Reliance Drags Sensex in India

Elena
04 Aug, 2006
Mumbai

In a highly volatile session, the benchmark index sank in the closing hours of trading. Worries of surging global crude oil prices, increasing fears of $ 100 a barrel, weighed down on market sentiment. Reliance Energy led the gainers, with BHEL and Bajaj Auto also advancing. Reliance Industries fell on comments from Petroleum Minister.

[R]10:30AM The Indian Sensex falls in a volatile trade under heavy selling pressure.[/R]
The Sensex in India declined 56.65 points, or 0.52%, to 10,866.51. It traded in the range of 229 points during the day’s trading session, with a high degree of volatility. The market-breadth was weak as 1,354 shares fell, 1,068 advanced and 94 shares were unchanged. The turnover on BSE came to Rs 2,540 crore lower than Thursday’s Rs 2,938 crore.

Reliance Energy led the gainer, climbing 2.90% to Rs 467.75 on 1.66 lakh shares. Engineering large-cap, BHEL jumped 2.30% to Rs 2,167 on 1.67 lakh shares while housing finance company HDFC gained 1.61% to Rs 1,246. Cellular services large-cap, Bharti Airtel, advanced 0.16% to Rs 399.45 on 3.97 lakh shares after the firm on Thursday said that it had given a $107 million outsourcing contract to IBM spread over the next five years.

Pharma large-cap Ranbaxy gained 1.30%, to Rs 397.05 on 9.07 lakh shares. The company announced on Friday that it had received a tentative approval from the U.S. Food and Drug Administration (FDA) for risperidone oral solution. Risperidone is used to treat schizophrenia. Software stocks hardened, following a steady trend in their ADRs. Infosys gained 0.59% to Rs 1,680 and TCS gained 0.51% to Rs 948.25. Bajaj Auto rose 1.46% to Rs 2,611.35 and Grasim rose 1.35% to Rs 2,145.00.

Reliance Industries shed 2.20%, to Rs 966.75 on 24.86 lakh shares. Private energy companies such as Reliance have higher operating costs than government controlled companies such as ONGC and Indian Oil. The Petroleum Minister Murali Deora commented that the government will not provide subsidy to private petrol retail companies. Reliance Industries, one of the largest private operators has suffered sales decline of 80% in less than a year on higher petrol price at retail pump stations. On another account, there are reports that the company will introduce three fibres in the next 15 months. Reliance Industries led the list of most active stocks on BSE with a total turnover of Rs 243.68 crore followed by Tata Steel with Rs 123.64 crore and SBI with Rs 102.37 crore.

Great Eastern Shipping was subject to volatile trading throughout the day. From its low of Rs 210.65, it soared to Rs 225.80 due to strong buying backed by rumours that the company, after calling off the proposed de-merger, may announce a share buy-back, or a bonus or a special dividend. The stock closed 2% higher to Rs 225 on high volume of 11.87 lakh shares.

SBI led the decliners, down 2.90% to Rs 806.25, Cipla fell 1.75% to Rs 228.85, ITC dipped 2.05% to Rs 168 and ICICI Bank lost 1.60% to Rs 547.05. The bank sector finished in the red. PNB declined 4.60% to Rs 367, Allahabad Bank was off 4.23% to Rs 64.45, IOB declined 3.37% to Rs 87.50, Bank of India lost 3.55% to Rs 115.40 and Union Bank of India sank 3.72% to Rs 101. Hindustan Lever also fell 2.02% to Rs 220.25.

Among companies not on the Sensex, AIA Engineering soared 9% to Rs 690 on registering 95% net profit for Q1 June 2006 to Rs 15.29 crore in Q1 June 2006 compared to Rs 7.82 crore in Q1 June 2005. Net sales during the period increased to Rs 92.04 from Rs 61.06 crore. Amara Raja Batteries jumped 9.69%, to Rs 343.45 on registering 193% growth in net profit and Amtek Auto jumped 3.50% to Rs 291.10 on reports that Warburg Pincus has taken over 9% stake in the company through the open market.


