Volatility may rise ahead of derivatives expiry

The market may remain under pressure next week after inflation recorded fastest rise in more than 16 years in early August 2008, increasing the likelihood of the Reserve Bank of India (RBI) raising interest rates again.

With no major key events scheduled in the forthcoming week, the market will closely watch global stock market cues. But it may turn volatile on account of expiry of August 2008 derivatives contracts on Thursday, 28 August 2008.

The wholesale price index rose 12.63% in 12 months to 9 August 2008, above the previous week's annual rise of 12.44%, government data released on Thursday, 21 August 2008, showed. Inflation for the week ended 14 June 2008 was revised upwards to 11.80% from 11.42%.

Rising inflation rate has dashed hopes of any relaxation in the monetary policy. Market expects Reserve Bank of India (RBI) to raise the rates further in its next monetary policy review two months from now.

On 29 July 2008, the Reserve Bank of India (RBI), at its quarterly policy review, raised repo rate by 50 basis points to a seven-year high of 9% to curb inflation and dampen inflationary expectations. RBI also raised the cash reserve ratio (CRR), the proportion of funds that banks must keep on deposit with it, by 25 basis points to 9%.

Market will closely watch developments on the Indo-US nuclear deal. A two-day meeting of the 45 countries of the Nuclear Suppliers Group (NSG) began in Vienna on Thursday, 21 August 2008. A green signal by the NSG is required for the deal to proceed to the US Congress for final ratification. As per reports, nuclear supplier nations at a meeting on Thursday, 21 August 2008, proposed conditions for lifting a global ban on fuel and technology exports to India, a step required to implement a US-India nuclear cooperation deal.

A further rise in crude oil prices may act as a dampener for the stock markets. Light, sweet crude for September 2008 delivery surged $5.62 to $121.18 a barrel on Thursday, 21 August 2008 on the New York Mercantile Exchange (NYMEX) on weaker dollar and worries about tightening output from OPEC countries.

Foreign institutional investors (FIIs) sold shares worth Rs 1109.50 crore in August 2008 (till 21 August 2008). FIIs sold shares worth Rs 28,411.50 crore in the calendar year 2008. Mutual funds sold shares worth Rs 983.50 crore in August 2008 (till 21 August 2008).

Sensex sheds 323 points on weak global cues

Weak global cues kept the market under pressure throughout the week. Shares in the interest rate sensitive sectors like banking, real estate and automobile witnessed selling pressure. A bounce back in crude oil prices also kept investors on the edge.

The barometer index BSE Sensex declined 322.69 points or 2.19% to 14,401.49 in the week ended Friday, 22 August 2008. The S&P CNX Nifty lost 103.25 points or 2.33% at 4327.45 in the week.

The BSE 30-share Sensex is down 5885.50 points or 29.01% in calendar year 2008 so far from its close of 20,286.99 on 31 December 2007. It is 6805.28 points or 32.09% away from its all-time high of 21,206.77 struck on 10 January 2008.

The BSE Mid-Cap index fell 96.57 points or 1.66% to 5,726.85 in the week. The BSE Small-Cap index slipped 184.59 points or 2.60% to 6,925.85 in the week.

Foreign institutional investors (FIIs) sold shares worth Rs 1109.50 crore in August 2008 (till 21 August 2008). FIIs sold shares worth Rs 28,411.50 crore in the calendar year 2008. Mutual funds sold shares worth Rs 983.50 crore in August 2008 (till 21 August 2008).

The market extended previous week�s losses on Monday, 18 August 2008. The BSE 30-share Sensex lost 78.52 points or 0.53% to 14,645.66. The S&P CNX Nifty was down 37.65 points or 0.85% to 4,393.05.

Fears of more losses from the US mortgage crisis globally hit domestic bourses on Tuesday, 19 August 2008. The market, however, recovered from lower level in late trade. The BSE 30-share Sensex lost 101.93 points or 0.7% to 14,543.73. The S&P CNX Nifty was down 24.80 points or 0.56% to 4,368.25.

