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Sensex off 9.5% in November 2011 thus far

Capital Market/ 16:33 , Nov 29, 2011

Key benchmark indices edged lower in choppy trade as the deadlock over allowing foreign direct investment (FDI) in retail sector continued as an all-party meeting failed to reach an agreement and both houses of Parliament were adjourned for the day amid protests by parties opposed to the move. Shares of organized retailers dropped. Data showing sustained selling by foreign funds over the past few days also weighed on sentiment. The BSE Sensex lost 158.79 points or 0.98%, off close to 200 points from the day's high and up about 55 points from the day's low. The market breadth was negative.

The Sensex has lost 1,696.67 points or 9.58% this month so far. The Sensex has slumped 4,500.75 points or 21.94% in calendar 2011. From a 52-week high of 20,664.80 on 3 January 2011, the Sensex has lost 4,656.46 points or 22.53%. From a 52-week low of 15,478.69 on 23 November 2011, the Sensex has risen 529.65 points or 3.42%.

Coming back to today's trade, index heavyweight Reliance Industries (RIL) dropped in volatile trade after the company said it has initiated arbitration proceedings against the government to seek an independent view of a tribunal on the issue of the company's entitlement of recovery of entire costs on KG-D6 gas blocks from the revenue generated from the blocks. Interest rate sensitive realty shares fell on profit taking after recent gains triggered by the latest data showed easing of food inflation. IT stocks were mixed. Bank stocks declined in volatile trade. Telecom stocks declined after the telecom secretary said that the Department of Telecommunications may auction more bandwidth to provide wireless broadband services. FMCG stocks rose on defensive buying.

The market slipped into the red soon after hitting one-week high at the onset of the trading session. The market extended initial losses to hit fresh intraday low in morning trade. The market trimmed losses in mid-morning trade. A bout of volatility was witnessed in early afternoon trade as the market slipped into the red after recovering sharply to move into the positive terrain in early afternoon trade. The S&P CNX Nifty slipped into the red soon after hitting fresh one-week high in early afternoon trade. The market hovered in negative zone in afternoon trade. The market slumped to hit fresh intraday low in mid-afternoon trade. Stocks were volatile in late trade.

Data showing sustained selling by foreign funds over the past few days weighed on sentiment. Foreign institutional investors (FIIs) sold shares worth Rs 302.59 crore on Monday, 28 November 2011, as per the provisional data from the stock exchanges. FIIs have pressed heavy sales of Indian stocks over the past two weeks. Their outflow totaled Rs 7591.26 crore from 15 to 28 November 2011.

The BSE Sensex lost 158.79 points or 0.98% to settle at 16,008.34, its lowest closing level since 25 November 2011. The index gained 43.24 points at the day's high of 16,210.37 in early trade, its highest level since 22 November 2011. The index slumped 214.59 points at the day's low of 15,952.54 in mid-afternoon trade.

The S&P CNX Nifty shed 46.20 points or 0.95% to settle at 4,805.10, its lowest closing level since 25 November 2011. The Nifty hit a high of 4,866.10 in intraday trade, its highest level since 21 November 2011. The index hit a low of 4,787.10 in intraday trade.

The BSE Mid-Cap index fell 0.56% and the BSE Small-Cap index declined 0.18%. Both these indices outperformed the Sensex.

BSE clocked a turnover of Rs 1890 crore, lower than Rs 1909.26 crore on Monday, 28 November 2011.

The market breadth, indicating the overall health of the market, was negative. On BSE, 1,525 shares fell and 1,224 shares rose. A total of 112 shares were unchanged.

From the 30-member Sensex pack, 20 stocks declined and the rest of them rose.

FMCG stocks rose on defensive buying in a weak market. ITC, Hindustan Unilever, and Britannia Industries rose by between 0.3% to 1.25%.

Telecom stocks fell after the telecom secretary said that the Department of Telecommunications may auction more bandwidth to provide wireless broadband services. Bharti Airtel tumbled 3.8% and was the top loser from the Sensex pack. Idea Cellular (down 3.2%), Tata Teleservices (Maharashtra) (down 3.05%) and MTNL (down 0.56%), edged lower. Reliance Communications rose 0.62%.

Telecom secretary R. Chandrashekhar told the media today, 29 November 2011, that there is one chunk of bandwidth for wireless broadband services available in 15 of India's 22 service areas, but it was unlikely that the government would be able to complete the auction process within this fiscal year through March 2012. Chandrashekhar also said that state-run telecom companies Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL) have sent proposals to the government to offer voluntary retirement to employees to save costs.

