Sensex scales two-month high as market shrugs off monetary tightening by RBI

The market which had declined yesterday ahead of the Reserve Bank of India's annual monetary policy review, bounced back today after the central bank kept interest rates unchanged. Rate sensitive banking, auto and realty stocks surged. IT stocks surged after the Finance Minister extended tax exemption for the IT sector by a year. Metal stocks rose. The market breadth was strong.

The central bank raised the cash reserve ratio (CRR) by 25 basis points and the stance of its monetary policy was hawkish. The market had witnessed a bout of volatility earlier in the day ahead of monetary policy announcement.

Asian markets which opened before Indian market were mixed. European markets which opened after Indian markets were mixed.

The 30-share BSE Sensex jumped 362.50 points or 2.13% at 17,378.46. Sensex hit a high of 17,424.94 in late trade, its highest level in two months. At the day’s high, Sensex rose 408.98 points. Sensex hit a low of 17011.60 in mid-morning trade. At day's low Sensex fell 4.36 points.

The broader based S&P CNX Nifty was up 105.85 points or 2.08% at 5,195.50

From a recent low of 16698.04 on 23 April 2008, Sensex has gained 680.42 points or 4.07% to 17378.46 on 29 April 2008. From a low of 14809.49 on 17 March 2008, Sensex has risen 2568.97 points or 17.34%. The barometer index is off 3828.31 points or 18.05% from a all time high of 21206.77 struck on 10 January 2008.

The turnover on BSE stood at Rs 7262 crore as compared to a turnover of Rs 5544.33 crore on Monday, 28 April 2008. Turnover in NSE's futures & options (F&O) segment spurted to Rs 41,819.49 crore, as compared to Rs 25,459.22 crore on Monday, 28 April 2008.

Nifty May 2008 futures were at 5217.40, a premium of 21.90 points as compared to spot closing of 5,195.50.

The CRR is the percentage of banks' deposits which they must keep as cash with the central bank. It may be recalled that RBI had earlier this month announced a two-stage rise in CRR to 8%.

The Reserve Bank of India (RBI) said managing liquidity would continue to receive priority in its policy objectives and warned it would act swiftly to curb any signs of adverse developments in inflation expectations.

RBI has forecast economic growth of 8% to 8.5% in the fiscal year that began this month, after an estimated 8.7% growth in 2007/08. RBI said it aims for inflation of around 5.5% this fiscal year with the goal of lowering it close to 5% as soon as possible.

The market breadth was strong on BSE with 1588 shares advancing as compared to 1121 that declined. 61 remained unchanged.

The BSE Mid-Cap index rose 1.13% to 7146.95 and BSE Small-Cap index rose 0.87% to 8,785.31.

BSE Realty index (up 5.9% to 8,650.24), BSE Metal index (up 3.64% to 16192.97), BSE IT index (up 5.24% to 4237.81), BSE Consumer Durables index (up 2.81% to 4585.97), outperformed Sensex.

BSE Oil & Gas index (up 2.02% to 11661.26), BSE Bankex (up 1.68% to 8,964.75), BSE PSU index (up 1.65% to 8008.99), BSE Auto index (up 1.52% to 4,646.62), BSE Capital Goods index (up 1.28% to 13931.17), BSE HealthCare index (up 0.78% to 4,248.62), BSE Power index (up 0.96% to 3,336.34) and BSE FMCG index (up 0.52% to 2,412.61) underperformed Sensex

As per the provisional figures, foreign institutional investors (FII)s bought shares worth Rs 232.18 crore today 29 April 2008 and domestic funds bought shares worth Rs 403.27 crore.

Realty stocks surged in late trade. Indiabulls Real Estate (up 3.06% to Rs 557.35), DLF (up 8.57% to Rs 725.85) and Unitech (up 8.18% to Rs 317.50) rose.

IT stocks surged. Satyam Computer Services (up 8.22% to Rs 479.35), Infosys (up 5.15% to Rs 1,750.75), Wipro (up 4.7% to Rs 479.20) and Tata Consultancy Services (up 3.15% to Rs 910.80) edged higher.

Finance Minister Palaniappan Chidambaram extended by a year a tax holiday scheme for export-driven software companies as he outlined some changes to the federal budget for 2008-09. The scheme for facilities based in technology parks was set to expire in March 2009.

Metal stocks rose. Tata Steel (up 4.01% to Rs 808.90), National Aluminium Company (up 4.37% to Rs 458.70), Hindalco Industries (up 6.44% to Rs 198.20), Steel Authority of India (up 2.08% to Rs 179.40), Sterlite Industries (up 4.77% to Rs 898.85) edged higher.

Finance Minister P Chidambaram today said government will impose export tax on basmati rice and some steel products, and cut import duties on key inputs like ferro alloys and metallurgical coke. He said the measures were being taken to improve domestic supplies and to moderate prices.

