Sensex ekes out small gains as services sector downturn eases in January

Key benchmark indices edged higher in choppy trade after a survey showed that India's service providers were optimistic in January that business activity would expand over the next year. The 50-unit CNX Nifty regained the psychological 6,000 mark after falling below that level in early trade. The barometer index, the S&P BSE Sensex, was provisionally up 43.44 points or 0.21%, up close to 180 points from the day's low and off about 30 points from the day's high. The market breadth, indicating the overall health of the market, was positive. Gains in European stocks supported gains on the domestic bourses.

Shares of state-run power equipment major Bharat Heavy Electricals (Bhel) dropped in choppy trade after the company reported poor Q3 December 2013 results. Tech Mahindra rose after strong Q3 results. Ranbaxy Laboratories jumped as the company's net loss narrowed in Q4 December 2013. Most realty shares edged higher.

The market edged lower amid initial volatility after provisional data showed that foreign funds resorted to heavy selling of Indian stocks on Tuesday, 4 February 2014. The 50-unit CNX Nifty fell below the psychological 6,000 mark. The Sensex extended initial losses and hit fresh intraday low in morning trade. The Sensex languished in negative terrain in mid-morning trade. Key benchmark indices recouped a lion's part of intraday losses in early afternoon trade. Key benchmark indices moved into positive zone from negative zone in afternoon trade. The Nifty regained the psychological 6,000 mark. Key benchmark indices retained positive zone in mid-afternoon trade.

As per provisional figures, the S&P BSE Sensex was up 43.44 points or 0.21% to 20,255.37. The index rose 77.40 points at the day's high of 20,289.33 in late trade, its highest level since 3 February 2014. The index dropped 135.83 points at the day's low of 20,076.10 in morning trade.

The CNX Nifty was up 21.05 points or 0.35% to 6,021.95, as per provisional figures. The index hit a high of 6,028.05 in intraday trade, its highest level since 3 February 2014. The index hit a low of 5,962.05 in intraday trade.

The BSE Small-Cap index rose 57.87 points or 0.93% at 6,303.59. The BSE Mid-Cap index was up 22.30 points or 0.35% at 6,304.28. Both these indices outperformed the Sensex.

The total turnover on BSE amounted to Rs 1879 crore, higher than Rs 1810.27 crore on Tuesday, 4 February 2014.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,455 shares rose and 1,120 shares fell. A total of 146 shares were unchanged.

Tata Motors (up 2.82%), M&M (up 2.42%), and Coal India (up 2.53%), edged higher from the Sensex pack.

Tata Steel rose 4.91%, with the stock extending intraday gains in late trade.

Tech Mahindra rose 3.81% on strong Q3 results. The company after market hours on Tuesday, 4 February 2014, said its consolidated profit after tax (PAT) jumped 40.6% to Rs 1010 crore on 2.7% increase in revenue to Rs 4899 crore in Q3 December 2013 over Q2 September 2013. The sharp rise in net profit on sequential basis in Q3 December 2013 was due to write back of excess provision for contingencies of Rs 120 crore provided in earlier years in Q3 December 2013. This is non-recurring item. Another reason for the sharp surge in net profit on sequential basis in Q3 December 2013 was a reversal of tax provision of Rs 226.60 crore no longer required.

Operating profit (EBITDA) rose 2.3% to Rs 1136 crore in Q3 December 2013 over Q2 September 2013. EBITDA margin declined to 23.19% in Q3 December 2013, from 23.28% in Q2 September 2013.

Commenting on the financial performance, Vineet Nayyar, Executive Vice Chairman, Tech Mahindra, said: "We are pleased to report another successful quarter where growth has come from our main verticals -- Telecom, Manufacturing and BFSI. We remain confident of the success of our differentiated offerings."

C P Gurnani, Managing Director & CEO, Tech Mahindra said: "Our results are a testimony to the fact that our strategy and investments are aligned with market drivers and demands. Our focus on connected solutions for digital enterprises will continue to drive this momentum".

