Sensex hovers above 10,000; breadth strong

Key benchmark indices surged in early volatile trade on overnight rally in US stocks, on data showing stepping up of buying by foreign funds and on expectations of a further easing of the monetary policy. The barometer index BSE Sensex which fell below the psychological 10,000 level in early trade soon regained that level.

Banking and metal stocks gained even as IT stocks declined. The BSE 30-share Sensex was up 79.13 points, or 0.79%, off close to 170 points from the day's low. Profit booking might emerge in the near term after a recent solid surge in share prices. The BSE Sensex had risen 1,842.70 points or 22.58% in eleven trading sessions to 10,003.10 on 26 March 2009 from a three-year closing low of 8,160.40 on 9 March 2009.

Derivatives contracts for March 2009 series which expired on Thursday, 26 March 2009 painted a mixed picture in terms of rollovers. As per reports, marketwide rollover positions from March 2009 series to April 2009 stood at 77% compared with 75% in the previous series. Nifty rollover was 70% from 76%.

Asian markets were mixed today, 27 March 2009 with Japan's Nikkei average striking a 2-1/2-month high led by exporter shares on a weakening yen and after US data sparked optimism about an economic recovery. Key benchmark indices in China, Taiwan and Japan were up by between 0.54% and 0.69%. However key benchmark indices in Hong Kong, Singapore, South Korea fell by between 0.45% and 0.93%.

Trading in US index futures indicated the Dow could fall 21 points at the opening bell on Friday 27 March 2009. US markets rallied on Thursday, 26 March 2009 as investors were encouraged by decent demand for a $24-billion auction of seven-year treasury notes and better-than-expected quarterly earnings from Best Buy. The Dow gained 174.75 points, or 2.25%, at 7,924.56. The S&P 500 index added 18.98 points, or 2.33%, to 832.86. The Nasdaq advanced 58.05 points, or 3.8%, to 1,587.

US GDP was down 6.3% in the fourth quarter beating economists expectation of a 6.2% fall.

Closer home, Reserve Bank of India Governor D Subbarao on Thursday, 26 March 2009 said the slowdown in India's economic expansion has been steeper than previously estimated and the challenge will be to arrest the moderation in growth. He said a painful adjustment was inevitable until the economy recovered and stimulus measures were the right step in the current extraordinary situation.

The RBI governor said there is a cost to further fiscal stimulus and more borrowings will put pressure on credit markets. The RBI governor said 2009/10 will be a challenging year unless business confidence and investment revived, and said earlier cuts in policy rates needed to flow through to the economy. "We set the policy rates but policy rates have to transmit through the banks," Subbarao said.

Inflation based on the wholesale prices rose 0.27% in the 12 months to 14 March 2009, a record low and below the previous week's annual rise of 0.44%, data released by the government during trading hours on Thursday, 26 March 2009 showed. The fall in headline inflation to a record low has raised expectations of further easing of the monetary policy by the Reserve Bank of India (RBI) to boost demand in the economy.

Retail inflation is, however, ruling firm even as the whole sale price inflation has touched a record low. Retail inflation as measured by the Consumer Price Index for farm labourer (CPI-AL) and rural labourers (CPI-RL) eased to 10.79% in February 2009, a marginal dip from 11.62% and 11.35% respectively in January 2009. CPI-AL and CPI-RL were at 6.38% and 6.11% in corresponding period last year.

Annual inflation for food articles remains high even though it has eased from the 10 year high of 11.64% witnessed in first week of January 2009. Inflation for food articles stood at 7.35% for first week of March 2009 with double-digit price rise for many items including sugar and gur, pulses and cereals. At the time of announcing a reduction in key short-term interest rates, the RBI said early this month that though consumer price inflation has remained at elevated level due to increase in primary articles prices, it is expected to decline with a lag effect due to sharp fall in the wholesale price inflation.

Prime Minister Manmohan Singh on Tuesday, 24 March 2009 said India's economy will revive in a big way in six to seven months as stimulus packages start to take effect. On the same day, Planning Commission Deputy Chairman Montek Singh Ahluwalia scaled down the GDP (gross domestic product) growth projection for the current fiscal to 6.5% from the 7.1% increase estimated by the government earlier during the year, owing to the ongoing global crisis.

Meanwhile, there are sings that the credit flow to businesses is improving. During the fortnight ended 13 March 2009, loans sanctioned by scheduled commercial banks (SCBs), including regional rural banks, went up by Rs 22,423 crore. This was the third fortnight in a row when credit flow went up. Earlier, an extreme risk aversion by banks had chocked credit flow to the industry - the lifeline of business.

