Auto, IT stocks lead rally

Key benchmark indices snapped last two day's losses on a third stimulus package for the economy and firm global markets. Auto and IT stocks led the rally.

The market, however, cut strong intraday gains on concerns about rising borrowing costs for corporates. The BSE 30-share Sensex was up 80.50 points, or 0.91%, off close to 90 points from the day's high. The barometer index had lost lost 220.57 points or 2.43% in the preceding two trading sessions.

Recovery in global markets and government's second stimulus for the economy announced during trading hours on Tuesday, 24 February 2009, had lifted Sensex nearly 2% in afternoon trade. A sharp slide was witnessed in late trade soon after the Sensex came within striking distance of the psychological 9,000 level.

Just before the announcement of a stimulus package by the government, the global rating agency S&P during trading hours on Tuesday, 24 February 2009, cut its outlook on India's long-term sovereign credit rating to negative from stable citing worsening government finances, which could raise Indian firms' overseas borrowing costs and weaken the rupee. Moody's Economy.com today, 25 February 2009, said India's wider fiscal deficit will boost funding costs and weaken investor confidence.

Volatility may rule the roost on the bourses tomorrow, 26 February 2009, ahead of the expiry of February 2009 derivatives contracts. As per reports, rollover of Nifty positions from February 2009 series to March 2009 series stood at 54% while marketwide rollover of positions was 42%, as on Tuesday, 24 February 2009.

The government on Tuesday cut excise duty and service taxes in an effort to boost demand and revive growth in economy as it reels under the impact of the global economic crisis. Stand-in finance minister Pranab Mukherjee announced a cut in excise duty to 8% for items attracting 10% duty. The government also extended an across-the-board 4% reduction in excise duty, provided in the first stimulus package, beyond this fiscal-end. Service tax was slashed by 2% across-the-board.

While the reduction in service tax will put additional income in the hands of the consumer as there is a service tax component on many services, the impact of the cut to either to prop up consumer demand or the economy at large, will not be significant, according to a note by a domestic brokerage.

Rather, the latest fiscal stimulus by the government estimated at Rs 30,000 crore could further deteriorate government finances. Although the tax cuts will inject much needed support into the economy, they may heighten concerns about the country's already large public debt, Moody's Economy.com Sherman Chan said. S&P expects government deficit, including off-budget measures such as oil and fertilizer bonds, to increase to 11.4% in the fiscal year ending 31 March, 2009, from 5.7% in the previous fiscal year.

Moody's Economy.com also said that investment growth is set to slow notably this year

Investor sentiment remains edgy due to heavy sales by foreign funds this year. FII outflow in February 2009 totaled Rs 1744.80 crore (till 24 February 2009). FII outflow in calendar year 2009 totaled Rs 5978.70 crore (till 24 February 2009).

European stocks recovered on Wednesday, snapping a three-day losing streak, on overnight rally in the Wall Street. The key benchmark indices in France, Germany and UK were up by between 1.44% to 1.84%.

Asian stocks rose taking relief from Federal Reserve Chairman Ben Bernanke's statements against nationalisation of banks. Key benchmark indices in Singapore, Taiwan, China, South Korea, Hong Kong, Japan rose by between 0.05% to 2.65%.

US stocks surged on Tuesday, 24 February 2009, rebounding from 12-year lows, after Federal Reserve Chairman Ben Bernanke delivered a dose of relief when he signalled that nationalisation of big US banks was not on the cards.

The Dow Jones Industrial Average rose 236.16 points, or 3.32 per cent, to 7,350.94. The Standard & Poor's 500 Index gained 29.81 points, or 4.01 per cent, to 773.14. The Nasdaq Composite Index added 54.11 points, or 3.90 per cent, to 1,441.83.

The Fed chairman's remarks eased frayed nerves that the Treasury's capital-injection plan would hurt banks' shareholders and lead to nationalisation.

The BSE 30-share Sensex was up 80.50 points, or 0.91%, to 8,902.56. At the day's high of 8,995.04 Sensex gained 172.98 points in afternoon trade. The barometer index came within a striking distance of the psychological 9,000 level. At the day's low of 8,879.72, the Sensex rose 57.66 points in late trade.

The S&P CNX Nifty was up 28.60 points, or 1.05%, to 2,762.50.

The BSE clocked a turnover of Rs 2,210 crore today lower than Rs 2,457.09 crore on Tuesday, 24 February 2009.

