Market pares losses

Key benchmark indices pared losses in afternoon trade as European market opened higher. The barometer index, BSE Sensex, was down 38.76 points or 0.22%, up about 61 points from the day's low and off close to 27 points from the day's high. The market breadth was positive. Index heavyweight and cigarette maker ITC retained positive zone. Index heavyweight Reliance Industries (RIL) extended intraday losses. Realty shares edged lower. Auto shares were mixed.

The market edged lower in early trade on weak Asian stocks. The market trimmed losses in morning trade. Intraday recovery witnessed in morning trade proved short lived, with key benchmark indices hitting fresh intraday lows in mid-morning trade. The market extended losses to hit fresh intraday low in early afternoon trade. Key benchmark indices pared losses in afternoon trade as European market opened higher.

Asian shares dropped on Thursday as investors turned increasingly cautious as hopes of stimulus action by central banks thinned ahead of a European Central Bank's meeting later in the day after the US Federal Reserve took no action a day earlier.

At 13:15 IST, the BSE Sensex was down 38.76 points or 0.22% to 17,218.62. The index fell 100.10 points at the day's low of 17,157.28 in early afternoon trade, its lowest level since 31 July 2012. The index declined 11.37 points at the day's high of 17,246.01 in early trade.

The S&P CNX Nifty was down 13.25 points or 0.25% to 5,227.25. The index hit a low of 5,209.95 in intraday trade, its lowest level since 31 July 2012. The Nifty hit high of 5,236.90 in intraday trade.

The BSE Mid-Cap index was up 0.15% and the BSE Small-Cap index was up 0.34%. Both these indices outperformed the Sensex.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1310 shares rose and 1091 shares fell. A total of 129 shares were unchanged.

From the 30-share Sensex pack, 19 stocks fell and the rest of them rose. ONGC (down 1.34%), Sterlite Industries (down 1.23%), Tata Power (down 1.15%), State Bank of India (down 0.91%), HDFC Bank (down 0.8%), Tata Steel (down 0.64%) and Sun Pharmaceuticals Industries (down 0.54%), edged lower from the Sensex pack.

NTPC (up 2.64%), Jindal Steel & Power (up 1.43%), Bharti Airtel (up 0.96%), Larsen & Toubro (up 0.87%), Bhel (up 0.73%) and Dr Reddy's Laboratories (up 0.59%), edged higher from the Sensex pack.

Index heavyweight and cigarette maker ITC rose 0.54% to Rs 260.15. The stock hit a record high of Rs 261.80 in intraday trade today, 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 0.64% to Rs 740.65. The stock hit a high of Rs 747.40 and a low of Rs 737.10 so far during the day. 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.

Cipla fell 0.98% on profit booking after Wednesday's 4.4% rally triggered by strong Q1 results. Cipla said after market hours on Tuesday its profit after tax jumped 58.2% to Rs 400.76 crore on 23.6% growth in income from operations to Rs 2012.44 crore in Q1 June 2012 over Q1 June 2011. The stock had hit a 52-week high of Rs 363.60 in intraday trade on Wednesday. Cipla said its domestic sales grew by more than 30% and export sales grew by about 18% in Q1 June 2012.

State-run Coal India fell 0.94% to Rs 346.20. The Children's Investment Fund Management LLP, a shareholder in Coal India has reportedly filed a petition in an Indian court seeking an increase in coal prices by the state-run company. According to reports, the U.K.-based hedge fund said in its petition to the Delhi High Court that India's coal ministry had illegally interfered in the setting of coal prices.

TCI is an activist hedge fund that, according to the latest available data, holds a 1.01% stake in Coal India. This year, it has been pressing Coal India, the largest coal producer in the world, to change some of its policies, which it says are hurting the company's profit and the interests of the shareholders. TCI has written about this to Coal India executives, directors and officials in India's coal ministry over the past few months.

Shares of most real estate companies extended recent fall triggered by the Reserve Bank of India's (RBI) keeping repo rate unchanged after first quarter review of the Monetary Policy 2012-13 on 31 July 2012. Purchases of both residential and commercial property are largely driven by finance.

Prestige Estates (down 1.52%), Unitech (down 1.38%), Anant Raj Industries (down 1.12%), Indiabulls Real Estate (down 0.79%), Parsvnath Developers (down 0.76%), D B Realty (down 0.63%), Sunteck Realty (down 0.14%) and Sobha Developers (down 0.11%), edged lower.

