Market hits 6 week lows

The key benchmark indices extended losses to hit six week lows in mid-afternoon trade weighed by macroeconomic concerns after a steeper than expected rate hike by the Reserve Bank of India on Tuesday and a sustained selling drive by foreign institutional investors. European markets were firm while Asian stocks were mixed. The BSE 30-share Sensex was down 231.47 points or 1.25%, off close to 330 points from the day`s high and up close to 30 points from the day`s low. Metal stocks reversed initial gains on concerns that China might introduce fresh tightening measures aimed at controlling prices. China is the world`s largest consumer of copper and aluminum. Interest rate sensitive realty and banking stocks extended recent losses as the RBI hiked key short term rates to tame stubbornly high inflation.

The expectations of more rate hikes going forward by the central bank to tame inflation could slow growth of consumption driven economy as rise in interest rates could affect demand. Higher interest rates could rise cost of funds affecting profitability of the companies.

The market breadth was weak. Index heavyweight Reliance Industries was trading slightly higher. Bike maker, Hero Honda Motors jumped more than 5% on bargain hunting.

Market edged higher after a weak opening. It pared gains after hitting fresh intraday highs in morning trade. It remained marginally higher in mid-morning trade. It continued to trade slightly higher in early afternoon trade. Market saw a sell-of in afternoon trade. It extended losses to hit six week lows in mid-afternoon trade.

At 14:20 IST, the BSE 30-share Sensex was down 231.47 points or 1.25% to 18,237.89. The Sensex lost 262.91 points at the day`s low of 18,206.45 in mid-afternoon trade, its lowest since 23 March 2011. The index rose 99.85 points at the day`s high of 18,569.21 in morning trade.

The S&P CNX Nifty declined 79 points or 1.43% to 5458.15. Nifty hit low of 5451.95 in mid-afternoon trade, its lowest since 23 March 2011.

The market breadth, indicating the health of the market, was turned weak. On BSE, 1773 shares declined while 885 shares advanced. A total of 111 shares remained unchanged.

Among the 30-member Sensex pack, 27 declined while only three of them managed gains. Reliance Infra, Tata Power Company and Reliance Communications fell by between 4.03% to 4.99%.

Index heavyweight Reliance Industries (RIL) rose 0.38% to Rs 950.60 after gyrating between Rs 963.45 and Rs 943.50. Reportedly, RIL is planning to become a world leader in the rubber business and plans to invest $12 billion in the chemicals business to tap the rapidly growing market for hygiene and healthcare products in India. As per recent reports, the upstream regulator has asked RIL, the operator of the offshore KG-D6 field, to drill 11 more wells during the current financial year to reverse the decline in production of natural gas from the field.

India`s top bike maker by sales Hero Honda Motors jumped 5.43% on bargain hunting after declining 10.41% in the prior eight trading sessions. It was the top gainer from the Sensex pack.

Metal stocks reversed initial gains on concerns that China might introduce fresh tightening measures aimed at controlling prices. China is the world`s largest consumer of copper and aluminum. Nalco, Tata Steel, Sesa Goa, JSW Steel, Jindal Steel & Power, Sail, Jindal Saw, Hindustan Zinc and Hindalco Industries fell by between 0.13% to 3.18%.

Interest rate sensitive realty stocks dropped for the third straight day as the RBI hiked key short term rates to tame stubbornly high inflation. Higher interest rates could crimp sales going ahead as purchases of most of the residential and commercial properties are driven by finance. DLF, Orbit Corporation, Unitech, Indiabulls Real Estate, Anant Raj Industries and HDIL fell by between 0.85% to 6.71%.

Banking pivotals extended recent losses following the central bank`s hike in key short-term interest rates by an aggressive 50 basis points at a policy review on Tuesday. Higher interest rates on savings deposits announced by the RBI also weighed on bank stocks as the cost of funds will rise.

India`s largest bank by net profit and branch network State Bank of India declined 0.79%. The bank will review its interest rates next month, bank`s Chairman Pratip Chaudhuri said on Tuesday after the central bank raised interest rates by a sharper-than-expected 50 basis points.

India`s second largest private sector bank by net profit HDFC Bank fell 1.8%. India`s largest private sector bank by net profit ICICI Bank dropped 3.15%.

The food price index rose 8.53% and the fuel price index climbed 13.53% in the year to 23 April 2011 government data on Thursday showed. In the previous week, annual food and fuel inflation stood at 8.76% and 13.53% respectively. The primary articles price index was up 12.11% compared with an annual rise of 12.08% a week earlier.

