Key share indices posted their first weekly fall in 2012 due to profit-booking, after rising for the past seven weeks, as investors booked profits in interest rate sensitive shares which had gained sharply during the rally. The futures & options for the February series also expired this week. Further, rising global crude oil prices raised concerns that the Reserve Bank of India may not be in a position to slash key policy rates just yet.
In the week to February 24, the BSE 30-share Sensex ended at 17,924, down 366 points or 2 percent and the NSE 50-share Nifty ended at 5,429 down 135 points or 2.4 percent.
On the macro-economic front, inflation based on the all India Consumer Price Index stood at 7.65 percent in January, as per the first nationwide retail inflation data released by the government earlier during the week.
While 'food and beverages' reported a moderate rate of price rise of 4.11 percent year-on-year in January, the inflation numbers for fuel and light, and clothing, bedding and footwear segments were in double-digits.
Further, the Prime Minister’s economic think tank on Wednesday painted a disappointing twin deficit picture for the economy and wrote a hard prescription. It wants the Centre to raise excise duty and service tax rates by two percentage points, decontrol diesel prices and prune subsidies to cut the fiscal deficit. The PM’s Economic Advisory Council (PMEAC) has asked the government to narrow the current account deficit (CAD) in the range of 2-2.5 per cent of GDP from a level worse than during the 1991 BoP (balance of payments) crisis.
As exporters face an adverse external environment, the PMEAC has pegged the CAD at 3.6 per cent of GDP for the current financial year, worse than three per cent at the time of the 1991 crisis. Even for the next financial year, the PMEAC in its review of the economy for 2012-13 projected the CAD to come down to three per cent of GDP.
However, the PMEAC's estimated rate of growth in 2011-12 at 7.1 percent is marginally higher than the 6.9 percent projection made by the Central Statistical Organisation, due to better growth in agriculture and construction.
The equities traded in a narrow range and went on to witness a volatile trading session on Thursday, following the expiry of February futures and options series. According to a report, though NIFTY rollover was slightly below average in terms of percentage, its open interest in new series was certainly higher than last month’s open interest. FIIs rolled over their long positions during the expiry, indicating a bullish stance.
Among the sectoral indices, BSE Realty, Bankex and Capital Goods indices were the worst affected, having declined 5-7 percent each.
From the Realty space, DB Realty shed as much as 16 percent at Rs 78, after its partner in the telecom joint venture - Etisalat - said it would shut down the operations in India. Meanwhile, the UAE-based Emirates Telecommunication Corporation (Etisalat) on Thursday filed a petition against Shahid Balwa and Vinod Goenka, promoters of the beleaguered Swan Telecom and DB Realty, for “fraud and misrepresentation".
Prestige Estates, HDIL and DLF, down 11-12 percent each, were the other prominent losers from among the Realty stocks.
As a liquidity crunch continues in the banking system, the Reserve Bank of India (RBI) has said it will consider infusing liquidity by further reducing the cash reserve ratio (CRR) to help banks tide over the deficit. Though the central bank is sticking to its stance of acting only during policy meets, market participants want it to reduce CRR before the policy review scheduled for March 15. “That (open market operations) remains an option as we go along. To the extent an opportunity is available for further CRR cuts, we will also consider that,” RBI Deputy Governor Subir Gokarn said on Tuesday while stressing a CRR cut was not in conflict with the monetary stance.
Lenders, such as State Bank of India and ICICI Bank shed nearly 5-9 percent each, as expectations for a rate cut in March were tempered by the rally in global oil prices, which could make it difficult for the Reserve Bank of India to ease policy.
Canara Bank, Punjab National Bank and Union Bank were the other notable losers, having declined 8-11 percent each.
The broader markets, which had been out-performing the BSE benchmark index, ended the week on an equally dismal note, having shed nearly 4 percent each. The BSE Mid-cap index ended lower by 3.74 percent at 6,300. The notable losers from the space were Arvind, IRB Infra, DBRealty, Dish TV and Indiabulls Financial Services, down 14-20 percent each.
The Small-cap index plunged 3.65 percent at 6,857. The top losers from this space were United Breweries, Out of City Travel Solutions, Fulford (India), Odyssey Corporation and Surana Industries, down 15-28 percent each.
Among Corporate news, Ranbaxy Laboratories Ltd, the country's top drug maker by sales, reported a quarterly loss of Rs 2,983 crore, mainly due to a provision related to a probe by the US Justice Department. The company said it set aside Rs 2,648 crore as a provision towards settlement of the probe related to compliance issues at the drug maker’s manufacturing facilities in the United States and India.
Ranbaxy, majority owned by Japan's Daiichi Sankyo Co, said consolidated net sales soared 79.2 percent in the December quarter at Rs 3,738 crore. The scrip declined 4 percent for the week.
ABB, the Indian arm of Swiss automation and power firm, posted consolidated net profit of Rs 64.2 crore for the quarter ended December 31. Total Income was Rs 2,204 crore for the period, ABB said in a filing to the Bombay Stock Exchange (BSE). The company did not provide comparable figures. However, ABB's standalone net profit witnessed 10-fold jump at Rs 64.1 crore, compared to Rs 6.8 crore in the same period, last fiscal. The company's order-book rose 58 percent at Rs 2,209.3 crore as against Rs 1,394.2 crore during the same period of 2010-11. ABB's current order-book stands at Rs 9,128 crore as on December 31.
Rising input costs, tight liquidity situation, forex volatility and low price realization as witnessed in some sectors may continue to put pressure on the margins, the company said in a statement. The stock shed 7 percent for the week.
Citigroup Inc, the third largest lender by assets in the US, on Friday sold its entire 9.85 per cent stake in the country’s biggest housing finance company, Housing Development Finance Corporation (HDFC), for Rs 9,550 crore ($1.9 billion). The exit was meant to help the US bank shore up its balance sheet to meet the tighter Basel III requirements. According to a release, Citi made a pre-tax gain of $1.1 billion (Rs 5,490 crore) and an after-tax gain of approximately $722 million (Rs 3,550 crore).
“The after-tax gain reflects Citi's tax liability to the US government," said a Citi spokesperson.
The New York-based Citi sold a total of 145.3 million shares of HDFC at Rs 657.56 apiece through multiple block deals. “The sale of Citi’s remaining stake in HDFC is part of Citi’s ongoing capital planning efforts," the bank said in a statement.
HDFC shares closed 3.55 per cent lower at Rs 676.40 on the National Stock Exchange (NSE). The stock fell to as low as Rs 657.5 intra-day.
In a last-ditch effort to survive, the Vijay Mallya-promoted Kingfisher Airlines has started discussions with foreign carriers to sell 26 per cent stake as soon as the policy framework is in place. According to persons in the know, Kingfisher has held discussions with IAG, the parent company of British Airways, and Etihad Airways, the flagship carrier of the United Arab Emirates, for a possible stake sale after the government allowed foreign airlines to buy into Indian carriers. The cash-strapped airline has debt of nearly Rs 7,000 crore, and most of its lenders have already classified the account as non-performing. Banks have rejected the airline’s request for further credit on the ground the company is yet to bring promoter’s equity contribution of Rs 400 crore as agreed while restructuring debt in December 2010. During the week, the scrip slumped nearly 9 percent to end at Rs 24.25.
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