Interest rate sensitive automobile stocks were mixed. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.

Cummins India jumped 7.69% to Rs 471.30 after net profit rose 1.9% to Rs 180.55 crore on 21.79% growth in income from operations (net) to Rs 1258.75 crore in Q1 June 2012 over Q1 June 2011. The core operating profit margin rose to 18.46% in Q1 June 2012 from 16.82% in Q1 June 2011. The muted growth in the company's bottom line was due to base effect. The company's bottom line in Q1 June 2011 was boosted by exceptional one time profit of Rs 51.44 crore on sale of the company's entire stake in its joint venture Cummins Exhaust India to its US based parent firm.

Commercial vehicles maker Ashok Leyland rose 1.13%.

Maruti Suzuki India rose 0.6%. The company on Saturday, 28 July 2012, 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.

Hero MotoCorp rose 0.28%. The company announced at the time of Q1 June 2012 results this 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.

Bajaj Auto dropped 0.02%. The company at the time of Q1 June 2012 results this month 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 on Wednesday. Bajaj Auto has said that domestic demand for motorcycles remains subdued.

India's largest commercial vehicles maker by sales Tata Motors fell 1.69%.

TVS Motor Company (down 0.26%), Escorts (down 0.34%) and Mahindra & Mahindra (down 0.89%), edged lower.

Foreign institutional investors (FIIs) bought shares worth Rs 441.46 crore on Wednesday, 1 August 2012, as per provisional figures on the stock exchanges. 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.

At least five low-intensity blasts hit Pune on Wednesday evening and sixth bomb was defused. The explosions took place between 19.28 and 19.35 IST during rush hour in the heart of the city. The blasts took place outside the Balgandharva auditorium used to stage plays, at a statue near that theatre, opposite a McDonalds outlet and near a bank. Incidentally, Sushil Kumar Shinde, who took over as Home Minister, was scheduled to be in the city on Wednesday night to preside over a prize-giving ceremony.

The government on Wednesday formally allowed foreign direct investment (FDI) from Pakistan, the latest in a series of confidence building measures to build trust between the two nuclear-armed neighbours. Pakistani citizens and companies will be allowed to invest in all sectors apart from defence, space and atomic energy, a government statement said. The move to allow FDI from Pakistan had been announced by India's trade minister earlier this 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. The HSBC manufacturing Purchasing Managers' Index (PMI), which gauges business activity at India's factories but not utilities, fell to 52.9 in July, from 55 in June -- its biggest one-month drop since September last year. Still, the index has remained above the 50 mark that divides growth and contraction for more than three years. 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 government on Tuesday, 31 July 2012, announced a key cabinet reshuffle with Home Minister P. Chidambaram named as the new Finance Minister. Power minister Sushilkumar Shinde was named as the new Home Minister. Minister of Corporate Affairs M. Veerappa Moily has been assigned the additional charge of the Ministry of Power.

The post of the Finance Minister was left empty after Pranab Mukherjee resigned from the post to contest Presidential election. Prime Minister Dr. Manmohan Singh handled the Finance Ministry portfolio for a brief period after Pranab Mukherjee's resignation as Finance Minister on 26 June 2012. This is the third time that Chidambaram is holding the Finance Ministry portfolio.

A panel of ministers on Tuesday, 31 July 2012, approved steps to contain the impact of a near-drought situation. The steps include providing diesel-price subsidies to farmers, increasing the subsidy on seed supplies, and removal of the import tax on oil meals, Farm Minister Sharad Pawar told reporters on Tuesday. He said there is a major decline in planting areas of rice, coarse cereals and lentils due to weak monsoon rains. The diesel-price subsidy announced by the government will be 50% on the sale price for drought-hit farmers and total expenditure would be around Rs 1260 crore, which would be shared equally by the central government and respective state governments.

The monsoon rainfall until July 31 was 19% below the long-term average, with some areas getting little or no rain and some others seeing excessive rain and flooding. There will be an impact on foodgrain output, but it is too early to give any estimate, Mr. Pawar said. The worst affected states due to scanty rains are Punjab, Haryana, Karnataka, and parts of Maharashtra and Gujarat, he added. Punjab and Haryana are major rice producers. Maharashtra and Gujarat are major producers of oilseeds and cotton.

