Sensex falls below 17, 000 as world stocks undergo correction; L&T slumps

A sell-off in global stocks and disappointment from key corporate earnings pulled the domestic bourses sharply lower in choppy trade. Stocks fell in four out of five trading sessions of the week. The BSE Sensex fell below the psychological 17,000 mark. Global stocks tumbled after US President Barack Obama on Thursday proposed new restrictions on banks, which would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.
The restrictions could limit leverage in the financial system and the role of risk-taking by hedge funds. The rules would also bar institutions from proprietary trading operations, unrelated to serving customers, for their own profit. These bets have been enormously profitable for the banks but can hold huge risks for the financial system if they go wrong.
Global markets had already recoiled in recent weeks on fears that Chinese demand would slow as Beijing taps the brakes on its roaring growth to stave off inflation and keep the economy from overheating. China had curbed lending by banks after raising banks' reserve requirement ratios (RRR) by 50 basis points earlier.
The BSE Sensex fell 694.62 points or 3.96% to 16859.68 in the week ended Friday, 22 January 2010. The S&P CNX Nifty tumbled 216.20 points or 4.11% to 5,036.
The BSE Mid-Cap index slumped 266.75 points or 3.78% to 6,783.66 in the week. The BSE Small-Cap index dipped 309.29 points or 3.45% to 8,661.17. Both the indices outperformed Sensex.
The food price index rose 16.81% in the 12 months to 9 January 2010, while the fuel index was up 6.34%, the government said on Thursday. The rise in food price index was lower than an annual rise of 17.28% in the previous week.
The annual wholesale inflation rose to 7.31% in December 2009, compared with 4.78% in November and 6.15% a year ago. Finance minister Pranab Mukherjee said on Wednesday the government was taking steps to contain inflation. The situation is constantly under review, he said. He also promised more measures to check the rise in the prices of essential commodities.
Union food and agriculture minister Sharad Pawar on Wednesday suggested that the prices of milk and related products were set to rise because of the demand-supply mismatch.
Food prices will cool off in 1-2 months and inflation will turn around, finance ministry's chief economic advisor Kaushik Basu said in a newspaper interview published on Wednesday. The Reserve Bank of India will hold its quarterly monetary policy review on 29 January 2010 and is widely expected to increase the cash reserve ratio (CRR) requirements for banks, but economists are divided on when it will raise interest rates. CRR is the level of cash that banks must keep in deposit with the central bank.
The timing and sequence of exit from an easy policy is still a challenge, Reserve Bank of India Governor D Subbarao said on Monday, 18 January 2010. Subbarao, who was speaking at a conference in Goa, also said the challenge was to support growth without compromising price stability. The Reserve Bank of India will review monetary policy on 29 January 2010.
The October-December 2009 quarter economic growth is expected to be lower than the previous quarter, chief statistician Pronab Sen said on Thursday, due to a contraction in farm output. Indian economy, which grew at 7.9% in the September quarter, is expected to grow 6-6.5% in the December quarter, Sen said.
He expects the Indian economy to grow at 6.5-7.5% for the fiscal year ending in March 2010. The annual farm output in the December 2009 quarter is expected to contract by 6-7%, he added. Monthly inflation may touch double digits by March 2010, Sen had said earlier this week
Economic growth will accelerate this year, Commerce and Industry Minister Anand Sharma said on Tuesday as he demanded better access to China's markets to help exports. Sharma's call for greater access for goods comes amid a widening trade gap between the two countries. Trade between the two grew rapidly to $50 billion in 2008, making China India's second-largest trading partner, but fell back to $43 billion in 2009 as global trade declined. Sharma called for more Chinese direct investment in India, especially in infrastructure, while noting that Indian firms are already present in China.
India is on course to return to pre-crisis growth rates of about 9% from 2011, if key reforms continue, having emerged from the global economic crisis less scathed than most other nations. That's according to a guest opinion article recently published by Standard & Poor's Ratings Services, titled "Why India Will Continue To Gain Stature In The Global Economy." The guest opinion article says that India's large, young, and growing population, the rising income of the middle class, and the country's high savings rate continue to support strong domestic demand, tempering the impact of weak export markets and other external stimuli.
Meanwhile, the government reportedly proposes to ease the norms for foreign direct investment (FDI) approval. Presently projects worth more than Rs 600 crore require the final approval of the Cabinet Committee on Economic Affairs (CCEA). The department of industrial policy and promotion (DIPP) has proposed that this ceiling be raised to anywhere between Rs 1,000 crore and Rs 1,500 crore. The new norms are likely to be notified after the introduction of a consolidated FDI policy framework on 1 April 2010.