Index heavyweight Reliance Industries (RIL) fell 2.3% to Rs 765 after the company said it has initiated arbitration proceedings against the government to seek an independent view of a tribunal on the issue of the company's entitlement of recovery of entire costs on KG-D6 gas blocks from the revenue generated from the blocks. The stock was volatile. The stock hit a high of Rs 782.80 and a low of Rs 760.

RIL said all the investments in the exploration, development and production of hydrocarbons from KG-D6 were made by RIL and its foreign partners at their own risk, and not by the Government of India (GoI). RIL and its partners are entitled under the production sharing contract (PSC) with the GoI to recover their full costs from the revenues generated by production from the block, RIL said in a statement.

The investment made in KG-D6 production facilities has been only partly recovered and the return on the investment so far is less than the cost of the capital, RIL said. The PSC contains no provision which entitles the GoI to restrict the costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities are utilised, RIL said. RIL said it has initiated arbitration proceedings against the GoI in a bid to finally resolve the cost recovery issue so as not to hinder future investments in this block.

Shares of organized retailers fell for the second straight day after leaders of many states said they were opposed to foreign giants setting mega stores in their state. Pantaloon Retail India, Trent, Koutons Retail, V2 Retail, Brandhouse Retail, Provogue (India), Shoppers Stop and Store One Retail shed by between 1.23% to 11.89%. The Union Cabinet on Thursday, 24 November 2011, cleared a proposal to allow 51% foreign direct investment (FDI) in multi-brand retail and increase in FDI in single brand retail to 100% from current 51%.

To set up shop, foreign retailers must get a green light from the government of the state where they want to do business. The leaders of the states of Tamil Nadu, Uttar Pradesh, Kerala, Orissa and West Bengal have all publicly opposed the government's move to let foreign retailers own up to 51% of supermarkets and 100% of single-brand stores. A newspaper report suggested that 28 of the 53 cities where retailers could set up under the new rules are in states controlled by political parties opposed to the regulations.

Nevertheless, the move to liberalize FDI norm in retails signals that the Indian government, after years of prevaricating over allowing greater foreign investment in several sectors, is now serious about attracting overseas funds. Foreign direct investment in India dropped 28% to $29.4 billion in the year ended 31 March 2011 as the country's economic forecast clouded. Further opening the retail market--and the message that sends about the government's willingness to introduce reforms--might help kick-start the economy and shore up faltering investor sentiment.

Foreign supermarkets wanting to set up shop in India will have to source 30% of their produce from local, small industries, a government statement said on Monday, 28 November 2011. Last Friday, a government statement had said supermarkets could not be forced to source their wares from Indian industries as such a policy would not be compliant with guidelines from the World Trade Organisation (WTO).

IT stocks were mixed. India's second largest software services exporter by revenue Infosys fell 1.41%. India's third largest software services exporter Wipro rose 0.23%. India's largest software services exporter TCS gained 0.14% extending Monday's 2.46% gains. Tata group holding firm, Tata Sons, last week named Cyrus Pallonji Mistry as the successor to Tata Group Chairman Ratan Tata.

Interest rate sensitive realty shares fell on profit taking after recent gains triggered by the latest data showed easing of food inflation. Another trigger for the recent rally in realty shares was the government's decision to liberalize foreign investment rules in retail sector which could throw open a big opportunity for domestic real estate developers. DLF, HDIL, Indiabulls Real Estate and Unitech shed by between 2.56% to 4.66%.

Bank stocks declined in volatile trade. India's largest private sector bank by net profit ICICI Bank fell 1.85%. India's second largest private sector bank by net profit HDFC Bank shed 1.45%. India's largest bank by net profit and branch network State Bank of India (SBI) dropped 1.15%.

Axis Bank, Bank of India, Punjab National Bank and Bank of Baroda declined by between 1.37% to 3.97%.

Interest rate sensitive auto shares rose after the latest data showed easing of food inflation. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing. Reports that petrol prices are likely to fall by up to Re 1 per litre this week, on account of the declining trend in international prices, also aided gains in auto stocks. Auto firms will start unveiling sales figures for the month of November starting Thursday, 1 December 2011.