[R]9:45AM Stocks rallied at opening on weak jobs data.[/R]
Stock markets sharply rose at opening due to significant buying in the first half hour of trading. The positive sentiment was generated by weaker-than-expected July employment growth which raised hopes that the Federal Reserve will halt its interest rate hikes. This sent treasury yields lower and prompted a rally in the home building sector. DR Horton ((DHI)) was the best performer in the group, rising more than 7%, Pulte Homes ((PHM)) posted an advance of more than 5%. Even Hovnanian ((HOV)) recovered from early weakness and climbed more than 3%, despite its profit warning. Outside the sector, Medco Health Solutions Inc. ((MHS)), the pharmacy benefit manager, rose 2.4% after profits jumped 26%, beating analysts’ forecasts.

The tech sector came under modest pressure after Apple Computer Inc. ((AAPL)) said it would have to restate earnings reports due to irregularities related to stock-option grants. The stock dropped 3.5%. Gateway Inc. ((GTW)) lost 6.9% as the computer maker swing to a loss for the quarter due to shrinking profit margins and slow sales. In the first hour of trading, the Dow Jones industrial average rose 65.54, or 0.58%. The Standard & Poor''s 500 index added 8.87, or 0.69%, and the Nasdaq composite index gained 21.18, or 1.01%. Bonds surged on the jobs report, with the yield on the benchmark 10-year Treasury note falling to 4.90% from 4.96% late Thursday.


[R]9:00AM Stock futures advanced on weaker-than-expected jobs data.[/R]
U.S. stock futures reversed from earlier losses to move sharply higher after weaker-than-expected July jobs data, adding to recent speculation that the Federal Reserve will pause its interest rate raising campaign at its next meeting on Tuesday. The data helped offset concerns from further options accounting trouble at Apple Computer and profit warning by Hovnanian. S&P 500 futures rallied 7.30 to 1295.50 and Nasdaq 100 futures hiked up 13.25 to 1,534.50 1,516.00. Dow industrials futures surged 68 points to 11360. Treasury prices rallied after the data, with the yield on the benchmark 10-year Treasury note falling 0.046 percentage points to a four-month low 4.905%.

In corporate news, Apple Computer ((AAPL)) announced late Thursday it discovered further evidence of irregularities related to stock-option grants, warning hat it may have to revise profits back to September 2002. The stock dropped 3.4%. PC maker Gateway Inc. ((GTW)) fell 7.6% on Inet after reporting a Q2 loss versus expected profits. Hovnanian Enterprises ((HOV)) fell 5% on Inet as it lowered Q3 and fiscal 2006 earnings outlook due to slower sales pace and high cancellation rates on contracts in backlog. The company cut down 30 cents per share from its Q3 earnings outlook range and said 2006 earnings should range between $5.00 and $5.75 per share, from a previous range of $7.20 to $7.40 a share. Chiquita Brands ((CQB)) climbed 14% after reporting earnings decline, but exceeded expectations. Wachovia upgraded the banana and produce company to outperform from market perform.


[R]Non-farm payroll employment increased less than expected.[/R]
Friday morning, the Department of Labor released its report on the employment situation in the month of July, showing that the U.S. economy added fewer than expected jobs. The report also showed an unexpected increase in the unemployment rate. The Labor Department said that non-farm payroll employment increased by 113,000 in July compared to a revised increase of 124,000 jobs in June. Economists had expected the economy to add 150,000 jobs compared to the increase of 121,000 originally reported for the previous month. The increase in employment reflects job gains in several service-providing industries, including professional and business services, health care, and food services. Employment growth was also seen in the mining sector, although the manufacturing sector lost 15,000 jobs. The report also showed that the unemployment rate rose to 4.8 percent in July from 4.6 percent in June. The increase came as a surprise to economists, who had expected the unemployment rate to remain unchanged. Additionally, the report showed that average hourly earnings edged up by 0.4 percent in July to $16.76. Average weekly earnings also increased by 0.4 percent to $568.16.

