Wednesday Market Report: Upmove may get truncated

Watch whether the market remains strong above today’s highs

The market opened strong on positive global cues. Early gains were supported by buying in banking, IT, oil & gas and realty stocks. The indices witnessed a steep decline after the government released the Index of Industrial Production (IIP) data for November, which came in sharply lower at 2.7% year-on-year. Trade was range-bound in the noon session, but picked up on fund buying, sending the indices to their intra-day highs in the closing hour and finishing a tad below those figures.

The Sensex opened with an upward gap of 157 points at 19,353 (the Nifty was up 46 points at 5,800). This is the highest opening gap since 3 December 2010. However, after a good positive opening, the market turned very volatile, crashing by as much as 1.8% from its early high, before the bulls took up the reins once again and helped it to end on a positive note, breaking the six-day downward trend. The Sensex ended 338 points up at 19,534 and Nifty ended 109 points up at 5,863.

Since 1991, there have been 41 instances when the Sensex declined for six days in a row. Out of these, on 23 occasions the bellwether index staged a comeback on the seventh day (including today). On 22 occasions, the Sensex has ended positive on the eight day as well, 14 times. However this doesn't mean that the downward journey has ended. We mentioned in our yesterday's market report that a pullback is likely, which may take the Sensex to 19,600 and the Nifty to 5,880 before a fresh decline starts. The index may hit these levels tomorrow before stalling.

The market breadth was charged towards the gainers today. The Sensex had 22 gainers against eight losers, while the Nifty ended with 43 advancers and seven declining stocks. Among the broader indices, the BSE Mid-cap index gained 1.68% and the BSE Small-cap index rose 1.42%.

Baring BSE Capital Goods, all sectoral gauges closed in the green. BSE Consumer Durables (up 4.64%), BSE Realty (up 3.27%), BSE Metal (up 2.80%), BSE Bankex (up 2.66%) and BSE Auto (up 2.02%) were the top gainers. On the flip side, BSE Capital Goods fell 0.18%.

The top Sensex gainers were Sterlite Industries (up 6.49%), Tata Motors (up 4.83%), ICICI Bank (up 4.47%), TCS (up 3.28%) and HDFC (up 3.13%). The losers were Bajaj Auto (down 1.52%), Larsen & Toubro (down 1.43%) and Hindustan Unilever (down 1.29%).

Industrial growth plunged to an 18-month low of 2.7% in November 2010 from over 11% recorded in the previous month. The sharp deceleration in November figures was because of a mere 2.3% growth in manufacturing, which constitutes around 80% in the IIP, which measures the expansion in factory production.

Markets in Asia finished on a firm note, on hopes of improved earnings reports and on a positive global outlook. Higher commodity prices also added to the support.

The Shanghai Composite gained 0.56%, the Hang Seng surged 1.54%, the Jakarta Composite jumped 2.88%, the KLSE Composite rose 0.23%, the Nikkei 225 added 0.02%, the Straits Times was up 0.11%, the Seoul Composite gained 0.32% and the Taiwan Weighted advanced 0.38%.

Back home, the Insurance Regulatory Authority of India (IRDA) said guidelines for public float of life insurance companies will be ready by early February. As per the draft guidelines compiled by IRDA, only insurance companies which have been in operation for the last 10 years would be eligible to launch IPOs. Also, the present IPO guidelines of the Securities and Exchange Board of India require a three-year profit record for a company to float a public issue.

Foreign institutional investors were net sellers in the equities segment on Tuesday, pulling out funds worth Rs1,162.57 crore. Domestic institutional investors, on the other hand, were net buyers of stocks worth Rs1,064.18 crore.

The Mukesh Ambani-led Reliance Industries (up 1.61%) has signed a pact with the Gujarat government to develop Pandit Deendayal Petroleum University into a top world-class institute. Promoted by Gujarat State Petroleum Corporation (GSPC), the university offers undergraduate and post-graduate energy education programmes and intensive research initiatives.

HCL Infosystems (up 1.39%) has informed the exchanges that it has been awarded a project worth Rs40 crore by Department of Higher Education, Government of Himachal Pradesh for setting up fully integrated information and communication technology labs and multimedia classrooms in 628 government senior secondary schools in the state.