With the monsoon season almost halfway through, India is facing the prospect of a full-blown drought in some of its provinces. Mr. Pawar said the government will raise subsidies for the supply of various seeds for alternate crops in affected areas.

Minister of State for Agriculture Harish Rawat early this week said rainfall in August, a critical month for summer crops, is likely to be 84%-85% of the long-term average, below the previous forecast of 96%. 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.

The services purchasing managers' index for July 2012 is expected to be released tomorrow, 3 August 2012. HSBC's services purchasing managers' index, which gauges the activity of around 400 firms in India, dropped to 54.3 in June from 54.7 in May. However, it has kept above the 50 mark that signifies growth since November.

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 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.

European shares edged higher in early trade on Thursday ahead of a key European Central Bank (ECB) meeting, which could result in fresh stimulus measures to fight the region's sovereign debt crisis. Key benchmark indices in UK, France and Germany were up by 0.12% to 0.37%.

The Governing Council of the European Central Bank (ECB) holds a monthly monetary policy review on interest rates for the euro area on today, 2 August 2012. Resistance by German officials to resuming ECB purchases of distressed government bonds has dampened expectations somewhat for big measures from ECB. ECB is widely expected to leave interest rates unchanged after it cut the benchmark one-week lending rate to a fresh record low last month. ECB President Mario Draghi last week said that the bank would do whatever was needed to save the euro.

The Monetary Policy Committee of Bank of England also holds a monthly policy meeting on interest rates in the United Kingdom (UK) today.

Germany retained a stable outlook for its top credit rating at Standard & Poor's just over a week after Moody's Investors Service warned that the nation's Aaa grade was at risk. The long-term debt sovereign rating for Europe's largest economy was maintained at AAA, S&P said in a statement today. "In our view, Germany has a highly diversified and competitive economy with a demonstrated ability to absorb large economic and financial shocks," S&P said. "The outlook on the long-term rating remains stable, reflecting our view that Germany's public finances and strong external balance sheet will continue to withstand potential financial and economic shocks."

Moody's on July 23 lowered the outlook for the Aaa credit ratings of Germany, the Netherlands and Luxembourg to negative, citing "rising uncertainty" over Europe's debt woes.

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.

Asian shares eased on Thursday as investors turned increasingly cautious as hopes of stimulus action by central banks thinned ahead of a European Central Bank's meeting later in the day and after the US Federal Reserve took no action a day earlier. Key benchmark indices in China, Hong Kong, Indonesia, South Korea and Singapore fell by between 0.03% to 0.68%. Japan's Nikkei Average rose 0.13%.

China's central bank drained a net 86 billion yuan ($13.6 billion) from the banking system this week via its regular open-market operations, highlighting its concerns that inflation may rebound later this year despite recent data showing the country's July manufacturing activity undershot market expectations. Premier Wen Jiabao warned on Tuesday that China's economic growth continues to face downward pressure and called for more efforts to enhance policy fine-tuning to ensure growth. Mr. Wen's comments came one day before data issued Wednesday showed China's official manufacturing Purchasing Managers Index fell in July for a third consecutive month to 50.1 compared with 50.2 in June. That was the least since November last year.

Trading in US index futures indicated that the Dow could gain 27 points at the opening bell on Thursday, 2 August 2012. US stocks fell on Wednesday after the Federal Reserve took no new monetary stimulus after a two-day policy meeting. The Federal Reserve stopped short of offering new monetary stimulus on Wednesday even as it signaled further bond buying could be in store to help a US economic recovery that it said had lost momentum this year. Fed officials described the economy as having "decelerated somewhat," a change of tone from its previous assessment in June when it said the economy had been "expanding moderately". The Fed's policymakers also reiterated their disappointment with the slow pace of progress in bringing down the nation's 8.2 percent jobless rate. "The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed," the Fed said in its statement.

A report on Wednesday showed US companies added 163,000 jobs in July, more than expected. Separately, manufacturing data from the Institute for Supply Management pointed to a second month of contraction in the factory sector.

Data on weekly jobless claims in the US and data on factory orders are due for release on Thursday, 2 August 2012. US retailers will also unveil monthly same-store sales data today.

The influential US government data on non-farm payroll for July 2012 is due tomorrow, 3 August 2012. In June, the United States created 80,000 jobs, the third straight month of job growth of under 100,000.

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