Wednesday Closing Report: Below 18,000 on the Sensex, the market may break down

The market, which opened in the red this morning, witnessed a choppy session on poor showing by its Asian peers. The benchmarks rose in early trade but slid into the negative zone later, one hour into the session. The indices made feeble attempts to move upwards, but were dragged southwards by a dismal opening of the influential European markets. After remaining range-bound for a better part of the post-noon session, the market went into a steep fall on selling pressure from heavyweights.

 The Sensex closed at 18,080, lower by 149 points (0.8%) over its previous close. The index touched an early high of 18,262 and fell to an intraday low of 18,042 towards the end of the session. The Nifty shut at 5,420, down 40 points (0.7%). The index touched an intraday high and low of 5,474 and 5,412, respectively.

 Of the 30 Sensex stocks, 24 ended in the red while six advanced. On the Nifty, 39 declined while 11 advanced. The BSE Mid-cap index was down 0.5% and the BSE Small-cap index declined 0.4%.

 Tata Motors continued to be the star performer in the declining market today. The stock was up 5.1% on the Sensex, followed by Jindal Steel (up 0.2%) and Tata Power (0.3%). The draggers of the index were Tata Steel (down 3.2%), HDFC (down 2.4%), Wipro (down 2.2%), Mahindra & Mahindra (M&M) (down 2%) and ICICI Bank (down 1.8%).

 The BSE auto index was the lone gainer today, up 0.01%. The top sectoral losers were realty (down 1.8%), bankex and healthcare (HC) (down 1% each), information technology (IT) down 0.8% and technology (TECk) (down 0.7%).

 Buoyed by a good monsoon, the area under foodgrain crops during the kharif (July-October) season has gone up by 10% to 514.64 lakh hectares, as on 5th August. During the corresponding period last year, the foodgrain crop acreage was at 468.3 lakh hectares. The India Meteorological Department (IMD) had earlier predicted that the rainfall in the country as a whole is likely to be 102% of the long-period average.

 Markets in Asia, with the exception of China’s Shanghai Composite, ended in the red. Machinery orders in Japan, an indicator of business investment, gained a marginal 1.6% in June, from the previous month, lower than analysts’ expectations of over a 5% increase. China's consumer price index rose 3.3% in July from a year earlier, against June's 2.9% rise. However, economists were expecting a 3.4% rise.

 The Hang Seng was down 0.8%, Jakarta Composite was down 0.7%, KLSE Composite was down 0.5%, Nikkei 225 was down 2.7%, Straits Times was down 1.1%, Seoul Composite was down 1.2% and Taiwan Weighted was down 1%. Bucking the trend, Shanghai Composite gained 0.4% today.

The Reserve Bank of India (RBI) today brought out a discussion paper on giving out new banking licenses to business houses and non-banking finance companies, and regulations for the same to foster greater competition. The central bank is considering providing licenses to a limited number of new banks. “A larger number of banks would foster greater competition, and thereby reduce costs and improve the quality of service,” the RBI said in a discussion paper.

The RBI also sought to know “whether industrial and business houses could be allowed to promote banks”, and should NBFCs be allowed to convert into or promote banks.

Wall Street ended lower on Tuesday but off the day’s lows after the FOMC said it would take more steps to boost the sagging economy. Besides, the Fed left the overnight interbank lending rate target in a range of zero to 0.25%, where it has been since December 2008, and repeated a pledge to keep rates low “for an extended period.”

 However, investors were not impressed and opined that the move was not enough to spur the labour market and consumer spending.

 The Dow was down 54 points (0.5%) at 10,644. The S&P 500 was down 6 points (0.6%) at 1,121. The Nasdaq was down 28 points (1.2%) at 2,277.

 Foreign institutional investors were net buyers of Rs599 crore worth of stocks on Tuesday. Domestic institutional investors were net sellers of equities worth Rs540 crore on the same day.

 The country's largest private telecom operator Bharti Airtel (down 1.4%) reported a decline of 32% in consolidated net profit at Rs1,682 crore during the first quarter ended 30th June, due to the foreign exchange losses.

 The April-June quarter of current fiscal witnessed an adverse impact after dollar strengthened against the rupee and several African currencies. As a result derivative and exchange fluctuation loss stood at Rs216 crore, as against gain of Rs279 crore in the same quarter previous year, Bharti Airtel told reporters.

 Total income rose by 17.4% to Rs12,231 crore during the first quarter of current fiscal, from Rs10,414 crore in the same period previous quarter.

 Ashok Leyland (0.4%), the Hinduja Group flagship, has won an order worth $26 million from the Sri Lanka-based People's Leasing Company to provide 1,000 buses.

The delivery of the 1,000 'Viking' buses, varying from 42-58 seaters, has to be completed before March 2011. The order is being part-funded by the Asian Development Bank, said the company in a press release.

 Asahi Infrastructure and Projects Ltd (up 4.5%) has received an order worth Rs10.2 crore under central government scheme for construction related works. The scope of work includes construction of 544 houses, roads, sewerage system, community centres, pre-primary schools etc for municipal council in Washim district Maharashtra. The project is to be completed within nine months from the date of work order issued.



