Market extends recovery, albeit on low volumes

The market edged higher for the second day in a row, tracking firm Asian markets. Volumes were low for the second successive day, an indication that there was lack of conviction in the recovery. Volatility was high in IT, telecom shares and index heavyweight Reliance Industries (RIL). Banks and cement shares also gained.

The 30-share BSE Sensex gained 60.95 points (0.48%), to settle at 12,705.94. The benchmark index had pared gains after a solid mid-afternoon surge of 153.81 points, to 12,798.80.

The domestic bourses had retained strength till early-afternoon trade, adding about 100 points for the day till then. However, a fall out of the blue found the Sensex hovering at 12,674.77 by 13:07 IST, just 29.78 points ahead for the day, the low from which the barometer index bounced back in mid-afternoon trade.

The Bank of Japan (BOJ) today decided to keep interest rates unchanged at 0.5%. BoJ Governor Toshihiko Fukui stuck to previous comments by saying the bank would adjust rates gradually. Asian shares were mostly in the green. Japan’s Nikkei ended almost 1% higher. Key benchmark indices in Hong Kong, China, Singapore and South Korea were up between 0.05 - 0.5%.

The S&P CNX Nifty gained 18.70 points (0.51%), to settle at 3,697.60. Nifty March 2007 futures were at 3,672 compared to the spot Nifty closing of 3,697.60.

The BSE clocked a turnover of Rs 2841 crore compared to Monday’s Rs 2676 crore. Monday’s turnover of Rs 2676 crore was the lowest in nearly five months, since late-October 2006.

As per provisional data released by NSE, FIIs were net buyers to the tune of Rs 147 crore today.

The market-breadth was positive. Against 1,367 scrips rising on BSE, 1,201 declined. A total of 67 shares were unchanged. Gainers outpaced losers by a ratio of 1.13:1. However, the breadth weakened in late trading, when the Sensex pared gains from a strong mid-afternoon surge. The advance-decline ratio was at about 1.47:1 at about 14:45 IST.

The Sensex had posted weekly losses for five consecutive weeks up to Friday (16 March 2007). Global volatility had impacted the domestic bourses since late-February 2007. This period also coincided with the Union Budget 2007-08 announced on 28 February 2007, which sank a million hearts.

The bulls were looking for some sops like a cut in corporate surcharge for a post-Budget rebound, which did not materialise. Instead, the dividend distribution tax was raised in the Union Budget 2007-08. The Sensex had tumbled a massive 541 points on Budget day after the government raised direct/indirect taxes for IT, construction and cement sectors. The steep fall on the day of the Budget was also partly due to a global sell-off.

In the near term, the domestic bourses are likely to track global markets. US Federal Reserve’s two-day meeting ends on Wednesday (21 March 2007). The Fed is expected to keep interest rates unchanged. Analysts keenly await the Fed’s accompanying statement for cues to the US economic outlook. Global liquidity still remains strong.

The next major trigger for the domestic bourses is Q4 March 2007 earnings, reports of which by corporates will start next month. Market men will closely watch what company managements have to say about the outlook for FY 2008.

Among sectoral indices, BSE’s banking sector index, the Bankex, was the top gainer today. It rose 73.08 points (1.18%), to settle at 6,291.27. The BSE Healthcare Index gained 39.33 points (1.13%), to close at 3,525.45. But the BSE IT Index lost 29.07 points (0.59%), to settle at 4,938.28.

Volatility may rise over the next few days ahead of the expiry of the March 2007 derivative contracts next Thursday (29 March 2007). With the market scheduled to remain closed next Tuesday (27 March) for a public holiday, only six trading sessions are left before the expiry of the March 2007 contracts.

Sensex heavyweight Reliance Industries gained 0.5% to, Rs 1,321.05 on market speculation it may form a joint venture with US-based Dow Chemical Co. The scrip moved between a low of Rs 1318 and a high of Rs 1332.05 compared to Monday’s closing of Rs 1314.

Bank shares edged up on short-covering in the derivatives segment. HDFC Bank gained 2.8% to Rs 953 and State Bank of India rose nearly 3% to Rs 955. Traders had built short positions in leading bank counters last week.

Strong capital inflows powered the Indian rupee to an 18-month high against the dollar on Tuesday. At noon, the rupee stood at 43.98/99 per dollar, having hit a high of 43.9225 per dollar, its strongest since late-September 2005. It had closed at 44.11/12 on Friday. The rupee market was closed on Monday (19 March 2007) for a holiday.

