The key benchmark indices held firm in early afternoon trade as Asian stocks and US index futures rose. Revival of monsoon rains in the past few days after week rains last month, also underpinned sentiment. Healthcare stocks rose. Auto stocks were mixed. The market breadth was strong as buying was witnessed in select mid-cap and small-cap stocks.
Index heavyweight Reliance Industries (RIL) held firm. The BSE 30-share Sensex was up 86.11 points or 0.49%, up close to 130 points from the day's low and off close to 25 points from the day's high. Except the BSE Auto index, all the other sectoral indices on BSE were in green.
The market turned positive soon after opening lower as Asian stocks recovered. The market extended gains to hit fresh intraday highs in morning trade. It continued the upward trend to hit fresh intraday high in mid-morning trade. The market was range bound in early afternoon trade.
The next major trigger for the market is Q1 June 2010 results of India Inc, which will start trickling in from the second week of July 2010. Advance tax collections for the first quarter of the current financial year point to a strong growth in corporate sector profits. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year.
Investors are also closely watching the progress of the monsoon rains. The monsoon rains have revived after weak rains last month. The weather office on Monday, 5 July 2010, said monsoon rains have advanced into the country's key grain-producing states of Punjab and Haryana and is forecast to progress further. Crop planting suffered last month as rainfall was 16% below normal, but the seasonal shortfall has narrowed to 14% for the June 1-July 3 period after heavy rains.
The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The south-west monsoon usually covers the entire country by mid-July. The weather office expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.
Asian stocks rebounded, with the regional benchmark rising from the lowest level in almost a month. But, turnover was very light, with US markets closed on Monday, 5 July 2010, for Independence Day holiday. The key benchmark indices in Indonesia, Singapore, Taiwan, Japan and South Korea rose by between 0.29% to 1.46%.
China's shares reversed earlier losses to trade higher, led by gains in banking shares after their recent sharp declines. The Shanghai Composite index was up 1.43% and Hong Kong's Hang Seng was up 0.37%
US index futures reversed initial losses. Trading in US index futures indicated that the Dow could gain 20 points at the opening bell on Tuesday, 6 July 2010.
This week the focus will be squarely on how central banks will address signs of a coming global slowdown, with the European Central Bank and the Bank of England both holding policy meetings and the Reserve Bank of Australia and Bank of Korea meeting as well.
Back home, the services sector expanded at its fastest clip in two years last month, led by increases in business expectations and new orders, a survey showed on Monday, 5 July 2010. After dipping slightly in May 2010, the HSBC Markit Business Activity Index, based on a survey of 400 Indian firms, rose to 64 in June 2010 from 58.2 last month, pointing to a substantial rate of growth. Any figure above 50 indicates expansion.
The Reserve Bank of India (RBI) on Friday, 2 July 2010, hiked the repo rate by 25 basis points to 5.5% from 5.25%, with immediate effect. It also hiked the reverse repo rate, at which it absorbs excess cash from the banking system, by an equal 25 basis points to 4% from 3.75%. The central bank said the latest rate hike is a part of the calibrated exit from the expansionary monetary policy.
The above monetary measures should contain inflation and anchor inflationary expectations going forward, while not hurting the recovery process, the central bank said in a statement. This mid-cycle policy action has been warranted by the evolving macroeconomic situation, it said.
Although entirely justified in terms of long-term fiscal and energy conservation objectives, the recent increase in fuel prices will have an immediate impact of around one percentage point on inflation based on wholesale price index (WPI), with second round effects also being felt in the months ahead, the Reserve Bank of India said. Significantly, two-thirds of WPI inflation in May 2010 was contributed by non-food items, suggesting that inflation is now very much generalised and that demand-side pressures are evident, the RBI said.
The central bank's monetary policy stance is of calibrated exit from the expansionary monetary policy, with focus on containing inflation and anchoring inflationary expectations without hurting growth. This is the first rate action by the central bank after banks switched over to the new base rate system from 1 July 2010.
To address what it said was temporary and unexpected tight liquidity in the financial system, the RBI also on Friday extended an earlier measure to infuse cash into the system.
Two-thirds of WPI inflation in May 2010 was contributed by non-food items, suggesting that inflation is now very much generalised and that demand-side pressures are evident, the central bank said in a statement. WPI inflation increased to 10.2% in May 2010, up from 9.6% in April 2010.