Globally, no specific ban on industrial houses in banking: RBI

New Delhi: As it sought comments on grant of new banking licenses, the Reserve Bank of India (RBI) today listed out rules in ten global jurisdictions and nowhere found clear-cut laws banning industrial houses from owning or running banks, reports PTI.

The list of countries and regulatory jurisdictions annexed by RBI in its discussion paper on grant of new banking licenses include the US, UK, the European Union, Japan, Hong Kong, Australia, France, Malaysia, Germany and Canada.

While RBI said that "no information is available" in this regard for Malaysia, the other nine jurisdictions did not bar industrial houses as such from the banking space.

Since finance minister Pranab Mukherjee hinted in his budget speech for the year 2010-11 that RBI was contemplating allowing new private players in banking, the entry of business and industrial houses has been widely debated.

Those said to be keen to promote or run banks in India include a number of industrial houses such as the Anil Dhirubhai Ambani Group, Malvinder and Shivinder Mohan Singh-promoted Religare Group, the Aditya Birla Group and the Shriram Group.

Guidelines for new private bank licences first came in January 1993 and subsequently revised in January 2001.

However, the guidelines are "cautious in nature", the RBI said, adding that large industrial houses are not permitted to promote banks. Individual companies connected with large industrial houses are permitted to own 10% of the equity of a bank, but without any controlling interest.

A non-banking finance company (NBFC) with good track record is also eligible to convert into a bank, provided it was not promoted by a large industrial house besides some other conditions.

Talking about rules outside India, the RBI today said that any entity or person was eligible to own a bank in Canada provided they satisfy the statutory criteria.

Australia also has no statutory provisions excluding ownership of a banking business entity by an industrial company and the rules there permit banks to be owned by industrial companies with certain conditions.

In Hong Kong, too, there are no specific restrictions on ownership of banks by industrial houses, while "industrial companies are allowed to own banks in Germany."


Credit profiles of companies in South Asia improving on robust domestic growth: S&P

Higher demand for products and services stemming from good domestic macroeconomic conditions, along with the gradual improvement in the global economy, has strengthened the credit profiles of companies in the region and this is particularly true in India.

Ratings agency Standard & Poor's (S&P) said the credit profiles of companies in South Asia are improving on robust domestic growth. Higher demand for products and services stemming from good domestic macroeconomic conditions, along with the gradual improvement in the global economy, has strengthened the credit profiles of companies in the region and this is particularly true in India, S&P said.

"The general improvement in credit profiles is further bolstered because many companies in South Asia were less adversely affected by the global recession than their counterparts in other regions. Companies that did not defer capital expenditure are also benefiting from increased capacities coming on line in 2010 and 2011," said S&P's credit analyst, Suzanne Smith, managing director, corporate and government ratings, South and Southeast Asia.

According to an industry report card titled "Credit Profiles of South Asian Companies are Headed North Supported by Robust Domestic Growth," and published by S&P, Indian companies with large operations in Europe and the US have already started to benefit from the global economic recovery. Exporters and producers of commodities that are linked to global prices have also gained and the global economic recovery, however, remains tentative, the report said.

Nevertheless, S&P said it believes that companies may not be immediately affected by a reversal if local demand remains healthy and the Indian banking system continues to have good liquidity.

"We expect the improvement in credit quality to continue, as reflected by the positive outlook on six companies. Just one company in the region has a negative outlook," said Ms Smith. "This scenario is different from that in December 2009, when six companies were on a negative outlook, including two where the negative outlook reflected that on the sovereign rating on India. Subsequently, we revised the outlook on India to stable in March 2010," she added.

According to the report, metals and mining companies in South Asia have shown rapid improvement in their profitability and cash flows over the past one year. India is an attractive place for global mining companies to build new capacities given the availability of untapped resources, low-cost production, and growing domestic demand. Land acquisition and mine allocation and environmental clearances by the government, however, are bottlenecks for new green-field expansion projects, the report pointed out.

S&P said a favorable regulatory environment, aggressive capital expenditure plans, and the relationship with the government of India are key drivers of the credit profiles of rated electric utilities in India. "Operating performances have been stable, as the electricity companies are largely insulated from the global economic conditions. High capital expenditure will result in weaker financial metrics for companies until new projects start operations. We have, however, already factored the capital expenditure for existing projects in our ratings on the companies," the ratings agency said.

Speaking about IT sector, the report said a resilient Indian IT sector is now benefiting from improved global economic conditions. The industry's revenue is likely to grow at about 10%-15% annually for the next four to five years. Strategic measures such as increasing offshoring, greater use of fixed-price contracts, and more operating efficiencies have improved the operating margins of IT companies, it added.

The Indian telecommunications market continues to be highly competitive, with a large number of players. While wireless companies continue to grow rapidly in terms of subscribers, due to lower penetration, average revenue per user (ARPU) is declining because of the intense competition and subscriber addition in rural areas, S&P said in the report.


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