Banking stocks surged after the RBI's policy announcement. State Bank of India (up 3.27% to Rs 1,793.50), HDFC Bank (up 1.95% to Rs 1,547.50) and ICICI Bank (up 0.71% to Rs 901.30) edged higher.

Auto Stocks edged higher. Mahindra & Mahindra (up 1.17% to Rs 642.70), Tata Motors (up 1% to Rs 639.95) Maruti Suzuki India (up 1.24% to Rs 731.30), Hero Honda Motors (up 5.34% to Rs 861.85), rose.

HDFC (up 5.95% to Rs 2881.45), Larsen & Toubro (up 2.09% to Rs 3007.40) Jaiprakash Associates (up 5.95% to Rs 266.10), Ambuja Cements (up 1.32% to Rs 114.85), Bharat Heavy Electricals (up 1.29% to Rs 1891.85), Reliance Industries (up 2.35% to Rs 2,653) edged higher from Sensex pack.

Hindustan Unilever rose 1.48% to Rs 250.85. Net profit of Hindustan Unilever declined 3.04% to Rs 380.95 crore on 19.14% rise in sales to Rs 3793.94 crore in Q1 March 2008 Q1 March 2007. The board of the company has approved the change in the financial year to April-March.

Reliance Communications declined 1.73% to Rs 574.70 while Bharti Airtel fell 2.67% to Rs 904.50. Reliance Communications said on Monday, 28 April 2008, it would offer unlimited national long distance calls within its network for a fixed rental with immediate effect. Earlier yesterday, sector leader Bharti Airtel slashed long distance and roaming tariffs by 43% effective 30 April 2008.

Reliance Natural Resources clocked the highest volume of 2.15 crore shares on BSE. Ispat Industries (1.71 crore shares), IFCI (1.56 crore shares), Indiabulls Securities (1.51 crore shares) and Reliance Petroleum (1.47 crore shares) were the other volume toppers in that order.

Reliance Capital clocked the highest turnover of Rs 317.11 crore on BSE. Sesa Goa (Rs 309.43 crore), Reliance Petroleum (Rs 295.31 crore), Reliance Natural Resources (Rs 270.24 crore) and Reliance Industries (Rs 231.64 crore) were the other turnover toppers in that order.

It its latest report on macroeconomic and monetary developments in 2007/08 released on Monday, 28 April 2008, RBI has said that the global food prices were likely to remain firm as supply side pressures did not appear to be abating. The central bank said steps takes by the government to rein in prices should help curb inflation. It, however, said the inflation risks on account of oil prices remain incipient.

RBI has noted that freely priced fuel items such as naphtha had increased substantially since February 2007 alongside rising global oil prices, while prices of petrol and diesel, which are government-controlled, had partially adjusted. But prices of kerosene and cooking gas had not been raised by the government for several years.

RBI felt there were some demand-side pressures. Domestic iron and steel prices saw a sharp increase in line with recent hardening in international steel prices, it said, while cement price rises could be attributed largely to strong demand from construction domestically. A survey of professional forecasters by the central bank showed that the Indian economy is expected to grow 8.1% in the 2008/09 fiscal year that began this month. In 2007/08, the gross domestic product is estimated to have grown 8.7%.

A cause for concern is the fall in business confidence index. A survey of 392 companies by Federation of Indian Chambers of Commerce and Industry (FICCI), showed that concerns about an economic slowdown, inflation and rising costs hurt business confidence of Indian firms during October-December 2007 period. The FICCI business confidence index declined to a new five-year low of 55.3 points in the third quarter of 2007/08, from 61.2 in the previous quarter.

On the flip side, a pointer to the fact that the long term India growth story remains intact is the outcome of the latest 2008 US-India Business Council (USIBC) survey, according to which, India is, and will continue to be, a premier destination for investment by US firms, with a large number of respondents rating future economic growth in India as highly sustainable. Meanwhile, the Lok Sabha is slated to pass the Finance Bill 2008-09 today, 29 April 2008.

The two-day US Federal Reserve policy meeting ends on Wednesday, 30 April 2008. The market expects the Fed to cut interest rates by 25 basis points to 2% and then signal that its rate-cutting cycle may be over for now in the face of mounting global energy and food inflation pressure.

US stocks ended flat on Monday, 28 April 2008, as a $23 billion takeover of Wm Wrigley Jr Co, the world's largest chewing gum maker, by Mars Inc, the maker of M&Ms candy, helped offset downbeat comments by influential investor Warren Buffett about the economy. Buffett said US could be mired in a longer and deeper recession than most people think.

Asian stocks were mixed today. Key benchmark indices in Hong Kong and China were up by between 1.05% to 1.4%. Key benchmark indices in Singapore, Taiwan and South Korea were down by between 0.64% to 2.07%. Japanese markets were closed for a national holiday.

European markets were mixed. France’s CAC 40 and Germany’s DAX and were down between 0.35%-0.56% while UK’s FTSE 100 rose 0.4%.