Sensex, Nifty rally as MSCI defers including China 'A' shares in benchmark index

The decision of major index provider MSCI Inc. not to add Chinese domestic stocks to its widely tracked emerging-markets index helped trigger a rally in key equity benchmark indices in India. Chinese stocks fell after the MSCI announcement in New York yesterday, 9 June 2015. The barometer index, the S&P BSE Sensex, was provisionally up 353.62 points or 1.34% at 26,834.87. The market breadth indicating the overall health of the market was strong. The BSE Mid-Cap index was up 1.08%. The BSE Small-Cap index was up 1.11%.

Index heavyweight Reliance Industries (RIL) edged higher. IT shares rose. TCS edged higher after announcing the launch of TCS BaNCS Digital, a solution designed specifically for financial institutions in North America. Capital goods gained on renewed buying.

Indian stocks edged higher today, 10 June 2015, after major index provider MSCI Inc. chose not to add Chinese domestic stocks to its widely tracked emerging-markets index for now. With this decision, a major overhang has been lifted from the Indian stock market. The inclusion of Chinese domestic stocks to the MSCI Emerging Market Index would have resulted in a sharp increase in China's weightage in the index which in turn would have resulted in decline in weightage of other emerging markets including India. As per market speculation, decline in India's weightage would have triggered outflows exceeding $1 billion from Indian equities. According to media reports, India's share in the MSCI Emerging Market Index would have fallen to 5.8% from 7.2% if MSCI had decided to include Chinese domestic stocks to the MSCI Emerging Market Index.

MSCI yesterday, 9 June 2015, said it will wait to add mainland China-listed shares to its benchmark indices until a few important remaining issues related to market accessibility have been resolved. The MSCI said it expects to include China A-shares in its global benchmarks once those issues are worked out, and that it plans to form a working group with Chinese stock regulator China Securities Regulatory Commission to address the concerns.

Meanwhile, the Reserve Bank of India (RBI) yesterday, 9 June 2015, said in its draft guidelines on issuance of rupee linked bonds in overseas markets that Indian corporates eligible to raise external commercial borrowings (ECB) will be permitted to issue rupee linked bonds overseas.

In overseas markets, European shares edged higher. Asian stocks ended on a mixed note. US stocks ended a choppy session virtually unchanged yesterday, 9 June 2015, after the main indexes gave up earlier modest gains.

Foreign portfolio investors (FPIs) sold shares worth a net Rs 645.02 crore yesterday, 9 June 2015, as per provisional data released by the stock exchanges. Domestic institutional investors (DIIs) bought shares worth a net Rs 692.29 crore yesterday, 9 June 2015, as per provisional data released by the stock exchanges.

As per provisional closing, the S&P BSE Sensex was up 353.62 points or 1.34% at 26,834.87. The index jumped 453.49 points at the day's high of 26,934.74 in late trade, its highest level since 5 June 2015. The index rose 12.04 points at the day's low of 26,493.29 at onset of the day's trading session.

The CNX Nifty was up 102.05 points or 1.27% at 8,124.45. The index hit a high of 8,152.25 in intraday trade, its highest level since 5 June 2015. The index hit a low of 8,023.80 in intraday trade.

The market breadth indicating the overall health of the market was strong. On BSE, 1,690 shares gained and 958 shares fell. A total of 109 shares were unchanged.

The BSE Mid-Cap index was up 109.52 points or 1.08% at 10,270.77. The BSE Small-Cap index was up 117.90 points or 1.11% at 10,779.75. Both these indices underperformed the Sensex.

The total turnover on BSE amounted to Rs 2053 crore, lower than turnover of Rs 2225.89 crore registered during the previous trading session.

Index heavyweight Reliance Industries (RIL) gained 2.57% to Rs 906.60. The stock hit high of Rs 909.90 and low of Rs 885.

IT shares were in demand. Tech Mahindra (up 3.23%), HCL Technologies (up 3.05%), Wipro (up 3.86%), Infosys (up 1.78%), Hexaware Technologies (up 4.86%), MphasiS (up 1.48%) and Oracle Financial Services Software (up 0.13%) edged higher.

Tata Consultancy Services (TCS) rose 1.64%. TCS announced after market hours yesterday, 9 June 2015, the launch of TCS BaNCS Digital, a solution designed specifically for financial institutions in North America. US-based banks can now use TCS BaNCS Digital to deliver an intuitive, interactive and insightful customer experience. TCS BaNCS Digital also allows seamless integration of various stakeholders in the financial supply chain and its ecosystem, TCS said in a statement.