FDI inflows increased to $27 billion in 2008-09 from $3.2 billion in 2004-05. During the period April-September 2009-10, FDI inflows reached $15 billion. The government has set a target of achieving $50 billion annual FDI by 2012 and $100 billion by 2017.
Meanwhile, the World Bank has raised its forecast for global growth in 2010 but warned that the recovery may lose momentum in the second half of the year as government stimulus programs wind down and unemployment persists. The world economy will expand 2.7% this year after the worst recession since the end of World War II, compared with an estimate in June of a 2% expansion, the Washington- based poverty-reduction agency said in an annual report. Growth may reach 3.2% in 2011, the bank said.
The market edged higher on Monday, 18 January 2010 on reports banks are unlikely to raise lending rates in the near term even if the central bank signals a tightening of the monetary policy by hiking the cash reserve ratio (CRR). The BSE 30-share Sensex rose 86.78 points or 0.49% at 17,641.08 on that day.
The key benchmark indices lost ground in choppy trade on Tuesday, 19 January 2010 as weakness in world stocks weighed on investor sentiment. Global stocks fell as investors awaited key earnings reports from the US. The BSE 30-share Sensex fell 155.02 points or 0.88% to 17,486.06 on that day.
The key benchmark indices ended a choppy trading session lower on Wednesday, 20 January 2010, extending losses for the second straight day as weak global stocks weighed on investor sentiment. The BSE 30-share Sensex fell 11.57 points or 0.07% to 17,474.49 on that day.
The market extended losses for the third straight day on Thursday, 21 January 2010 on disappointing Q3 results from frontline companies. Markets across the globe were gripped with volatility as bullish economic data from China raised concerns Beijing may tighten policy. The BSE 30-share Sensex lost 423.35 points or 2.42% to 17,051.14 on that day.
The key benchmark indices ended a volatile trading session lower on Friday, 22 January 2010 after US President Barack Obama proposed limiting risk-taking at US banks. The BSE 30-share Sensex fell 191.46 points or 1.12% lower at 16,859.68.
India's largest engineering & construction firm by sales Larsen & Toubro (L&T) slumped 10.83% in the week. The company cut its revenue growth target to 10% from 15% at the time of announcing Q3 results on Thursday. L&T said profit after tax from ordinary activities rose 15% to Rs 696 crore in Q3 December 2009 over Q3 December 2008. Gross sales revenue declined 6% to Rs 8139 crore. The result was announced during trading hours on Thursday, 21 January 2010.
India's largest power equipment maker by sales Bharat Heavy Electricals (Bhel) ended flat for the week at Rs 2372.20. The company's the net profit rose 35.67% to Rs 1072.59 crore on a 17.28% rise in total income to Rs 7422.51 crore in Q3 December 2009 over Q3 December 2008. The result was announced during trading hours on 21 January 2010.
Index heavyweight Reliance Industries (RIL) fell 5.05%. RIL's net profit rose 15.77% to Rs 4008 crore on 89.77% surge in total income to Rs 57364 crore in Q3 December 2009 over Q3 December 2008. RIL said the results had been reworked and restated to include figures from Reliance Petroleum, which it absorbed last year. The company announced the Q3 result during market hours on Friday, 22 January 2010.
RIL's gross margin from refining a barrel of crude was $5.90 a barrel in the latest quarter, compared with $10 a barrel a year earlier. The company added said it has increased production at the D6 gas block in the Krishna-Godavari basin, off India's east coast, to 60 million metric standard cubic meters per day.
India's largest oil exploration firm by sales Oil & Natural Gas Corporation dropped 8.1%. The company posted a 23% rise to Rs 3054 crore on 24% rise in net sales to Rs 15373 crore in Q3 December 2009 over Q3 December 2008. The results, which lagged street estimates, were announced after market hours on 21 January 2010.
India's largest cellular services provider by sales Bharti Airtel gained 1.26%. On consolidated basis, the company's net profit rose 13.2% to Rs 2236.90 crore on a 6.6% increase in total income to Rs 10327.57 crore in Q3 December 2009 over Q3 December 2008. The result was announced during trading hours on Friday, 22 January 2010.
India's largest cigarette maker by sales ITC fell 1.26% The company's net profit rose 26.67% to Rs 1144.17 crore in Q3 December 2009 over Q3 December 2008. The company announced Q3 result during market hours on Friday, 22 January 2010.
India's largest private sector bank by net profit ICICI Bank ended flat for the week at Rs 840.65. The bank's net profit declined 13.44% to Rs 1101.06 crore on a 25% fall in total income to Rs 7762.71 crore in Q3 December 2009 over Q3 December 2008. The result was announced during trading hours on Thursday, 21 January 2010.