The market posted decent gains on Wednesday, 20 August 2008, snapping losses made in the five successive trading sessions. However, it came off from a intra-day high hit in late trade. The BSE 30-share Sensex rose 134.50 points or 0.92% to 14,678.23. The S&P CNX Nifty rose 47.50 points or 1.09% to 4,415.75.

Bears took charge on Thursday, 21 August 2008 as caution prevailed ahead of the weekly inflation data to be released after the trading hours on that day. Rate sensitive realty and banking stocks took a beating. The BSE 30-share Sensex lost 434.50 points or 2.96% to 14,243.73. The S&P CNX Nifty was down 131.90 points or 2.99% to 4,283.85.

On Friday, 22 August 2008, key benchmark indices clocked decent gains after posting steep losses in the previous trading session. The BSE 30-share Sensex gained 157.76 points or 1.11% to 14,401.49. The S&P CNX Nifty gained 43.60 points or 1.02% to 4327.45.

World�s sixth largest steel maker Tata Steel fell 3.53% to Rs 594.45 in the week. Anglo-Dutch steelmaker Corus, which is controlled by Tata Steel, has entered into exclusive negotiations with Klesch & Company to sell its two aluminium smelters in the Netherlands and Germany. It follows an unsuccessful attempt in December 2007 to sell the smelters.

India�s largest private sector firm by market capitalisation and oil refiner Reliance Industries fell 1.30% to Rs 2,245.65. The Bombay High Court on Thursday, 21 August 2008, suggested that the warring Ambani brothers go back to their mother Kokilaben and have the dispute settled.

The division bench of Justices JN Patel and KK Tated are hearing the dispute between the Anil-Ambani controlled Reliance Natural Resources (RNRL) and Mukesh Ambani�s Reliance Industries (RIL) over supply of natural gas from the later's eastern offshore Krishna-Godavari gas fields. Ram Jethmalani, counsel for RNRL, said Anil Ambani was ready to meet his elder brother any time, any place. The case hearing has been adjourned to 1 September 2008.

India�a largest engineering and construction firm by sales Larsen & Toubro fell 2.09% to Rs 2,604.90. As per reports, Larsen & Toubro is close to buying equity stake in coal mines in Australia and Indonesia to increase its focus on the power sector. In the next couple of years, L&T hopes to have 4,000-6,000 megawatt (MW) of power plants under development and the equity in coal mines abroad will be to feed these power plants.

India's largest drug maker by sales Ranbaxy Laboratories rose 4.61% to Rs 522.80. Japan's Daiichi Sankyo's open offer to buy a 20% stake in Ranbaxy at Rs 737 per share commenced on 16 August 2008. The offer closes on 4 September 2008.

India�s second largest cement maker by sales Ambuja Cements fell 5.55% to Rs 80. As per reports, Ambuja Cements plans to expand in the south Indian market by transporting the building material by sea route. It is one of the few domestic cement makers having expertise in using sea routes for transporting cement.

India�s largest cigarette maker by sales ITC fell 4.71% to Rs 182.10. The company said on Tuesday, 19 August 2008, its information technology arm has acquired US-based technology firm Pyxis Solutions for an undisclosed sum.

India�s largest commercial bank State Bank of India fell 7.86% to Rs 1,346.25. The bank�s staff and its seven subsidiaries went on strike on 18 August 2008, protesting the merger of subsidiary State Bank of Saurashtra with the bank.

India�s largest private sector bank by net profit ICICI Bank fell 4.27% to Rs 644.50. The bank has reportedly sold about $275 million from its credit derivative portfolio in its foreign branches. The transaction, closed a few weeks ago, will enable ICICI Bank to cut its mark-to-market losses, reports suggested.

India�s largest real estate developer by market capitalisation DLF fell 3.42% to Rs 483.95.