Earlier the global financial crisis ends and sooner the risk appetite of global investors and global companies improves, better it will be for India Inc. An increase in risk appetite of global investors/global companies will help Indian firms raise overseas funds required for business expansion. The global financial crisis has chocked the overseas funding route for Indian firms.

Raising funds could become difficult for small and medium enterprises (SMEs) with new lending regulations for banks, popularly known as Basel II norms coming into practice from 1 April 2009. All business units, irrespective of their size, will need to take ratings for their enterprises to secure working capital, loans, and other funds from banks.

Lack of funding has hit a slew of long-gestation infrastructure projects in India. World Bank Chief Economist & Senior Vice-President, Dr Justin Yifu Lin, on 13 March 2009, said if India can improve its infrastructure such as electricity, power, transportation and port facilities, it will be well on its path to achieve a 9-10% growth.

Meanwhile, foreign institutional investors have stepped up buying of Indian stocks which follows easing of FII selling vigour in the past few days. FIIs bought shares worth a net Rs 2,494.70 crore in nine trading sessions from 13 March 2009 to 25 March 2009. According to provisional data on NSE, foreign institutional investors (FIIs) were net buyers worth of shares worth a massive Rs 1290.74 crore on Thursday, 26 March 2009. On the same day, domestic institutional investors (DIIs) sold shares worth Rs 461.87 crore

Foreign funds can take solace in the recent sharp rebound in the rupee against the dollar. However, the currency has been volatile. A recent sharp slide in the rupee to a record low had resulted in a depreciation in the value of FIIs equity portfolio to the extent of the fall in rupee. The rupee hit a record low beyond 52 per dollar early this month.

Indian bond and currency markets are closed on Friday for a local holiday. Trading resumes on Monday, 30 March 2009. The partially convertible rupee ended at 50.59/61 per dollar on Thursday off a high of 50.46 but up 0.3 % from the previous close.

Domestic institutional investors have been absorbing heavy selling by foreign funds witnessed in first two months of calendar year 2009. Mutual funds are likely give support to prices to prop-up year end net asset values (NAVs). The financial year ends on 31 March 2009.

The recent steep volatility in the currency does not augur well for corporate India as it may result in hedging losses for some firms.

Meanwhile, the National Advisory Committee on Accounting Standards (Nacas), has reportedly favoured suspending for two years a key rule that requires firms to mark-to-market (MTM) foreign exchange assets and liabilities, a decision which is favourable for corporate India.

Accounting Standard-11 mandates MTM provisioning in the P&L a/cs for forex-related gains and losses. It requires that forex assets & liabilities be recorded at a fair value on the date of preparation of the balance sheet. The demand to suspend this rule, known in accounting circles as AS-11, was made by the Confederation of Indian Industry (CII) on grounds that it could severely distort the earnings of many companies. It was contended that this accounting standard, designed to address normal conditions, should be suspended for the time being, as the present market conditions were not normal.

The upside on the domestic bourses will be capped in the next two months due to political uncertainty ahead of parliamentary election to be held between mid-April 2009 to mid-May 2009. More so at a time when it is highly unlikely that either Congress or BJP will come to power on its own, i.e., without the support of other small/regional parties. Early estimates point a fractured mandate. An alliance led by the Congress party is ahead in pre-poll surveys carried out by several polls.

But in a move which could undermine the chances of a Congress-led alliance getting more seats in the election, RJD supremo Lalu Prasad has announced candidates for 28 of the 40 constituencies in Bihar including from the three seats where Congress has sitting MPs. RJD is one of the key constituents of the current Congress-led UPA government at the Centre.

The Congress, meanwhile, has reported sealed a seat-sharing pact with the Nationalist Congress Party (NCP) in the populous Maharashtra state. Relations between the two parties have been prickly as the NCP negotiated with opposition parties to undercut Congress and boost its leader's prime ministerial ambitions. Congress will stand for 26 seats in the state and the NCP for 22. The allies are weighing up their options for a similar deal outside the state.

The Congress party on Tuesday 24 March 2009 said it would extend interest relief to farmers and build on the national job guarantee scheme. The focus on populist measures by Congress may weigh on the stock market sentiment especially at a time when the fiscal deficit has risen sharply. Releasing the party manifesto for the election, the Congress party on Tuesday said it would maintain government control over state-run firms in the manufacturing and finance sectors.

