The key benchmark indices edged lower on the first day of the week on doubts over global economic recovery. European stocks and US index futures edged lower. The BSE 30-share Sensex was provisionally down 128.64 points or 0.71%, off close to 165 points from the day's high and up close to 40 points from the day's low. The BSE Sensex closed above the psychological 18,000 mark after falling below that level for a brief period in mid-afternoon trade. IT, Realty and metals stocks fell. Index heavyweight Reliance Industries (RIL) edged lower. The market breadth was weak, in contrast with a strong breadth earlier in the day. A bout of volatility was witnessed in initial trade as the key benchmark indices swung between gains and losses. The market was a tad higher in morning trade as some Asian stocks came off initial lows and as US index futures reversed initial losses. The market hit fresh intraday high in mid-morning trade as Asian stocks extended gains after earlier recovering from lows. The Sensex recovered soon after erasing entire intraday gains in early afternoon trade after the monthly inflation data hit the market at about 12:00 IST. The market slipped into the red in afternoon trade. The market soon regained positive zone. Stocks came off highs in afternoon trade. The market slumped to fresh intraday low in mid-afternoon trade as European stocks turned negative and as US index futures edged lower. NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, jumped 8.18% to 18.11. The index had plunged 7% at 16.74 on Friday, 13 August 2010. The index had lost 0.61% to 18 on Thursday, 12 August 2010. The index had risen 4.5% to 18.11 on Wednesday, 11 August 2010. India VIX is calculated based on the S&P CNX Nifty options prices. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days. On the macro front, the latest data showed the wholesale price index (WPI) rose an annual 9.97% in July 2010, slower than expectations. The annual food inflation rate fell to 10.29% in July 2010 from 14.6% rise in June 2010, with prices of vegetables and sugar falling on the month. Manufacturing inflation, which the RBI uses as a proxy for assessing demand, cooled to 6.15% from 6.66% in June 2010. On the flip side, the headline inflation for May 2010 was revised upwards to 11.14% from 10.16%. Planning Commission deputy chairman Montek Singh Ahluwalia said India's headline inflation is still high and is not acceptable. The yield on benchmark 10-year 2020 bond was hovering at 7.81%, a tad lower than Friday's (13 August 2010) close of 7.82%. Prime Minister Manmohan Singh on Sunday, 15 August 2010, said it is the responsibility of the government to manage the economy with prudence so that our development is not affected adversely in the future because of high debt. In his speech to mark India's 63rd Independence Day, Singh defended the government's decision to raise fuel prices as a measure of fiscal prudence, saying the government was making every effort to tackle double-digit inflation that is hurting the poor. The subsidy on petroleum products has been increasing every year. It had become necessary therefore to increase the prices of petroleum products. If this had not been done, it would not have been possible for our budget to bear the burden of subsidy, Singh said. The Prime Minister also called for raising the annual farm growth rate to 4%, and said the government has given incentives to farmers to encourage production. But one effect of providing higher prices to farmers is that food prices in the open market also increase, he said. The Prime Minister renewed his call to the Maoists and Kashmiri rebels to abjure violence and come for talks with the government. He also urged dialogue to resolve differences with old rival Pakistan. We expect from them that they would not let their territory be used for acts of terrorism against India, Singh said. European shares pulled back from early gains to trade lower on Monday, 16 August 2010, as losses from banks offset deal-related gains from Vedanta Resources and Cairn Energy. The key benchmark indices in UK, France and Germany were down by 0.1% to 0.85%. Asian shares came off initial lows on Monday, 16 August 2010, led by rally in Chinese stocks. Financial shares were leading the Chinese market higher after Agricultural Bank of China said on Sunday, 15 August 2010, that it fully exercised the over allotment, or greenshoe, option on the Shanghai portion of its initial public offering. The Shanghai Composite index was up 2.11%. Hong Kong's Hang Seng was up 0.19% and the Taiwan Weighted index was up 0.63%. Japan's Nikkei Average fell 0.61% after the latest data showed Japan's economy lost significant momentum last quarter. Gross domestic product grew at