In its April 2010 policy review, the Reserve Bank projected real GDP growth for 2010-11 at 8% with an upside bias. More recent data suggest that the upside bias has largely materialized, thecentral bank said. The growth projection will be reviewed in the first quarter review on 27 July 2010, RBI said.
Analysts expect another 25 basis points rate hike by the central bank at its quarterly review on 27 July 2010.
At 12:20 IST, the BSE 30-share Sensex was up 86.11 points or 0.49% at 17,527.55. The Sensex rose 110.15 points at the day's high of 17,551.59 in mid-morning trade. The Sensex fell 45.86 points at the day's low of 17,395.58 in early trade.
The S&P CNX Nifty was up 25.95 points or 0.5% at 5,261.85.
The BSE Mid-Cap index was up 0.5%. The BSE Small-Cap index was up 0.59%. Both the indices outperformed the Sensex.
The market breadth, indicating the strength of the broader market, was strong. On BSE, 1608 shares advanced while 1064 shares declined. A total of 109 shares remained unchanged.
From the 30 share Sensex pack, 24 stocks rose and the rest fell.
India's largest IT exporter by sales TCS rose 1.74% and was the top gainer from the Sensex pack.
Index heavyweight Reliance Industries (RIL) rose 0.49%. As per recent reports the Mukesh Ambani group is close to signing an equal joint venture agreement with global private equity and hedge fund company, DE Shaw, to enter the financial services sector.
RIL recently announced its seventh oil discovery in Cambay basin in Gujarat. RIL and Reliance Natural Resources (RNRL) on 25 June 2010, entered into a new gas supply agreement, as directed by the Supreme Court. The Supreme Court had ordered the two companies to renegotiate the Gas Supply Master Agreement, which was signed between the Ambani brothers as part of the business demerger in 2005.
Reliance Natural Resources (RNRL) fell 1.19%, extending Monday's 27.26% triggered by an unfavorable swap ratio for its merger with group company Reliance Power (RPower). RPower fell 1.21% on profit taking after surging 3.57% on Monday. Anil Dhirubhai Ambani Group's (ADAG's) gas transportation company, Reliance Natural Resources (RNRL), will merge with sister firm Reliance Power (R-Power) in a Rs 50,000-crore, all-stock deal. The board of directors of the two companies, in meetings held on Sunday, 4 July 2010, approved a swap ratio of 4:1, meaning RNRL shareholders are to get one R-Power share for every four they hold.
Healthcare stocks rose on bargain hunting. Sun Pharmaceutical Industries, Pfizer, Cipla and Dr Reddy's Laboratories rose by between 0.39% to 1.86%.
Interest rate sensitive auto stocks were mixed after central bank hiked interest rates sooner than expected. India's largest car maker by sales Maruti Suzuki India fell 0.5%, with the stock falling for the second straight day. The company's total vehicle sales rose 17.3% to 88,091 vehicles in June 2010 over June 2009.
India's largest tractor maker by sales Mahindra & Mahindra (M&M) rose 1.13%, with the stock gaining for the second straight day. The company, last week, reported an increase of 19.84% in auto sales to 27,562 units in June 2010 over June 2009. Despite the annual shutdown in the first week of June, the auto division posted strong growth rates, M&M said in a press release. Tractor sales declined 9% to 16,590 units in June 2010 over June 2009, as the company is facing supply constraints from component makers (casting and tyres).
India's largest commercial vehicle maker by sales Tata Motors rose 0.19%. The company's total sales jumped 49% to 67,730 in June 2010 over June 2009. Domestic sales rose 45% to 62,602 and exports jumped 138% to 5,128 in June 2010 over June 2009. The figures do not include the luxury Jaguar, Land Rover brands it makes in Britain.
The country's largest two-wheeler maker Hero Honda Motors fell 0.48%. The company reported a 16.6% jump in its sales at 4,26,454 in June 2010 over June 2009.
Ashok Leyland rose 1.6% extending Monday's 4.88% surge. The company reported an over two-fold jump in total commercial vehicle sales to 8,400 units in June 2010 compared to the same month last year.
Syncom Formulations (India) rose 3.52% on reports the company's promoters have offered to buy back up to 35 lakh shares from minority shareholders at Rs 34 a share.
Thomas Cook (India) gained 3.34% after the company entered into a seven-year deal with Delhi International Airport and launched nine foreign exchange & travel counters at the newly opened terminal-3 in the airport.
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