Meanwhile, Tech Mahindra's board of directors at its meeting held on Tuesday, 4 February 2014, approved increase in limit of investment by FIIs from the existing 45% to 48% of the paid up capital of the company.

Ranbaxy Laboratories rose 5.72% to Rs 340.15 after the company reported a consolidated net loss of Rs 158.94 crore in Q4 December 2013, lower than net loss of Rs 492.44 crore in Q4 December 2012. The Q4 result was announced during trading hours today, 5 February 2014.

Ranbaxy Laboratories' consolidated sales rose 7% to Rs 2860 crore in Q4 December 2013 over Q4 December 2012. Earnings before interest, taxation, depreciation and amortization (EBITDA) was at Rs 270 crore in Q4 December 2013. Adjusted for forex movements and non-routine charges, the margin was above 10% in Q4 December 2013, Ranbaxy Laboratories said in a statement.

The company reported a net loss before taxes of Rs 60 crore for Q4 December 2013 after providing for stock write-off and other costs of Rs 260 crore pursuant to the inclusion of the Toansa plant under certain provisions of the consent decree (CD) by USFDA.

Ranbaxy said its base business recorded growth in Q4 December 2013 over the corresponding previous year period. Branded and OTC category contributed Rs 1480 crore accounting for 52% of total sales in Q4 December 2013. Generics including API category recorded sales of Rs 1380 crore in Q4 December 2013.

Commenting on the company's financial performance, Mr. Arun Sawhney, CEO & MD, Ranbaxy Laboratories said, "Ranbaxy has been strengthening its base business in key markets including India, Eastern Europe & CIS and the USA which has helped us recover our margins. We are facing some major regulatory challenges and are disappointed with the developments. I would like to assure all our stakeholders that we will do whatever is necessary to address all concerns of the USFDA and are committed to resolve them as early as possible".

Realty shares edged higher. DLF (up 2.42%), HDIL (up 1.55%), and D B Realty (up 0.49%), edged higher. Unitech fell 0.55%.

Oberoi Realty rose 0.86% to Rs 188.10 on bargain hunting after recent weakness triggered by the company's weak Q3 December 2013 result.

Shares of Oberoi Realty tumbled 8.74% in the preceding two trading sessions to Rs 186.50 on 4 February 2014, from a recent high of Rs 204.35 on 31 January 2014.

On a consolidated basis, Oberoi Realty's net profit fell 49.4% to Rs 68.06 crore on 40.7% decline in net sales to Rs 169 crore in Q3 December 2013 over Q3 December 2012.

Shares of state-run power equipment major Bharat Heavy Electricals (Bhel) dropped in choppy trade after the company reported poor Q3 December 2013 results. The stock shed 1.96% to Rs 160.20. The scrip hit high of Rs 164.75 and low of Rs 158.55. The company's net profit fell 41.21% to Rs 694.81 crore on 15.41% fall in total income to Rs 8925.63 crore in Q3 December 2013 over Q3 December 2012. The result was announced during market hours.

Consequent to merger of Bharat Heavy Plates & Vessels (BHPV) with the company with effect from 30 August 2013, the financial results of HPVP unit (erstwhile BHPV) have been included in Q3 December 2013 results. In view of this, figures for Q3 December 2013 are not comparable with the figures in corresponding period of previous year.

Bhel said that it had an outstanding order book position of about Rs 100600 crore as on 31 December 2013.

The company's board declared an interim dividend of Rs 1.31 per share for the year ending 31 March 2014. The interim dividend shall be paid/dispatched on 20 February 2014.

GlaxoSmithkline Consumer Healthcare rose 1.32% after net profit rose 14.5% to Rs 79.75 crore on 18.7% increase in total income to Rs 913.55 crore for the quarter to 31 December 2013 over the quarter to 31 December 2012. The result was announced during trading hours today, 5 February 2014.

GlaxoSmithkline Consumer Healthcare has changed its accounting year to April-March from earlier January-December. Therefore, the company's current accounting year has been extended till 31 March 2014 which is 15-month period.

