A steeper-than-expected hike of 50 basis points by the Reserve Bank of India (RBI) in its key lending rate spooked the market. Interest rate sensitive auto, realty and banking stocks dropped. The RBI raised repo rate by 50 basis points (bps) to 8% at its first quarter review of monetary policy 2011-12 today, 26 July 2011, which was steeper than market expectations of 25 bps hike. The BSE Sensex was down 265.47 points or 1.41%, off close to 340 points from the day's high.
Index heavyweight Reliance Industries (RIL) extended initial loses after reporting weak Q1 operating performance. The market breadth, indicating the overall health of the market, turned negative from positive breadth earlier in the day. All the 30 shares from the Sensex pack fell. All the sectoral indices on BSE declined.
The market pared gains after hitting 2-1/2-week high at the onset of the trading session. The market slipped into the red later. The Sensex swung between positive and negative terrain near the flat line in morning trade. A steeper-than-expected hike of 50 basis points by the Reserve Bank of India (RBI) in its key lending rate spooked the market in mid-morning trade.
At 11:20 IST, the BSE Sensex was down 265.47 points or 1.41% to 18605.82. The index slumped 268.77 points at the day's low of 18,602.52 in mid-morning trade, its lowest level since 22 July 2011. The Sensex rose 73.31 points at the day's high of 18,944.60 in early trade, its highest level since 8 July 2011.
The S&P CNX Nifty was down 92.40 points or 1.63% to 5,587.90. The Nifty hit a low of 5,583.40 in intraday trade, its lowest level since 22 July 2011. The Nifty hit high of 5,702.25 in intraday trade, its highest level since 8 July 2011.
The market breadth, indicating the overall health of the market, turned negative from positive breadth earlier in the day. On BSE, 1,324 shares declined and 1,052 shares advanced. A total of 110 shares remained unchanged.
All the 30 shares from the Sensex pack declined. Reliance Communications, Bharti Airtel shed by between 2.01% to 4.14%.
Index heavyweight Reliance Industries (RIL) fell 1.08% as the company's operating profit margin witnessed a steep fall in Q1 June 2011. RIL's operating profit margin (OPM) declined sharply to 12.25% in Q1 June 2011 from 16.04% in Q1 June 2010 as weak performance from the oil & gas and petrochemicals businesses offset strong performance from the refining segment. Net profit rose 16.69% to Rs. 5661 crore on 39.1% increase in net sales to Rs. 81018 crore in Q1 June 2011 over Q1 June 2010. The growth in both net profit and net sales topped market expectations. RIL was seen reporting 15.44% growth in net profit to Rs. 5600.35 crore on 28.7% growth in net sales to Rs. 74951.47 crore in Q1 June 2011 over Q1 June 2010, as per average estimate of 10 brokerages. The result hit the market after trading hours on Monday, 25 July 2011.
RIL's gross refining margin (GRM) surged to $10.3 a barrel from $7.3 a barrel in Q1 June 2010. Gas production from RIL's KG-D6 field off the east coast declined 18% to 156.2 BCF in Q1 June 2011 over Q1 June 2010. Production of gas condensate from the filed jumped 81.6% to 0.21 million barrels in Q1 June 2011 over Q1 June 2010. The company said gas sales have been prioritized as per government's directive with effect from 9 May 2011.
Commenting on the first quarter results, RIL chairman and managing director Mukesh Ambani said, Reliance Industries continues to deliver strong financial and operating results. The growth in earnings was driven by strong refining margins and sustained performance in the petrochemicals business. Our cash flows give us the unparalleled opportunity to allocate capital to higher-margin resource plays in leading markets around the world. We remain committed towards investing in India and have commenced the investment programme in the petrochemicals business.
The RIL stock had risen nearly 1% on Monday, 25 July 2011, after the government, last week, approved RIL's proposed $7.2 billion asset sale to BP PLC. RIL and BP have been waiting for approval from the government since February 2011 when RIL agreed to sell a 30% stake to BP in 23 oil and gas blocks for $7.2 billion plus another $1.8 billion linked to exploration success. The deal includes the D6 block in the Krishna-Godavari basin, India's richest gas find so far, and RIL has already received $2 billion from BP.
