Sensex vaults 703 points on hopes government may retain power

The market staged a solid rebound today with the 30-share BSE Sensex clocking its biggest intra-day gain since 25 March 2008. Sensex gained 702 points, recouping nearly half of 1,460.14 points it had lost in previous three trading sessions. Volatility was high today. The Sensex and the S&P CNX Nfity had slumped to its lowest level in nearly 15 months in mid-morning trade after strong opening.

The recovery on the bourses came partly on hopes the Congress-led United Progressive Alliance (UPA) government may be able to retain power on reports Samajwadi Party (SP) is likely to provide support to the government at a time when Left parties are on the verge of withdrawing support to the government over Indo-US nuclear deal. SP has 39 seats in parliament, compared with 59 seats for the communist parties. The ruling coalition needs the support of 44 lawmakers to reach a majority and it hopes to also win support from a few smaller parties.

Consumer durable, banking, IT and capital goods stocks rose while FMCG stocks fell. FMCG index was the lone loser from sectoral indices on BSE. Realty stocks which were battered earlier in the day, bounced back sharply. DLF surged more than 15% on buyback plans. Reliance Infrastructure and HDFC rose more than 10%. The market breadth turned strong later in the day in contrast to a weak breadth earlier in the day.

Gains in European markets, which opened after Indian market, also aided today's rebound on the domestic bourses. Key benchmark indices in France, Germany and UK were up between 0.69% to 1.56%. European stocks rose after Deutsche Bank said it expects to make a profit in the second quarter of the year and therefore did not need to turn to shareholders for extra cash. Asian markets which opened before Indian market were in red.

Surging global crude oil prices, high inflation, higher interest rates and political uncertainity have rattled India bourses over the past few days. The barometer index BSE Sensex had plunged 1,460.14 points, a fall of more than 10% in the past three trading sessions to 12,961.68 on 1 July 2008 from 14,421.82 on 26 June 2008.

Oil, India's biggest import, rose more than $1 a barrel on Wednesday, 2 June 2008, within sight of Monday (30 June 2008)'s record high above $143. Oil has risen more than 40% in calendar 2008 so far and it is the key reason for the turmoil of Indian equities.

The 30-share BSE Sensex today surged 702.94 points or 5.42% at 13,664.62. At the day’s high of 13,711.01 hit in late trade, the Sensex rose 749.33 points, the biggest intra-day gain since 25 March 2008. Sensex hit a low of 12,822.75 in mid-morning trade, its lowest level in nearly 15 months. Sensex lost 138.93 points at the day's low.

The broader based S&P CNX Nifty was up 196.6 points or 5.05% at 4,093.35. Nifty had hit a low of 3,848.25 earlier in the day, its lowest level in nearly 15 months.

From a record high of 21,206.77 hit on 10 January 2008, Sensex has lost 7,542.15 points or 35.56%. It is down 6,622.37 points or 32.64% in calendar year 2008 so far.

The market breadth turned strong from earlier weak breadth on BSE with 1,586 shares advancing as compared to 1,094 that declined. 57 remained unchanged.

From the Sensex pack 28 stocks were trading in green.

The BSE Mid-Cap index rose 3.3% to 5,311.30 and BSE Small-Cap index climbed 1.91% to 6,506.80. Both these indices underperformed Sensex.

BSE Realty index (up 12.22% at 4,731.19), BSE Bankex (up 6.02% at 5,919.63), BSE Metal index (up 5.96% to 13,239.02), The BSE Capital Goods index (up 5.89% at 10,318.14), BSE IT index (up 5.77% to 4,177.75), BSE Power (up 5.72% to 2,280.21), BSE Consumer Durables index (up 5.52% to 3,512.52), outperformed Sensex.

BSE FMCG index (down 1.1 % to 1,999.15), BSE Health Care index (up 2.29% at 4,167.31), BSE Auto (up 2.6% at 3,498.05), BSE PSU index (up 3.78% to 5,668.68), The BSE Oil & Gas index (up 5.28% to 9,195.29), BSE TecK index (up 5.4% to 3,109.76), underperformed Sensex.

Realty stocks surged in late trade on bargain hunting at lower levels. BSE Realty index surged 12.22% to 4,731.19. From a recent high of 6,099.19 hit on 17 June 2008, BSE Realty index had slumped 30.87% to 4,215.93 on 1 July 2008. India’s largest real estate firm by market capitalisation DLF rose 15.08% to Rs 423.95 after the company said its board will meet on 10 July 2008 to consider proposal for buyback of equity shares of the company.

Unitech (up 7.21% to Rs 171.10), and Indiabulls Real Estate (up 14.27% to Rs 286.20) edged higher.

Consumer durables stocks rose. Videocon Industries (up 11.24% to Rs 282.15), Rajesh Exports (up 9.07% to Rs 54.70), Titan Industries (up 4.26% to Rs 1,043.20) edged higher.

Capital goods stocks rose. Bharat Heavy Electricals (up 5.24% to Rs 1,426.25), Larsen & Toubro (up 7.33% to Rs 2,297.15), Suzlon Energy (up 1.76% to Rs 199.45), Praj Industries (up 13.75% to Rs 170) edged higher.

Banking stocks rose after recent steep fall. HDFC Bank (up 5.66% to Rs 1,020.55), State Bank of India (up 5.33% to Rs 1,079.25) and ICICI Bank (up 5.68% to Rs 623) edged higher. Recently most of the banks had raised their lending rates after the Reserve Bank of India tightened monetary policy last week to tame inflation.

FMCG Stocks declined. BSE FMCG index was the lone loser from sectoral indices on BSE. ITC (down 2.1% to Rs 179.60), and United Spirits (down 3.49% to Rs 1,153.30) edged lower. However Hindustan Unilever rose 1.24% to Rs 200.15.