Occidental Petroleum Corp, ((OXY)), oil company, reported Q2 earnings of $1.97 per share, down from a year-ago profit of $3.77 per share. On a continuing operations basis, Occidental posted a profit of $2.77 a share, down from a year-ago equivalent earnings of $3.63 a share. On a core basis, earnings also totaled $2.77 a share, up from last year''''s profit of $1.96 a share. The latest core earnings exclude a net after-tax loss of $347 million in discontinued operations, reflecting an impairment charge related to an investment in Venezuela and income from Vintage Properties held for sale, while the year-ago core profit excludes a $619 million tax benefit and an $89 million gain from the sale of an investment. Revenue advanced to $4.6 billion from $3.39 billion in the same period a year earlier. The company missed analysts’ estimate for a profit of $2.79 a share. Occidental said its daily production from continuing operations rose to 609,000 barrels of oil equivalent, an increase of 93,000 barrels from its year-ago total. It said the latest results benefited from the higher production and robust crude oil prices.

Ceradyne Inc, ((CRDN)), maker of ceramic body-armor plates, reported that net earnings advanced to $1.10 a share, from 46 cents the year earlier. Analysts’ forecasts were for earnings of $1.05 per share. Revenue rose to $162 million from $89.9 million. The company said the expansion of production capacity allowed it to meet the U.S. government''''s continuing requirements for lightweight ceramic body armor. Ceradyne also said it has found inconsistencies in its stock option grants between 1997 and 2003, as the measurement dates made for accounting purposes and the actual recorded dates grants differed on some grants. As a result, the company recorded a charge of $1.5 million pertaining to the years 1997 to 2005 and the first six months of 2006.

Goodyear Tire & Rubber Co, ((GT)), manufacturers of tires and rubber products, reported Q2 earnings of 1 cent a share, down from a year-ago profit of 34 cents a share. The latest results include 36 cents a share in charges related to plant closings. Sales gained 3% to $5.14 billion from $4.99 billion in the same period a year earlier. The company missed analysts’ estimate for a profit of 18 cents a share. The company said its latest results were impacted by higher raw material costs of $210 million, an increase of 16% from last year, as well as weak tire industry demand, especially in North America.

OM Group Inc, ((OMG)), producer and marketer of value-added, metal-based specialty chemicals, reported a Q2 profit of $1.80 a share, well above the figure of 40 cents a share a year-ago. Revenue increased to $330.2 million from $314.7 million. The company topped analysts’ forecasts for earnings of 80 cents a share.

Greater Bay Bancorp, ((GBBK)), bank holding company, reported Q2 net income rose 10% to 46 cents a share, from $38 cents a share a year earlier. The company said net interest income for the period rose to $65.8 million from $65.4 million.


[R]8:00AM Apple Computer warned of profits revision.[/R]
Apple Computer Inc. ((AAPL)) said it discovered more evidence of irregularities related to stock-option grants and warned that it may have to revise profits back to September 2002. In June, Apple said an internal investigation had found irregularities related to issuance of stock-option grants between 1997 and 2001. At that time, Apple said one of the grants in question was given to CEO Steve Jobs, but he voluntarily canceled them in 2003 before cashing them in.

The last four years mark one of the most prosperous periods in the 30-year history of the company, largely due to the steadily rising sales of its ubiquitous iPod. The company''s market value has increased by about $55 billion since September 2002, with its stock price rising nearly 10-fold.

The company also said it will delay filing its report for the latest quarter with the SEC. In addition, Apple said it also will likely need to restate results to record non-cash charges for compensation expense relating to past stock-option grants. For the third fiscal quarter Apple reported a 47.5% profit jump, boosted by higher iPod sales and Macintosh personal computers.