India's largest motorcycle maker by sales Bajaj Auto rose 2.06%. India's largest motorcycle maker by sales Hero MotoCorp gained 1.24%.

Mahindra & Mahindra (M&M) rose 1.6% after the company said that its board of directors has approved amendments to the scheme of arrangement between Mahindra Automobile Distributor Private (MADPL) and Mahindra & Mahindra which was approved by the board of directors on 30 May 2011 envisaging demerger of the automotive business along with related assets and liabilities of MADPL into M&M.

India's largest truck maker by sales Tata Motors fell 2.02%, after jumping 5.36% on Monday.

Maruti Suzuki India fell 1.2%. The company will start buying diesel engines from Fiat SpA's local unit from January 2012, a move that will help reduce the long waiting period on some of the Indian auto maker's best-selling models, Maruti Chairman R.C. Bhargava said on Tuesday, 29 November 2011. Currently, Maruti sources all its diesel engines from Suzuki Powertrain India, a joint venture between Maruti and its parent Suzuki Motor Corp. Suzuki Powertrain will make 3,00,000 diesel engines this financial year through March 2012, up from 2,40,000 engines it made last year. These engines are made using Fiat technology.

Metal stocks fell on profit taking after rising sharply on Monday, 28 November 2011. The BSE Metal index had surged 4.87% on Monday. Hindustan Zinc, Nalco, Jindal Steel & Power, Hindalco Industries, JSW Steel, and Sterlite Industries fell by between 0.26% to 3.34%.

Pharma stocks extended recent gains triggered by good Q2 results. Dr Reddy's Laboratories, Ranbaxy Laboratories, and Cipla rose by between 0.66% and 2.51%.

India's largest power equipment maker by sales Bhel rose 0.61% to Rs 282.45, with the stock gaining for the third straight day. The stock had hit a 52-week low of Rs 246.20 in intraday trade on Thursday, 24 November 2011.

PSU OMCs -- BPCL, HPCL and Indian Oil Corporation (IOCL) fell by between 1.13% to 4.02% on reports the state-run refiners may cut petrol prices by about one rupee a litre or 1.5% as softening Singapore spot gasoline prices have offset the impact of a declining rupee. PSU OMCs cut petrol prices by about 3.2% earlier this month, the first reduction in retail prices in nearly three years and the first since prices were decontrolled in June 2010.

Suzlon Energy clocked highest volume of 70.03 lakh shares on BSE. GTL (58.46 lakh shares), D B Realty (58.15 lakh shares), Cals Refineries (43.53 lakh shares) and Resurgence Mines (34.32 lakh shares) were the other volume toppers in that order.

SBI clocked highest turnover of Rs 118.08 crore on BSE. RIL (Rs 62.91 crore), Tata Steel (Rs 61.20 crore), ICICI Bank (Rs 56.69 crore) and Infosys (Rs 48.54 crore) were the other turnover toppers in that order.

A government statement in parliament has dashed hopes of a relief in securities transaction tax (STT). Junior finance minister S.S. Palanimanickam, last week, said the government has no proposal to lower the securities transaction tax (STT). There has been a speculation that the government will reduce STT in Union Budget 2012-2013 in a bid to revive sagging volumes on the bourses. Palanimanickam said in a written reply to Rajya Sabha that the securities transaction tax receipts had declined by around 18% to Rs 2960 crore during the first six months in the current fiscal year from a year ago period.

On the macro front, the government unveils Q2 September 2011 gross domestic product (GDP) data on Wednesday, 30 November 2011. The GDP is seen rising 6.9% in Q2 September 2011 as per median estimate of a total of 14 economists polled by Capital Market. The economy expanded 7.7% in Q1 June 2011 from a year earlier, helped by strong growth in the services sector. The GDP is seen rising 7.3% in the fiscal year through March 2012 (FY 2012) as per median estimate of the poll.

The row over FDI in retail continued to disrupt the functioning of Parliament with both Lok Sabha and Rajya Sabha adjourned till tomorrow, 30 November 2011, after a united opposition refused to allow any proceedings for the sixth day. The opposition wants the government to reverse its decision on allow 51% foreign direct investment in multibrand retail. Earlier, an all-party meet to end the FDI logjam in Parliament on Tuesday morning ended without any breakthrough. The meeting, chaired by Pranab Mukherjee, failed to break the deadlock, with both sides sticking to their stands. The opposition made it clear that it will accept nothing less than a complete rollback of the decision.

