Key benchmark indices weakened to hit fresh intraday lows in mid-morning trade as weakness in Asian stocks dampened sentiment. A downward revision in 2012 monsoon forecast from the state-run India Meteorological Department (IMD) on Thursday, 2 August 2012, also hit sentiment adversely. The barometer index, BSE Sensex, was down 177.58 points or 1.03%, up close to 10 points from the day's low and off about 120 points from the day's high. The market breadth was weak. Except BSE HelathCare index, all the other sectoral indices on BSE were in the red.
Index heavyweight and cigarette maker ITC dropped. Another index heavyweight Reliance Industries (RIL) also edged lower. Interest rate sensitive auto and realty stocks declined as the Reserve Bank of India (RBI) kept repo rate unchanged at its first quarter review of the Monetary Policy 2012-13 early this week.
The market edged lower in early trade on weak Asian stocks. The market extended initial losses to hit fresh intraday low in morning trade. Weakness continued in mid-morning trade.
Asian shares dropped on Friday, 3 August 2012, as the European Central Bank, after inaction from the Federal Reserve, disappointed markets looking for an imminent move to deal with the euro zone debt crisis, spurring risk aversion.
At 11:20 IST, the BSE Sensex was down 177.58 points or 1.03% to 17,046.78. The index fell 186.82 points at the day's low of 17,037.54 in mid-morning trade, its lowest level since 31 July 2012. The index declined 59.89 points at the day's high of 17,164.48 in early trade.
The S&P CNX Nifty was down 54.25 points or 1.04% to 5,173.50. The Nifty hit a low of 5,169.40 in intraday trade, its lowest level since 31 July 2012. The Nifty hit high of 5,204.35 in intraday trade.
The market breadth, indicating the overall health of the market, was weak. On BSE, 1,397 shares fell and 907 shares rose. A total of 125 shares were unchanged.
From the 30-share Sensex pack, 27 stocks fell and the only three of them rose. Cipla, Dr Reddy's Laboratories and NTPC rose by between 0.15% to 1.24%.
Index heavyweight and cigarette maker ITC fell 1.17% to Rs 258.30. The stock had hit a record high of Rs 262.05 in intraday trade on Thursday, 2 August 2012. The company last week reported 20.21% growth in net profit to Rs 1602.14 crore on 15.34% growth in net sales to Rs 6652.21 crore in Q1 June 2012 over Q1 June 2011. Despite series of tax hikes, ITC's performance in cigarettes business remains robust and displays pricing power for the company.
Index heavyweight Reliance Industries (RIL) declined 0.9%. RIL has bought back 3.66 crore shares for about of Rs 2617.57 crore till 24 July 2012 under its ongoing share buyback program. RIL has set maximum buyback price of Rs 870 per share. The company has set aside Rs 10440 crore for share buyback. The buyback program opened on 1 February 2012 and closes on 19 January 2013. RIL chairman Mukesh Ambani said at the company's Annual General Meeting in June 2012 that the company's buyback program represents a highly accretive use of cash by the company and it will supplement earnings growth from operations, for higher EPS (earnings per share), in the near future.
Metal stocks fell across the board as LMEX, a gauge of six metals traded on the London Metal Exchange dropped 1.35% on Thursday, 2 August 2012. Sterlite Industries, Bhushan Steel, JSW Steel, Tata Steel, Sail, Hindalco Industries, Jindal Steel & Power, and Hindustan Zinc shed by between 0.32% to 2.96%.
Interest rate sensitive realty stocks declined as the Reserve Bank of India (RBI) kept repo rate unchanged at its first quarter review of the Monetary Policy 2012-13 early this week. Purchases of both residential and commercial property are largely driven by finance. DLF, HDIL and Unitech dropped by between 1.61% to 2.96%.
Interest rate sensitive auto stocks declined as the Reserve Bank of India (RBI) kept repo rate unchanged at its first quarter review of the Monetary Policy 2012-13 early this week. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.
