Sensex at four-month low

A late sell-off gripped the market today and the Sensex fell headlong below the psychological 13,000 level. Index heavyweight Reliance Industries (RIL) dived and so did IT scrips, cement producers, banks and telecom shares. Traders refrained from buying ahead of the weekend.

The 30-share BSE Sensex lost 273.42 points (2.08%), to settle at 12,886.13, its lowest closing level since late-October 2006. The market had pulled off a strong intra-day rebound by early-afternoon trade, after the initial fall, following data showing a decline in inflation. The BSE Sensex had risen as many as 94.48 points, to 13,254.03, at 12:08 IST soon after the data.

The S&P CNX Nifty lost 84.45 points (2.2%), to settle at 3726.75. Nifty March 2007 futures were at 3670.50 compared to the spot Nifty closing of 3726.75.

Breadth was strong earlier during the day, but turned weak in late trading during the Sensex’s sharp fall. Against 1,717 shares declining on BSE, 890 rose. Just 51 shares were unchanged. Losers outpaced gainers by a ratio of 1.9:1. At 11:30 IST the adv/dec ratio was over 2:1. The BSE Small-Cap Index lost 67.05 points (1%), at 6,645.81. The BSE Mid-Cap Index shed 56.35 points (1%), at 5,466.24.

The BSE clocked a turnover of Rs 3993 crore compared to Thursday’s Rs 4397 crore. Turnover on NSE’s futures & options segment declined to Rs 32529 from Thursday’s Rs 33652 crore.

All sectoral indices on BSE ended in the red. The BSE Capital Goods index was the worst performer in percentage terms. It lost 273.98 points (3%), to 8,723.25. The BSE IT index lost 117.30 points (2.3%) to 4,954.05 and the BSE Oil & Gas Index lost 145.91 points (2.3%), to 6,192.91.

The market has corrected in the past few days. Weakness in global markets, concerns that rising interest rates will affect equity valuations and worries that a strong IPO pipeline may affect liquidity from secondary markets has triggered a sharp correction. From a lifetime closing high of 14652.09 on 8 February, the Sensex has lost 12%. It is down 6.5% in calendar 2007 so far.

The estimated EPS of 30-Sensex firms for FY-2008 has changed marginally due to the Budget, domestic brokerage Enam Securities notes in its post-Budget report. The brokerage has pegged FY-2008 ESP of Sensex firms at Rs 850, a 15% growth over the estimated FY 2007 EPS of Rs 738.

The education cess on all taxes has been raised by 100 basis points, the dividend distribution tax has been raised to 15% from 12.5%, and tax exemptions for certain sectors have been withdrawn in the Union Budget 2007-08. There was no removal of the 10% corporate surcharge. It was abolished only for firms with a taxable income of Rs 1 crore, or less. On the flip side, the Budget did not propose any increase in the short-term capital gains tax, as had been feared in the run-up to the day of presentation. Even the securities transaction tax (STT) remains unchanged.

The Union Budget 2007-08 allocated higher spending for infrastructure and agriculture, emphasised on fiscal consolidation, and reduced tariffs in an attempt to contain inflation. There were no significant initiatives for industry and services in the Budget.

In today’s trade, Reliance Industries shrunk 4% to Rs 1312. A strong 13.8 lakh shares changed hands in the counter on BSE. RIL has a 11.3% weightage in the Sensex. The company today called a board meeting on 10 March 2007, to consider the payment of interim dividend for FY 2007 (year ending 31 March 2007). The company has also set 22 March 2007, as a record date for paying interim dividend. The company’s announcement comes after the finance minister raised dividend distribution tax to 15% from 12.5% in Union Budget 2007-08. Paying dividend before the end of this financial year will ensure that RIL pays the existing 12.5% tax on dividend distribution.

IT shares drifted lower. IT major TCS lost 4% to Rs 1205, Infosys shed 2.8% to Rs 2093 and Wipro lost 3.4% to Rs 569. IT pivotals had surged on Thursday, recovering from Wednesday’s fall, under the reckoning that their earnings will be impacted only to a small extent following an increase in tax after the Budget.