Nifty February 2009 futures were at 2754.25, at a discount of 8.25 points as compared to the spot closing of 2762.50. Turnover in NSE's futures & options (F&O) segment was Rs 40,129.86 crore lower than Rs 45,693.52 crore on Tuesday, 24 February 2009. The near-month February 2009 derivatives contract will expire tomorrow, 26 February 2009.

The barometer index BSE Sensex has lost 732.18 points or 7.59% to 8,902.56 from a recent high of 9,634.74 on 13 February 2009. The Sensex is down 744.75 points or 7.71% in calendar 2009 from its close of 9,647.31 on 31 December 2008.

As per the provisional figures on BSE, foreign institutional investors (FIIs) sold shares worth Rs 384.37 crore today 25 February 2009 and domestic funds bought shares worth Rs 367.84 crore.

The market breadth, indicating the overall health of the market, was marginally positive in contrast to a strong breadth witnessed earlier in the day. On BSE 1,230 shares advanced as compared to 1,215 shares that declined. A total of 66 shares remained unchanged.

From the 30 share Sensex pack, 23 stocks rose while rest fell. Reliance Infrastructure, Tata Power Company and Bharat Heavy Electricals rose by between 0.98% to 3.6%.

The BSE Auto index (up 3%), the BSE IT index (up 2.52%), the BSE TECk index (up 1.56%), the BSE Metal index (up 1.28%), the BSE Oil & Gas index (up 1.03%), the BSE Power index (up 0.99%) outperformed the Sensex.

The BSE Realty index (down 0.39%), the BSE Capital Goods index (down 0.36%), the BSE Consumer Durables index (up 0.03%), the BSE FMCG index (up 0.15%), the BSE Healthcare index (up 0.76%), the BSE PSU index (up 0.86%), the BSE Bankex (up 0.86%), underperfomed the Sensex

Oil exploration and production firms rose as they stand to benefit from lower service tax on exploration & production activities which currently stands at 12.36%. India's largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) rose 1.03% to Rs 1,266. But the stock came off the day's high of Rs 1,285.

India's largest oil exploration firm by revenue ONGC rose 2.37% to Rs 696.75. Recent report said the company has discovered oil in the hydrocarbon rich Krishna Godavari basin.

India's largest engineering and construction firm by sales Larsen & Toubro fell 2.06% to Rs 612.45 on worries a slowing economy will crimp orders.

Banking stocks pared gains on fears of rising defaults in a weakening economy. Bank stocks had surged earlier in the day on hopes the central bank would cut rates to support faltering growth as inflation fell to its lowest in more than 13 months in early February 2009, dropping below 4%, and on overnight jump in American Depository Receipts (ADRs). India's second largest private sector bank by net profit HDFC Bank rose 0.85% to Rs 864.15, off the day's high of Rs 871.30. Its ADR rose 7.24% on Tuesday, 24 February 2009.

India's largest private sector bank by net profit ICICI Bank rose 1.45% to Rs 340.50, off the day's high of Rs 350. Its ADR rose 5.31% on Tuesday. Meanwhile, Life Insurance Corporation of India has hiked its stake in ICICI Bank by 2.04% to 9.38%.

India's largest bank in terms of assets and branch network State Bank of India rose 0.92% to Rs 1,037.75, off the day's high of Rs 1,058.70. The Indian government on Tuesday 24 February 2009 introduced a bill in Parliament which will enable it to increase the capital base of State Bank of India's subsidiaries and issue preference and bonus shares of these entities.

Oriental Bank of Commerce rose 2.49% after a block deal of 7.25 lakh shares was executed on NSE at Rs 109.50 per share.

There are expectations that the Reserve Bank of India (RBI) will cut interest rates further to support faltering growth. A sharp fall in inflation has provided room for the central bank to cut rates. The global financial sector crisis and recession in key global economies have pushed economic growth in India down to a six-year low. The Central Statistical Organisation (CSO) has pegged India's projected GDP growth for the year ending March 2009 at 7.1%, the slowest in six years and below the previous year's 9% rise.

Despite a steep cut in policy rates in India since October 2008, there has not been a commensurate reduction in lending rates by banks as fears of rising bad loans have made banks cautious in increasing advances.

Meanwhile, following an across-the-board 2% reduction in service tax, bank customers will see a sharp reduction in credit card charges, loan processing charges and foreign exchange charges among others.

Steel stocks rose on reports steel prices are set to come down by up to Rs 600 a tonne following the government cutting excise duty from 10% to 8%. Jindal Steel, JSW Steel, Steel Authority of India, Tata Steel, Bhushan Steel rose by between 0.46% 3.7%. The cut in prices may spur demand.

