ShareKhan Newsletter Blog

 Market Commentary 

Joyous June: Sensex tops global charts with a rise of 7.5%

The month of June was a joyous one for the D-Street. Bulls were back with the markets surging nearly 7% on global support and persistent buying across the board.

Major news for the month

• IIP for April at 0.1% vs -3.5% in March 
• May Inflation at 7.55% versus 7.23% in April 
• RBI leaves key rates unchanged 
• India's May CPI inflation remains unchanged at 10.36% 
• India HSBC May services PMI jumps to 3-month high
• FDI in India slips 41% to $1.8 bn in April
• RBI takes steps to boost economy by raising ECB limits
• India's fiscal deficit for April-May at $25.3 bn 
  

Indian Indices
June 2012 proved to be a bullish month for the Indian indices. The Sensex and Nifty outperformed its global peers this month.

Indian equity benchmarks closed at a two-month high on the last trading day of the month as global markets rallied quite sharply after European leaders agreed to take emergency action to bring down Italy's and Spain's spiraling borrowing costs at European Summit. The market sentiment also improved after Prime Minister Dr. Manmohan Singh took charge of the finance Ministry and chalked out plans for country's economic revival.

The Indian markets posted biggest monthly gain since January 2012, after European leaders unveiled a plan to address Europe's distressed banking sector, easing some of the concerns about the region. The BSE Sensex and the Nifty ended the month with a rise of 7.5% and 7.2% respectively

Major highlights for the month of June

• The Index of Industrial Production (IIP) for the month of April 2012 came in at 0.1% versus -3.5% seen in March 2012, which was lower than the expectations. While, Inflation for the month of May 2012 came in at 7.55% as compared to 7.23% for the previous month, higher than the consensus estimate of 7.5%.

• Reserve Bank of India's (RBI) mid-quarter monetary policy review was announced on Monday (June 18, 2012). The RBI left the key rates unchanged as against the market expectations. Cash reserve ratio (CRR) was kept unchanged at 4.75%, repo rate was kept unchanged at 8% and reverse repo rate at 7%. 

Other major news that remained in focus

• The Prime Minister's Office clarified that the GAAR guidelines that have been put up on the government website from the official level of the Finance Ministry and shared with some stakeholders are only draft guidelines.

• The Competition Commission of India (CCI) levied a heavy penalty of nearly Rs6300 crore on 11 cement companies, ruling them guilty of forming a cartel and fixing prices. CCI has levied a penalty of 50% of the FY10 profits of these companies.

• Reserve Bank of India (RBI) on Monday (June 25, 2012) hiked the limit of external commercial borrowing (ECB) to $10 billion. Moreover, the economy regulator also increased the limit of overseas investment in government bonds by $5 billion to $20 billion. 

• Prime Minister (PM) Manmohan Singh took additional charge of the finance ministry as Pranab Mukherjee on June 26, 2012 resigned as finance minister to contest the presidential polls next month.

• Finance Minister Pranab Mukherjee had proposed to reduce the rate of withholding tax on interest payments on external commercial borrowing (ECBs) from 20% to 5% for three years, for certain stressed infrastructure sectors.

• The reduction of petrol prices, by Rs2 litre was announced on June 15, 2012. This was the second price cut since OMCs first hiked petrol prices by Rs6.28 a litre on May 23, 2012. On the other hand, Oil Minister S Jaipal Reddy made a proposal, which stated that additional taxes of up to Rs2.55 lakh on diesel vehicles should not be taken up without the approval of heavy industries ministry. Also, the government deferred the fertiliser ministry's proposal to hike retail prices of urea by 10% to Rs5,841 per tonne for the 2012-13 fiscal on June 14, 2012.

Petrol users got some sigh of relief as the oil marketing companies (OMC's) were likely to cut the price of petrol by Rs4 per litre from July 1, 2012 which later got revised with the cut of Rs2 per litre. The cut comes in view of the falling crude oil prices at the international market.

Global News-flow for the month

• The global rating agency Standard & Poor's (S&P) warned that India could become the first BRIC nation to lose its investment-grade rating if the country doesn't revive its growth.

• Fitch Ratings' revised the Outlook on the 'BBB-' Long-Term (LT) Foreign Currency (FC) Issuer Default Rating (IDR) for Indian-based financial institutions from stable to negative, while affirming the rating. These include six government banks (Including an international banking subsidiary of a government bank), two private banks, two wholly owned government institutions and one infrastructure finance company.

• The markets took a sigh of relief after overcoming the fears of Greek's possible exit from Europe's joint currency. These fears receded on Sunday (June 17, 2012) after the conservative New Democracy party came first in a critical election and pro-bailout parties won enough seats to form the joint government. 

• The disappointing news came from weak manufacturing data for the month of June (globally), that led Moody's to downgrade world's 15 biggest banks all across the globe.

• The two-day European Union summit that ended on June 29, 2012 aimed at resolving the euro-zone debt crisis after European Union leaders on June 28, 2012, agreed for stabilizing Spanish and Italian bond markets and took steps to establish euro-zone-wide banking union.

Further the European leaders agreed to allow the region's permanent rescue fund, the European Stability Mechanism, or ESM will provide cash directly to Spanish banks once a region wide financial supervisor is established. This will allow Spain's government not to take the cost of the bailout onto its books.

Global indices
Among all the global indices, six indices closed the month on a negative note and only two closed in the green zone. Hang Seng was the top loser for the month slipping 5.43%, followed by Nasdaq which was down by 2.18%, DowJones dipped 1.24%, FTSE100 fell 0.74% and CAC40 declined 0.62%. The two gainers were Nikkei which surged by 1.26% and DAX100 was up by 1.13%.

Sectoral and stock screening
Among the 13 sectors, five sectors closed in the red zone while remaining eight sectors closed in green. Top Gainers: BSE CG rose 6.21%, BSE FMCG gained 4.85%, BSE Bankex surged 2.21% and BSE Power was up by 2.19%. Top Losers: BSE Realty fell by 7.26%, BSE Oil & Gas was down by 4.02% while BSE Metal fell 2.26%.

Among the 'A' group stocks, top three gainers were - Videocon Industries which was up by 16.65%, Idea Cellular was up by 16.51% and Pantaloon Retail (India) ended the month up by 16.44%. Top three losers - Lanco Infratech down by 31.03%, GVK Power & Infra down by 15.35% and Educomp Solutions down by 15.34%.

FII/MF activity
The foreign institutional investors (FIIs) bought Indian stocks worth a net of Rs133.5 crores and the domestic investors bought Indian stocks worth a net of Rs295.6 crores in the month of June.