Electrosteel Castings surged 7.03% after net profit rose 1.96% to Rs 33.73 crore on 6.91% growth in total income from operations to Rs 512.72 crore in Q3 December 2013 over Q3 December 2012. The Q3 result was announced during trading hours today, 5 February 2014. The profit after tax (PAT) during the quarter was pulled down due to base effect. Other income fell sharply by 92.26% to Rs 2.91 crore in Q3 December 2013 over Q3 December 2012.

In the foreign exchange market, the rupee edged higher against the dollar, tracking weakness in the dollar versus majors and other Asian currencies. The partially convertible rupee was hovering at 62.45, compared with its close of 62.525/535 on Tuesday, 4 February 2014.

Up from 48.1 in December to 49.6 in January, the seasonally adjusted HSBC India Composite Output Index indicated a seventh consecutive monthly drop in private sector activity. But, the rate of contraction was marginal and the weakest in that sequence, Markit Economics said. Whereas manufacturing production growth accelerated, output at services companies fell again.

The headline HSBC Services Business Activity Index increased from December's 46.7 to 48.3 in January, signalling a moderate rate of output contraction that was the weakest in the current seven-month sequence of decrease. Panellists cited tough economic conditions, political issues and lower new order levels as the main reasons behind the fall in output. Service providers reported falling new business received for the seventh month running in January, with respondents commenting on increased competition for new work, deteriorating confidence among clients and weaker underlying demand. Nonetheless, the rate of contraction was slight and the slowest in that sequence. Manufacturing new orders rose at the quickest pace since March 2013. Incoming new work across the Indian private sector as a whole fell, albeit fractionally.

Despite having lower new business, service providers hired additional workers in January. Where job creation was indicated, this was attributed to expectations of higher new orders in coming months. With manufacturing employment also growing, staffing levels across the private sector increased for the second successive month (although slightly).

Service providers were optimistic in January that business activity would expand over the next year. Growth is expected to be supported by planned increases in marketing, forecasts of an overall improvement in the Indian economy and stronger demand. Moreover, the degree of positive sentiment was the highest in six months.

Meanwhile, input cost inflation in the Indian private sector economy hit a three-month high, while the rate of charge inflation was little-changed from that seen in December. Manufacturing firms recorded stronger increases in both input and output prices than their service sector counterparts. Outstanding business in the Indian service sector fell in January, while an accumulation was recorded at manufacturers. Across the private sector as a whole, backlogs were unchanged from the levels recorded one month previously.

Sector data highlighted Post & Telecommunication as the best performing services category. This was the only sector to record higher output and new business. Conversely, Financial Intermediation suffered the sharpest declines in both business activity and new orders among the remaining five monitored service sectors, Markit Economics said.

Commenting on the India Services PMI survey, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said: "Service sector activity remains weak and broad based, although Post & Telecommunication led the softening in January. Meanwhile inflation pressures firmed, with input prices rising at a faster pace. Despite the weak growth backdrop, the RBI has to stick to its hawkish bias to get inflation under control and through this eventually pave the way for a recovery in economic activity".

Finance Minister P Chidambaram will present the Vote-on-Account or interim budget on 17 February 2014. The objective of a Vote-on-Account is to get Parliament's nod for expenditure to be incurred in the months prior to elections. The next full-fledged budget will be presented by the new government which comes to power after the Lok Sabha polls in April-May 2014.

The Reserve Bank of India next undertakes monetary policy review on 1 April 2014. Sighting elevated consumer price inflation, the Reserve Bank of India raised its key lending rates by 25 basis points after Third Quarter Review of Monetary Policy for 2013-14 on 28 January 2014.

European stocks edged higher on Wednesday, 5 February 2014, as banks and financial-services companies rallied and investors awaited a private US jobs report. Key benchmark indices in UK, Germany and France were up 0.17% to 0.43%.

