Interest Rate Sensitive Stocks Recover in Volatile Market

Yesterday, volatility ruled the roost as the key benchmark indices once again slipped into the red after reversing direction to move into positive zone from negative zone in mid-afternoon. The barometer index, BSE Sensex, was down 33.12 points or 0.20%, up 153.17 points from the day's low and off 60.31 points from the day's high. The market breadth was weak. Index heavyweight Reliance Industries (RIL) edged higher.
Interest rate sensitive auto, banking and realty shares rose on hopes of further easing of monetary policy from the Reserve Bank of India after the latest data showed a surprise contraction in industrial production in March 2012. India's largest cigarette maker by sales ITC slipped, with the stock extending Thursday's 0.54% losses. Coal India fell after the government reportedly ordered the stat-run coal miner to supply coal to all power plants getting commissioned within this fiscal even if they have not signed legally binding fuel supply agreements (FSA) with the company.
Key benchmark indices cut losses after sliding to their lowest level in over 16 weeks at the onset of the day's trading session. A bout of volatility was witnessed in morning trade as key benchmark indices trimmed losses after hitting their lowest level in almost 16-1/2 weeks. The market slumped in mid-morning trade soon after latest data showed a surprise decline in industrial production in March 2012. The market cut losses in early afternoon trade. Weakness on the bourses continued in afternoon trade. Volatility ruled the roost as the key benchmark indices once again slipped into the red after reversing direction to move into positive zone from negative zone in mid-afternoon.
At 14:20 IST, the BSE Sensex was down 33.12 points or 0.20% to 16,386.93. The index rose 27.19 points at the day's high of 16,447.24 in mid-afternoon trade. The index lost 186.29 points at the day's low of 16,233.76 in mid-morning trade, its lowest level since 16 January 2012.
The S&P CNX Nifty was down 9.40 points or 0.19% to 4,956.30. The Nifty hit a high of 4,976.25 in intraday trade. The index hit a low of 4,906.15 in intraday trade, its lowest level since 17 January 2012.
The market breadth, indicating the overall health of the market, was weak. On BSE, 1,726 shares declined and 934 shares gained. A total of 127 shares were unchanged.
The total turnover on BSE amounted to Rs 1479 crore by 14:20 IST
Among the 30-share Sensex pack, 16 gained while the rest declined. Sun Pharmaceutical Industries (down 3.58%), Tata Power Company (down 1.85%), and ONGC (down 2.01%), edged lower from the Sensex pack. Bhel (up 1.76%), Tata Steel (up 0.45%), and Bharti Airtel (up 0.13%), edged higher from the Sensex pack.
Index heavyweight Reliance Industries (RIL) rose 0.9% to Rs 700.90, off day's low of Rs 688.80. After market hours on Wednesday, 9 May 2012, RIL said it has signed a $2 billion equivalent loan with nine banks covered by Euler Hermes Deutschland AG ("Euler Hermes") on 7 May 2012 at Berlin, Germany. The loan will be primarily used to finance goods and services procured from German suppliers as part of RIL's petrochemicals expansion projects at Jamnagar, Hazira, Silvassa and Dahej in India. The facility is among the largest underwriting by Euler Hermes in recent years, RIL said. Euler Hermes has for the first time accorded 'Better than Sovereign' rating to a corporate, RIL said.
Despite the challenging financial markets, the deal witnessed 50% over subscription, RIL. The facility has a door-to-door maturity of 13 years. This deal help diversify RIL's funding sources and extends the maturity profile of its long term debt in a cost effective manner, RIL said.
Coal India fell 0.68% after the government reportedly ordered the stat-run coal miner to supply coal to all power plants getting commissioned within this fiscal even if they have not signed legally binding fuel supply agreements (FSA) with the company.
Interest rate sensitive banking stocks reversed intraday losses on hopes of further interest rate cuts by the Reserve Bank of India to boost the economy after the latest data showed a surprise contraction in industrial production in March 2012.