RIL is expected to gain from BP's deep-water drilling expertise to increase gas production. Several technical and geological issues have resulted in gas output from RIL's KG-D6 block falling below 50 million metric standard cubic meters per day from 60 million metric standard cubic meters per day last year. As per the agreement, BP and RIL will also establish an equally owned joint venture for the sourcing and marketing of natural gas in India. That venture doesn't require government approval.
Interest rate sensitive auto, realty and banking stocks declined after the central bank raised its key lending rate aggressively by 50 basis points at a policy review today, 26 July 2011. Higher interest rates could crimp sales of automobiles. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing. India's largest truck maker by sales Tata Motors fell 0.89%, with the stock snapping three-day gains.
Utility vehicles and tractors major Mahindra & Mahindra (M&M) fell 1.64%, with the stock snapping two-day gains. Last week, Ssangyong Motor Company, the South Korean subsidiary of M&M, reported 43% growth in revenue to KRW 1349.2 billion in the first half of the calendar 2011 over the previous corresponding period. Ssangyong Motor's sales rose 53% to 55,873 vehicles in the first half of the calendar 2011 over in the first half of the calendar 2010. This is the highest level of sales volume achieved by the company in a half year period since 2007.
India's largest bike maker by sales Hero Honda Motors fell 0.34%. The company, last week, reported 13.46% growth in net profit to Rs. 557.89 crore on 32.2% growth total turnover to Rs.5683.33 crore in Q1 June 2011 over Q1 June 2010. The growth in net profit surpassed market expectations even as revenue growth slightly lagged expectations. Hero Honda Motors was seen reporting 10.85% growth in net profit to Rs. 545.06 crore on 32.92% growth in operating income to Rs. 5711.34 crore in Q1 June 2011 over Q1 June 2010, as per average estimate of 11 brokerages.
Hero Honda's Managing Director and CEO Pawan Munjal said that the immediate focus of the management is to maintain operational excellence in the light of volatile costs of commodities such as steel, aluminium and rubber. Munjal said that Hero Honda will also carry on strengthening its product portfolio through new launches, network expansion and other customer outreach initiatives.
India's second largest motorcycle maker by sales Bajaj Auto fell 0.75%.
India's largest car maker by sales Maruti Suzuki India declined 1.29% as the company is seen reporting weak Q1 results today, 26 July 2011. Maruti is seen reporting weak Q1 June 2011 results on account of lower sales volumes due to a strike at Manesar, Gurgaon unit and due to annual maintenance shutdown at that unit, pressure on profit margins on account of un-favourable currency movement and higher advertising spend.
Among realty stocks, Indiabulls Real Estate, Phoenix Mills, Sobha Developers DLF, HDIL, Ackruti City and Orbit Corporation and Unitech fell by between 0.37% to 2.51%.
Among banking stocks, India's largest private sector bank by net profit ICICI Bank fell 2.02%. India's second largest private sector bank by net profit HDFC Bank shed 1.34% India's largest commercial bank by branch network State Bank of India (SBI) declined 2.13%.
Dhanlaxmi Bank lost 3.55% after net profit dropped 43.6% to Rs. 3.40 crore on 86.6% jump in total income to Rs. 370.50 crore in Q1 June 2011 over Q1 June 2010.
Strides Arcolab rose 3.12% after company announced during market hours today that Onco Therapies, a wholly owned subsidiary has received United States Food & Drugs Administration (USFDA) approval for Gemcitabine for Injection USP in 200 milligram (mg), 1 gram (gm) and 2 gm dosage forms.
The market remain volatile in the near term as traders roll over positions in the derivatives segment from the near-month July 2011 series to August 2011 series ahead of the expiry of July 2011 derivatives contracts on Thursday, 28 July 2011.
