Bharti Airtel, ICICI Bank lead 324 points Sensex slide

The key benchmark indices lost ground today, 26 May 2009, on concerns a glut of share sales will soak liquidity from the secondary market. Oil & gas, banking, realty and auto stocks led the decline. The BSE 30-share Sensex fell 323.99 points or 2.33% to 13,589.23., off close to 405 points from the day's high. Weak global markets also weighed on the domestic bourses.

Finance Minister Pranab Mukherjee's comments that the government is ready to deliver further fiscal stimulus to arrest a slowdown in growth of the economy heightened worries about the already high fiscal deficit even as the finance minister said fiscal prudence is also a priority.

Volatility was high ahead of the expiry of May 2009 futures and options (F&O) contract on Thursday, 28 May 2009. The market edged higher in early trade. It soon lost ground later. After hitting a fresh intraday low, the market cut losses in mid-morning trade. The market edged lower after swinging between positive and negative zones in early afternoon trade. The market slumped in afternoon trade. It extended losses later. Volatility was high in last one hour of trade

Concerns that a glut in share supply will soak liquidity from the secondary market weighed on the bourses. In the last six weeks, three realty firms Unitech, DLF and Indiabulls Real Estate have together raised Rs 8000 crore through qualified institutional placements (QIPs). As per reports, over Rs 40000 crore of rights, QIP and debenture issues are in the pipeline.

India's top mobile operator by sales, Bharti Airtel extended decline for the second straight day after the company announced a potential deal to buy 49% in South African telecom firm MTN during trading hours on Monday, 25 May 2009. India's largest drugmaker by sales Ranbaxy Laboratories dropped after jumping more than 20% yesterday.

Finance Minister Pranab Mukherjee said in a television interview today that maintaining growth momentum and fiscal prudence are priorities of the new government. He said the growth projection for 2008/09 will be in and around 7%

Mukherjee also said he would like to move faster on infrastructure projects. The minster said the government cannot indulge in fiscal profligacy. He also said that the problems of export sector have to be addressed. The government will release its 2009/10 budget in the first week of July 2009, and it would address some of the problems faced by the economy, Mukherjee said in a television interview.

A newspaper report had quoted Mukherjee on Monday as saying that the President's address on 4 June 2009 will unveil the new agenda of the government. The newspaper had quoted the Finance Minister as saying that the government is all set to take legislative measures to put the economy back on track. When a stable government is in place, credit flows and other measures needed to boost the economy become easier, Mukherjee had said in the newspaper interview.

High fiscal deficit may lead to downgrade of India's sovereign credit rating by global rating agencies which in turn may restrict fresh inflow into India by foreign institutional investors (FIIs). It may, in fact, trigger selling of Indian stocks by FIIs. The fiscal deficit jumped to an estimated 10.6% of the nation's gross domestic product in the year ended 31 March 2009.

Before the election outcome, global credit rating agency Fitch on 14 May 2009 said the government needs to cut fiscal budget deficit to avoid having its credit rating lowered. Fitch, currently has a BBB- rating on India, its lowest investment grade rating. While current economic conditions are prompting many governments to undertake counter-cyclical stimulus measures, the recent deterioration in India's fiscal position accentuates underlying structural weaknesses in public finances that, if unaddressed, could undermine sovereign creditworthiness, Fitch said.

According to analysts the new government should give priority to reforming the subsidy mechanism aimed at improving delivery mechanism while at the same time reducing costs.

Meanwhile, the Union Council of Ministers is expected to be expanded on Thursday 28 May 2009 during which representatives of DMK and other UPA allies would be among those inducted in the government, according to reports. The indications of the second phase of swearing-in taking place on Thursday came after a Congress core group meeting chaired by party president Sonia Gandhi on Tuesday.

PM Manmohan Singh met Congress chief Sonia Gandhi to finalize the list of inductees. The meeting, which was attended by finance minister Pranab Mukherjee, defence minister AK Antony, political secretary to the Congress president Ahmed Patel, discussed threadbare allocation of ministerial berths and portfolios.