Tata Motors declined 2.04%. The company's total sales (including exports) of Tata commercial and passenger vehicles rose 15% to 73,491 vehicles in July 2012 over July 2011. The company's domestic sales of Tata commercial and passenger vehicles rose 18% to 68,627 units in July 2012 over July 2011. Cumulative sales (including exports) during April-July 2012 rose 2% to 2.62 lakh units from the year ago period.
Ashok Leyland dropped 1.3%. The company's total sales jumped 25% to 9,785 units in July 2012 over July 2011. The company's light commercial vehicle (LCV) Dost which was launches last year clocked sales of 2,803 units in July 2012. Ashok Leyland's commercial vehicles sales, excluding LCV Dost, declined 11% to 6,982 units in July 2012 over July 2011.
Mahindra & Mahindra (M&M) fell 1.64%. The company on 1 August 2012, said its total tractors sales declined 1.02% to 16,521 units in July 2012 over July 2011. Domestic tractor sales declined 1.29% to 15,495 units in July 2012 over July 2011. Exports rose 3.32% 1,026 units in July 2012 over July 2011.
The company on 1 August 2012, announced 19% growth in total auto sales to 47,059 units in July 2012 over July 2011. Domestic auto sales jumped 15% to 42,799 units in July 2012 over July 2011. The Passenger Vehicles segment (which includes the UVs and Verito) has registered a growth of 27%, having sold 22,011 units in July 2012, as against 17,312 units during July 2011, M&M said in a statement.
The company and Telephonics Corporation (Telephonics) on Wednesday 1 August 2012 announced the formation of a joint venture (JV). The JV to be called Mahindra Telephonics Integrated Systems will provide the Indian Ministry of Defence and the Indian civil sector with radar and surveillance systems, identification friend or foe (IFF) devices and communication systems. In addition, the JV intends to provide systems for air traffic management services, homeland security and other emerging surveillance requirements.
Car major Maruti Suzuki declined 1.06%, with the stock extending recent losses after the company on Tuesday, 31 July 2012, said the management remains concerned about the safety and security of its employees and hence it is not in a position to take a decision on restarting operations as the Manesar plant in Haryana. The management will announce its decision to this effect only when it is assured of employee safety, Maruti said in a statement. The labour violence which rocked the plant on 18 July 2012 led to nearly 100 injured and one fatality. Maruti on 21 July 2012 declared lock-out at unit.
Maruti on 1 August 2012 said it total sales rose 9.2% to 82,234 units in July 2012 over July 2011. Domestic sales rose 6.8% to 71,024 units and exports jumped 27.4% to 11,210 units in July 2012 over July 2011.
Maruti last week said its net profit declined 22.8% to Rs 423.80 crore on 27.5% growth in net sales to Rs 10529.20 crore in Q1 June 2012 over Q1 June 2011. The car major said adverse yen-rupee exchange rate movement impacted profits adversely in Q1 June 2012. The company attributed strong sales growth to higher volumes, favourable product mix and higher export realization. Maruti said demand continued to be skewed in favour of diesel cars while petrol cars suffered a sharp de-growth in Q1 June 2012.
Bajaj Auto declined 1.24%. The company on Thursday, 2 August 2012, said its total sales declined 5% to 3.44 lakh units in July 2012 over July 2011. Motorcycle sales declined 3% to 3.08 lakh units in July 2012 over July 2011. The company sold 5,600 units of Pulsar 200 NS and 14,400 units of Discover 125 ST in July 2012. Bajaj Auto's commercial vehicles sales dropped 23% to 35,292 units in July 2012 over July 2011.
Bajaj Auto's exports declined 13% to 1.25 lakh units in July 2012 over July 2011. The company said there has been partial recovery in exports to Sri Lanka and Egypt and it expects further recovery in exports this month.
