends upon the proposal and business plans including their proposed efforts on financial inclusion. We cannot predict how many applicants will pass through these requirements,” he added.


About 26 players have applied for banking licences, including the likes of India Post, LIC Housing Finance, Reliance Capital, Aditya Birla Nuvo, and L&T Finance.


In the guidelines for issuing new banking licences, the central bank has put in a string of requirements to further its financial inclusion agenda, including making it mandatory for the proposed banks to open at least 25% of branches in unbanked areas.


On the issue of financial inclusion, Gandhi said there are enormous challenges that lie ahead in achieving it.


“Post independence, we had a resolution to give attention to poverty alleviation. Our economic planning had poverty alleviation as a key plank... Still, these 40 odd years, efforts have not made serious dent. This indicates the enormous challenges that lie ahead for us in achieving financial inclusion,” he said.


He also said that several new ideas and innovative approaches were required to achieve this goal.


RBI governor D Subbarao was originally supposed to address the gathering at a central Mumbai college today, but Gandhi had to step-in as a last minute arrangement as the governor rushed to New Delhi. He was also not able to make it to another engagement at a college in the city.


Subbarao will be meeting finance minister P Chidambaram and they are likely to discuss the challenges on the macroeconomic front.


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