Nifty attains 8-month high as investors bet on economic reforms

Finance Minister Pranab Mukherjee's comments on Wednesday, 27 May 2009, that the government would take advantage of its political stability and push long-pending reforms boosted the bourses for the second day in a row. The S&P CNX Nifty attained its highest closing in more than eight months. But volatility was high as traders rolled over positions from May 2009 contracts to June 2009 contracts in the futures & options (F&O) segment. May 2009 derivatives contracts expired today, 28 May 2009.

The BSE 30-share Sensex jumped 186.37 points or 1.32%, off about 80 points from the day's high and up close 220 points from the day's low. The barometer index has risen 706.78 points or 5.2% in the last two trading sessions. Metal and banking stocks rose. IT stocks fell and index heavyweight Reliance Industries pared intraday gains.

The market was volatile. After opening higher, the market soon slipped into the red before bouncing back. The market extended gains in morning trade after Finance Minister Pranab Mukherjee during trading hours on Wednesday, 27 May 2009, said the government would take advantage of its political stability and push long-pending reforms.

The market pared gains in mid-morning trade after global rating agency Moody's Investors Service said India's credit rating may come under pressure if the government is not able to rein in a widening budget deficit. The market regained strength in early afternoon trade as inflation rose at a lower than expected rate. After extending gains, the market came off the higher level in mid-afternoon trade. Volatility was high in the last one hour of trade.

Rollover in the S&P Nifty futures was 52% from May 2009 contracts to June 2009 at the end of Wednesday (27 May 2009) trade. The rollover was 34% in Mini Nifty futures. Among individual stocks, substantial rollover has been witnessed in M&M, Bharat Forge, Hero Honda, Reliance Power and Sterlite Industries. Stocks where rollover has been low are Jaiprakash Associates, Kotak Mahindra Bank, Hindustan Construction, and Triveni Engineering

The wholesale price index rose 0.61% in the 12 months to 16 May 2009, matching the previous week's annual rise, government data showed today, 28 May 2009. The government, meanwhile, revised upwards the rate of inflation for the year through 21 March 2009 to 0.84% from 0.31%. Finance Minister Pranab Mukherjee on Wednesday said inflation is reasonably down and reviving growth will be the government's top priority.

Mukherjee during trading hours on Wednesday said that a sustained stimulus to economic growth is possible by next round of reforms. He said reviving growth momentum is a top priority for the government adding that fiscal prudence will also be kept in mind.

Mukherjee said the government will stick to fiscal deficit target of 5.5% of GDP in the current financial year that ends on March 2010 (FY 2010). He said the government is committed to fiscal consolidation in 2-3 years.

Mukherjee said the government will continue to step up spending this year to support growth, risking a wider budget deficit. Growth and employment are not possible without increased spending and borrowing, the Finance Minister said. The prophets of doom have been unduly focusing on increased public spending and a consequent increase in the fiscal deficit, Mukherjee said. "An early return to our recent growth performance will help us get back to our preferred path of fiscal prudence," he said.

The fiscal deficit jumped to an estimated 10.6% of the nation's gross domestic product in the year ended 31 March 2009. India's credit rating may come under pressure if the government is not able to rein in a widening budget deficit, Moody's Investors Service today, 28 May 2009, said. “The stable outlook on the ratings has recently faced growing pressure, mainly due to substantial deterioration in the fiscal position,” Aninda Mitra, a senior analyst at Moody's in Singapore, said in a report today. “Inability of the newly re- elected government to meaningfully adjust fiscal policies and push ahead with reforms could pressurize the foreign currency credit rating.”

Moody's Baa2 rating on India's long-term foreign debt is the second-lowest investment grade. The ranking is the highest in South Asia after Kazakhstan's, four levels below China's, two levels under Malaysia's and six levels above Pakistan's.

“If the newly re-elected government proves able to quickly outline and sustain a credible program for reducing consolidated deficits, then the sustainability prospects for general government debt would improve,” Moody's said in its report. “These trends could boost the outlook for the country's local currency credit ratings.”

The comments from Moody's today came after Fitch Ratings, which ranks India's debt BBB-, on 14 May 2009 said it expected the new government to step up spending to arrest slowing growth. That would widen India's national budget deficit, including state government finances, to more than 10% of GDP for a second year in a row, 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. Analysts also say labour reforms are needed as a number of youngsters enter the job market.