Issues related to allocation of ministerial berths and portfolios have been sorted out with all allies, reports suggest. There was speculation that Trinamool Congress (TMC) leader Mamata Banerjee wanted eight ministerial berths one Cabinet and seven ministers of state against the seven ministerial berths, one Cabinet and six MoS already allocated to her party. However, latest report said there were no issues with TMC.

Even matter regarding pulls and pressures over the ministerial berths and portfolios in Congress, have also been addressed. Prime Minister Manmohan Singh and Sonia Gandhi on Tuesday had a four-hour-long meeting to discuss expansion of the council of ministers which was initially expected today.

Trading in the US index futures indicated Dow could fall 26 points at the opening bell today 26 May 2009.

Weak global markets also weighed on the domestic bourses. In Europe, Germany's DAX fell 1.38% after first-quarter real GDP shrank 3.8% from the fourth quarter, data on Tuesday showed. The drop was in line with the flash estimate which was published 15 May 2009. It was the sharpest decline since records began in 1970. Key benchmark indices in France and UK were down by between 0.89% to 1.4%.

Asian stocks were trading lower today, 26 May 2009 after reports North Korea fired two short-range missiles from its east coast yesterday, a day after it tested a nuclear device and three missiles, caused geopolitical jitters. Japan's Nikkei stock average was down 0.39% weighed down by tech shares such as TDK Corp. But trade was thin, with a number of investors waiting to see how Wall Street will reopen on Tuesday, 26 May 2009, after the Memorial Day holiday on Monday.

South Korea's stocks fell 2.06% key benchmark indices in China, Singapore, Hong Kong and Taiwan fell by between 0.6% to 1.2%.

US President Barack Obama told reporters in Washington on Monday that the US will work with its friends and allies to stand up to North Korea. The United Nations Security Council agreed to pursue new measures against the communist regime.

South Korea said Tuesday it will participate in the U.S.-led initiative to contain the spread of advanced weapons and related materials, reversing its earlier resistance in the wake of North Korea's latest nuclear weapons test, according to reports from the region.

Closer home, on the political front, Kapil Sibal is seen as front-runner for the ministry of human resource development while former Karnataka chief minister Veerappa Moily is seen to be in reckoning for the ministry of shipping and surface transport or law. The health or tourism ministries are being mentioned with regard to Ambika Soni while power could go to former Maharashtra CM Sushil Shinde. Ghulam Nabi Azad, who is tipped for parliamentary affairs, will get another ministry as well. Jaipal Reddy is expected to retain urban development while Vayalar Ravi may go back to labour.

Amongst allies, NCP's Praful Patel will be back, most probably as MoS with independent charge of civil aviation, a charge he held in the previous government as well. The DMK quota will be filled by M K Azhagiri, A Raja and Dayanidhi Maran at the Cabinet level and S S Palanimanickam, Napolean, S Jagathrakshakan and S Gandhiselvam. The Trinamool quota could be filled by Mukul Roy, Sudip Bandhopadhyaya, Saugato Roy, Sultan Ahmed, Dinesh Trivedi, Shishir Adhikary and Chaudhary Mohan.

Speculation is rife over what portfolios lies in store for the DMK. DMK supremo M Karunanidhi's nephew Dayanidhi Maran is slated to get the Textile portfolio. Karuna's son MK Azhagiri will be given the Chemical and Fertilizers portfolio. Another former minister A Raja will be handed the reigns of the information technology portfolio.

The UPA government got down to business in its second term with five of the six key Cabinet ministers alloted portfolios assuming charge of their respective offices on Monday 25 May 2009 and setting out their priorities. P Chidambaram, A K Antony and Sharad Pawar returned to the Home, Defence and Agriculture ministries they were in-charge during Manmohan Singh's first term while Pranab Mukherjee came back to the Finance Ministry, a portfolio he had held 25 years back in the Indira Gandhi government.