The company at the time of Q1 June 2012 results last month said that it has undertaken proactive measures like rationalizing the end-user cost of vehicles in Sri Lanka and with these measures the company expects normalcy in exports to resume by end of Q2 September 2012. Bajaj Auto lost exports of about 20,000 units in Sri Lanka in Q1 June 2012 due to introduction of import barriers by that country. The company also lost export of about 25,000 commercial vehicles in Q1 June 2012 due to restrictions by importing countries and due to political unrest in Egypt, Bajaj Auto said in a statement.
Hero MotoCorp (HMCL) declined 0.22%. The company's total sales declined 1.38% to 4.84 lakh units in July 2012 over July 2011. HMCL said new scooter, the recently-launched 110cc Maestro has already been contributing handsome volumes. Maestro, along with the Pleasure, has further strengthened the company's strong presence in the scooter segment, company said.
Mr. Anil Dua, Senior Vice-President (Marketing & Sales), Hero MotoCorp said, "The two-wheeler industry in the country has been experiencing sluggish growth for past few months. We are strengthening our brand and saliency in midst of a challenging environment where a patchy monsoon, rising petrol prices and high interest rates have been affecting retail sales in both rural and urban markets. Our brand and models are salient on the current bilateral cricket series and Olympics. We continue to launch new models, air new campaigns and expand our network as we look forward to the commencement of the festive season with cautious optimism."
The company announced at the time of Q1 June 2012 results last month that consumers in rural and upcountry markets could postpone buying of motorcycles if the monsoon remains weak. Hero MotoCorp's net profit rose 10.31% to Rs 615.46 crore on 9.95% growth in turnover to a record Rs 6247.28 crore in Q1 June 2012 over Q1 June 2011. Hero MotoCorp also said that currency volatility is a point of concern and the rupee depreciation is likely to impact the company's margins.
Oriental Bank of Commerce shed 2.55%. The state-run bank has reduced interest rate on term deposit of Rs 1 crore and above for 91 days to 179 days maturity by 25 basis points from 9 per annum (p.a.) to 8.75% p.a. with immediate effect.
Berger Paints India jumped 8.31% after consolidated net profit rose 19.4% to Rs 44.40 crore on 15.9% growth in net sales to Rs 803.40 crore in Q1 June 2012 over Q1 June 2011.
Foreign institutional investors (FIIs) bought shares worth Rs 140.13 crore on 2 August 2012, as per provisional figures on the stock exchanges. FIIs bought shares worth Rs 438.50 crore from the secondary equity markets on Thursday, 2 August 2012, as per data from Securities & Exchange Board of India. FIIs made substantial purchases of Indian stocks last month. FIIs bought shares worth net Rs 9691 crore from the secondary equity markets in July 2012.
India's services sector expanded for the ninth straight month in July as new orders grew at a steady pace but firms were less optimistic about the future, a business survey showed on Friday. The HSBC Purchasing Managers' Index for the services sector, which gauges the activity of hundreds of Indian companies, slipped to 54.2 in July from June's 54.3. The index for the sector, which makes up nearly 60 percent of the Indian economy, has held above the 50 mark that separates growth from contraction, since November last year.
Shrinking export orders and sluggish output dragged Indian manufacturing growth in July down to its weakest pace since last November, a business survey showed on Wednesday. Manufacturing accounts for around 15% of India's gross domestic product.
India's merchandise exports declined 5.45% to $25.06 billion in June 2012, data released by the Ministry of Commerce & Industry showed. Cumulative value of exports for the period April-June 2012 declined 1.7% to $75.20 billion from a year earlier. India's imports declined 13.46% to $35.37 billion in June 2012. Cumulative value of imports for the period April-June 2012 declined 6.1% to $115.25 billion from a year earlier. Oil imports declined 4.43% to $12.68 billion in June 2012. Oil imports during April-June 2012 rose 5.48% to $41.58 billion from a year earlier.
Trade deficit narrowed to $10.30 billion in June 2012 from $14.36 billion a year earlier, according to the data. The trade deficit for April-June 2012 narrowed to $40.05 billion from $46.23 billion during April-June 2011.