As per reports, BJP's manifesto is likely to be even more populist than that of the Congress party. The BJP looks set to sell rice to families below the poverty line at the hugely subsidised price of Rs 2 a kilo. Congress has already promised to sell 25 kilos of wheat or rice per month at Rs 3 a kilo.

A group of smaller political parties, including the communists, have formally launched a Third Front in a bid to provide an alternative to the two main parties viz. the Congress and the BJP.

A latest jolt to the Congress party came from a decision of the regional party in Tamil Nadu viz. the PMK on Thursday, 26 March 2009, to join hands with the All India Anna Dravida Munnetra Kazhagam (AIADMK). PMK is a part of the ruling Congress-led United Progressive Alliance at the centre. The PMK's decision to join AIADMK could give impetus to the Third Front if the PMK and AIADMK join it.

At 10:20 IST, the BSE 30-share Sensex was up 79.13 points, or 0.79%, to 10,081.78. At the day's high of 10,091.18, the Sensex rose 88.08 points in early trade, its highest since 7 January 2009. At the day's low of 9,914.29, the Sensex fell 88.81 points in early trade.

The S&P CNX Nifty was up 9.65 points or 0.31% to 3,091.90.

The market breadth, indicating the overall health of the market, was strong on BSE with 937 shares advancing as compared with 555 that declined. A total of 56 shares remained unchanged.

From the 30 stock Sensex pack 19 stocks gained while the rest fell.Larsen & Toubro, Reliance Communications and Ranbaxy Laboratories rose by between 2.63% to 3.41%. While, Maruti Suzuki India, Tata Power Company and ITC fell by between 0.46% to 0.67%.

India's largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) fell 0.51% to Rs 1,559 on profit taking after recent solid surge. The company is reportedly expected to start natural gas production from its Krishna Godavari (KG) basin field in early April 2009.

RIL's advance tax payment fell 16.47% to Rs 370 crore in Q4 March 2009 over Q4 March 2008.

Banking stocks extended gains after Reserve Bank of India (RBI) on Wednesday 25 March 2009 issued fresh norms for the treatment of provisions for restructured accounts, standard assets, and non-performing assets (NPAs), a move that will help improve the financial health of banks. India's largest bank in terms of assets and branch network State Bank of India rose 2.3%. Its advance tax payment jumped 27.64% to Rs 1810 crore in Q4 March 2009 over Q4 March 2008.

India's largest private sector bank by net profit ICICI Bank rose 2.03%. Its American depository receipts (ADR) rose 4.97% on Thursday 26 March 2009. ICICI Bank's advance tax payment remained unchanged at Rs 250 crore in Q4 March 2009 when compared to Q4 March 2008.

India's second largest private sector bank by operating income HDFC Bank rose 0.34%. Its ADR rose 1.81% on Thursday. Its advance tax payment rose 10% to Rs 275 crore in Q4 March 2009 over Q4 March 2008.

India's biggest dedicated housing finance firm by operating income HDFC rose 3.51%, extending gain for the third straight day after it announced a 50 basis points reduction in its retail prime lending rate (RPLR) to 14% effective Wednesday 25 March 2009.

The new RBI norms are expected to improve capital adequacy and bring down the level of net NPAs. Under the revised norms, the banks can use the provisions made for decline in the fair value of restructured advances (standard assets and NPAs) for netting from relative assets.

Outsourcing focussed IT firms fell after US based technology outsourcing and consulting firm Accenture reported a drop in quarterly sales and lowered its full-year profit outlook due to a stronger dollar and a slower global economy. India's largest software services exporter by sales TCS fell 1.65%. The company's advance tax payment fell 54.3% to Rs 53 crore in Q4 March 2009 over Q4 March 2008.

India's second largest software services exporter Infosys Technologies fell 1.86%. Its ADR rose 4.25% on Thursday. Recent reports said it may win a large IT project from the government, which will run on a transaction-based pricing model, similar to the passport processing contract its larger rival Tata Consultancy Services (TCS) won last year. The contract is among the many large IT contracts that are up for bidding from government departments or public sector undertakings, reports suggest.

India's third largest software services exporter, Wipro fell 0.82%. Its ADR gained 4.27% on Thursday. Recently its unit Wipro Infotech won an outsourcing contract worth Rs 1,182 crore from the Employees State Insurance Corporation (ESIC).

Metal stocks gained after measure of six primary metals traded on the London Metal Exchange rose 2.6% on Thursday, the first gain in three days. Steel Authority of India, Tata Steel, Hindustan Zinc and Hindalco Industries rose by between 2.19% to 3.25%.