Jindal Steel and Power (up 2.13%) said that it is carrying out due diligence for acquiring stakes at a producing oil block in Kazakhstan besides mulling prospects to set up a refinery in Georgia. The company would weigh various aspects including quantity of the crude production of the block and the amount of investment required, among others, before taking the final call.


Indian investors can trade in global indices within a month

Mumbai: Indian investors can start trading in large indices of 24 exchanges worldwide within a month, following market regulator Securities and Exchange Board of India's (SEBI) approval for the same, reports PTI.

SEBI has given the green signal to domestic exchanges to offer trading in derivatives contracts of these global indices, including those in the US, Europe and Asia.

Bourses are giving the final touch. Investors can start trading in these global indices within a month, according to sources in both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

However, one of the world's largest bourses the London Stock Exchange (LSE), with whom two Indian exchanges NSE and MCX SX have tied up for cross listing of their indices, is not on the list approved by SEBI for the new guidelines.

Sources said that LSE is not in the approved list since derivative trading is not conducted in that bourse.

The London exchange's benchmark index-FTSE 100-is traded on many other global exchanges, which are part of the SEBI-approved list of 24 bourses.

"It has been decided to permit stock exchanges to introduce derivatives contracts (future and options) on foreign stock indices in the equity derivatives segment," SEBI said in a circular.

The index should have a market capitalisation of at least $100 billion and it should consist of at least 10 constituent stocks.

"No single constituent stock (should have) more than 25% of the weight, computed in terms of free float market capitalisation, in the index," the circular noted.

Trading in derivatives on foreign indices would be restricted to Indian residents only.

The market regulator also pointed out that after the introduction of derivatives on a particular stock index, if that index fails to meet the eligibility criteria for three months consecutively, no fresh contract shall be introduced on that index.

In March 2010, National Stock Exchange (NSE), the largest stock exchange in India, and CME Group, the world's leading and most diverse derivatives marketplace announced cross-listing arrangements, including licence agreements covering benchmark indices for the US and Indian equities.

This had allowed S&P 500 and Dow Jones Industrial Average to trade in NSE, subject to regulatory approvals.

Besides, BSE has similar arrangement with Eurex Frankfurt AG, Europe's leading financial futures exchange.


RBI likely to hike interest rate by 25%: Bhatt

New Delhi: State Bank of India chairman OP Bhatt expects the Reserve Bank of India (RBI) to raise its key policy interest rates by at least 25 basis points in the forthcoming quarterly review to tame inflation, reports PTI.

"Conventional wisdom says that there should be at least 25 basis points hike in interest rate" Mr Bhatt said on the sidelines of an event here.

RBI is scheduled to unveil its third quarterly review of monetary policy on 25th January.

Food inflation for the week ended 25th December stood at 18.32%, while core inflation during November was 7.48% putting pressure on RBI to raise policy rates.

"My personal view is that with things going on in the economy if you look at what has happened to the stock market, if you look at uncertainty and concerns...if interest rate is hiked at this point of time they might add to (problems)," he said.

On the other hand, he said, "If you look at inflation, if the interest rate is hiked at this point of time it would not dampen personal view is that interest rate can be hiked any time."

All the think-tanks in the country are saying that inflation should come down to 7% by March, he said, adding, some of the price rise are structural.

In terms of absorbing the increase by the RBI, Mr Bhatt said, "Market sentiment is such that 25-50 basis points it can absorb."

Meanwhile, bankers requested the RBI to slash the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) in its upcoming Third Quarter Review of Monetary Policy 2010-11 on 25th January, besides keeping the key policy rates unchanged amid tight liquidity situation and rising credit demand.

After the customary pre-policy meet with the central bank yesterday, Indian Banks Association chief executive R Ramakrishnan had said bankers demanded reduction in both the CRR and SLR.

They said it will help in tiding over the tight liquidity situation and poor deposit growth, as the credit offtake is growing above the industry's and RBI's own estimates.

"We requested the RBI to slash both the CRR as well as the SLR (amount of prudential reserves that banks keep in the form of government securities, bonds, etc), even though we admit that inflation is a big concern. We see inflation at 7% by the fiscal-end. However, this is 50 basis points above RBI's estimates for this fiscal," Mr Ramakrishnan said.

At present, CRR-the mandatory cash balance that banks park with the RBI- stands at 6%, while SLR stands at 24%.


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