S&P CNX Nifty settles below 5,000 mark

Relentless selling in realty, oil & gas and metal stocks spooked sell-off in late trade, erasing early gains. Weak Asian and European markets also played the spoilsport. The S&P CNX Nifty settled below the physcological 5,000 mark, after closing above that level for six consecutive sessions. The market breadth was weak on BSE.

The 30-share BSE Sensex settled 257.47 points or 1.52% lower at 16,649.64 after registering 147.23 point gain at day’s high of 17,054.34 and 281 point loss at day’s low of 16,626.11. The day's high and low were hit during early and late trade respectively.

The broader based S&P CNX Nifty was down 78.9 points or 1.57% at 4,946.55. Nifty May 2008 futures were at 4945.20, a marginal discount of 1.35 points as compared to spot closing. Nifty May 2008 futures are set for expiry on Thursday, 29 May 2008.

The NSE's futures & options (F&O) segment turnover slipped to Rs 41,317.97 crore, as compared to Rs 45076.17 crore on Thursday, 22 May 2008.

The BSE Mid-Cap index declined 1.59% to 6,937.11 and BSE Small-Cap index declined 1.69% to 8,517.43. Both these indices underperformed Sensex.

The BSE clocked a turnover of Rs 5,358 crore today as compared to Rs 6,106.27 crore on 22 May 2008.

Securities Exchange Board of India (Sebi)'s plan to keep in abeyance the imposition of upfront margins for institutional trades in the cash market. Securities & Exchange Board of India (Sebi) had earlier asked institutional investors to pay upfront margins from 16 June 2008. In the light of difficulties expressed by the market participants regarding implementation of upfront margining of institutional trades in the cash market, it has been decided to keep the same in abeyance, Sebi said in a circular issued to stock exchanges.

Inflation based on the whole price index rose 7.82% in the year through 10 May 2008, marginally lower than 7.83% rise in the previous week, government data released today, 23 May 2008, showed. Meanwhile, inflation for the year through 15 March 2008 was revised upwards to 8.02% compared to provisional figure of 6.68%.

The market breadth, which was strong during first half of the day, settled weak. On BSE, 795 shares advanced as compared to 1,924 that declined and 71 remained unchanged.

Among the 30-member Sensex pack, 25 declined while the rest advanced.

Among the sectoral indices, the BSE Realty index (down 2.38% at 7,510.14), BSE FMCG index (down 2.15% at 2,387.47), BSE Oil & Gas index (down 2.15% to 10,975.26), BSE Metal index (down 2.08% to 16,795.80), BSE IT index (down 1.75% to 4,340.98), BSE Bankex (down 1.72% at 8,232.16), BSE PSU index (down 1.69% to 7,524.44) underperformed Sensex.

While the BSE Auto index (down 1.39% at 4,619.90), BSE Capital Goods index (down 1.12% at 13,192.42), BSE Consumer Durables index (down 1.04% to 4,584.46), BSE TecK index (down 0.98% to 3,454.97), BSE Power (down 0.93% to 3,202.79), BSE Health Care index (up 0.02% at 4,229.03) outperformed Sensex.

Interest rate sensitive realty stocks declined, while banking shares were mixed. Indiabulls Real Estate (down 4.3% to Rs 490.45), DLF (down 1.76% to Rs 609.75) and Unitech (down 2.04% to Rs 268.25) edged lower from real estate pack.

Banking stocks fell after inflation data. India’s largest private sector bank by net profit ICICI Bank (down 1.89% to Rs 863.75) and State Bank of India (down 2.1% to Rs 1,573.25) edged lower. However HDFC Bank rose 0.25% to Rs 1,383.35.

Oil & Gas stocks declined on profit booking after steady rally in past few days. Cairn India (down 4.05% to Rs 306.45), ONGC (down 2.41% to Rs 902.05) and Reliance Industries (down 2.39% to Rs 2,554.80) edged lower.

Metal stocks were weak. Sterlite Industries (down 4.96% to Rs 903.20), Hindalco Industries (down 2.38% to Rs 192.95), Tata Steel (down 1.32% to Rs 896.50) and Steel Authority of India (down 1.57% to Rs 172.95) , National Aluminium Company (down 0.45% to Rs 528) edged lower.

FMCG stocks fell. ITC declined 4.48% to Rs 213.05. The company posted 13.05% rise in net profit to Rs 735.64 crore on 17.95% rise in total income to Rs 4,098.07 crore in Q4 March 2008 over Q4 March 2007. Tata Tea (down 1.91% to Rs 899.95), Dabur India (down 1.61% to Rs 94.75) edged lower.

Bharti Airtel (up 2.35% to Rs 836.80), HDFC (up 1.96% to Rs 2,678.30), Cipla (up 0.2% to Rs 203.50), Hindustan Unilever (up 0.32% to Rs 235.75) edged higher from the Sensex pack.

Tata Motors (down 3.57% to Rs 637.85), Jaiprakash Associates (down 3.43% to Rs 237.65), Reliance Infrastructure (down 2.42% to Rs 1,291), Reliance Communicatios (down 2.11% to Rs 572.30), edged lower from Sensex pack.

