Sensex sheds nearly 5% on weak global equities, political uncertainty

Profit taking after a recent solid surge accelerated a decline on the domestic bourses triggered by weak global equities. Banking, metal and realty stocks tumbled. The BSE 30-share Sensex tanked 480.35 points, or 4.78%. The S&P CNX Nifty fell below the psychological 3,000 mark. Political uncertainty ahead of parliamentary elections also weighed on the market.

The market had surged last week tracking a solid rally in global stocks. A steep fall in the India's inflation also raised expectations of a further easing of the monetary policy by the Reserve Bank of India. The 30-share BSE Sensex jumped 1,081.81 points or 12.06% to 10,048.49, in the week ended Friday, 27 March 2009. The BSE Sensex jumped 1888.09 points or 23.13% in twelve trading sessions to 10,048.49 on 27 March 2009 from a three-year closing low of 8,160.40 on 9 March 2009.

European markets which opened after Indian market dropped on Monday, 30 March 2009, with investors focusing on automakers and banks, as Washington rejected restructuring plans for General Motors and Chrysler, while Spain announced its first banking bailout since the beginning of the crisis. Key benchmark indices in France, Germany and UK were down by between 2.06% to 3.1%.

Asian markets which opened before Indian markets declined for the first time in six days, paring the regional benchmark index's best month since 1999, as US Treasury Secretary Timothy Geithner said some banks will need large amounts of government aid. Key benchmark indices in Hong Kong, South Korea, China, Singapore and Taiwan were down by between 0.69% to 4.78%.

Geithner announced this month a plan to shore up the nation's banks with a public-private partnership to finance the purchase of illiquid real-estate assets.

JPMorgan Chase & Co.'s Chief Executive Officer Jamie Dimon said in an interview with CNBC that March 2009 was a little tougher than January 2009 and February 2009 for the bank. Kenneth Lewis, Bank of America Corp.'s CEO, said the lender's trading book wasn't as good as in the first two months. The two said earlier this month that their banks were profitable through February 2009, excluding taxes and provisions, contributing to advances in financial shares.

Japan's Nikkei average slipped 4.53% on Monday, as investors locked in profits after last week's sharp rally, with bank shares such as Mitsubishi UFJ Financial Group falling following a drop in their US counterparts late last week. Japanese industrial production fell 9.4% in February 2009 from the previous month, government data showed today, the longest streak of declines since 2001.

The decline in Asian shares accentuated as the US said General Motors Corp. and Chrysler LLC must overhaul recovery plans to justify further taxpayer aid.

Meanwhile, hopes for a coordinated agreement on a new stimulus plan to help revive the global economy at this week's Group of 20 nations summit appear diminished ahead of the formal start of the meeting, according to reports. UK Chancellor Alistair Darling downplayed chances that leaders will unveil a completely new stimulus package in an interview Sunday with the British Broadcast Corporation.

The Telegraph reported Monday that British Foreign Secretary David Miliband had downplayed a leaked draft of a G20 communique that contained reference to a coordinated $2 trillion spending boost. Miliband was cited in the report as saying that the figures in the draft referred to spending packages already underway.

Trading in US index futures indicated the Dow could fall 171 points at the opening bell on Monday, 30 March 2009. Investors should sell US stocks because earnings are likely to keep weakening, according to a Morgan Stanley report. The 30 members of the Organization for Economic Cooperation and Development are likely to see their economies contract by 4.2% this year, the group's Secretary General Angel Gurria said on Friday, 27 March 2009.

US stocks ended a relatively good week on a negative note on Friday 27 March 2009 as investors locked in profits and banking shares took a hit. The Dow plunged 148.38 points, or 1.9%, to 7,776.18. The S&P 500 index declined 16.92 points, or 2%, to 815.94 and the Nasdaq composite index slipped 41.80 points, or 2.6%, to 1,545.20.

Closer home, 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. 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.

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 signs 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 had stepped up buying of Indian stocks. Foreign institutional investors (FIIs) bought shares worth a net Rs 2,494.70 crore in nine trading sessions from 13 March 2009 to 25 March 2009. FII inflow in March 2009 totaled Rs 994.90 crore (till 27 March 2009). However, Foreign institutional investors (FIIs) sold shares worth a net Rs 270.70 crore on Friday, 27 March 2009

But the latest sharp fall in the rupee will result in a depreciation in the value of FIIs' equity portfolio to the extent of the fall in the rupee. A sharp volatility in the rupee may also dissuade fresh buying by foreign funds. The Indian rupee declined sharply on Monday, 30 March 2009, weighed down by the dollar's strength against some currencies and weakness in regional stock markets. The partially convertible rupee was at 51.12 compared to Thursday's closing of 50.59/61. The rupee hit a record low beyond 52 per dollar early this month.