The FM on Wednesday said he would be able to announce the full-budget for FY 2010 by the first week of July 2009 and try to get it approved by 31 July 2009. He said the common man will be the focus of the government policy.

Mukherjee said the industry and business have been hurt by high cost of finance but added that coordinated steps taken by central bank and government have stabilised the economy. He said the liquidity situation eased considerably adding that international capital flows have resumed.

The FM said he hoped banks would take advantage of the monetary policy and make cheap credit available. "One of the first steps I propose to take is to meet bankers and get them committed to a more benign plan of action," he said. His comments came in the backdrop of a newspaper report that state-run banks plan to cut lending rates by 100-150 basis points within the next fortnight after a finance ministry directive to lower interest rates in line with falling cost of funds.

In overseas markets, European stocks slipped as a surge in US Treasury yields fueled concerns about the US economy. Key benchmark indices in France, Germany and UK were down by between 0.94% to 1.11%.

Japanese stocks rose as a slightly weaker yen supported sentiment, making exports from Japan more competitive. The Nikkei rose 0.13%. In Seoul, the Kospi index moved between positive and negative zone. It was up 2.21%. But Singapore's Straits Times was down 0.57%. Markets in Hong Kong, China and Taiwan were closed for a holiday.

Trading in the US index futures indicated Dow could rise 30 points at the opening bell on Thursday, 28 May 2009.

US markets tumbled on Wednesday, 27 May 2009 after a spike in Treasury yields spurred concerns that the government's efforts to reduce interest rates would fail. In economic news, existing home sales for April 2009 came in at an annualized rate of 4.7 million, in line with expectations. There was some disappointment in the House Price Index for March 2009, which decreased 1.1% month-on-month. It was expected to increase 0.2%. The Dow fell 173.47 points, or 2.1%, to 8,300.02. The S&P 500 index fell 17.27 points, or 1.9%, to 893.06, and Nasdaq Composite Index slipped 19.35 points, or 1.1%, to 1,731.08.

US government bonds came under heavy pressure on Wednesday as investors worried about the ever-expanding amount of debt needed to fund a record $1.75 trillion budget deficit.

Closer home, President Pratibha Patil on Thursday administered the oath of office to 14 Cabinet ministers, 7 ministers of state with independent charge and 38 Minsters of State (MoS) in an elaborate ceremony at the Rashtrapati Bhavan. Former Maharashtra chief minister Vilasrao Deshmukh, DMK leader Dayanidhi Maran, A Raja, Mallikarjun Kharge, Kumari Selja, Subodh Kant Sahay, M S Gill, G K Vasan, Pawan Kumar Bansal, Mukul Wasnik, Kantilal Bhuria and MK Azhagiri were sworn in as Cabinet ministers.

Praful Patel, Prithviraj Chavan, Sriprakash Jaiswal, Salman Khursheed, Dinsha Patel, Jairam Ramesh and Krishna Tirath took oath as ministers of state with independent charge.

Srikant Jena, E Ahamed, Mullappally Ramachandran, V Narayanasamy, Jyotiraditya Scindia, D Purandeswari, K H Muniyappa, Panabaka Lakshmi, Namo Narain Meena, M M Pallam Raju, Saugata Ray, S S Palanimanickam, D Napoleon, S Jagathrakshakan, S Gandhiselvan, Preneet Kaur, Sachin Pilot, Shashi Tharoor, Bharatsinh Solanki, Tusharbhai Chaudhary, Arun Yadav, Prateek Prakash Patil, R P N Singh, Vincent Pala, Pradeep Jain and Agatha Sangma were sworn in ministers of state.

The 78-strong council of ministers includes 59 from the Congress and 19 from five allies: seven each from DMK and Trinamool Congress, three from Nationalist Congress Party (NCP) and one each from the Muslim League and National Conference. Nineteen cabinet ministers, including Trinamool Congress chief Mamata Banerjee and NCP's Sharad Pawar, were sworn in 22 May 2009.

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. It remains to be seen whether the government undertakes privatisation of state-run firms.