S M Krishna, the former Karnataka chief minister and ex-Maharashtra governor, assumed office as the new External Affairs minister after making his Cabinet debut.

All the ministers convened meetings of their top officials to get a quick update on pressing issues. Mamata Banerjee, who was given the Railways portfolio, is in Kolkata and was yet to assume charge. Only six of the 19 Cabinet ministers who took oath along with Prime Minister Manmohan Singh last Friday have been allocated portfolios.

Dr Manmohan Singh was on 22 May 2009 sworn-in as Prime Minister for a second consecutive term. A day after the swearing-in of the UPA government on Friday 22 May 2009, the Union cabinet met under the chairmanship of Prime Minister Manmohan Singh on Saturday 23 May 2009. The cabined took a decision to convene the Parliament session from 1 June to 9 June 2009. A meeting with leaders of various parties will be held in the first week of June 2009 for finalising the dates of the budget session, home minister P Chidambaram said after the cabinet meeting on Saturday. He said government is quite hopeful of passing the budget by 31 July 2009.

The Speaker's election would be held on 3 June 2009 and President Pratibha Patil will address the joint sitting on 4 June, the day Rajya Sabha will also be convened. This will be followed by the debate on motion of thanks. Explaining the process of passing the general budget, Chidambaram said this has to be completed by 31 July 2009 failing which a vote-on-account will have to be approved.

A comfortable victory for the Congress-led coalition government in election has raised expectations of a strong push for economic reforms by the government. Dr Manmohan Singh has reportedly prepared the broad contours of an economic revival plan to be taken up soon after the new government is formed, reports suggest. While recommendations to revive growth and ease the credit squeeze are likely to find a place in the plan, tax proposals are expected to be taken up as budget recommendations.

The telecom ministry has prioritised the much delayed auction of 3G airwaves and WiMAX spectrum. It has also prioritised introduction of a new spectrum policy.

The petroleum ministry has reportedly prepared a draft Cabinet note on a partial decontrol of petrol and diesel prices after which they will be linked to international movements. The new government is also likely to pursue disinvestment of state-run undertakings, reports suggest.

Financial sector reforms are likely to get a push in the coming days, which were relegated to the back seat due to persistent opposition from the Left parties.

The Congress party-led coalition has the support of 322 lawmakers, Prime Minister-elect Manmohan Singh said on Wednesday, 20 May 2009, giving it a clear majority in a new government. Congress said it has support of 274 members of the 15th Lok Sabha. In addition, the Bahujan Samaj Party, the Samajwadi Party and the Rashtriya Janata Dal sent letters of support for a Manmohan Singh-led government directly to the President, taking the support base to 322.

The Congress-led UPA defied predictions of a tight election and was only about 11 seats short of an majority from the 543 seats at stake in the recently concluded Lok Sabha election. Congress' alliance took 261 seats, sweeping aside its nearest rival, the bloc led by the Hindu-nationalist Bharatiya Janata Party (BJP), which won only 159 combined. Congress, which alone won 205 seats, needs a handful of partners to reach the 272 seats needed to take power, and is expected to seek the support of more smaller parties or independents.

The BSE 30-share Sensex fell 323.99 points or 2.33% to 13,589.23. The Sensex rose 78.24 points at the day's high of 13,991.46 in early trade. At the day's low of 13,518.79, the Sensex fell 394.43 points in late trade.

The S&P CNX Nifty was down 120.85 points or 2.85% to 4,116.70. Nifty May 2009 futures were at 4120, at a premium of 3.30 points as compared to the spot closing of 4116.70. Turnover in NSE's futures & options (F&O) segment surged to Rs 77,396.06 crore from Rs 65,141.03 crore on Monday, 25 May 2009.

BSE clocked a turnover of Rs 6,893 crore, lower than Rs 7327.05 crore on Monday 25 May 2009.

The Sensex is up 3,941.92 points or 40.86% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 5,428.83 points or 66.52%.