India’s largest IT exporter by sales Tata Consultancy Services (TCS) declined 2.4% to Rs 933.70. It has reportedly won a contract, estimated to be worth more than Rs 1000 crore, for processing Indian passport applications.

India’s largest tractor maker by sales Mahindra & Mahindra was down 0.07% to Rs 651.90. Private equity ICICI Venture is reportedly partnering Mahindra & Mahindra in its bid to acquire Belgian gear maker VCST Industrial Products in a deal valued around 250 million euros.

Ispat Industries clocked the highest volume of 3.57 crore shares on BSE. IFCI (1.67 crore shares), Aishwarya Telecom (1.11 crore shares), Idea Cellular (92.15 lakh shares) and Reliance Natural Resources (81.43 lakh shares) were other volume toppers in that order.

Reliance Capital clocked the highest turnover of Rs 283.43 crore on BSE. Cairn India (Rs 175.73 crore), Reliance Industries (Rs 151.06 crore), Reliance Power (Rs 138.29 crore) and Ispat Industries (Rs 126.68 crore) were other turnover toppers in that order.

European markets were weak. Key benchmark indices from France, Germany and UK were down between 0.48% to 1.05%.

Most of the Asian markets were in red. Key benchmark indices in Japan, rose by 0.24%. Key benchmark indices in Singapore, Hongkong, Taiwan China and South Korea were down by between 0.36% to 1.92%.

US stocks rose modestly on Thursday, 22 May 2008, after two days of steep declines as energy prices pulled back from record highs and a proposed acquisition in the utilities sector buoyed optimism. The Dow rose 24.43 points, or 0.19% to close at 12,625.62. The Standard & Poor's 500 Index climbed 3.64 points, or 0.26%, to 1,394.35, while the Nasdaq Composite Index was up 16.31 points, or 0.67%, at 2,464.58.

Earnings downgrade amid rising input and interest costs, high inflation and drying up of global liquidity due to credit crisis remain major concern for the Indian stock market. In a bid to rein in inflation, the Reserve Bank of India, on Tuesday, 29 April 2008, raised cash reserve ratio (CRR) by 25 basis points to 8.25%, to suck out excess liquidity in the banking system, in its annual monetary policy review.

With parliamentary elections scheduled next year (May 2009), the government may leave no stone unturned in its attempt to tame inflation. This is bad news for commodity scrips such as cement and steel. Cement maker ACC said earlier this months that its margins will be hurt by a decision to hold its prices for 2 to 3 months that was taken after the government asked cement firms to help contain price pressures. The government recently imposed export tax on basmati rice and some steel products, and cut import duties on key inputs like ferro alloys and metallurgical coke. The government had earlier banned export of cement and non-basmati rice. On 7 May 2008, the government ordered suspension in futures trading in channa, refined soyoil, potato and rubber for four months.

Meanwhile, as per a recent study by CLSA, large amount of foreign currency convertible bonds (FCCBs) issued by Indian companies are coming up for redemption in the next 18-24 months. After recent stock market volatility many FCCBs are at risk of not converting i.e. if the stock market remains subdued, it will stop the bond holders from opting for an equity conversion as it will be easier for them to buy the stock from the open market instead of paying the agreed premium.

When the FCCBs come for redemption, some of these companies may have to take on more debt to redeem the FCCB, thereby raising interest outgo. In the event FCCBs don't get converted, companies have the option to lower the conversion price in line with the market, leading to higher equity dilution. If companies decide to issue fresh FCCBs to finance redemption of FCCBs, it will be at lower premium than earlier.

With the rupee tumbling against the dollar in the last few days, the government may ease restrictions on overseas corporate borrowing when it, together with the RBI, reviews the external commercial borrowing (ECB) policy later this month, reports suggest. Last year, the government had imposed restrictions on ECBs in a bid to check in surge in rupee against the dollar. There are many Indian corporates who will eagerly seek cheap overseas funds if the RBI re-opens the ECB tap, analysts reckon.

The structural growth drivers of the Indian economy remain intact – India’s economy is expected to witness a decent-to-strong growth for a long period of time due to favourable demographics. Acceleration in infrastructure creation will be another driver of strong growth in India’s economy. A CLSA report says India’s infrastructure development is set to accelerate, backed by greater private sector participation and improved finances of government and public sector enterprises. Rating agency Crisil in its outlook for Indian economy for the year through March 2009 has stated that the overall growth scenario is expected to remain strong with investment as the main driver.

Given the continued inflow to unit linked insurance plans (Ulips) and equity linked savings schemes (ELSS) of mutual funds, stock-specific buying will continue depending on fundamentals of individual stocks. Insurance firms are now a major player in the Indian stock market given the huge mop up in Ulips in recent years. It was buying support from domestic funds which had aided the recent recovery on the bourses.

Meanwhile, as per recent reports, ELSS which offer tax benefit are catching the fancy of small savers. ELSS funds saw their collective assets jump more than nine times to about Rs 16000 crore in three years ending March 2008. In 2005 the investment limit eligible for income tax breaks was raised ten times to Rs 1,00,000 rupees for ELSS funds. Systematic investment plan (SIP) are said to be driving inflows into ELSS funds.