an annualized rate of 0.4% the government said Monday. The result undershot analysts' expectations and represents a sharp slowdown from the previous quarter's revised 4.4% expansion In other Asian stocks, the key benchmark indices in Indonesia, Singapore and South Korea were down by between 0.01% to 0.22%. US index futures edged lower in volatile trade. Trading in US index futures indicated that the Dow could fall 11 points at the opening bell on Monday, 16 August 2010. US stocks closed out their worst week in six with a small losses on Friday, 13 August 2010, as economic data gave little reason to reverse a string of sell-offs. US retail sales rebounded last month, as did the overall July Consumer Price Index, but the data was consistent with an economy that has slowed in recent months. The Dow Jones Industrial Average dropped 16.80 points, or 0.16%, to 10,303.15. The Standard & Poor's 500 Index dropped 4.36 points, or 0.40%, to 1,079.25. The Nasdaq Composite Index dropped 16.79 points, or 0.77%, to 2,173.48. US consumer sentiment stabilized this month after a sharp drop in July, the Thomson Reuters/University of Michigan Surveys' preliminary August reading showed. Meanwhile, the Commerce Department said business inventories rose slightly more than expected in June. Back home, in a move that will affect several top business houses, the Reserve Bank of India (RBI) on Friday, 13 August 2010 introduced minimum capital adequacy norms and limits to the amount that can be borrowed by core investment companies (CIC), which operate as holding companies. The guidelines issued on Friday said the holding companies need to have a minimum capital ratio whereby the adjusted net worth should not be less than 30% of their aggregate risk-weighted assets and risk-adjusted value of off-balance sheet items. RBI has also said that holding companies must ensure that their outside liabilities do not exceed 2.5 times their adjusted net worth. This restricts such companies from borrowing outside the group. On the macro front, the industrial output rose 7.1% in June 2010 compared with revised 11.3% rise in May 2010, the latest data showed. Manufacturing grew 7.3%, mining sector grew 9.5%, consumer goods sector rose 8.3%, capital goods sector expanded 9.7% and electricity generation rose 3.5%. The industrial production growth rate for May 2010 was revised marginally down to 11.3% from 11.5% reported earlier. The growth rate for March 2010 was revised upward to 14.5% from 13.9% reported earlier. Analysts expect the Reserve Bank of India to raise interest rates by 25 basis points at a mid-quarter monetary policy review on 16 September 2010, to rein in inflation and inflation expectations. The Reserve Bank of India (RBI) at its Q1 monetary policy on 27 July 2010 raised a key lending rate by 25 basis points to curb surging inflation. With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation and anchoring inflationary expectations, the RBI said at that time. The RBI also signaled its strong preference for tight liquidity, saying it would ensure that excess liquidity in the system doesn't dilute the effectiveness of policy-rate actions. Meanwhile, the Indian government last week relaxed the requirement of a minimum 25% public shareholding for listed state-run firms. It may be recalled that the government in early June 2010 had announced changes in the Securities Contracts (Regulation) Rules 1957, so as to ensure that all listed companies maintain a minimum public float of 25%. Existing listed companies having less than 25% public holding have to reach the stipulated level by an annual addition of not less than 5% to public holding, the government had said at that time. The new rule had raised concerns there will be a deluge of share sales from government-owned firms to meet the minimum 25% public shareholding requirement. As per the relaxed norms, listed state-owned companies that have less than 10% public stake will have to reach that threshold over a period of three years. The modified rules also give a breather to the private sector companies. While they will have to comply with the minimum 25% public float within three years, they now have flexibility in how the limit is reached i.e. the requirement of a minimum annual 5% increase has been scrapped. The first quarter June 2010 earnings seasons is almost over. The Q1 results were a mixed bag. The combined net profit of a total of 3,416 Indian companies fell 9.6% to Rs 68,748 crore on 19.7% rise in sales to Rs 8,61,641 crore in Q1 June 2010 over Q1 June 2009. The vital monsoon rains were 26% below normal in the week to 12 August 2010 the first weekly fall in three weeks, the weather office said on Thursday, 12 August 2010. The rains were 16% above