The market breadth, indicating the overall health of the market, turned negative in late trade from a strong breath earlier in the day. On BSE, 1,321 shares rose as compared with 1,449 that fell. A total of 32 shares remained unchanged.

The BSE Mid-Cap index was down 3.4% and the BSE Small-Cap index was down 3.12%. Both the indices underperformed the Sensex.

The BSE IT index (up 0.85%), the BSE Metal index (down 1.23%), the BSE Healthcare index (down 1.58%), the BSE FMCG index (down 2.22%) outperformed the Sensex.

The BSE Realty index (down 3.96%), the BSE Bankex (down 3.13%), the BSE Capital Goods index (down 3.06%), the BSE Consumer Durables index (down 3.01%), the BSE Power index (down 2.97%), the BSE PSU index (down 2.56%), the BSE Auto index (down 2.43%), the BSE Oil & Gas index (down 2.42%), The BSE TECk index (down 2.42%), underperfomed the Sensex.

From the 30 share Sensex pack, 26 stocks fell while the rest gained.

Oil stocks fell on recent reports the new UPA government plans to cap profits of crude oil producers such as Oil & Natural Gas Corporation (ONGC), Oil India (OIL), Reliance Industries (RIL) and Cairn India, as part of a transparent and sustainable subsidy-sharing system for the sector.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) was down 2.25% to Rs 2,144.05 and India's largest state-run oil exploration firm by revenue ONGC fell 2.56%.

Auto stocks fell on concerns a partial decontrol of petrol and diesel prices will result in an immediate rise in petrol and diesel prices. Maruti Suzuki India, Hero Honda Motors, Bajaj Auto, Mahindra & Mahindra and Tata Motors, fell by between 1.55% to 5.91%.

As per recent reports, the petroleum ministry has prepared a draft Cabinet note on freeing petrol and diesel prices from government control, after which they will be linked to international movements.

Bank stocks fell on profit taking after a recent surge triggered by hopes the UPA government will pursue financial sector reforms. India's biggest bank in terms of branch network State Bank of India (SBI) was down 1.85%. As per reports, the Congress-led UPA government may go ahead on a plan to merge six associate banks with State Bank of India to create a Indian banking behemoth. The government may also re-introduce the State Bank of India (Amendment) Bill that will enable Centre to reduce its stake in SBI to 51% from current 59.41%.

India's largest private sector bank by net profit ICICI Bank fell 5.25%. India's biggest dedicated housing finance firm by operating income HDFC was down 0.24%. As per recent reports, HDFC is likely to cut deposit rates and follow it with a cut in lending rates.

With a decisive mandate, there are expectations that the UPA government may pursue financial sector reforms. There is likely to be some movement on passage of the Bill to amend the Insurance Act, 1938. Apart from raising the foreign investment ceiling to 49%, from 26% at present, the Bill had proposed to do away with the stipulation on Indian promoters having to mandatorily sell a part of their holdings after 10 years of operation.

There are two other Bills - for providing statutory backing to the pensions regulator and to amend the Banking Regulation Act which have been pending in Parliament for over five years, mainly due to the opposition from the Left parties. But now the Left is no longer an ally of the re-elected UPA, the Bills may finally be enacted.

The Pension Fund Regulatory & Development Authority Bill will allow the regulator to issue regulations, instead of the present system where it has to enter into agreements with service providers such as the fund managers. In addition, it will also help PFRDA regulate the pension products offered by life insurance companies. The new government may also announce tax benefits on investment in the New Pension Scheme, which will help make it attractive for investors, reports suggest

The amendments to the Banking Regulation Act will allow foreign investors to exercise voting rights in line with their shareholding. While the Reserve Bank of India has concerns on greater play for foreign banks, it will have no reservations in getting more powers for regulation of banks and supercession of borads, which are provided for in the Bill.

The government may also re-introduce the Micro-finance Development and Regulation Bill

Realty stocks fell on profit taking after recent strong gains triggered by expectations that stability at the Centre will attract more money from foreign investors into the sector. DLF, Unitech, Akruti City, Indiabulls Real Estate and Housing Development & Infrastrucutre fell by between 2% to 9.88%.