Capital goods gained on renewed buying. Bharat Heavy Electricals (Bhel) (up 4.15%), BEML (up 0.67%), Bharat Electronics (up 1.35%), Crompton Greaves (up 2.64%), L&T (up 2.39%), Siemens (up 2.65%) and Thermax (up 2.28%) gained. ABB India slipped 0.3%.

Vedanta rose 0.74%. Cairn India jumped 6.29%. Shares of Vedanta had gained 3.11% yesterday, 9 June 2015, while Cairn India had lost 4.46% yesterday, 9 June 2015. Reports yesterday, 9 June 2015 had indicated that the metal and mining giant Vedanta is in the final stages to announce a merger of its subsidiary Cairn India with itself. The merger of Vedanta with Cairn India will give the parent access to Cairn's cash and help reduce debt, as per reports. The two are shortly expected to inform shareholders about the proposed transaction, report said. Based on weighted average stock prices of the two companies for the past six months, Cairn India shareholders should receive about 11 shares of Vedanta for every 10 Cairn shares, report added.

Vedanta announced during trading hours yesterday, 9 June 2015, that it has noted media speculation regarding a potential merger of Cairn India and the company. The company said its stated strategy is to simplify and consolidate its corporate structure. The management reviews options to deliver this strategy on an on-going basis. The company said it is aware of its disclosure obligations under Clause 36 of the Listing Agreement. The company will abide by its obligations to make appropriate disclosures as and when such disclosures are necessitated by decisions taken by the company, it added.

Meanwhile, the Reserve Bank of India (RBI) yesterday, 9 June 2015, said in its draft guidelines on issuance of rupee linked bonds in overseas markets that Indian corporates eligible to raise external commercial borrowings (ECB) will be permitted to issue rupee linked bonds overseas. The corporates which, at present, are permitted to access ECB under the approval route will require prior permission of the RBI to issue rupee linked bonds overseas and those coming under the automatic route can do so without prior permission of the RBI. As per the draft guidelines, the coupon on the bonds should not be more than 500 basis points above the sovereign yield of the Government of India security of corresponding maturity as per the FIMMDA yield curve prevailing on the date of issue. End use restrictions will be applicable on rupee linked overseas bonds in the same way as applicable under the extant ECB guidelines. The RBI has sought public comments on the draft guidelines by 15 June 2015.

The RBI said the bonds may be floated in any jurisdiction that is Financial Action Task Force (FATF) compliant. The subscription, coupon payments and redemption may be settled in foreign currency. The proceeds of the bonds can be parked as per the extant provisions on parking of ECB proceeds. The amount and average maturity period of such bonds should be as per the extant ECB guidelines. The call and put option, if any, shall not be exercisable prior to completion of applicable minimum average maturity period. For USD-INR conversion, the Reserve Bank's reference rate on date of issue will be applicable.

International Financial Institutions of which India is a shareholding member intending to deploy the entire proceeds of the issuance in India will not require prior permission of RBI for the issuance of rupee bonds overseas irrespective of amount of issuance. In other cases, where an International Financial Institution (of which India is a member) wishes to retain the freedom to deploy the issue proceeds in any member country shall require prior permission from the RBI /Government of India.

Any investor in rupee linked overseas bonds will be eligible to hedge both the foreign currency risk as well as credit risk through permitted derivative products in the domestic market. The investor can also access the domestic market through branches of Indian banks abroad or branches of foreign bank with Indian presence.

In the global commodities market, Brent crude futures edged higher as US crude and gasoline inventories fell more than expected last week and the Energy Information Administration (EIA) raised its 2015 oil demand growth forecast. Brent for July settlement was currently up $1.11 a barrel at $65.99 a barrel. The contract had gained $2.19 a barrel or 3.49% to settle at $64.88 a barrel during the previous trading session.

For India, higher crude oil prices could increase government's fiscal deficit, current account deficit and stoke fuel price inflation. However, gains in the rupee against the dollar will mitigate the negative impact of higher crude oil price. India imports 80% of its crude oil requirement.

In the foreign exchange market, the partially convertible rupee was currently hovering at 63.85, compared with its close of 63.925 during the previous trading session.

