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BANK STOCKS IN DEMAND AFTER CRR CUT

Mar-12-2012

Date: 12.03.2012

Key benchmark indices held positive zone in mid-afternoon trade. Most bank stocks rose after the Reserve Bank of India (RBI) announced a reduction of 75 basis points in banks' cash reserve ratio (CRR) requirement to ease liquidity situation in the banking system. L&T rose for the second day in a row after naming a new CEO and MD. Index heavyweight Reliance Industries (RIL) gained over 3%. The barometer index, BSE Sensex, was up 66.39 points or 0.38%, up 74.98 points from the day's low and off 202.47 points from the day's high. The market breadth was positive.

The market pared gains after a firm start triggered by the Reserve Bank of India's announcement after markets hours on Friday, 9 March 2012, of a reduction in cash reserve ratio (CRR) of banks by 75 basis points to ease liquidity situation in the banking system. The market came off lows in morning trade. Key benchmark indices regained positive zone after slipping into the red in mid-morning trade. The market regained strength in afternoon trade. The market held positive zone in mid-afternoon trade.

At 14:21 IST, the BSE Sensex was up 66.39 points or 0.38% to 17,569.63. The index jumped 268.86 points at the day's high of 17,772.10 in opening trade, its highest level since 29 February 2012. The index fell 8.59 points at the day's low of 17,494.65 in early afternoon trade.

The S&P CNX Nifty was up 22.15 points or 0.42% to 5,355.70. The index hit high of 5,421.90 in intraday trade, its highest level since 29 February 2012. The index hit a low of 5,327.30 in intraday trade.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,533 shares rose and 1,221 shares fell. A total of 128 shares were unchanged.

The total turnover on BSE amounted to R 1621 crore by 14:20 IST

Among the 30-share Sensex pack, 17 declined while the rest gained. L&T (up 3.26%), Coal India (up 0.76%), GAIL (India) (up 1.05%), Bajaj Auto (up 2.37%), and Bhel (up 2.31%), edged higher from the Sensex pack.

Cipla (down 1.91%), Infosys (down 1.55%), NTPC (down 1.31%), Tata Power Company (down 1.79%), and ONGC (down 1.66%), edged lower from the Sensex pack.

Index heavyweight Reliance Industries (RIL) advanced 3.1% to R 797.80 in volatile trade. The stock hit a high of R 798.90 and low of R 781 so far during the day. RIL along with BP PLC will reportedly submit a joint plan to the government to develop the D6 natural gas block and its satellite fields as an integrated unit. The proposal is significant in that it will seek approval to develop an entire block as one unit, rather than follow the current practice of getting clearance for one oil or natural gas field at a time.

In 2011, BP purchased a 30% stake in 21 RIL's oil and gas blocks across India, including D6, which is India's biggest gas discovery so far. RIL is facing declining output at D6 due to reservoir complexity, a natural decline in reserves and delays in developing satellite fields. Output at the D1, D3 and MA fields in the D6 block has plunged to about 38 million metric standard cubic meters a day (MMSCMD) from 60 MMSCMD in June 2010. It is estimated that output will fall further to 27.60 MMSCMD in the next financial year starting April, and to 22.60 MMSCMD in the year after that.

Most bank stocks rose after the Reserve Bank of India (RBI) announced a reduction of 75 basis points in banks' cash reserve ratio (CRR) requirement to ease liquidity situation in the banking system. The announcement was made after trading hours on Friday, 9 March 2012.

India's largest bank by branch network State Bank of India advanced 3.72% to R 2305 and was the top gainer from the Sensex pack. The bank's chairman Pratip Chaudhuri was quoted by the media as saying on Sunday, 11 March 2012, that the bank may go in for a follow-on-public-offer (FPO) or institutional placement of shares next fiscal to fund its business growth.

India's biggest private sector bank in terms of branch network, ICICI Bank gained 1.72%. India's second largest bank by net profit HDFC Bank shed 0.67%.

India's largest bike maker by sales Hero MotoCorp rose 1.22% on reports the company is building in-house capabilities to make its own engines by teaming up with the world's largest privately-owned engine developer AVL of Austria.

Hindustan Motors jumped 4.28% after the company said its board allotted equity shares and convertible warrants on a preferential basis to promoters. The company made this announcement during trading hours today, 12 March 2012.

JSW Steel rose 1.53% after the company said it is foraying into the manufacture of electrical steel in line with the company's strategy of increasing its portfolio of value added products. The company made this announcement during trading hours today, 12 March 2012.

Jaypee Infratech jumped 7.02% after the company said its board would meet on Wednesday, 14 March 2012, to consider raising funds through various options. The company made this announcement before trading hours today, 12 March 2012.

SBI was the top traded counter on the BSE with turnover of R 92.96 crore followed by MCX (R 67.12 crore), GAIL (India) (R 53.62 crore), L&T (R 41.23 crore), and Maharaja Shree Umaid Mills (R 31.93 crore).

Among the side counters, Glodyne Technoserve (up 11.85%), Shriram EPC (up 11.76%), Zee Learn (up 9.99%), BS Transcomm (up 9.33%), and Jay Bharat Maruti (up 8.34%) surged.