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 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 surged 186.37 points or 1.32% to 14,296.01, its highest closing since 19 May 2009. The Sensex gained 267.59 points at the day's high of 14,377.23 in mid-afternoon trade. At the day's low of 14,078.62, the Sensex fell 31.02 points in early trade.

The S&P CNX Nifty was up 61.05 points or 1.43% to 4,337.10, its highest closing since 10 September 2008.

Nifty June 2009 futures were at 4,340, at a premium of 2.90 points as compared to the spot closing of 4,337.10. Turnover in NSE's futures & options (F&O) segment surged to Rs 90,315.67 crore from Rs 83,564.87 crore on Wednesday, 27 May 2009.

The market breadth, indicating the overall health of the market, was strong. On BSE, 1729 shares rose as compared with 1,020 that fell. A total of 56 shares remained unchanged.

The Sensex is up 4,648.70 points or 48.18% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 6,135.61 points or 75.18%.

BSE clocked a turnover of Rs 6,892 crore, lower than Rs 6,932.67 crore on Wednesday, 27 May 2009

From the 30 share Sensex pack, 20 stocks rose and rest fell.

The BSE Mid-Cap index was up 0.78% and the BSE Small-Cap index was up 0.24%. However, both these indices underperformed the Sensex.

The BSE Metal index (up 2.76%), the BSE PSU index (up 2.34%), the BSE Bankex (up 1.81%), the BSE Capital Goods index (up 1.74%), the BSE Realty index (up 1.74%), outperformed the Sensex.

The BSE Healthcare index (down 0.4%), the BSE IT index (down 0.23%), the BSE FMCG index (down 0.2%), the BSE TECk index (up 0.29%), the BSE Auto index (up 0.6%), the BSE Consumer Durables index (up 0.87%), the BSE Oil & Gas index (up 1.15%), the BSE Power index (up 1.28%), underperfomed the Sensex.

Outsourcing focussed IT stocks dropped as rupee strengthened. India's second largest software services exporter by sales Infosys fell 0.56%. Its American depository receipt (ADR) rose 0.62% overnight. India's third largest software services exporter by sales Wipro fell 2.68%. Its ADR rose 0.72% overnight. But, India's largest software services exporter by sales TCS rose 2.29%.

Indian rupee reversed losses and was slightly stronger on Thursday as domestic shares gained fuelling hopes for capital inflows, but a sharper rise was prevented by the dollar's gains versus other majors overseas. The partially convertible rupee was at 47.69 per dollar, and stronger than its previous close of 47.70/71. A firm rupee negatively impacts operating margins of IT firms as they earn a lion's share of revenues from exports.

Bank stocks reversed early losses on expectations that the Congress-led UPA government will pursue financial sector reforms. India's largest private sector bank by net profit ICICI Bank rose 2.67%. Its American depository receipt (ADR) rose 0.21% on Wednesday, 27 May 2009. India's second largest private sector bank by net profit HDFC Bank rose 2%. Its ADR fell 0.78% overnight.

India's biggest bank in terms of branch network State Bank of India (SBI) rose 2.14%. 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%. Meanwhile, bank is reportedly expected to lower prime lending rate in next few weeks.

India's biggest dedicated housing finance firm by operating income HDFC gained 0.41%. 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.

Metal stocks rose on strong domestic demand for metals. Tata Steel, JSW Steel and Sterlite Industries, rose by between 2.77% to 6.53%.

India's largest public sector steel maker by sales Steel Authority of India (Sail) rose 6.58% even as net profit fell 37.44% to Rs 1486.68 crore in Q4 March 2009 over Q4 March 2008.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) rose 1.5% to Rs 2,245 on reports it has struck gas in two blocks (D3 and D9), with estimates putting the natural gas reserves at 20 trillion cubic feet (tcf). But the stock came off the day's high of Rs 2,245. Hardy Oil & Gas Plc has 10% stake each in the two blocks where RIL is the operator with 90% interest.

Analysts expect strong growth in RIL's bottom line in coming quarters from sale of gas which it started pumping last month from its deep-sea field off the east coast.

India's largest oil exploration firm by revenue Oil & Natural Gas Corp rose 2.07% extending yesterday's sharp surge triggered by a newspaper report that the government may double the price of natural gas. The government may double the administered price of natural gas to $4.2 per million British thermal units. The increase will benefit ONGC and Oil India which sell the fuel at prices fixed by the government, according to the report.