India's largest bank by branch network State Bank of India (SBI) gained 1.97% to Rs 1879.55, off day's low of Rs 1820.10. India's second largest private sector bank by net profit HDFC Bank rose 0.28% to Rs 518.20, after falling to a day's low of Rs 511.10. India's largest private sector bank by net profit ICICI Bank advanced 1.07% to Rs 821.50, recovering from an intraday low of Rs 803.40.
Interest rate sensitive auto shares were off the day's lows on hopes of further interest rate cuts by the Reserve Bank of India to boost the economy after the latest data showed a surprise contraction in industrial production in March 2012.
India's largest commercial vehicle makers by sales Tata Motors surged 3.07% to Rs 298.60, off day's low of Rs 287.90. It was the top gainer from the Sensex pack. Tata Motors said last week its total sales (including exports) of Tata commercial and passenger vehicles fell by 7% to 60,086 units in April 2012 over April 2011. The company's domestic sales of Tata commercial and passenger vehicles for April 2012 were at 57,305 units, lower by 5% over 60,125 units sold in April last year.
India's largest car maker by sales Maruti Suzuki India lost 1.94%, with the stock extending recent losses. Reportedly, the company has raised the prices of the new diesel variants of its sedan DZire by up to Rs 12,000 with effect from 1 May 2012, citing input costs pressure.
India's largest tractor and sports utility vehicles maker Mahindra & Mahindra (M&M) fell 0.87%. The company announced during market hours on Wednesday that a fire broke out on Wednesday morning at one of the storage areas pertaining to manufacturing of Scorpio/Xylo TCF lines of Nasik Plant 1. The plant assets are adequately covered by insurance. M&M had announced on that day that the management expects to restart the Bolero and Verito lines fully and the Scorpio line partially from the second shift onwards on Wednesday.
Bajaj Auto rose 2.30%. The company last week said its total sales rose 4% to 3.81 lakh units in April 2012 over April 2011. Exports rose 7% to a record 1.69 lakh units in April 2012 over April 2011.
India's largest motorcycle maker by sales Hero MotoCorp rose 0.82%. The company on 2 May 2012 said that its net profit rose 20.33% to Rs 603.59 crore on 12.22% growth in total income to Rs 6139.90 crore in Q4 March 2012 over Q4 March 2011. The core operating profit margin (OPM) fell by 10 basis points to 15.3% in Q4 March 2012 on account of increase in raw material costs. The company said early this month it has raised prices of most of its products by Rs 500 to Rs 1000 per unit with immediate effect, in order to partially offset rising input costs.
Lower interest rates may help boosts demand for automobiles. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven through financing.
Interest rate sensitive realty stocks advanced on hopes of further interest rate cuts by the Reserve Bank of India to boost the economy after the latest data showed a surprise contraction in industrial production in March 2012. HDIL (up 3.13%), Indiabulls Real Estate (up 0.27%), Oberoi Realty (up 1.61%), gained.
Lower interest rates may help revive property demand. Purchases of both residential and commercial property are largely driven by finance.
India's largest realty firm by land bank DLF rose 0.86%. Reportedly the company has set up a core team of five to six people to focus on the process of sale of non-core assets.
India's largest cigarette maker by sales ITC slipped 1.95%, with the stock extending Thursday's 0.54% losses. The stock had jumped 5.61% on Wednesday, 9 May 2012, after the government made an amendment to the pricing methodology for excise duty on cigarettes announced in Union Budget 2012-13 in March 2012. The government has scrapped a proposal made in the budget to levy a 10% additional ad valorem excise duty on cigarettes longer than 65 millimeters (2.6 inches) and replaced it with a flat tax rate based on the length of the cigarette. Some fixed duties on cigarettes will still be raised.
ITC today said that WelcomHotels Lanka (WLPL), a company incorporated in Sri Lanka, became a wholly-owned subsidiary of the company with effect from 4 May 2012 consequent to allotment of 37.65 lakh equity shares to the company by WLPL on that date.
The latest data showed industrial production contracted 3.5% from a year earlier in March as manufacturing output shrank, deepening worries of a slowdown in the economy. The last time industrial output contracted was in October 2011, when production fell 5%. Manufacturing output, which has a 75.5% weight in the index of industrial production, contracted 4.4% from a year earlier in March. It had risen 3.9% on year in February. Capital goods output shrank 21.3%. However, electricity production increased 2.7% from a year earlier in March. For the year ended March 31, industrial output grew a muted 2.8%, against an 8.2% increase in the previous year, government data showed.