The India Meteorological Department (IMD) on Thursday, 2 August 2012, said the El Nino weather pattern is likely to reduce rains again in the second half of the June to September monsoon season. The IMD said rains over the entire June to September season are now expected to be less than 90% of long-term average. This is lower than IMD's previous forecast of 96%. Monsoon rains are considered deficient -- a drought in layman's terms -- if they fall below 90% of a 50-year average. Between June 1 and August 1, rainfall was about 19% below normal. The IMD expects normal rains in August -- a critical month for summer crops. It expects rainfall to be 5-6% below average in September due to the possibility of El Nino. The weather office said rainfall during August-September is expected to be 91% of the long-term average.
The rainfall distribution has been erratic this year as major crop- growing regions such as Maharashtra, Karnataka, Gujarat, Punjab and Haryana have received scanty showers threatening the prospects of summer crops. With the monsoon season halfway through, India is staring at the possibility of a full-blown drought in some regions.
A panel of Indian ministers early this week approved steps to contain the impact of a near-drought situation. The steps include providing a diesel-price subsidy to farmers, increasing the subsidy on seed supplies and removal of the import tax on oilmeals.
Insufficient rainfall could lead to higher food inflation. There will be an impact on foodgrain output, but it is too early to give any estimate, Farm Minister Sharad Pawar said early this week. Mr. Pawar said the government will raise subsidies for the supply of various seeds for alternate crops in affected areas.
The monsoon rains--which make up around 70% of India's annual rainfall--are crucial to the nation's agriculture sector and broader economy. More than 60% of the country's farmland is rain-fed. The timing, distribution and quantity of rainfall are all important for crops. The four-month southwest monsoon season that starts from June accounts for almost 70% of total annual moisture that Indian soil receives in a year.
A bad monsoon will have a larger impact on inflation than on growth as agriculture output constitutes a relatively small portion of India's economy, Indian central bank officials said on Wednesday, 1 August 2012, in a conference call following the release of its monetary policy review on Tuesday, 31 July 2012. The Reserve Bank of India (RBI) on Tuesday, 31 July 2012, kept its key policy rate viz. the repo rate unchanged at 8% after first quarter review of Monetary Policy 2012-13 in an effort to keep a lid on inflation and inflation expectations. The RBI, however, lowered banks' statutory liquidity ratio, or the part of deposits that must be invested mainly in government bonds, by a percentage point to 23% to ensure that liquidity pressures do not constrain the flow of credit to productive sectors of the economy.
Principal adviser to the Planning Commission Pronab Sen last week said slowing investment due to weak confidence in the economy is hurting growth. Mr. Sen said Indian companies aren't facing any shortage of funds. Many of them are sitting on piles of cash and aren't even repatriating overseas borrowings, he added.
The government should take steps to meet the fiscal deficit target set out in the budget and that would improve sentiment and revive investments, Mr. Sen said. He said the government should scale back its spending and slash subsidies on fuels, food and fertilizers to help check its budget deficit. Slowing growth in investment remains a cause for concern for India. Investment makes up 35% of India's economic activity.
Prime Minister Dr. Manmohan Singh has decided to refer the issue of implications on FIIs and portfolio investors of the amendment made to the Income Tax Act relating to the taxation of non-resident transfer of assets where the underlying asset is in India to the Expert Committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR). "It is necessary to have clarity on the tax liability of portfolio investors and foreign institutional investors as a result of this amendment particularly when the investment is made through a registered stock exchange in accordance with SEBI guidelines and purely in the form of portfolio investment", the Prime Minister's Office (PMO) said in a statement issued Monday, 30 July 2012. Any clarification needs to be harmonised with the GAAR guidelines and will have to address any residual concerns outside of GAAR, the PMO said.
Dr. Singh last month constituted an expert committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the guidelines for GAAR by 30 September 2012.