India's largest passenger vehicle maker by sales Maruti Suzuki (India) fell 2.87% to 631.85. The company reportedly plans to increase its vehicle exports to 2,00,000 units annually by 2010-11.

India's largest commercial vehicle maker Tata Motors fell 1.54% to 425.60. The company scrapped a plan to raise Rs 3000 crore by issuing convertible preference shares due to adverse market conditions. However, the plan to sell rights shares worth Rs 4200 crore remains unchanged.

The wholesale price index rose 12.63% in 12 months to 9 August 2008, above the previous week's annual rise of 12.44%, government data released on 21 August 2008, showed. Inflation for the week ended 14 June 2008 was revised upwards to 11.80% from 11.42%.

The Union Cabinet on Thursday, 21 August 2008 cleared the policy guidelines for the commercial rollout of Internet Protocol TV (IPTV) services, a new cable TV delivery system that would benefit both telecom players and consumers. The Cabinet also gave its approval to amend the policy guidelines for downlinking of television channels to allow broadcasters to provide content to IPTV service providers. Currently, downlinking norms allow broadcasters only to share their channels with cable and direct-to-home platforms. IPTV involves delivery of television and video signals over a broadband network.

Auto stocks may see action

The BK Chaturvedi Committee, set up to examine the financial position of oil companies, has reportedly suggested a price hike of Rs 2.5 a litre for petrol and Rs 0.75 for diesel each month to fully reflect the global price scenario by March 2009 and 2010 respectively. It also recommended scrapping import duties.

Hero Honda and Srei Infrastructure Finance have reportedly bought stakes from IFCI and Stock Holding Corporation of India in the National Stock Exchange (NSE) at Rs 3,500 per share, valuing the NSE at close to $4 billion.

Reliance Industries reportedly plans to invest about $22.75 million for work on its discovered deepwater Cauvery asset.

Lakshmi Mittal, chief executive of steel company Arcelor Mittal, is believed to have evinced interest in budget carrier SpiceJet, suggest reports.

Mahindra & Mahindra reportedly plans to list its newly formed two-wheeler venture on the stock markets to raise money for expansion and unlock shareholders' value.

The Indian government has reportedly rejected the proposed 35:65 joint venture of Societe Generale with State Bank of India for custodial and depoistary services, after the Reserve Bank of India raised concerns about the French major's securities scam in Europe.

The talks between the Dhoots of the Videocon group and Mahendra Nahata of Himachal Futuristic Communications to buy out the latter's 36% stake in all-India mobile licence holder Datacom Solutions have reportely failed due to valuation differences.

Datacom Solutions, the telecom services arm of the Videocon group, has reportedly short-listed IT majors, Tata Consultancy Services (TCS), Tech Mahindra and Wipro for supplying technology solutions on a revenue-sharing basis. The contract is valued at about Rs 3000 crore, spread over seven years.

Industrial production data may set direction

The market will take cues from June 2008 industrial production figures which the government will release on Tuesday, 12 August 2008. Falling crude oil prices and improvement in south west monsoon will provide some relief to investors. Rising inflation remains a major worry for the markets in the medium term.

The government will release June 2008 industrial production data at 12:00 IST on 12 August 2008. Reserve Bank of India�s recipe to contain inflation by increasing the lending rates is expected to hurt industry, manufacturing sector and the overall growth momentum. Industrial production grew at the slowest pace in more than six years in May 2008, at 3.8%, as against 10.6% in the same month of 2007, with manufacturing showing signs of acute deceleration.

Inflation remains a major concern for the central bank. Inflation based on the wholesale price index rose 12.01% in 12 months to 26 July 2008, slightly above the previous week's annual rise of 11.98%, government data released on 7 August 2008 showed.