The Union Cabinet on Thursday reportedly deferred a decision on modifications to the insurance amendment bill as did not see great hurry in moving changes to the law if it could not increase the foreign direct investment in the sector to 49% from 26%. The insurance bill delay is a setback to the Manmohan Singh government that is keen to get key financial bills passed to assuage concerns that reforms are dead. The government had introduced the Insurance Laws (amendment) bill, 2008 in the Rajya Sabha in December 2008 to update the sector law and increase the foreign participation in the sector by lifting the FDI limit.
The finance ministry had argued that an increase in the FDI limit will help step up investment in the insurance sector. The former finance minister and BJP leader Yashwant Sinha headed standing committee on finance had in its recommendation on the bill said there was no need to increase the FDI limit in the sector.
Foreign institutional investors (FIIs) bought shares worth a net Rs.317.42 crore on Thursday, 10 May 2012, as per provisional data from the stock exchanges. Earlier they sold shares worth Rs 1406.13 crore in three trading sessions from 7 to 9 May 2012, as per data from the stock exchanges.
Investors are closely watching India Inc's Q4 March 2012 and year ending March 2012 (FY 2012) earnings. Focus is on the guidance provided by the management for the year ending March 2013 (FY 2013) to gauge the earnings outlook.
L&T announces FY 2012 results on 14 May 2012. Bajaj Auto announces FY 2012 results on 17 May 2012. State Bank of India, Tata Steel and Coal India unveil FY 2012 results on 18 May 2012. Tata Power Company announces FY 2012 results on 22 May 2012. Bharat Heavy Electricals (Bhel) unveils Q4 results on 23 May 2012. BPCL unveils FY 2012 results on 25 May 2012. Tata Motors announces FY 2012 results on 29 May 2012. Mahindra & Mahindra (M&M) unveils FY 2012 results on 30 May 2012.
On the macro front, the annual rate of inflation based on the wholesale price index (WPI) is seen easing to 6.6% in April 2012, as per the median estimate of a poll of economists carried out by Capital Market. The annual rate of inflation, based on monthly WPI stood at 6.89% (provisional) for the month of March 2012. The government unveils inflation data for April 2012 on Monday, 14 May 2012.
As per provisional data, India's merchandise exports rose 3.2% to $24.5 billion while imports rose 3.8% at $37.9 billion in April 2012 over April 2011. As a result, the trade gap for the month under review works out to $13.4 billion.
In a move aimed at arresting the rupee's recent plunge against the dollar, the Reserve Bank of India (RBI) on Thursday said that all foreign-exchange earners, including exporters, have to convert 50% of the total foreign exchange earnings kept in banks into rupees. This must be done within a fortnight, the Reserve Bank of India said. It added that, from now on, companies will be allowed to keep only 50% of their total foreign exchange earnings in their Exchange Earners' Foreign Currency Accounts (EEFC) and that they will have to convert the rest into rupees. The EEFC accounts allow exporters to hold foreign currency in onshore accounts for imports and other expenses.
In addition, companies will have to draw down their EEFC accounts fully before they buy any foreign exchange, the RBI said. The measures are also applicable to foreign-currency accounts of resident Indians and so-called Diamond Dollar Accounts held by diamond exporters.
Meanwhile, the RBI also sought to reduce speculation against the rupee, with a separate move that fixed banks' intra-day open position limits at five times their net overnight open position limit. Open positions are unhedged currency positions.
The Reserve Bank of India (RBI) eased restrictions on the usage of foreign currency deposits on Wednesday, just days after its move to relax the interest rate ceiling on such deposits. The RBI has allowed banks to use funds from foreign currency non-resident deposits as collateral against lending to related local residents. The funds in the foreign currency non-resident (FCNR) can be used for foreign exchange needs or for working capital needs in rupees for exporters and corporates, the RBI said
Finance Minister Pranab Mukherjee reiterated on Tuesday, 8 May 2012, the government's right to tax overseas transactions of companies that realize capital gains from the sale of their Indian assets. There cannot be a situation where somebody will make huge capital gains on the assets located in India and will not pay tax to either India or the country of its origin by making some arrangements through certain tax haven locations through a complicated setting up of series of subsidiaries, Mukherjee said in his closing remarks during the debate on the Finance Bill. India will not be treated as a tax haven, Mukherjee said.
