Expiry of derivatives plays spoilsport

Selling pressure gripped the bourses towards the fag end of the trading session today due to expiry of February 2007 derivative contracts. Much of the fall materialised in the last 50 minutes of trade. Cement, auto, banking shares and pharma pivotals weakened in late trading.

The 30-share BSE Sensex lost 167.18 points (1.1%), to settle at 14,021.31. It came off the lower level after having dropped as many as 210.44 points, to a low of 13,978.05, at 15:15 IST. But for a relatively firm trend in index heavyweight Reliance Industries (RIL), the fall in the BSE Sensex may have been even much steeper.

Although the market was volatile today, the sharpest movement came only in late trading. In early trade, the market had lost ground soon after a strong opening, which was triggered by firm Asian markets and data showing rising inflow of funds from FIIs.

The S&P CNX Nifty lost 56.20 points (1.3%), to settle at 4,040. Nifty March 2007 futures were at 4,064, a premium of 24 points over the spot Nifty closing.

Finance Minister P Chidambaram said on Thursday he expects the inflation rate to moderate as supply shortages ease in the coming days.

The Central Board of Direct Taxes (CBDT) today shot down reports of nationwide raids on stock brokers. TV channels reported that such raids were being conducted since the morning.

The market-breadth was quite weak. Against 1,799 shares declining on BSE, 813 rose. Just 67 shares were unchanged. Losers outpaced gainers by a ratio of 2.2:1. The BSE Small Cap index shed 50.98 points (0.7%), to 7,173.41. The BSE Mid-Cap index lost 72.70 points (1.2%), to 5,804.48.

The BSE clocked a turnover of Rs 3938 crore compared to Wednesday’s Rs 4098 crore.

Turnover on NSE’s futures & options (F&O) segment surged to Rs 55345.67 crore compared to Wednesday’s Rs 48152.93 crore. On Wednesday itself, the turnover had surged from Tuesday’s Rs 39292.32 crore.

All BSE’s sectoral indices ended in the red. BSE’s banking sector index Bankex lost 177.81 points (2.4%), to 6,998.97. The BSE Healthcare index lost 79.69 points (2.1%), to 3,708.72. The BSE Auto index lost 103.53 points (1.8%), to 5,458.67. The BSE FMCG index shed 18.92 points (1%), to 1,848.27.

The Sensex is up 1.7% in calendar 2006 thus far. It is off 4.3% from a lifetime closing high of 14,652.09 of 8 February 2007.

A key trigger for the market in the near-term is Union Budget 2007-08. Concerns that the government may raise short-term capital gains tax on sale of shares from the current 10% have gained currency. The securities transaction tax (STT) may also go up further. The STT was raised in the previous budget. The removal of 10% corporate surcharge may be offset by removal of certain open-ended exemptions. Market men also expect the finance ministry to give a big impetus to agriculture and infrastructure in the budget.

Rising interest rates have helped the market cool off from a record high. A number of state-run banks have raised their prime lending rates (PLRs) over the past few days after the Reserve Bank of India (RBI) raised the cash reserve ratio (CRR) by 50 basis points to rein in inflation and credit growth. An increase in PRL will raise borrowing costs for the corporate sector, as working capital loans are linked to it.

The rally has been cut short despite FIIs stepping up buying this month. The cumulative FII inflow for February 2007 has reached Rs 4707.70 crore (till 20 February compared to their inflow of Rs 492 crore in the month of January 2007).

Cement shares witnessed a sell-off in late trade today. Grasim plunged 5% to Rs 2417.75, ACC lost 3.7% to Rs 970 and Gujarat Ambuja Cements was down 3% to Rs 126.85. Cement scrips have turned bearish as the government is keeping a watch on rising cement prices. In late-January 2007, the Central Government had abolished 12.5% import duty on cement, in a bid to rein in domestic cement prices.

Ranbaxy was down 3% to Rs 370. It declined for the second day in a row, as market men continued to fret over possible equity dilution if Ranbaxy acquired Merck's generic drugs business. The stock has declined even as the company on Wednesday dismissed media reports that it was planning an issue of shares in the US, or dilution in stake by founders to fund the acquisition.