As per provisional data, foreign institutional investors (FIIs) sold shares worth Rs 992.15 crore and domestic institutional investors (DIIs) bought shares worth Rs 914.10 crore on Wednesday, 4 May 2011.

The Reserve Bank of India (RBI) at its annual 2011-2012 monetary policy review on Tuesday, 3 May 2011, raised repo rate, the rate at which the RBI provides credit to banks, by 50 basis points to 7.25% and the reverse repo

While the growth momentum remained relatively firm during 2010-11, signs of moderation emerged in the latter half of the year, particularly with respect to capital goods and investment activity, the RBI said. Growth in GDP is expected to decelerate from 8.6% in 2010-11 to around 8% in 2011-12, which should contribute to some easing of demand-side inflationary pressures, particularly in the second half, as the full impact of monetary tightening is realised, the RBI said. However, even as this trend unfolds, persistently high rates of inflation raise the risks of inflationary expectations becoming unhinged, the RBI said.

The central bank said several factors will play a role in the inflation outlook, going forward. Keeping in view the domestic demand-supply balance and the global trends in commodity prices and the likely demand scenario, the baseline projection for WPI inflation for March 2012 is placed at 6% with an upward bias, the RBI said. Inflation is expected to remain at an elevated level in the first half of the year due to expected pass-through of increase in international petroleum product prices to domestic prices and continued pass-through of high input prices into manufactured products. Real estate shares slide after RBI`s rate hike.

While the persistence of inflation over the next few months has been incorporated in this policy, the Reserve Bank of India will continue to persevere with its anti-inflationary stance, the central bank said in its guidance.

The corporate results announced so far have been good. The combined net profit of a total of 843 companies rose 17.9% to Rs 44146 crore on 24.6% rise in sales to Rs 392035 crore in Q4 March 2011 over Q4 March 2010.

A sharp surge in global crude oil prices over the past few months has raised macroeconomic worries. India imports majority of its crude oil requirements and high oil prices have raised concerns about widening current account deficit (CAD). High oil prices have also raised concerns about higher oil subsidy bill for the government and its negative impact on the government`s fiscal position. However, crude oil prices fell in the last few trading sessions. US crude futures were down 64 cents or 0.59% at $108.60 a barrel.

India`s services sector gained momentum in April, with strong growth in new business orders despite stubbornly high inflation and expectations of further interest rate increases, a survey showed on Wednesday. The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of over 400 firms, edged up to 59.2 in April from 58.8 in March, marking its two-year anniversary above the 50 level that divides growth from contraction.

India`s manufacturing sector maintained its strong rate of expansion in April, helped by higher output and employment, a survey showed. The HSBC Markit Purchasing Managers` Index, based on a survey of around 500 companies, nudged up to 58 in April, a tad up from March`s 57.9, underlining considerable strength in the manufacturing sector.

The India Meteorological Department (IMD) has predicted the southwest monsoon 2011 to be 98% (normal) of the long period average (LPA) with a model error of plus/minus 5%. IMD has indicated that there is very low probability for the season rainfall to be deficient (below 90% of LPA) or excess (above 110% of LPA).

Good rains, if they arrive on time and if they are well spread, would help ease food inflation and boost rural income. Rainfall that comes within 96% to 104% of the long-term average is considered a normal monsoon season, but this alone doesn`t guarantee a good crop. The timing and spread of the rains are equally important. The quantity and geographical spread of rainfall during the monsoon season is crucial for India`s agriculture sector, which lacks irrigation facilities on more than half its farm land. Monsoon rains usually enter India`s mainland through the southern state of Kerala in the first week of June, gradually progressing to cover most of central and northern India by July, before retreating in September.

European markets were firm on Thursday ahead of key monetary policy announcements by the European Central Bank and the Bank of England. The key benchmark indices in UK and Germany were up by between 0.09% to 0.25%. France`s CAC 40 fell 0.26%.

Asian stocks were mixed. The key benchmark indices in China and Taiwan rose 0.26% and 0.80% respectively. The key benchmark indices in Hong Kong, Indonesia and Singapore fell by between 0.02% to 0.35%. Japan`s stock market is closed for a holiday.

US index futures pared gains. Trading in US index futures indicates the Dow could rise 11 points at the opening bell on Thursday, 5 May 2011.

Weak economic figures heightened stock investors` anxiety over the extended rally, knocking U.S. shares lower for a third day on Wednesday. Reports showed activity in the vast U.S. services sector slowed and hiring by private companies was weaker than expected in April. The new orders index in the purchasing managers survey hit its lowest since December 2009.