An India-Mauritius joint panel will discuss a series of proposals to review the double taxation avoidance treaty between the two nations on 22-24 August in Mauritius. India has been looking to negotiate the double taxation avoidance agreement with Mauritius for the past few years to check so-called round tripping and other potential abuses. Round tripping entails moving money out of one country to another, and getting it back under the garb of foreign capital. Capital gains tax is close to zero in Mauritius and almost 40% of investments into India come through the island nation. Under the bilateral agreement, capital gains from sale of securities can be taxed only in Mauritius. The India-Mauritius joint working group will also discuss the inclusion of a so-called limitation of benefit clause, similar to the Singapore tax treaty with India, to ensure only genuine Mauritius-based companies are benefited. India's tax agreement with Singapore says that only those companies that spend a minimum of $200,000 (about Rs 1 crore) in Singapore can avail the benefits of the treaty.
Sanctity of tax residency certificates issued by a country to companies operating in its jurisdiction to enable the firms to claim tax benefits under various treaties is another issue between India and Mauritius. While India in this year's national budget said the certificates are a necessary but not sufficient condition, Mauritius wants those issued by it honoured. Draft guidelines issued by Indian government for implementing the controversial anti-avoidance tax proposal viz. the GAAR state that GAAR provisions should be invoked on a foreign institutional investor (FII), if it chooses to take a treaty benefit, but would not in any case be invoked in the case of the non-resident investors of the FII. The draft guidelines suggested that the onus of proving wrongdoing should be on the authorities. Voting for the country's new vice president takes places on 7 August 2012 -- a day before the monsoon session of parliament kicks off.
The monsoon session of the parliament will begin on 8 August 2012 and the session will conclude on 7 September 2012, Parliamentary Affairs Minister Pawan Kumar Bansal said on Wednesday, 18 July 2012. The government hasn't yet finalized the agenda for the session, but the expectation is that Prime Minister Dr. Manmohan Singh -- who took charge of the finance ministry after Mr. Pranab Mukherjee resigned to contest the presidential elections -- will try and push through long-pending legislations. These could include the Direct Tax Code and the insurance, pension and banking bills. The government would also place before lawmakers the first demand for additional spending for this fiscal year which began April 1.
Corporate affairs minister Veerappa Moily said in a newspaper interview published on 11 July 2012 that the government is hopeful of the passage of the pension bill in the monsoon session of parliament.
Investors' focus is currently on Q1 June 2012 earnings. DLF and Steel Authority of India unveil Q1 results on Monday, 6 August 2012. Mahindra & Mahindra and Bharti Airtel unveil Q1 results on 8 August 2012. Tata Motors and Ranbaxy Laboratories unveil quarterly results on 9 August 2012. State Bank of India, Sun Pharmaceuticals Industries, Siemens and BPCL announce quarterly results on 10 August 2012. ONGC announces Q1 results on 11 August 2012. Tata Steel and Coal India unveil Q1 results on 13 August 2012. Hindalco Industries and IDFC will unveil Q1 results on 14 August 2012.
Asian stocks dropped for a third day on Friday after European Central Bank (ECB) President Mario Draghi failed to deliver immediate action to stem the region's debt crisis. Key benchmark indices in Hong Kong, Indonesia, Japan, Singapore, South Korea and Taiwan fell by between 0.11% to 1.11%.
Mainland Chinese shares bucked a regional decline to rise in Friday trading -- with the Shanghai Composite Index up 0.52% after the country's financial regulator said it is trimming some stock fees, according to reports. The China Securities Regulatory Commission said it will cut some stock-trading fees for brokers, effective Sept. 1, with the state-run media agency saying the move was the third recent "large-scale reduction" in the fees. The publication reported separately that the CSRC was also considering a cut to the stamp duty on sales of stocks.
Hopes of more policy stimulus in China also supported mainland Chinese stocks. People's Bank of China said in its quarterly monetary policy report released on Thursday that it will stabilizing economic growth a bigger priority.