The rupee’s rise weighed on IT shares. Infosys shed 1.6% to Rs 2052. Wipro shed 1.3% to Rs 571.25 and TCS shed 0.8% to Rs 1250. TCS and Wipro fluctuated between positive and negative territory during the day. IT shares derive a lion’s share of their revenue in dollar terms. A higher rupee, therefore, may lead to a fall in their revenue and profits to that extent.

Ranbaxy surged 5.6% to Rs 334.60, on a report that the company had pulled out of the bidding war for Merck's generic-medicines unit, citing high valuations. The company exited the race on concerns that the acquisition would not add to earnings, a television report said. As many as 8.6 lakh shares changed hands in the counter on BSE.

Cement shares edged up on a report that the government may offer a five-year tax break to cement plants set up after 1 April 2007. Grasim rose almost 4% to Rs 2123.50, Gujarat Ambuja Cements gained 3.3% to Rs 110.90 and ACC was up 0.3% to Rs 742.

Hero Honda lost 0.7% to Rs 635.30, on reports that Honda Motorcycle & Scooters India, a wholly-owned subsidiary of Japan’s Honda proposes to entry-level 100-cc motorcycle segment. Hero Honda currently generates over 75% of its sales volume from the entry-level segment.

Tea shares extended Monday’s strong gains on the back of rising tea prices. Jayshree Tea jumped 10% to Rs 135, Ledo Tea gained 7% to Rs 49.90, Asian Tea gained 7% to Rs 32, Bombay Burmah Trading surged 5% to Rs 312.95, Harrisons Malayalam rose 5% to Rs 76.10, Mcleod Russel rose 5% to Rs 70.90 and Goodricke Group gained 5% to Rs 72.15.

Chemicals and pesticides maker United Phosphorus rose 1.5% to Rs 314.50 after its unit, Advanta India, set a price band of Rs 600 - Rs 650 for its 3.38-million-share initial public offering (IPO).

Essar Shipping lost 6.4% to Rs 40.15, after it said an offer from its parent, Essar Shipping & Logistics, to buy shares from the public and delist had failed.

Torrent Pharmaceuticals rose 2.5% to Rs 198. As per a report, the company had bid for the generic drugs unit of Merck KGaA along with unnamed private equity firms.

IVRCL Infrastructures rose nearly 4% to Rs 290, after the company said it was allotted 33 acres (13.36 hectares) of land for Rs 228 crore at Noida, outside New Delhi.

Astral Poly Technik ended at Rs 104.55 on the first day, a 9 % discount over the IPO price of Rs 115. It got listed at Rs 115, which also remains the high for the day. The scrip also hit a low of Rs 100.20. As many as 54.19 lakh shares changed hands in the counter on BSE.

Astral Poly Technik had entered the capital market with a public issue of 29,71,000 equity shares of Rs 10 each, at a fixed price of Rs 115 per equity share, aggregating Rs 3416.65 lakh. The company also had a pre-IPO placement of 4,00,000 shares at Rs 104, which was nearly 10% lower compared to the IPO price of Rs 115.

Astral Poly Technik is a manufacturer and provider of CPVC (Chlorinated Poly Vinyl Chloride) piping and plumbing systems in India since 1999, having production facilities at Gujarat & Himachal Pradesh (HP). The company has a techno-financial (14% post-issue equity stake) joint venture with Specialty Process, USA, for technical expertise for CPVC pipes and fittings for home and industrial application.

IFCI clocked 1.39 crore shares on BSE, and was the top-traded counter in terms of volumes on the bourse. The scrip shed 2.2% today, to settle at Rs 26.20.

The undercurrent on the bourses remains cautious due to high inflation and rising interest rates. Strong industrial production data released early last week makes a strong case for the Reserve Bank of India (RBI) to raise interest rates at its annual policy review for FY-2008 on 24 April 2007. Industrial output rose 10.9% in January 2007 from a year earlier. The wholesale price index rose 6.46% in the 12 months to 3 March 2007, up from the previous week's annual increase of 6.10% due to higher edible oil and naphtha prices.

The long-term India story remains intact. India’s long-term growth drivers are a favourable demography (large share of young population), robust domestic consumption and an acceleration in infrastructure creation.