The Finance Bill 2012 was passed by Lok Sabha on Tuesday, 8 May 2012. The government has proposed retrospective changes that will empower the government to tax transactions that have taken place outside the country, but involve underlying assets located in India. The proposal will have the power to tax retroactively. Mukherjee had clarified early this week that the retrospective amendments do not override the provisions of double taxation avoidance agreements (DTAAs). The finance minister had also clarified that the retrospective amendments would not be used to reopen cases where assessments have been completed.
Critics have slammed the proposal for a retroactive capital-gains tax as contrary to international taxation practices, and a legislative reversal of a Supreme Court decision earlier this year that said such tax on such deals wasn't allowed.
Mukherjee said in parliament on Monday, 7 May 2012 that the application of General Anti-Avoidance Rules (GAAR) has been deferred by one year until 1 April 2013. The finance minister in reply to debate on Finance Bill 2012 in parliament on also said that the onus will be on the government to prove tax avoidance under GAAR. Earlier, the government had said that the onus of proof that a transaction was not undertaken to avoid tax will be on the company or investor concerned. GAAR is aimed at curbing tax avoidance by structuring a business or effecting a transaction with the objective of avoiding the tax liability instead of rational commercial considerations. This rule had created angst particularly among foreign institutional investors, who invest into India through units registered in tax-favorable countries like Mauritius, which they feared could be construed as tax avoidance.
Mukherjee said that a committee has been formed to look at various provisions of the anti-avoidance rule, and the committee would ensure that the "provisions are not applied indiscriminately." He said the committee will submit a report by the end of May 2012.
The Indian government is considering a review of its tax avoidance treaty with Mauritius as it looks to boost revenue, junior Finance Minister S.S. Palanimanickam said Friday, 4 May 2012. There has been unwillingness on the part of Mauritius to cooperate in addressing this problem, he said. Palanimanickam said that consistent efforts are being made by the Indian government to find mutually acceptable solutions for addressing India's concerns.
The Finance Minister has recently announced reduction in long term capital gains on sale of unlisted securities to 10% from 20% for non-resident investors, including private equity investors. The FM has also proposed extending the benefit of tax exemption on long term capital gains to the sale of unlisted securities in an initial public offer. Simultaneously, the FM has decided to levy Securities Transaction Tax (STT) at the rate of 0.2% cent on such sale of unlisted securities.
European stock markets declined on Friday, with banks leading the declines after J.P. Morgan Chase & Co. revealed a $2 billion derivatives trading loss on Thursday. 

Downbeat China data and reports that Spain will ask the European Financial Stability Facility for €300 billion ($387 billion) to help fund its bad bank also weighed on sentiment. Key benchmark indices in France, Germany and UK shed by between 0.33% to 0.63%.
Greece has been unable to form a government since May 6 elections and Spain took control of the nation's fourth- biggest bank this week, putting the country at risk of bankruptcy.
Asian markets dropped on Friday on concern that Europe's debt crisis may worsen and on weaker-than-expected Chinese economic data for April. Key benchmark indices in Hong Kong, China, Japan, Indonesia, Singapore, South Korea and Taiwan were down by 0.62% to 1.43%.
China's consumer inflation slowed in April while wholesale prices headed lower, likely providing policy makers leeway needed for an easing in monetary conditions. The consumer price index rose 3.4% from a year earlier, contracting 0.1% on a month-on-month basis. The producer price index (PPI) showed a year-on-year drop of 0.7%. Compared to March, the PPI was 0.2% higher.
China's industrial output rose 9.3% in April, while retail sales were up 14.1% for the month, official data showed Friday. Fixed-asset investment in urban areas rose 20.2% in the January-to-April period.