Weekly Closing Report: The bear hug is likely to tighten

The market started the week with modest gains despite a high degree of volatility. Selling pressure ahead of the US Federal Open Market Committee (FOMC) meeting resulted in a flat closing for the domestic market with a negative bias on Tuesday. Assertion by the Federal Reserve that it would take more steps to boost the sagging American economy did not go well with investors and indices ended in negative terrain. The market witnessed lacklustre trading for the remaining two days of the week. For the week ended 13th August, the Sensex and the Nifty settled flat with a positive bias, up 23 and 12 points respectively.

The top Sensex performers on a weekly basis were Tata Motors (up 14%), State Bank of India (SBI) (up 9%), Jindal Steel & Power (up 6%), DLF (up 5%) and Hindustan Unilever (HUL) (up 4%). The top laggards of the index were Sterlite Industries (down 9%), Wipro (down 4%), Mahindra & Mahindra, Infosys Technologies and Reliance Communications (RCom) (down 3% each).

The top gainers in the sectoral space on the BSE were Realty (up 7%), Consumer Durables (CD) (up 4%) and Bankex (up 3%). The top sectoral losers were IT and TECk (down 2% each) and Healthcare (HC) (down 1%).

Snapping an eight-month trend of double-digit rise, industrial growth slid to 7.1% in June from 8.3% a year ago. The lower growth rate has been attributed to the high base rate effect.

However, despite a single-digit growth in the month, factory output expanded by 11.6% in the first quarter from 3.9% a year ago. Industrial growth figures for May were revised downwards to 11.35% from 11.50% estimated earlier.

The decline in industrial expansion will further increase the Reserve Bank of India's (RBI) dilemma on rate hikes to check inflation, experts said.

After being in single-digits for two weeks, food inflation shot up again to double-digits at 11.40% for the week ended 31st July as prices of cereals, milk and fruit went up.

Food inflation, which was 9.53% for the week ended 24th July, had remained in single-digits for a fortnight before bouncing back. Food inflation, which was over 20% in December 2009, slipped to single-digits in the third week of July.

The overall inflation, which includes change in prices of manufactured goods, was 10.55% during June.

Domestic passenger car sales jumped by 37.95% to 1,58,764 units in July compared to 1,15,084 units in the same month last year. According to the figures released by the Society of Indian Automobile Manufacturers (SIAM), motorcycle sales in the country grew by 30.09% to 7,10,621 units during the month under review from 5,46,233 units in the same month last year. Total two-wheeler sales in July increased 30.41% to 9,38,514 units from 7,19,656 units in July 2009.

Total sales of vehicles across categories registered a growth of 31.50% to 12,37,461 units in July against 9,41,070 units in the same month last year, the industry body added.

The FOMC on Tuesday said that it would take more steps to boost the sagging US 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."

The Reserve Bank of India (RBI) has brought out a discussion paper on giving out new banking licenses to business houses and non-banking financial companies (NBFCs), and regulations for the same to foster greater competition.

The central bank also sought to know "whether industrial and business houses could be allowed to promote banks." It also posed the question whether NBFCs should be allowed to convert into or promote banks. The central bank sought feedback on these issues along with the business model for new banks by 30th September.

Currently, India has 27 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, four local area banks, 1,721 urban co-operative banks, 31 state cooperative banks, and 371 district central co-operative banks.

On the corporate front, Scottish oil explorer Cairn Energy Plc said that it is in talks to sell part of its stake in its Indian unit, Cairn India, which owns the massive Rajasthan oilfields. Though Cairn Energy did not identify the suitor, speculation is rife that it could be India-focused miner Vedanta Resources Plc.

Indian auto and farm equipment major Mahindra & Mahindra (M&M) has been selected as a preferred bidder for South Korea's Ssangyong Motor Company (SMC) in a deal valued at up to $500 million. The preferred bidder status would require M&M to enter into a memorandum of understanding (MoU) with SMC, followed by a detailed due diligence process.

M&M said it would sign the MoU with Ssangyong in the next two weeks, followed by due diligence in September and a definitive agreement by November. The bid price is to be announced when the MoU is signed.


FM to meet chiefs of public sector banks on Saturday

New Delhi: Finance minister Pranab Mukherjee will meet chiefs of public sector banks here tomorrow, at a time when industrial growth has decelerated to a 13-month low of 7.1% and interest rates have moved northward, reports PTI.

The finance minister will also take stock of the financial performance of the banks and their projections for the current year, sources said.

At the same time, the meeting is expected to discuss the impact of rising benchmark prime lending rates (BPLRs), which will affect auto, home and education loan costs for existing borrowers.

Lenders like Punjab National Bank, Bank of Baroda, Oriental Bank of Commerce, Corporation Bank and IDBI have hiked BPLRs following the RBI move to raise key short-term borrowing and lending rate by 50 and 25 basis points, respectively.

Since July, the system of BPLR has been replaced by a base rate, which is a floor for lending rates. However, existing customers are linked to BPLR unless they decide to switch over to the base rate system.

Mr Mukherjee will also dwell upon credit flow to productive sectors as well as to priority sector, sources said.

The meeting takes place at a time when most of state-owned banks have announced their first quarter results.

The agenda of the meeting also includes review of credit growth, including to the agriculture and infrastructure sectors, sources said.

Among others, capital adequacy over the medium-term and housing and education loans would also be taken up in the meeting, sources said, adding that even the capital infusion by the government to banks could be discussed.

One of the key points of discussion in the meeting would be financial inclusion to provide appropriate banking facilities to habitations having a population above 2,000 by March, 2012.

It is to be noted that the finance minister had a meeting with bankers and chief ministers of four regions. The fourth and last in the series of regional meetings held by Mr Mukherjee was on 20th July.


RCom posts consolidated net of Rs250.89 crore in June quarter

Anil Dhirubhai Ambani Group (AGAG)-led telecom services company Reliance Communications (RCom) has posted a consolidated net profit after adjustment of minority interest and associates of Rs250.89 crore in the quarter ended 30 June, 2010, as compared to Rs1,636.61 crore in the year-ago period, down a huge 84.67%.

Total consolidated income for the quarter in review was Rs5,109.20 crore, down from Rs6,145.18 crore, a fall of 16.85% year-on-year.

On a standalone basis, RCom posted a net loss of Rs490.81 crore in the reporting quarter against a net profit of Rs370 crore in the corresponding previous period. Total income stood at Rs3185.91 crore over Rs 3197.07 crore a year earlier, down 0.35% on a yearly basis.


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