Foreign institutional investors (FIIs) bought shares worth a net R 1284.65 crore on Friday, 9 March 2012, as per provisional data from the stock exchanges.

Industrial production grew 6.8% in January 2012 from a year earlier, sharply higher than a revised 2.5% rise in December 2011, helped by a strong rebound in manufacturing output. Manufacturing output, which has a 75.5% weight in the index of industrial production, rose 8.5% from a year earlier in January. It had risen a revised 2.6% on year in December. Electricity production increased 3.2% from a year earlier in January while capital goods output shrank 1.5%.

The Reserve Bank of India (RBI) after market hours on Friday, 9 March 2012, surprised the markets by slashing the cash reserve ratio (CRR) by 75 basis points to 4.75% from 5.5% to ease liquidity situation. The CRR cut, effective the fortnight beginning 10 March 2012, will inject around R 48000 crore of primary liquidity into the banking system. At the 3rd quarter policy review in late January 2012, RBI had announced a cut of 50 basis points in CRR, thereby injecting R 32000 crore into the cash-strapped system.

The government will release data on inflation based on the wholesale price index (WPI) for February 2012 on Wednesday, 14 March 2012. WPI inflation for February 2012 is projected at 6.7% as per the median estimate of a poll of economists carried out by Capital Market. WPI inflation stood at 6.55% in January 2012.

Meanwhile, data on advance tax for the last installment of 15 March 2012 may provide cues on Q4 March 2012 corporate earnings.

The Reserve Bank of India (RBI) is slated to announce a mid-quarter review of the monetary policy on Thursday, 15 March 2012, a day before the presentation of the Union Budget 2012/13.

The government is working with state governments for early implementation of a goods and services tax (GST), Finance Minister Pranab Mukherjee said on 22 February 2012.

Stating that the United Progressive Alliance (UPA) was committed to honest and efficient governance, President Pratibha Patil on Monday said the country would soon be back on the high growth path of eight to nine percent from the seven percent estimated for the current fiscal. Addressing the joint session of Parliament on first day of the budget session, the President said the long-term fundamentals of the Indian economy remain robust. The government plans to achieve a 9% annual growth target in the five-year plan period ending on 31 March 2017.

Mukherjee will present the annual budget for 2012/13 on Friday, 16 March 2012, while the railways budget will be presented on Wednesday, 14 March 2012. The government will present on Thursday, 15 March 2012 the Economic Survey for 2011/12, a document on the state of economy prepared by the economic division in the ministry of finance. The annual budget is usually presented on the last working day of February. However, the budget has been delayed this time due to the assembly polls.

Reports indicate that the finance ministry is considering a proposal to increase excise duty from 10% to 12%, although still lower than the level before the 2008 financial crisis. The move is aimed at helping the government improve its fiscal situation but it is expected to push up the cost of almost all manufactured goods from food products to consumer durables and automobiles.

Meanwhile, the parliamentary standing committee on finance has given its approval to a revised version of the proposed Direct Taxes Code (DTC) Bill, 2010. The committee has recommended a more progressive tax regime, which entails widening of the income-tax slabs, increasing the exemption limit for savings and raising the ceiling for wealth tax. If accepted, these recommendations will increase disposable incomes in the hands of taxpayers, encourage savings and levy a higher tax on the rich, besides reducing compliance costs for the income-tax department.

The DTC Bill, 2010, consolidates and integrates all the direct tax laws and replaces both the Income Tax Act, 1961, and the Wealth Tax Act, 1957. The committee headed by Bharatiya Janata Party leader Yashwant Sinha, which submitted its report to the Lok Sabha speaker on Friday, 9 March 2012, has also recommended abolition of the securities transaction tax that is levied on the trading of equity shares and some other instruments.

European markets were lower in opening trade on Monday as investors paused to assess the effect of strong US jobs data on the growth outlook and the potential for an end to central bank policy easing. The key benchmark indices in UK, Germany and France were down by between 0.36% to 0.54%.

Most Asian markets were trading lower on Monday, 12 March 2012, as sentiment sagged after China reported a much bigger than expected trade deficit of $31.48 billion in February, turning around sharply from a $27.28 billion surplus in January. Key benchmark indices in China, Japan, Indonesia, South Korea and Taiwan were down by between 0.19% to 1.1%. Key benchmark indices in Hong Kong and Singapore rose 0.23% and 0.16%, respectively.

China's exports rose less than expected while imports climbed more than anticipated by economists, with the country importing record volumes of crude-oil in February 2012.

Trading in US index futures indicated that the Dow could fall 33 points at the opening bell on Monday, 12 March 2012.

US stocks advanced on Friday, 9 March 2012 as investors brushed off the technical default by Greece and focused instead on another strong monthly jobs report. The Dow Jones Industrial Average advanced 14.08 points, or 0.11%, to 12,922.02. The Standard & Poor's 500 Index rose 4.96 points, or 0.36%, to 1,370.87. The Nasdaq Composite index gained 17.92 points, or 0.60%, to 2,988.34.

In economic data, US employers added 227,000 jobs to their payrolls in February 2012, government data showed, while the unemployment rate held at a three-year low of 8.3%.

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