Healthcare stocks fell on profit taking after the recent gains triggered by hopes the newly elected UPA government will give primary importance to healthcare segment and health of citizens. Cipla, Biocon, Pfizer, Sun Pharmaceuticals Industries, Dr Reddy's Laboratories, Glenmark Pharmaceuticals fell by between 0.41% to 7.52%.

India's largest drugmaker by sales Ranbaxy Laboratories dropped 8.36% on reports the firm could take a hit of as much as $50 million due to a delay in supplying a key ingredient to UK's AstraZeneca used to make anti-ulcer drug, Nexium.

The stock had surged 20.73% on Monday 25 May 2009 after its chief executive officer resigned on Sunday, 24 May 2009, as part of efforts to turn around the company. In a swift and unexpected move, Japanese drug maker Daiichi Sankyo on Sunday, 24 May 2009, took complete control of Ranbaxy Laboratories in which it had acquired 63.9% stake in June 2008 after all representatives of the former Indian promoter family resigned from the board. Following a board meeting on Sunday morning, former promoter Malvinder Mohan Singh, whose term was originally supposed to run till 2013, resigned as Chairman and Managing Director.

Besides Singh, two other Singh-family Board nominees, Sunil Godhwani and Balvinder Dhillon, also resigned. Tsutomu Une from Daiichi has been appointed chairman. Atul Sobti, who was originally nominated on the board by the former Indian promoters, has been appointed as CEO and MD for three years.

India's top mobile operator by sales, Bharti Airtel fell 5.05% extending the decline for the second straight day after the company said on Monday a potential deal to buy 49% in South African telecom firm MTN will dilute its earnings in the first year. The company, however, expects earnings-per-share to pick up thereafter. The deal being discussed would also have the South African firm taking a 25% interest in Bharti and its shareholders taking another 11%, Bharti said in a statement.

Bharti said the potential value of what is a complex deal in which both firms pay cash and stock for stakes in each other, was more than $23 billion. Bharti Airtel sees the deal to dilute its earnings in the first year, but expects earnings-per-share to pick up thereafter. "The broader strategic objective would be to achieve a full merger of MTN and Bharti as soon as is practicable to create a leading emerging market telecom operator, which today would have combined revenue of over $20 billion and a customer base of over 200 million," the companies said in separate statements.

Bharti said it would be the primary vehicle to expand in India and Asia, while MTN would drive growth in Africa and the Middle East. The stock had declined 5.41% on Monday.

Outsourcing focussed IT stocks as rupee dropped after a recent solid surge. India's second largest software services exporter by sales Infosys was up 2.34%. India's third largest software services exporter by sales Wipro rose 1.54%. But,India's largest software services exporter by sales TCS fell 1.15%.

The rupee dropped for a second day on Tuesday on the back of the dollar's gains versus major currencies, with traders also bracing for demand from oil refiners. The partially convertible rupee was at 47.62 per dollar, weaker than its previous close of 47.28/30.

Concerns of a firm rupee had weighed heavily on IT stocks in the past few days. A firm rupee affects operating profit of IT firms negatively as they earn most of their revenues from exports.

FMCG stocks fell after investors pulled out from so called defensive stocks. ITC, United Breweries, Dabur India, United Spirits, Nestle India and Marico fell by between 0.23% to 7.39%.

Cals refineries clocked the highest volume of 14.16 crore shares on BSE. Ispat Industries (3.36 crore shares), Satyam Computer Services (2.78 crore shares), Unitech (2.24 crore shares) and Reliance Natural Resources (1.98 crore shares) were the other volume toppers in the order.

Reliance Capital clocked the highest turnover of Rs 251.71 crore on BSE. Housing Development & Infrastructure (Rs 222.34 crore), Reliance Industries (Rs 176.77 crore), Unitech (Rs 163.65 crore) and Reliance Natural Resources (Rs 153.71 crore) were the other turnover toppers in that order.