However, as steel firms will pass on the entire duty cut by way of reduction in prices, it will not have a favourable impact on profitability of steel firms, according to a note by the domestic brokerage mentioned above.

Other metal stocks also jumped. Sterlite Industries, Hindustan Zinc, Hindalco Industries, National Aluminum Company rose by between 0.61% to 4.14%.

IT pivotals rose on US President Barak Obama's efforts to kickstart the US economy and on spurt in ADRs overnight. India's third largest software services exporter, Wipro rose 2.47% as its ADR rose 2% overnight. India's second largest software services exporter Infosys Technologies jumped 2.72% as its ADR rose 4.65% overnight. India's largest software services exporter by sales TCS gained 2.85%.

Obama on Tuesday night that the United States will emerge from the recession stronger than before. IT firms derive a lion's share of revenue from exports to US. There have been concerns of cut back in technology spend by global firms amid a recession in the US economy and due to the global financial sector crisis.

The Indian rupee turned weak as gains in the local share market helped calm concerns of rising outflows. The partially convertible rupee was at 49.95 per dollar, weaker compared to Tuesday's close of 49.87/88. A weaker rupee affects operating margin of IT firms positively as they earn most of their revenues from exports.

Auto stocks rose on cut in excise duty by the government yesterday 24 February 2009. India's largest commercial vehicle maker by sales Tata Motors jumped 5.87%. India's second largest commercial vehicle maker by sales Ashok Leyland rose 3.26%.

Other Auto stocks, Maruti Suzuki India, Hero Honda Motors and Mahindra & Mahindra rose by between 0.09% to 7.9%.

Ashok Leyland on Wednesday said it had decided to pass on the full benefit of the tax reduction to customers, and that the average prices of its vehicles will be lowered by Rs 16,000. Tata Motors also reportedly cut vehicle prices by about 2%.

However, price cut alone is unlikely to revive sluggish demand for trucks. Currently, the commercial vehicles (CV) industry is struggling to source retail finance as banks and other financial institutions have refrained from lending to the sector. According the latest report from the Society of Indian Automobile Manufacturers (Siam), sales in the CV industry fell by almost 20% at 3,11,283 units for the period April 2008-January 2009 over the period April 2007-January 2008.

High interest rates and a slowdown in the economy have impacted demand for trucks.

Some tyre stocks rose on reports tyre makers will reduce prices passing on the excise duty cut announced by the government. Ceat and MRF rose by between 1.03% to 0.89% respectively.

Cement shares ended mixed after firm start on reports cement prices are likely to drop by Rs 4 to Rs 5 per 50-kilogram bag following a reduction in excise duty which may boost demand for the commodity. UltraTech Cement and Grasim Industries rose 4.01% and 1.62% respectively. Ambuja Cement and ACC fell 1.98% and 0.12% respectively. The rate of central excise on bulk cement has been cut from 10% or Rs 290 per metric tonne (PMT) whichever is higher to 8% or Rs 230 PMT whichever is higher.

Telecom service providers gained on reports the excise and service tax cuts announced on Tuesday, 24 February 2009 would reduce mobile tariff for users and network rollout costs for telecom service providers. Bharti Airtel, Idea Cellular Services and MTNL rose by between 0.61% to 1.56%. While India's second largest tlecom services provider by sales Reliance Communications fell 1.75%.

Some of the FMCG stocks rose on defensive buying. Tata Tea, ITC, Britannia Industries, REI Agro and United Spirits rose by between 0.58% to 6.51%.

Some Healthcare stocks too rose on defensive buying, Cipla, Sun Pharmaceutical Industries Biocon, Pfizer and Dr Reddy's Laboratories rose by between 0.19% to 1.91%.

Television broadcasters rose as service tax on advertisement sales, which would now stand reduced following an across-the-board 2% reduction in service tax. NDTV and TV 18 India rose by between 0.86% to 2.06%.

Cals Refineries clocked the highest volume of 1.23 crore shares on BSE. Satyam Computer Services (96.7 lakh shares), DLF (72.21 lakh shares), Unitech (67.7 lakh shares) and Suzlon Energy (62.57 lakh shares) were the other volume toppers in that order.

Educomp Solutions clocked the highest turnover of Rs 164.24 crore on BSE. Reliance Industries (122.58 crore), DLF (Rs 113.71 crore), ICICI Bank (Rs 107.81 crore) and Reliance Infrastructure (Rs 94.14 lakh) were the other turnover toppers in that order.