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 Tuesday, 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 reportedly 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.

The BSE 30-share Sensex was down 480.35 points, or 4.78%, to 9,568.14. At the day's high of 9,902.35, the Sensex fell 146.14 points in early trade. At the day's low of 9,520.96, the Sensex fell 527.53 points in late trade. The S&P CNX Nifty was down 130.50 points or 4.2% to 2,978.15. It hit a low of 2,962.40.

The BSE clocked a turnover of Rs 3,247 crore, lower than Rs 4,347.91 crore on Friday, 27 March 2009.

Nifty April 2009 futures were at 2980.80, at a premium of 2.65 points as compared to the spot closing of 2978.15. Turnover in NSE's futures & options (F&O) segment was Rs 50,238.21 crore, lower than Rs 51,171.38 crore on Friday, 27 March 2009.

The BSE Mid-Cap index was down 1.48% and BSE Small-Cap index fell 1.18%. Both the indices outperformed the Sensex.

The BSE Consumer Durables index (up 0.53%), the BSE Healthcare index (up 0.02%), the BSE FMCG index (down 2.06%), the BSE Auto index (down 2.58%), the BSE Oil & Gas index (down 2.64%), the BSE PSU index (down 3.21%), the BSE Power index (down 3.61%), the BSE Capital Goods index (down 3.81%), the BSE TECk index (down 3.94%), the BSE IT index (down 4.43%) outperformed the Sensex.

The BSE Bankex (down 8.58%), the BSE Metal index (down 7.4%), the BSE Realty index (down 7.24%) underperfomed the Sensex.

The market breadth, indicating the overall health of the market, was weak on BSE with 934 shares advancing as compared with 1,504 that declined. A total of 66 shares remained unchanged.

From the 30 stock Sensex pack 28 stocks fell while the rest gained. Jaiprakash Associates, Reliance Infrastructure and Reliance Communications fell by between 8.7% to 12.34%.

India's largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) fell 2.09% to Rs 1,515.70 extending the fall for the second straight day on profit taking after recent solid surge. However, the stock came off the day's low of Rs 1,494.10. The Reliance Industries stock had jumped 35.67% in eleven trading sessions to Rs 1565.50 on 26 March 2009 from a recent low of Rs 1153.85 on 9 March 2009.

Meanwhile, report suggests firm will begin gas production from the Krishna Godavari (KG) basin in 24 to 48 hours, with gas production from the Dhirubhai 6 (D6) block estimated to add close to $2 billion to the company's profit at peak production levels.

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

India's largest oil exploration firm by sales ONGC fell 3.11% to Rs 782.90 as crude oil fell for a second day in New York on Friday, 27 March 2009, on speculation global stockpiles will increase as the world economy remains in recession. But the stock came off the day's low of Rs 770.15. Cairn India declined 6.79%

Crude oil for May delivery fell as much as $1.26, or 2.4% to $51.12 a barrel on the New York Mercantile Exchange. Fall in crude oil prices would result in lower realizations from crude sales for the oil exploration firm.

Shares of oil marketing companies rose after the government recently issued oil bonds worth Rs 10,000 crore to compensate them for under-recoveries on sale of petroleum products at a controlled price during the current financial year . BPCL and HPCL rose by between 0.95% and 0.94% respectively.

Indian Oil Corporation fell 2.28% after company said on Wednesday, 25 March 2009 the government has approved a proposal to absorb its subsidiary Bongaigaon Refinery & Petrochemicals (BRPL). Indian Oil will issue four shares for every 37 shares in BRPL.

Indian Oil Corporation has been issued oil bonds worth Rs 5,817.27 crore, while Bharat Petroleum Corporation has been issued bonds worth Rs 2,144.32 crore. Hindustan Petroleum Corporation has got bonds worth Rs 2,038.41 crore.

Some FMCG stocks rose on expectations of better Q4 March 2009 results following reports of higher advance tax payment by these firms. United Spirits, Dabur India, REI Agro, Tata Tea, Nestle India and ITC rose by between 0.35% to 3.11%. But India's largest FMCG firm by sales Hindustan Unilever fell 0.25%. The company's advance tax payment rose 30% to Rs 130 crore in Q4 March 2009 over Q4 March 2008.