normal in the week to 4 August 2010 and 38% above average in the week to 28 July 2010. Monsoon rains are likely to remain below normal for another week but are forecast to revive soon, particularly in the soybean-growing central region, the weather office said on Friday 13 August 2010. Meanwhile, the improvement in rainfall early this month in the country as a whole, has resulted in a spectacular improvement in the water stock in reservoirs, reports suggest. The total water storage in the 81 major reservoirs stood at 52.09 billion cubic metres (BCM) as on 5 August 2010, against 28.65 BCM a fortnight ago. The present storage is a mere 6% short of normal, against 35% a fortnight ago, reports suggest. The cumulative rainfall during the period from 1 June 2010 to 15 August 2010 was 4% below normal. Rainfall over the country as a whole for the second half (August to September) of the 2010 southwest monsoon season is likely to be normal, according to the India Meteorological Department (IMD). Quantitatively, rainfall for the country as a whole during the period August-September 2010 is likely to be 107% of long period average (LPA) with a model error of plus/minus 7%, according to the weather office. The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The weather office expects this year's monsoon rains to be at 102% of the long-period average. If the southwest monsoon for the June-September monsoon season turns out good and if it is well distributed, it will help raise farm output, boost rural incomes and lower food inflation. Coming back to stocks, foreign funds have made heavy purchases of Indian stocks over the past two months. Foreign funds on Friday, 13 August 2010, bought shares worth a net Rs 50.15 crore as per the provisional figures released by the stock exchanges. Domestic funds bought shares worth Rs 33.38 crore on that day. Foreign funds bought equities worth a net Rs 4066.17 crore in the first few trading days this month, till 13 August 2010, absorbing selling of Rs 2314.97 crore from domestic funds, as per data from the stock exchanges. Foreign funds had bought shares worth a net Rs 8320.50 crore in July 2010, absorbing selling by domestic institutional investors. Domestic funds sold shares worth a net Rs 6323.13 crore in July 2010. Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010, absorbing selling by domestic funds in that month. Domestic funds had dumped shares worth a net Rs 4777.05 crore in June 2010. As per provisional figures, the BSE 30-share Sensex was down 128.64 points or 0.71% to 18,038.39. At the day's high of 18,203.92 hit in mid-morning trade the index rose 36.89 points. The index fell 169.57 points at the day's low of 17,997.46 in mid-afternoon trade. The S&P CNX Nifty was down 34.70 points or 0.64% to 5417.40 as per provisional figures. The BSE Mid-Cap index was up 0.09%. The Small-Cap index down 0.21%. Both these indices outperformed the Sensex. The market breadth, indicating the health of the market, turned weak in contrast to strong breadth earlier in the day. On BSE, 1769 shares declined while 1195 shares advanced. A total of 97 shares remained unchanged. From 30 share Sensex pack, 24 fell and the rest rose. BSE clocked turnover of Rs 4835 crore, lower than Rs 6112.58 crore on Friday, 13 August 2010. FMCG stocks rose on defensive buying in weak market. India's largest FMCG maker by sales Hindustan Unilever rose 1.62% and was the top gainer from the Sensex pack. Cigarette maker ITC rose 1.31%. Copper maker Sterlite Industries gained 0.25% to Rs 161.10. The stock came off the day's high of Rs 165.70 after the government panel said on Monday UK-based mining group Vedanta should not be given permission for bauxite mining in Orissa. Sterlite belongs to the Vedanta group. The panel said such a move may have serious consequences for the security and the well being of the entire country. Vedanta Resources today said it will buy 51% to 60% in Cairn India for $8.5-9.6 billion in cash. Vedanta will make an open offer to shareholders of Cairn India for up to 20% of issued shares at a minimum price of Rs 355 per share. As on 30 June 2010, Cairn Energy PLC held 62.36% in Cairn India. Shares of Cairn India slumped 6.5% to Rs 332.20, with the stock retracing sharply from a record high of Rs 368 reached earlier in the day. The stock declined on a massive volume of 1.1 crore shares on BSE. Sesa Goa declined 9.22% after its board approved the acquisition of a 20% strategic stake in Cairn India for a total cash consideration of approximately $3 billion. Sesa Goa is a part of the Vedanta group. Metal stocks fell as LMEX a gauge of six metals traded on the London Metal Exchange fell 1.35% on Friday, 13 August 2010. JSW Steel, Steel Authority of India, Tata