China's services firms regained some growth momentum in July, recovering from June's 10-month low, a private-sector survey showed on Friday. The China HSBC services purchasing managers index (PMI) rose to 53.1 in July from 52.3 in June, reflecting a rise in new orders even as sales prices and costs remained broadly unchanged. Earlier Friday, the official services PMI published by the National Bureau of Statistics showed the services industry slowing somewhat, to 55.6 in July from 56.7 in June, reflecting a slowdown in new orders and business activity sub-indexes.
The ECB kept euro zone interest rates at a record low 0.75% but ECB President Mario Draghi said the council did consider a further rate cut on Thursday amid signs that an economic recession in peripheral European countries is spreading across the continent. Draghi indicated that any intervention would not come before September and only if governments activated the euro zone's bail-out funds to join the ECB in buying bonds.
The Bank of England left its monetary policy unchanged on Thursday, judging that its July decision to expand purchases of government bonds is enough stimulus for now despite the danger of a prolonged slump.
Germany's Federal Constitutional Court will announce a decision on lawsuits challenging the country's participation in the permanent euro-zone rescue fund, the European Stability Mechanism, and the fiscal pact on 12 September 2012. The court held a public hearing earlier this month to examine complaints that participation in the fund and the fiscal pact violated German law by taking some authority over the national budget away from parliament.
Trading in US index futures indicated that the Dow could gain 11 points at the opening bell on Friday, 3 August 2012. US and European shares slid on Thursday after the European Central Bank failed to take aggressive action to address the euro zone's debt problems. The latest response -- no change to interest rates nor an immediate restart of sovereign bond purchases -- fell short of ECB President Mario Draghi's pledge to do "whatever it takes" to preserve the euro.
The influential US government data on non-farm payroll for July 2012 is due today, 3 August 2012. In June, the United States created 80,000 jobs, the third straight month of job growth of under 100,000.
House and Senate leaders struck a deal early this week to fund the US government for six months, but the deal doesn't do anything to resolve the debt-ceiling or the fiscal cliff. While the agreement heads off the possibility of a government shutdown ahead of the November elections, it doesn't resolve issues related to hitting the US debt ceiling or the so-called fiscal cliff. That refers to expiring Bush-era tax cuts and spending reductions of about $1.2 trillion over 10 years split between defense and domestic programs. The US government is estimated to hit its $16.394 trillion debt ceiling sometime after the November elections.
Election for a new president in the United States, the world's biggest economy, is scheduled on 6 November 2012.
The International Monetary Fund on Thursday called for a "policy game changer" in the euro zone to arrest the spread of the debt crisis it now says is clearly engulfing the entire currency bloc and its smaller neighbors. An IMF spillover report that looks at how the economic policies of the so-called systemic five economies -- the United States, China, euro zone, Japan and the United Kingdom -- affect each other and the rest of the world said the euro area crisis was by far the biggest concern weighing on policymakers' minds.
The IMF said it had consulted 35 countries for the report including select number of emerging economies Brazil, Czech Republic, India, South Africa, Turkey, Russia, South Korea, Poland, Mexico and Saudi Arabia. "Despite progress in the face of constraints, the sense is that not enough has been done to stop the spread of stresses and attenuate fiscal-growth-banking feedback loops," the IMF said of the euro zone's policy actions so far.
In a worst-case scenario simulated by the IMF, it found that euro zone output could be cut by five percentage points if policymakers did not act and the euro zone crisis worsened. If the euro zone crisis intensified, the IMF estimated that the impact to the world's poorest countries would be somewhere between mild to severe, and could push up their external financing needs by some $27 billion by the end of 2013. But the IMF said the euro zone was not the only global worry. Weighing possible spillovers elsewhere, the IMF also said the United States must remove the threat of a so-called "fiscal cliff" in 2013, with $4 trillion worth of expiring tax cuts and automatic government spending reductions next year, and not enough fiscal adjustments over the medium term.
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