Some healthcare stocks rose on expectations of better Q4 March 2009 results following reports of higher advance tax payment by these firms. Cadila HealthCare, Glenmark Pharmaceuticals, Biocon, Pfizer, Fortis HealthCare, Matrix Laboratories rose by between 0.64% to 5.87%.

Sun Pharmaceutical Industries rose 0.25% after the company on Monday said it received approval from the U.S. Food and Drug Administration to sell topiramate tablets, used for the treatment of seizures.

Metal stocks fell as metal prices declined on the London Metal Exchange. Steel Authority of India, National Aluminum Company, Sterlite Industries, Hindustan Zinc, Tata Steel, and Hindalco Industries fell by between 4.97% to 12.24%.

Banking stocks declined on concerns of marked-to-market losses on their bond portfolio. India's largest bank in terms of assets and branch network State Bank of India fell 9.18%. 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 fell 12.27% after the stock rose over 19% in past five sessions. Its American depository receipts (ADR) fell 1.15% on Friday, 27 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 fell 5.18% as its ADR fell 4.61% on Friday. 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 fell 8.72%. It announced a 50 basis points reduction in its retail prime lending rate (RPLR) to 14% effective Wednesday 25 March 2009.

Other PSU stocks, Union Bank of India, Bank of Baroda, Bank of India, Punjab National Bank, Indian Overseas Bank, fell by between 5.41% to 9.97%.

A sharp fall in bond prices this year will result in depreciation in banks' bond portfolio. The yield on 10-year bonds fell for a seventh day in a row on Monday, 30 March 2009, the longest losing streak in almost two months, on speculation increasing government debt sales will reduce demand for existing securities. The yield on benchmark notes due 2019 climbed to the highest since November 2008 after the central bank last week said India plans to sell a record Rs 241000 crore ($47 billion) of bonds in the first half of the year starting 1 April 2009.

The government plans to borrow Rs 362000 crore in the whole of the next fiscal year, also the most ever. The yield on the 6.05% note due February 2019 added 15 basis points to 7.17% as of 10:13 IST in Mumbai. That is the highest since 25 November 2008. Bond yields and bond prices are inversely related. It may be recalled that banks made huge treasury gains in the December 2008 quarter following a surge in bond prices.

Banking stocks had risen sharply in the past few days on rate cut hopes and after the 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.

Outsourcing focussed IT firms declined for the second straight day after US based technology outsourcing and consulting firm Accenture on Thursday 26 March 2009 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 second largest software services exporter Infosys Technologies fell 3.63% as its ADR fell 7.43% on Friday. 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 4.74% as its ADR fell 5.37% on Friday. Recently its unit Wipro Infotech won an outsourcing contract worth Rs 1,182 crore from the Employees State Insurance Corporation (ESIC).

India's largest software services exporter by sales TCS fell 9.12% . The company's advance tax payment fell 54.3% to Rs 53 crore in Q4 March 2009 over Q4 March 2008.

Rate sensitive realty stocks declined on talks falling interest rates have failed to revive housing demand. DLF, Indiabulls Real Estate and Unitech fell by between 6.6% to 9.34%. Most of the realty deals including sale of commercial property and housing sales is driven by finance.

Capital goods stocks fell on worries a slowing economy will crimp orders. Bharat Heavy Electricals, Crompton Greaves, Punj Lloyd, Areva T&D, ABB fell by between 0.42% to 5.53%.

India's largest engineering and construction firm by sales Larsen & Toubro was lost 4.27% to Rs 650.95 even as the company said it had won an order worth Rs 345 crore to manufacture steam generators for Nuclear Power Corporation of India.

Auto stocks fell on profit taking after a recent solid surge triggered by expectations of good sales in March 2009. Tata Motors, Hero Honda Motors, Mahindra & Mahindra and Maruti Suzuki India fell by between 1.35% to 8.74%.

Cals Refineries clocked the highest volume of 1.63 crore shares on BSE. Reliance Natural Resources (1.32 crore shares), Unitech (1.21 crore shares), S Kumar Nationwide (98.66 lakh shares) and Suzlon Energy (79.07 lakh shares) were the other volume toppers in that order.

Reliance Industries clocked the highest turnover of Rs 354.61 crore on BSE. ICICI Bank (Rs 229.17 crore), Aban Offshore (Rs 131.88 crore), Tata Steel (Rs 131.50 crore) and Reliance Infrastructure (Rs 126.66 crore) were the other turnover toppers in that order.