IT stocks rose as rupee hovered near 15-month low against the dollar. Satyam Computer Services (up 7.18% to Rs 463.30), Infosys (up 6.45% to Rs 1,820.60), Wipro (up 5.73% to Rs 439.90), Tata Consultancy Services (up 3.68% to Rs 877.95) edged higher. A weak rupee augurs well for IT pivotals as they derive majority of their revenue from exports to the US.

India’s largest private sector company in terms of market capitalisation and oil refiner Reliance Industries (RIL) rose 4.84% to Rs 2,143.10.

Reliance Infrastructure (up 12.6% to Rs 790.50), HDFC (up 11.10% to Rs 2,039.20), Jaiprakash Associates (up 7.03% to Rs 144.70), Mahindra & Mahindra (up 6.57% to Rs 469), edged higher from Sensex pack.

India’s largest state run oil exploration firm by sales ONGC rose 8.12% to Rs 854.45. ONGC Videsh (OVL), the wholly-owned subsidiary of ONGC, is reportedly one of the 41 global oil firms to be shortlisted by the Iraqi government to develop its oil fields. OVL is also re-negotiating earlier exploration commitments given under the Saddam Hussein regime and later cancelled by the US.

India’s largest drugmaker by sales Ranbaxy Laboratories rose 2.9% to Rs 521.40. Two manufacturing facilities of Ranbaxy Laboratories are reportedly learnt to have come under the scanner of the US Food and Drug Administration (US FDA), the drug regulatory body in the US. According to reports, US FDA carried out inspections at Ranbaxy’s manufacturing plant at Dewas (Madhya Pradesh) and Batamandi (Himachal Pradesh) earlier this year. US FDA is learnt to have raised concerns over cross contamination at the Dewas plant.

India’s largest commercial vehicle maker by sales Tata Motors rose 1.21% to Rs 413.40 after the company said high input costs, rising interest rates and slowing demand would dent sales of commercial and passenger vehicles in the year to March 2009.

Reliance Natural Resources clocked the highest volume of 3.32 crore shares on BSE. IFCI (2.58 crore shares), Reliance Petroleum (2.08 crore shares), Ispat Industries (1.82 crore shares) and Chambal Fertilisers and Chemicals (1.58 crore shares) were the other volume toppers in that order.

Reliance Industries clocked the highest turnover of 470.28 crore on BSE. Reliance Capital (Rs 456.94 crore), Reliance Petroleum (Rs 350.06 crore), Reliance Infrastructure (Rs 229.89 crore) and Reliance Natural Resources (Rs 198.38 crore) were the other turnover toppers in that order.

Asian stocks were trading lower today. Key benchmark indices in Hong Kong, Japan, Taiwan and South Korea, Singapore were down by between 0.37% to 2.57%. China’s Shanghai Composite was flat.

US stocks rose on Tuesday, 1 July 2008, after embattled automaker GM surprised Wall Street with stronger-than-expected June sales and financial shares reversed earlier losses as investors scoured for bargains, overshadowing concerns about record oil prices. The Dow Jones Industrial Average gained 32.25 points or 0.28% to 11,382.26. The tech-laden Nasdaq Composite index rose 11.99 points or 0.52% to 2,304.97.

Record high oil prices, surging inflation, higher interest rates, a likely increase in fiscal deficit and political uncertainty have all caused a gloom on the macro economic front in India at this juncture. The stock market’s concerns are that the rise in input costs and tough macro economic environment comprising high inflation, record high global crude oil prices and rising interest rates, will result in slowdown in earnings growth of the corporate sector.

The advance tax payment by the Indian corporate sector this year so far has been strong. Government’s direct tax collection from the corporate sector rose 39.81% to Rs 30655 crore until 21 June 2008 compared to the corresponding period last year. More clarity on the impact of poor macroeconomic environment on earnings of India Inc. will emerge when company managements give outlook for the current fiscal years at the time of announcement of Q1 June 2008 results this month.

Sustained selling of Indian stocks by foreign institutional investors (FIIs) has also dented market sentiment. FII outflow in June 2008 totaled Rs 10095.80 crore. FII outflow in calendar year 2008 totaled Rs 25692.40 crore, till 30 June 2008.

Political uncertainty continues to haunt Indian bourses. Doubts have been raised as to whether the Congress led United Progressive Alliance government will be able to push through a much-debated Indo-US nuclear deal and still retain its power, in the face of heavy opposition from its key communist allies. The Left parties on Sunday, 29 June 2008, renewed their threat to withdraw support from the ruling coalition if Prime Minister Manmohan Singh forged ahead with the nuclear deal. Singh on Monday, 30 June 2008, promised to bring the nuclear pact with the US before parliament before going ahead with the deal that is fiercely opposed by his communist allies, a report said.

The Prime Minister played down the communists' threats to withdraw support to his government saying all that he wanted was that the government should be allowed to complete the negotiation process with the International Atomic Energy Agency-IAEA and Nuclear Suppliers' Group-NSG. Singh expressed confidence that the government would be able to address concerns of all including the Left parties on the civil nuclear cooperation agreement with the US.

The economic reforms process in India has virtually come to a halt in the last two years or so. A good news in the current gloom on the macroeconomic front is that the Indian Meteorological Department (IND), in its long-range forecast update for the 2008 southwest monsoon, has maintained that rainfall for the country as a whole is likely to be ‘near normal’. The department classifies rainfall as near normal when it's between 96% and 104% of the 50-year average. Good rains will bolster farm production which in turn may help rein in inflation.