The recovery in banks following lower inflation proved short-lived. State Bank of India lost 4.5% to Rs 1005. The stock rose as much as 2.1% to Rs 1074.90 at 12:13 IST following a dip in inflation. HDFC Bank lost 3.3% to Rs 948, and ICICI Bank shed 0.4% to Rs 851.90. The wholesale price index rose 6.05% in the 12 months to 17 February 2007, sharply lower than previous week's annual increase of 6.63% due to a fall in fuel and food prices. The figure was lower than an expected 6.25%.

Engineering & construction major L&T lost nearly 5% to Rs 1465. The stock had bounced back from the lower level on Thursday due to the Union Budget’s thrust on infrastructure.

PSU power equipment major Bhel lost 4% to Rs 2082.

Cigarette major ITC lost 3% to Rs 167. The Budget did not bring cigarettes under value added tax as was feared. Instead, excise duty on cigarettes was hiked by 5%.

Cement shares resumed their slide. Grasim lost 3.9% to Rs 2070, ACC lost 2.4% to Rs 855 and Gujarat Ambuja Cements shed 1.1% to Rs 110.50. In early trade, cement shares had firmed up.

Telecom shares, too, edged lower. Bharti Airtel lost 3.3% to Rs 703 and Reliance Communications shed 2.9% to Rs 415.50.

Eicher Motors lost 3.7% to Rs 335. The company said on Friday its sales rose 19% to 2,622 units in February 2007. Domestic sales grew 20% to 2,477 units, while exports rose 9% to 145 units, the company said in a statement.

M&M was down 3.7% to Rs 775. The company today launched the new Bolero, a sports utility vehicle. The new Bolero has been styled with a wide array of interior and exterior features that appeal to the younger generation of car lovers, it said.

Karuturi Networks lost 5% to Rs 182.10. The company’s board today recommended a 1:1 bonus issue.

Havell's India lost 1.1% to Rs 444.65. It came off the day's high of Rs 487.15, after it called off a news conference scheduled for Friday. The shares had risen more than 8% earlier in the day on talk that the company was likely to announce an acquisition.

Sugar shares edged up on firm international prices for sugar futures on Thursday. Bajaj Hindustan rose 2.5% to Rs 179.05, Balrampur Chini Mills gained 2.6% to Rs 62.10 and EID Parry rose 3% to Rs 125.50. The New York Board of Trade's May raw sugar contract rose 3.8% and London's May sugar futures closed up 3.5%.

Jindal Steel & Power lost 0.5% to Rs 2339.90. The company on Thursday reached an agreement with the Bolivian Government on the conditions for Jindal's $2.1 billion investment in the El Mutun iron ore deposit.

Jaiprakash Associates gained 2.6% to Rs 548.40. The board of Jaiprakash Associates has approved raising the ceiling for FIIs in the company to 45% of the equity capital.

European markets slipped into the red after an initial firm trend. London’s FTSE 100 Index was down 0.2%, and CAC 40 Index in France was down 0.3. Asian markets were mixed. Chinese shares rose across the board on Friday, led by real estate, as profit-taking in highly valued financial shares eased after this week's massive selling. The Shanghai Composite Index was up 1.2%. But Japan’s Nikkei 225 average was down 1.3%. Hong Kong’s Hang Seng was up 0.4%.

Although the US market ended in the red on Thursday (1 March), it finished well off lows thanks to an upbeat US manufacturing report, which assuaged some concerns about the world's largest economy. The Dow Jones industrial average closed down 34.29 points, or 0.28%, at 12,234.34. The Standard & Poor's 500 Index finished down 3.65 points, or 0.26%, at 1,403.17. The Nasdaq Composite Index fell 11.94 points, or 0.49%, at 2,404.21

In the short term, domestic bourses will continue to track global bourses. The Japanese currency yen is trading near a 10-week high against the US dollar after a sell-off in emerging-market stocks prompted some investors to cut carry trades, where they borrow cheaply in Japan and invest in countries with higher yields.

Risky high-yielding investments financed with the yen have been losing favour since a massive decline in the main Chinese stock index on Tuesday (27 February), and after worries about the US housing market on Tuesday sent the US blue-chips on their biggest daily decline since the 9/11 attacks on the twin towers of the World Trade Center in New York City. Investors are watching global stock markets intensely for indications of investor appetite for risk.

FIIs have pressed substantial sales over the past few days. Foreign funds were net sellers to the tune of Rs 438.70 crore on Thursday (1 March 2007), the day when the Sensex rose 221 points. As per provisional data, FIIs were net sellers of equities valuing Rs 613 crore today