Reserve Bank of India (RBI) on 29 July 2008, raised repo rate by 50 basis points to a seven-year high of 9% to curb inflation and dampen inflationary expectations. RBI also raised the cash reserve ratio (CRR), the proportion of funds that banks must keep on deposit with it, by 25 basis points to 9%. The central bank left its reverse repo and bank rates unchanged. Responding to the RBI's monetary tightening, top lenders HDFC and ICICI Bank and a number of state run bank have raised interest rates.

The aggregate results of 2,988 companies showed 5.1% rise in net profit to Rs 63,752 crore on 37% rise in sales to Rs 7,64,023 crore in Q1 June 2008 over Q1 June 2007. The net profit growth is now in single digits the lowest in the past 20 quarters. In the June 2008 quarter, a number of companies were hit by mark-to-market (MTM) losses on their foreign exchange (forex) exposure.

Crude oil prices have declined sharply from record high $147.27 a barrel hit on 11 July 2008. Oil held near $118 a barrel on Friday 8 August 2008. India imports 70% of its crude requirement. The rising crude oil prices affects the fiscal deficit position of the country and its sovereign rating.

India's monsoon was above average for the first week in August 2008, helping ease a dry spell that had threatened to delay sowing of crops including rice and cotton. Farmers in India, the world's second-largest rice producer, rely on the timing of the monsoon to decide which crops to grow. Showers in July 2008, the wettest month in the June-September season, were 18% below average, undermining prospects for record grain output critical to lowering food inflation.

Marketmen will keenly watch the development of India�s nuclear deal with US. The Board of Governor of the International Atomic Energy Agency (IAEA) on 1 August 2008 unanimously adopted the India-specific safeguards agreement, a key step in operationalisation of the Indo-US nuclear deal.

With the go-ahead from IAEA, India will now seek a waiver from 45 nuclear supplier nations allowing trade with a non-NPT (Non-Proliferation Treaty) country and then ratification from the US Congress, to finalise the deal. Most big powers have backed the deal.

Foreign institutional investors (FII)�s bought shares worth Rs 1,527.90 in the first few days of August 2008 (till 7 August 2008). FIIs sold shares worth Rs 25,774.20 in the calendar year 2008, till 7 August 2008. Mutual funds sold shares worth Rs 286.10 in the month of August 2008 (till 7 August 2008).

Markets headed for a volatile session

Local bourses are likely to stay range-bound amidst mixed global cues. However volatility is expected to be high ahead of the inflation data that will be released after market hours today, 7 August 2008. Inflation measured by wholesale price index is forecast to have risen 12.02% in the 12 months to 26 July 2008, up from previous week�s rise of 11.98%.

US crude rose 26 cents to $118.84 a barrel today, 7 August 2008 on fears over slowing US demand. The contract is almost 20% off the record of $147.27 a barrel hit on 11 July 2008.

Meanwhile, Prime Minister�s Economic Advisory Council (EAC) Chairman C. Rangarajan on Wednesday, 6 August 2008 projected a moderation in India�s economic growth to 7.5-8% this fiscal with no change in the Reserve Bank�s monetary stance until inflation cools down to reasonable levels. He expects the rate of inflation to ease to 8-9% by the end of the current fiscal in March 2009 from the prevailing level of close to 12%.

Asian markets were trading mixed today, 7 August 2008. China's Shanghai Composite rose 0.69% or 18.74 points at 2,738.11, Hong Kong's Hang Seng gained 1.30% or 285.76 points at 22,235.51. However, Japan's Nikkei plunged 1.21% or 161 points at 13,093.89, Taiwan's Taiwan Weighted slipped 0.04% or 2.46 points at 7,023.78, Singapore's Straits Times was down 1.14% or 33.02 points at 2,853.76 and South Korea's Seoul Composite lost 1.20% or 19.02 points at 1,559.69.