Uproar in parliament on Friday, 25 November 2011, over the cabinet's decision to open up the retail market to global supermarket chains forced Trade Minister Anand Sharma to announce the details of the new FDI policy at a press conference instead of the government's plan of announcing the same in parliament on that day. Sharma said the India-specific scheme would create tens of millions of jobs. The proposal sets a minimum investment limit of $100 million per chain -- 50% to go on developing rural infrastructure and establishing a cold-chain system -- and 50% on front-end retailing, or stores. The multi-brand retailers will be permitted only in cities with a population of one million or more.

The government on Monday, 28 November 2011, changed its stand on sourcing rules for international retailers who want to set up shop in the South Asian nation, in the face of stiff political opposition to its move to open up the sector to foreign investment. On Friday, 25 November 2011, the government said foreign retailers looking to invest in India should procure 30% of manufactured or processed products from small-scale industries anywhere in the world. However, on Monday, 28 November 2011, it said they must source a minimum of 30% from small industries in India, so as to encourage local manufacturing and create employment.

So far, the Winter Session of Parliament has been a non-starter. The winter session concludes on 21 December 2011.

The Union Cabinet on Thursday, 24 November 2011, approved the long-awaited Companies Bill that will completely recast the key provisions of the decades-old Companies Act 1956. Following Cabinet clearance, it is now likely to be taken up for consideration and passage in the ongoing winter session of Parliament. The Bill suggests that profit-making companies above a certain threshold will have to spend at least 2% of the average profits in the preceding three years on corporate social responsibility (CSR) activities and make a disclosure to shareholders about the policy adopted in the process.

The government diluted the provision after stiff opposition from the industry and decided not to make 2% CSR spend mandatory. The Bill also seeks to provide for class action suits and a fixed term for independent directors. Among other things, it proposes to tighten laws for raising money from the public. The Bill also seeks to prohibit any insider trading by company directors or key managerial personnel by treating such activities as a criminal offence. The Bill will give more powers to the Serious Frauds Investigation Office.

RBI announced a 25 basis points hike in its key policy rate viz. the repo rate to 8.5% after half-yearly review of the monetary policy on 25 October 2011. The central bank cut its GDP growth forecast for the current fiscal year through March 2012 to 7.6% from 8% earlier. But it retained its March-end inflation projection of 7%. RBI said the projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 (January 2012 release) and then continue down a steady path to 7% by March 2012. It is expected to moderate further in the first half of 2012-13. This reflects a combination of commodity price movements and the cumulative impact of monetary tightening. Further, moderating inflation rates are likely to impact expectations favourably.

European stocks reversed initial decline as chemical makers rebounded before euro-area finance ministers meet to discuss insuring a portion of bonds issued by debt-stricken countries. Key benchmark indices in France, Germany and UK rose by between 0.51% to 1.27%.

European shares had jumped on Monday, 28 November 2011, on optimism that Europe was making progress toward resolving its debt problems. Euro zone finance ministers meet in Brussels today, 29 November 2011, to thrash out details on how the European Financial Stability Facility will boost its muscle by insuring sovereign debt with guarantees. Meetings are slated to take place on Tuesday and Wednesday.

Asian shares traded mostly higher on Tuesday, 29 November 2011, extending an advance made in the previous session as investors hoped for a timely resolution to Europe's debt problems. Key benchmark indices in China, Hong Kong, Japan, Indonesia, South Korea and Taiwan were up by between 1.21% to 2.3%. Singapore's Straits Times fell 0.23%.

Japan's unemployment rate rose more than expected in October, while the drop in household spending was less than forecast, and retail sales expanded at a faster-than-anticipated pace.

Asian, European and US shares had all closed with sharp gains on Monday, 28 November 2011, prompted in part by optimism for a solution to Europe's debt woes. Signs of strong US retail sales over the Thanksgiving holiday also boosted equity market sentiment.

Trading in US index futures indicated that the Dow could gain 107 points at the opening bell on Tuesday, 29 November 2011. US stocks rebounded from seven days of losses on Monday as investors used the latest effort from European leaders to resolve the region's debt crisis as an opportunity to cover short positions. After the market's close, Fitch Ratings revised to negative the outlook on the United States' AAA credit rating after a special congressional committee failed to agree on at least $1.2 trillion in budget cuts. A report on US consumer confidence in November, which is expected to have risen, is due later in the global day today, 29 November 2011.


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