Steel, Hindalco Industries, National Aluminum Company, Hindustan Zinc fell by between 0.02% to 3.14% Meanwhile, the Union Cabinet on Monday ordered a probe into alleged illegal mining in the country. Index heavyweight Reliance Industries (RIL) fell 0.39% to Rs 975.20. The stock came off the day's high of Rs 1018.70. Reliance Industries recently denied a media report that the company may sell treasury stocks worth more than $1 billion. The company has no such plans, Reliance spokesman Manoj Warrier clarified to the media on Wednesday, 11 August 2010. A unit of RIL recently signed definitive agreements to enter into a Marcellus Shale gas joint venture with United States-based Carrizo Oil & Gas Inc. RIL will pay a total $392 million, comprising $340 million of cash and $52 million of drilling carry obligations. Under the deal, Reliance will acquire a 60% interest in Marcellus Shale acreage in Central and Northeast Pennsylvania that is currently held in an equal joint venture between Carrizo and an affiliate of Avista Capital Partners. Reliance will acquire all of Avista's stake and 20% of Carrizo's stake in the existing joint venture. India's second mobile services by sales Reliance Communications fell 2.5% on weak Q1 June 2010 results. Consolidated net profit fell 84.7% to Rs 250.89 crore in Q1 June 2010 over Q1 June 2009. The stock was the top loser from the Sensex pack. The company announced the results after trading hours on Friday, 13 August 2010 . IT stocks fell as tepid US consumer data fed fears about slower US growth. US is the biggest market for Indian IT firms. India's largest software services exporter TCS fell 0.15%. The stock had 5 August 2010 hit a record high of Rs 882. India's second largest software services exporter Infosys Technologies fell 0.83%. India's third largest software services exporter Wipro fell 0.53%. Realty stocks fell on profit taking. Anant Raj Industries, Phoenix Mills, Peninsula Land, DLF, Unitech, Housing Development & Infrastructure fell by between 0.51% to 2.33%. Banking stocks fell on rate-hike worries. India's largest commercial bank State Bank of India (SBI) fell 1.1% on profit taking after a two-day strong surge triggered by healthy Q1 June 2010 results. SBI today said it has raised the benchmark prime lending rate by 50 basis points to 12.25% per annum effective from 17 August 2010. SBI today also announced introduction of floating rate term deposit products linked to base rate with effective from 6 September 2010. The parliament approved a bill on Thursday, 12 August 2010, enabling the government to reduce its holding in State Bank of India (SBI) to 51% and help it raise capital. The SBI stock hit record high of Rs 2879.95 on Friday, 13 August 2010. The SBI stock had surged close to 7% on Thursday, 12 August 2010 boosted by strong Q1 result. On a consolidated basis, net profit rose 22% to Rs 3365.26 crore on 0.98% decline in total income to Rs 32808.06 crore in Q1 June 2010 over Q1 June 2009. The results were announced during trading hours on Thursday. India's largest private sector bank by market capitalisation ICICI Bank fell 2.04%. The stock had risen 1.2% on Friday as the bank announced before market hours on Friday that Reserve Bank of India has approved the scheme of amalgamation of Bank of Rajasthan with ICICI Bank with effect from the close of business on 12 August 2010. India's second largest private sector bank by market capitalisation HDFC Bank fall 0.51%, reversing initial gains. The stock had scaled a record high of Rs 2,140.90 on 2 August 2010. HDFC Bank raised deposit rates for various maturities by 0.25% to 0.75%, with effect from 30 July 2010. For deposits with maturity between 91 days and 6 months, the rate would be raised by 75 basis points to 5.25% from the existing 4.5%. For fixed deposit between 9 months and one year, the new rates would be higher by 50 basis points at 6.25% while for 1 year 16 days category it will be 7%, 25 basis points more than the existing rate of 6.75%. India's largest dedicated housing finance firm by revenue HDFC fell 0.8%. HDFC has fixed 20 August 2010 record date for a 5-for-1 stock split. India's biggest truck maker by sales Tata Motors fell 1.52%.The company said on Monday its global vehicle sales in July rose 36% from a year earlier to 90,646 units. Jaguar and Land Rover sales in the month rose 30% to 19,386 units. Wockhardt jumped 18.07% after the company's board approved a preferential issue of up to 40 crore convertible or non-convertible preference shares of Rs 5 each. ABG Shipyard declined 3.02% after net profit fell 19.8% to Rs 38.41 crore on 14.3% rise in net sales to Rs 449.45 crore in Q1 June 2010 over Q1 June 2009.

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