US stocks advanced on Wednesday, 6 August 2008 as a drop in oil prices and a better-than-expected profit report from the technology major Cisco Systems helped ease worries about the financial sector. The Dow Jones industrial average added 40.30 points, or 0.35%, to 11,656.07. The Nasdaq Composite index rose 28.54 points, or 1.21%, to 2,378.37.

Back home, stocks ended volatile session slightly higher extending gains for the second straight day yesterday, 6 August 2008. The BSE 30-share Sensex rose 112.47 points or 0.75% to 15,073.54 and the S&P CNX Nifty rose 14.70 points or 0.33% to 4,517.55, yesterday 6 August 2008.

The BSE Sensex is down 5,213.45 points or 25.69% in the calendar year 2008 so far from its close of 20,286.99 on 31 December 2007. It is 6,133.23 points or 28.92% away from its all-time high of 21,206.77 struck on 10 January 2008.

Foreign institutional investors were net equity buyers worth Rs 1815.74 crore while mutual funds sold shares worth Rs 804.36 crore yesterday, 6 August 2008, according to provisional data on NSE.

Foreign institutional investors (FIIs) were net buyers of Rs 2364.20 crore in the futures & options segment yesterday, 6 August 2008. They were net buyers of index futures to the tune of Rs 2332.22 crore and bought index options worth Rs 160.56 crore. They were net sellers of stock futures to the tune of Rs 152.83 crore and bought stock options worth Rs 2364.20 crore.

Meanwhile, the Reserve Bank of India (RBI) on Wednesday, 7 August 2008 allowed exchange-traded currency futures by putting out guidelines on the same. Three exchanges have applied to the Securities and Exchange Board of India to start the currency futures --- the Bombay Stock Exchange, the National Stock Exchange and MCX.

The Centre�s direct tax revenues continue to be buoyant, with net collections recording a 46.95% growth in the first four months of the current fiscal. Data released on Wednesday, 7 August 2008 showed that net direct tax collections stood at Rs 71,648 crore during April-July 2008 as compared with Rs 48,756 crore collected in the same period last year.

Auto stocks may see action

The government on Wednesday, 6 August 2008 ruled out an immediate reduction in petrol and diesel prices following softening of global crude prices saying the domestic rates were still pegged at roughly half of the current international prices. Global crude oil prices have eased from the highs of $147 per barrel to $117.75 a barrel in the past three weeks.

The promoters of Zandu Pharmaceuticals have reportedly filed a petition in the Bombay High Court challenging Emami�s purchase of shares in the company from the Vaidya family, co-promoters of Zandu. On the other hand, Emami has sent legal notices to directors of Zandu claiming it has not received the agenda of Zandu�s annual general meeting to be held on 9 August 2008.

Captain GR Gopinath may reportedly sell 2% stake in Air Deccan, which is now being merged with Kingfisher Airlines of the UB Group chief Vijay Mallya. Gopinath holds 9.11% stake in Air Deccan of which 7.11% is locked-in, the reports added.

Steel Authority of India (SAIL)'s estimated cost for modernising and capacity expansion at its plants has reportedly increased by three times over the past four years to Rs 90,000 crore.

Bharat Forge reportedly plans to manufacture ultra-heavy forgings catering to the power sector including nuclear power plants and would involve an investment of Rs 1000 - Rs 1200 crore over a five-year period.

Housing Development Finance Corporation (HDFC) is reportedly in talks with GE Money to buy its Indian home loan business. GE Money has mandated some global investment banks to find a strategic investor for the business.

The government has reportedly paid about Rs 28000 crore as subsidies to fertiliser producers till July-end and plans to pay Rs 8000 crore per month until February 2009.

Indian tyre makers may reportedly undertake further price hikes to ease out cost pressures even as crude oil prices are softening and the rubber crop is entering the peak production season starting November this year.

JSW Energy, a unit of JSW Steel, reportedly plans to enter the power distribution business as part of its plans to become an integrated power firm. It plans to bid for the likely privatisation of power distribution in certain regions of Maharashtra.