Dr Reddy’s Lab lost 3.5% to Rs 704, and Cipla shed 2.6% to Rs 247.85.

State Bank of India was down 3% to Rs 1073. Recently, the state-run bank raised its prime lending rate (PLR) by 50 basis points. Among private sector banks, HDFC Bank lost 3.7% to Rs 977 and ICICI Bank shed 1.5% to Rs 956.

Auto shares skidded. Hero Honda lost 3.4% to Rs 714, Bajaj Auto shed 2.4% to Rs 2906, Maruti Udyog shed 1.9% to Rs 883 and Tata Motors shed 1.6% to Rs 845.10.

Reliance Industries (RIL) was up 0.2% to Rs 1408.90, off the session’s high of Rs 1426. RIL has a substantial 10.8% weightage in the Sensex. As per reports, global oil major, Chevron Corporation, may assist RIL in developing an exploration block in the oil-gas rich Krishna-Godavari (KG) basin. Chevron Chief David J O’Reilly is expected to meet RIL Chairman & Managing Director Anil Ambani during the Chevron chief's Mumbai visit

Software bellwether Infosys shed 1.6% to Rs 2275 in volatile trade. As per reports in a section of the media, the software exporter could acquire Britain's SmartStream Technologies for over 100 million pounds.

Hindustan Zinc lost 0.3% to Rs 624. The company has raised lead prices 5.6% to Rs 93,100 a tonne.

Bearings maker SKF India was up nearly 3% to Rs 320, after it reported that October-December 2006 quarter net profit had tripled to Rs 31.73 crore, while total income rose 49% to Rs 382 crore.

Floriculture firm Karuturi Networks jumped 5% to Rs 248.75, after the company said on Thursday its board will meet on 1 March 2007 to consider a 1:1 bonus issue.

Sun TV was flat at Rs 1678.10. The Union Cabinet on Thursday approved foreign investment in the regional broadcaster’s direct-to-home project.

BPO firm Firstsource Solutions settled at Rs 79.60. The stock debuted at Rs 75.10 on BSE compared to the IPO price of Rs 64. Volumes in the stock were a huge 2.88 crore shares.

Steel pipe and strips maker Jindal Saw jumped 5.6% to Rs 507, after the firm said it had secured an order worth $355 million to supply arc-welded steel pipes in the US market. With this, Jindal Saw's order-book exceeds $1.5 billion.

India Cements lost 3.3% to Rs 189.90. The company today said its board will consider the merger of associate company, Visaka Cement Industry, with itself on 28 February 2007.

Madhucon Projects plunged 8% to Rs 239. The board of directors of the company today approved the proposal for a preferential issue of 18,50,000 convertible warrants of Rs 2 each, to promoters, at Rs 291 per warrant.

Ansal Infrastructure plunged 5% to Rs 595.95. Recently, the company declared a liberal 1:1 bonus issue.

Healthcare services firm, Max India, plunged 5% to Rs 1060, on worries of equity dilution after the company’s board approved raising up to Rs 1000 crore through an issue of equity shares to qualified institutional buyers. The board also approved raising the limit for foreign investment up to 49%.

Asian and European markets were firm. Key benchmark indices in London, Germany and France were up between 0.5 - 0.6%. In Asia, key benchmark indices in Hong Kong, Japan and South Korea were up between 0.7 - 1%.

US blue-chips fell on Wednesday after stronger-than-expected inflation data stirred interest-rate worries. But the Nasdaq ended at a six-year high, as investors snapped up Apple Inc and other recently pummelled technology shares, believing the sector may offer the best earnings growth.

The Dow Jones industrial average fell 48.23 points, or 0.38%, to end at 12,738.41 -- a day after it closed at yet another record. The Standard & Poor's 500 Index dipped 2.05 points, or 0.14%, to finish at 1,457.63. The Nasdaq Composite Index rose 5.38 points, or 0.21%, to 2,518.42, its highest close since March 2001.