Meanwhile, the India Meteorological Department (IMD) said in its daily monsoon update yesterday, 9 June 2015, that conditions would become favourable for further advance of southwest monsoon into some more parts of central Arabian Sea, Konkan, Karnataka, remaining parts of Tamilnadu, some parts of Rayalaseema and Coastal Andhra Pradesh and some more parts of central Bay of Bengal during next 2-3 days. The Southwest Monsoon was active over Arunachal Pradesh and Assam & Meghalaya during past 24 hours, the IMD said.

The June-September southwest monsoon is critical for the country's agriculture because a considerable part of the country's farmland is dependent on the rains for irrigation.

The government is scheduled to unveil industrial production data for April 2015 on Friday, 12 June 2015. Industrial output growth touched a five-month low of 2.1% in March from a revised 4.9% in February on the back of an across-the-board slowdown in production. On the same day, the government is scheduled to unveil the consumer price index (CPI) data for the month of May 2015. Consumer price index-based retail inflation eased to a four-month low of 4.87% in April from a revised 5.25% in March.

Meanwhile, the Union Cabinet today, 10 June 2015, approved the signing of the Bangladesh, Bhutan, India and Nepal (BBIN) Motor Vehicle Agreement for the regulation of passenger, personal and cargo vehicular traffic amongst BBIN. The agreement will be signed on 15 June 2015 at the BBIN Transport Ministers' meeting in Thimpu, Bhutan. The signing of the BBIN agreement will promote safe, economical efficient and environmentally sound road transport in the sub-region and will further help each country in creating an institutional mechanism for regional integration, according to a government statement. BBIN countries will be benefited by mutual cross border movement of passenger and goods for overall economic development of the region. The people of the four countries will benefit through seamless movement of goods and passenger across borders.

In overseas markets, European shares edged higher today, 10 June 2015. Key benchmark indices in UK, France and Germany were up 0.34% to 0.81%.

Investors continue to monitor developments in Greece. Time is running out for Greece to strike an agreement to unlock new financing as the European nation will have to make debt repayments later in the month. According to reports, Greek Prime Minister Alexis Tsipras is expected to meet German Chancellor Angela Merkel and French President Franis Hollande today, 10 June 2015, to try to get the two sides closer to a deal. Greece deferred a payment to the International Monetary Fund last week and needs to crack a deal or get another extension before its euro-area bailout package expires on 30 June 2015.

Manufacturing production in the UK fell unexpectedly in April, while industrial output rose, official data showed today, 10 June 2015. In a report, the UK Office for National Statistics said that manufacturing production declined by a seasonally adjusted 0.4% in April following a 0.4% gain in March. The report also showed that industrial production rose by a seasonally adjusted 0.4% in April after increasing 0.6% in March.

French industrial production dropped unexpectedly in April, marking a weak start to the second quarter for the eurozone's second-largest economy. Industrial output fell 0.9% in April from March, national statistics agency Insee said today, 10 June 2015.

Asian stocks were mixed today, 10 June 2015. Key benchmark indices in Singapore, Taiwan and Indonesia were up 0.69% to 1.16%. In Japan, the Nikkei 225 Average lost 0.25%.

Chinese stocks fell after major index provider MSCI Inc. held off from adding mainland equities to its benchmark indexes. In mainland China, the Shanghai Composite index lost 0.15%. In Hong Kong, the Hang Seng index lost 1.12%. MSCI yesterday, 9 June 2015, said that it had decided not to include China's A-shares in its global benchmarks until some market issues are worked out. MSCI offered a list of some issues it would discuss with the regulators, including the allocation of investing quotas for large investors, capital mobility and details over beneficial ownership. However, recognizing the significant progress to date and ongoing reform efforts, China A-shares will remain on the 2016 review list for potential inclusion into Emerging Markets, MSCI said.

Meanwhile, researchers with China's central bank have revised down their forecasts for the country's economic growth and consumer inflation for 2015, citing increased downward pressure on economic growth. They now forecast China's economy will expand 7%, slightly lower than a projection of 7.1% made six months ago. The forecast for this year's consumer inflation has been reduced to 1.4% from 2.2%.

US stocks ended yesterday's choppy session virtually unchanged, after the main indexes gave up earlier modest gains.

In economic data, US job openings surged to a record high in April and small business confidence perked up in May, suggesting the economy was regaining speed after stumbling at the start of the year. Other data yesterday, 9 June 2015 showed a solid rise in wholesale inventories in April, in part as oil prices stabilized.

A two-day meeting of the Federal Open Market Committee (FOMC) to review US monetary policy is scheduled on 16-17 June 2015.

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