Capital goods stocks rose on expectations of increased infrastructure spending by the Congress-led UPA government to boost growth. Other capital goods stocks, ABB, Praj Industries Siemens and Punj Lloyd rose by between 0.1% to 3.56%.

India's largest construction & engineering firm by sales Larsen & Toubro rose 2.32% after company's net profit rose 3.28% to Rs 998.52 crore on 24.01% rise in total income to Rs 10835.79 crore in Q4 March 2009 over Q4 March 2008. The company announced the results during trading hours today.

Notwithstanding a slowdown in the Indian capital goods and infrastructure sectors, L&T's order intake rose 23% to Rs 51621 crore in the year ended March 2009 (FY 2009). The order book stood at Rs 70319 crore as on 31 March 2009, which is two times its revenue of Rs 34045 crore in FY 2009, giving a strong revenue visibility.

India's largest electric equipment maker by sales Bharat Heavy Electricals rose 1.89% as net profit rose 21.29% to Rs 1347.47 crore in Q4 March 2009 over Q4 March 2008. The company announced the results after trading hours on Wednesday, 27 May 2009

Reliance Infrastructure fell 1.34% on profit taking after the stock rose 14.79% yesterday. The board of Reliance Infrastructure on Sunday, 24 May 2009, approved a new preferential offer of 43 million warrants to the company's promoters, convertible at Rs 1,000 a share, cancelling the current offer of equal size which expires on 19 July 2009 and which carried a conversion price of Rs 1,822 a share. If fully exercised the promoters the Anil Dhirubhai Ambani group would raise their stake in the company to 48%, from 38% currently, at a price of Rs 4,300 crore (against over Rs 7,800 crore through the earlier one).

Some realty stocks rose on expectations that stability at the Centre will attract more money from foreign investors into the sector which in turn will boost growth. DLF, Anant Raj Industries,, Indiabulls Real Estate rose by between 1.78% to 10.56%.

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).

Some auto stocks gained on hopes the new government will treat auto sector as a priority sector and attend to some pressing concerns of the sector, mainly differential excise duty, lack of retail finance and lack of focus on infrastructure. Maruti Suzuki India, Bajaj Auto rose by between 2.54% to 4%.

India's largest tractor maker by sales Mahindra & Mahindra rose 2.16% after net profit jumped 89% to Rs 418.07 crore in Q4 March 2009 over Q4 March 2008.

Shipping stocks rose after the Baltic dry index rose 7.54% to 3,164 in London yesterday, 27 May 2009. Mercator Lines, Great Eastern Shipping Company, Essar Shipping Ports & Logistics, SEAMEC, Varun Shipping Company, Shipping Corporation of India, and Shreyas Shipping rose by between 0.55 to 5.69%.

healthcare stocks fell on profit taking after the recent gains triggered by hopes newly elected UPA government will give primary importance to healthcare segment and health of citizens. Lupin, Sun Pharmaceuticals Industries, Dr Reddy's Laboratories, Biocon, Wockhardt, fell by between 0.02% to 5.32%.

But, India's largest drugmaker by sales Ranbaxy Laboratories rose 4.24% extending yesterday's 7.14% rise. The stock had tumbled 8.36% on Tuesday 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 largest telecom player by sales Bharti Airtel galloped 3.42% on value buying after the stock fell 10.36% in preceding three sessions. On Monday, 25 May 2009, Bharti said it was in talks to buy 49% of Johannesburg-based MTN, the first step in a potential $23 billion merger. The deal may also see MTN, Africa's largest mobile-phone company, buy 36% of Bharti

Cals Refineries clocked the highest volume of 16.2 crore shares on BSE. Ispat Industries (2.12 crore shares), K S Oils (1.83 crore shares), Alok Industries (1.69 crore shares) and Unitech (1.64 crore shares) were the other volume toppers in that order.

Relaince Capital clocked the highest turnover of Rs 331.23 crore on BSE. Reliance Industries (Rs 227 crore), ICICI Bank (Rs 221.48 crore), DLF (Rs 221.16 crore) and Indiabulls Real Estate (Rs 220.20 crore) were the other turnover toppers in that order.