As the crucial corporate earnings season gathers steam, investors will closely watch the post-Q1 June 2011 result management commentary to gauge the future earnings outlook at a time when Indian firms are witnessing cost pressures amid rising interest rates and staff costs. A hike in transportation costs will add to cost pressure of India Inc. As per reports, freight rates have gone up by 8% to 9% on all routes across India following the recent hike in diesel prices.
UltraTech Cement, HCL Technologies, GAIL (India), Bank of Baroda, Infrastructure Development Finance Company (IDFC), Oil India and Lupin unveil results tomorrow, 27 July 2011. State-run oil exploration giant ONGC, FMCG giant Hindustan Unilever, Cigarette major ITC, Sun Pharma, cement majors--ACC and Ambuja Cements, Jindal Steel & Power, state-run Punjab National Bank, and GSFC unveil results on 28 July 2011. ICICI Bank, Power Finance Corporation, Bhushan Steel, Idea Cellular and TVS Motor unveil Q1 results on 29 July 2011. Sun TV announces Q1 results on 1 August 2011. Power Grid Corporation unveils Q1 results on 2 August 2011.
Bharti Airtel unveils Q1 results on 3 August 2011. Adani Power, Mundra Port And Special Economic Zone and Indian Hotels announce Q1 results on 4 August 2011. IL&FS Transportation Networks announces Q1 results on 5 August 2011. M&M announces Q1 results on 8 August 2011. ABB, Mahindra Satyam and GMR Infrastructure announce quarterly results on 9 August 2011. Tata Power unveils Q1 results on 10 August 2011. Tata Motors unveils Q1 results on 11 August 2011. Hindalco and Coal India unveil Q1 results on 12 August 2011.
The pick up in the annual monsoon rains has improved crop prospects. Rainfall between July 14 and July 20 was 7% above the long-term average, according to the India Meteorological Department, following two successive weeks of below-average rains that raised concerns about crops. July is the crucial month for sowing rice, sugarcane, pulses and cotton. The seasonal rainfall deficit had widened to 3% below the long-term average last week, but now stands at 1% below normal. So far, 12% of the country has had below-average rainfall, while 88% had normal or excess showers. The June-September monsoon season brings about 70% of India's annual rainfall and is crucial for crops as about 60% of the country's farmland is rain-fed.
Gujarat, the country's largest producer of groundnut and cotton, had 80% below-average rains until the end of June, but now the gap has narrowed to 34%. However, poor rains in Andhra Pradesh are causing worries for rice plantings. As per reports, just about 9% of the state's rice area has been sown so far.
Meanwhile, former telecommunications minister Andimuthu Raja, who is facing trial in the country's biggest corruption scandal, deflected blame onto the prime minister in court on Monday, saying Manmohan Singh had knowledge of a key decision. Raja appeared in court denying wrongdoing in a case over the alleged manipulation of the sale of 2G telecoms spectrum licences in 2007-8 when he was telecommunications minister. Raja, a member of UPA coalition partner DMK, has been charged with flouting telecoms rules and accepting bribes to favour some firms when they sought lucrative mobile phone licences at rock bottom prices, possibly causing the state losses of $39 billion in revenue.
Most Asian markets edged higher on Tuesday, 26 July 2011, after US President Barack Obama on Monday, 25 July 2011, said that he's confident that lawmakers will reach an agreement on the debt ceiling by the August 2 deadline. The key benchmark indices in China, Hong Kong, Japan, Indonesia, Singapore, South Korea and Taiwan were up by between 0.19% to 0.94%. China's Shanghai Composite fell 0.05%.
The US is moving closer to an August 2 deadline, after which the Treasury says it will no longer be able to meet debt obligations. Obama said in an address to the nation Monday evening that should a downgrade occur, investors would wonder if the US was a good bet. He said the current debt standoff was a dangerous game but added he was confident a compromise would be reached in Congress before the deadline. Speaking moments later, House Speaker John Boehner urged passage of a proposal from his Republican party, and also warned of the consequences of a default
Trading in US index futures indicated that the Dow could gain 26 points at the opening bell on Tuesday, 26 July 2011.
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