The tech giant with a market capitalization of more than $59 billion, is one of the many companies in the technology sector, that have recently disclosed potential accounting problems caused by stock option improprieties. In aftermarket trading shares of Apple fell 6.6% to $65 on the electronic INET exchange.


[R]7:30AM Asia ended mixed on rate-hikes and concerns over FOMC meeting.[/R]
Asian markets ended mixed on Friday. Japan''s Nikkei 225 Average gained 0.19% to close at 15,499.18. Mitsubishi UFJ Financial Group gained, rising 1.94% and Sumitomo Realty & Development, also advanced 2.01%. Among electronics issues, Matsushita Electric Industrial climbed 0.21%. Pharmaceuticals also advanced, with Takeda Pharmaceutical rising 1.73%. Internet business company Softbank gained 2.08%.

South Korean shares also closed higher. The Korea Composite Stock Price Index, or Kospi, closed up 1% at 1304.51. Bank and brokerage stocks contributed to the main index''s increase. Samsung Securities climbed 1.2% and Daewoo Securities jumped 5.1%. Kookmin Bank rose 1.7%.

Hong Kong shares finished lower with the Hang Seng Index falling 0.94% to 16887.80. Computer maker Lenovo Group, helped by a better-than-expected first-quarter result, jumped 3.6%, being the only gainer among 33 index constituent stocks. Most stocks fell on uncertainty over the direction of U.S. interest rates. Taiwan shares also fell with technology stocks being sold after they gained in the previous two sessions. The Weighted Price Index of the Taiwan Stock Exchange shed 0.3% to 6442.61.


[R]6:30AM European markets bounce back, regardless of ECB rate-hike.[/R]
European markets were higher on Friday morning. The German DAX Xetra 30 index rose 0.5% at 5,667, the French CAC 40 index added 0.4% at 5,001 and the U.K. FTSE 100 index rose 0.2% at 5,847. Allianz was so impressed with its second-quarter performance, that it was prompted to lift its full-year targets. Its shares gained 2.4%. Swiss reinsurance company Swiss Re moved up 0.3% lower after reporting a 16% first-half profit rise and holding its outlook.

Electricite de France surged 3.7% after getting permission to raise French electricity prices by 1.7%, starting in mid-August, and reporting second-quarter comparable revenue growth of 10.9%. Anglo American rose 3.4% after announcing it would buy back $4 billion in shares, lifting its dividend by 18% and reporting a 52% increase in adjusted operating profit. Philips Electronics gained 2.1% following its agreement to sell 80% of its semiconductor unit for 8.3 billion euros to a consortium of private-equity investors led by Kohlberg Kravis Roberts & Co.

Crude oil rose above $77 a barrel in London on reports that a German and three Filipino oil workers were kidnapped by suspected militants, raising concern about further supply disruptions from Africa''s largest oil producer. Brent crude oil for September settlement rose as much as 61 cents, or 0.8 percent, to $77.17 a barrel on the ICE Futures exchange in London. The contract traded at $77 at 11:20 a.m. in London. Crude oil for September delivery was up 13 cents to $75.59 a barrel on the New York Mercantile Exchange.

Gold bounced around on Friday after failing to break above this week''s two-week high, capped by selling pressure ahead of crucial U.S. jobs data and next week''s U.S. Federal Reserve meeting. Spot gold hit a high of $647.00 an ounce before dipping to $646.20/647.70 an ounce, down slightly from $646.50/648.00 late in New York on Thursday.

The euro was a little lower against the U.S. dollar Friday, giving up modest gains that it made after the ECB hiked interest rates. The euro bought $1.2792 in early European trading, down from $1.2805 in New York late Thursday. The British pound also retreated from gains it made after the Bank of England raised rates, slipping to $1.8862 from $1.8883. The dollar rose to 115.19 Japanese yen from 114.91 yen.