The European Central Bank (ECB) undertakes monthly montary policy review tomorrow, 6 February 2014, amid speculation the ECB will reinforce its commitment to lower rates. The ECB will probably hold the benchmark interest rate at a record-low 0.25% at its policy meeting tomorrow, 6 February 2014, as it faces slowing inflation. After the Jan. 9 policy meeting, ECB President Mario Draghi said the central bank "strongly emphasizes" that it will maintain accommodative measures for as long as necessary.

The Bank of England's (BoE) Monetary Policy Committee (MPC) undertakes monthly montary policy review tomorrow, 6 February 2014, with markets waiting to see if Governor Mark Carney will alter guidance on lifting its record-low interest rate. The MPC is widely expected to keep the BoE's main interest rate at a record-low level of 0.5%. It is widely predicted also to maintain quantitative easing at 375 billion ($613 billion, 454 billion euros), opting against following the US Federal Reserve in tapering stimulus.

Britain's 12-month inflation slowed to 2% in December, recent official data showed, touching the lowest level for more than four years. The BoE's main task is to use monetary policy as a tool to keep annual inflation close to a government-set target of 2%, to preserve the value of money.

Asian stocks were mixed on Wednesday, 5 February 2014. Key benchmark indices in Indonesia, Japan and South Korea rose 0.24% to 1.23%. Key benchmark indices in Hong Kong, Singapore and Taiwan dropped 0.19% to 2.34%

Stock markets in mainland China remain closed until 7 February 2014 for the Lunar New Year holiday.

Indonesia's economic growth unexpectedly quickened last quarter after an export rebound, an acceleration that may be short-lived as higher interest rates weigh on domestic consumption and investment. Gross domestic product rose 5.72% in the three months ended Dec. 31 from a year earlier, the Central Bureau of Statistics said in Jakarta today. The economy grew 5.78% in 2013.

Trading in US index futures indicated that the Dow could advance 6 points at the opening bell on Wednesday, 5 February 2014. US stocks closed with modest gains on Tuesday, clawing back a fraction of their worst losses since June made a day earlier. Investors welcomed a smaller-than-expected drop in factory orders during December.

The next major event on the horizon is the labor report out of the US, with nonfarm payrolls due on Friday, 7 February 2014.

On Tuesday, 4 February 2014, two Federal Reserve district bank presidents signaled a decline in global stock markets probably won't deter the Fed from further trimming bond buying that has pushed up central bank assets to $4.1 trillion. "The hurdle ought to remain pretty high for pausing in tapering," Richmond Fed President Jeffrey Lacker said after a speech in Winchester, Virginia. The fall in equities hasn't affected the outlook for labor market conditions materially at this point, Lacker said. "We linked the asset purchase programs to significant improvement in the outlook for labor market conditions. That has definitely occurred, Lacker said. "The committee is always cognizant of global economic conditions and developments," Lacker said at Shenandoah University, adding that his colleagues have to make policy choices focused on Fed goals for the US economy. "We conduct policy to achieve price stability and maximum employment here in the United States," Lacker said.

Chicago Fed President Charles Evans said in Detroit that policy makers probably face a high hurdle to deviate from $10 billion cuts in monthly bond buying at each of their next several meetings. The Fed's reduction in bond buying has been expected for quite some time and shouldn't have been a big surprise to global financial markets, Evans said to reporters after a speech. "Each country has a set of issues they need to deal with," Evans said. "The moderate pace of tapering that we laid out in conjunction with our stronger forward guidance" on the path of the federal funds rate "provides an adequate amount of accommodation for the other foreign markets," Evans said.

Evans and Lacker don't vote on policy this year.

The Federal Open Market Committee (FOMC) next undertakes monetary policy review on 18-19 March 2014. After a monetary policy review, the FOMC on 29 January 2014 announced it will reduce monthly bond purchases by another $10 billion to $65 billion. The Fed also signaled that it is likely to keep reducing bond purchases in the coming months, citing a pickup in US economic activity and improvement in the US labor market.

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