PSU OMCs defy weak market

The key benchmark indices extended losses for the second straight day as investors booked profit taking cues from weak global markets and after recent sharp surge in prices. Capital goods, auto and banking stocks led the fall. Index heavyweight Reliance Industries extended recent losses. The BSE 30-share Sensex lost 324.12 points or 2.31%, off close to 355 points from the day's high.

The barometer index BSE Sensex fell below the psychological 14,000 mark.

The market was volatile. The market cut losses after a weak start triggered by weak global cues. However, the recovery proved short-lived as the Sensex tumbled to a fresh intraday low in morning trade. It cut losses later. The Sensex moved into the green from red in early afternoon trade. It once again slipped into the red shortly. The market extended losses later.

The headline inflation held near a three- decade low, giving Prime Minister Dr Manmohan Singh's re-elected government room to take steps to support a slowing economy. Inflation based on the wholesale price index (WPI) rose 0.61% in the year through 9 May 2009, higher than previous week's annual rise of 0.48% data announced by the government just a while back showed.

A comfortable victory for the Congress-led coalition government in election has raised expectations of a strong push for economic reforms by the government. As per media reports key government departments have drawn up a slew of proposals to populate an ambitious reform agenda for the first 100 days of Dr Singh's second term as the PM, aimed at giving economic growth a leg-up.

PM has already 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 is aiming for increased domestic output and a targetted-delivery system for the poor

The new government is also likely to pursue disinvestment of state-run undertakings, reports suggest. The disinvestment department under the finance ministry is reportedly working on expanding the list of companies in which the government could reduce its stake. Among these are Power Grid Corporation, Cochin Shipyard, and Rashtriya Ispat Nigam.

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.

Meanwhile, a meeting slated this morning between Prime Minister Singh and President Pratibha Patil on government formation was deferred apparently because the list of the Council of Ministers was yet to be finalised, reports suggest.

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. Singh and Congress party chief Sonia Gandhi met President Pratibha Patil to seek approval to form a new government. President Pratibha Devisingh Patil on Wednesday appointed Manmohan Singh Prime Minister and invited him to name his Council of Ministers.

The invitation to form the government came after Dr. Singh and Congress president Sonia Gandhi staked claim with letters of support from 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.

Dr Singh, the 76-year-old economist-turned-politician, will be sworn in as Prime Minster of India for the second term on Friday 22 May 2009, a day after the 18th death anniversary of Rajiv Gandhi. Dr Singh was renominated as Congress Parliamentary Party leader on Tuesday (19 May 2009).

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.

Meanwhile, the stock market will keep a close eye on the allocation of portfolios in the new government. It remains to be seen who get the key ministries viz. power, transport and education sectors. Analysts say growth in these three sectors are key for India to achieve strong economic growth. If those seen as strong performers are given charge of these three ministries, the market may extend gains.

As per reports, Congress's strong showing in election means reformers will almost certainly be named to key ministerial portfolios viz. finance, trade, defence and foreign affairs. Fresh reformist faces may also join the cabinet for the first time, including Rahul Gandhi, heir to the powerful Gandhi dynasty and seen as pushing a new generation of leaders into the Congress.

Veteran Congress leader Pranab Mukherjee is the frontrunner for the post of the finance minister. Among the other contenders for the post of the finance minister are C Rangarajan, an economic adviser to the prime minister, Montek Singh Ahluwalia, deputy chairman of the Planning Commission. As per market talks, P Chidambaram could retain his home portfolio.

The two contenders for the post of the external affairs minister are Kapil Sibal and Salman Khursheed. Another senior leader Murli Deora may retain his old portfolio viz. petroleum. And A K Antony is also likely to retain defense portfolio. Jairam Ramesh may become Power minister

Trinamool Congress (TC) leader Mamata Banerjee is likely to be made Railway Minister. DMK is said to be insisting on IT, shipping and surface transport, environment and forest, portfolios.

As per reports, DMK and TC are bargaining hard for more berths in the Council of Ministers. While DMK is seeking nine ministerial berths, TC is insisting on getting one more ministerial portfolio than what the DMK gets, reports suggest.

Foreign funds turned sellers on Wednesday, 20 May 2009, after buying aggressively in the past two months. Foreign institutional investors (FIIs) sold shares worth Rs 234.10 crore on Wednesday. FII inflow in May 2009 totaled Rs 15,134.70 crore (till 20 May 2009) while their inflow in calendar year 2009 totaled Rs 15,491.20 crore.

Weak global markets weighed on the domestic bourses. European shares fell on Thursday to snap a five-day winning run as comments from the US Federal Reserve provided a reason for investors to reassess recent optimism over the economy. Key benchmark indices in France, Germany and UK were down by between 1.6% to 2.06%.

Standard & Poor's cut its credit-rating outlook on the UK to negative from stable though it affirmed the country's AAA sovereign credit rating. "We have revised the outlook on the UK to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term," Standard & Poor's credit analyst David Beers said.

UK retail sales rose 0.9% month-on-month in April 2009 and 2.6% on year-on-year, according to data compiled by the Office of National Statistics. Economists had been expecting a monthly rise of 0.5% and an annual rise of 2.4%.

Asian stocks retreated today, dragging the MSCI Asia Pacific Index from a seven-month high, as the stronger yen diminished earnings prospects in Japan and the US Federal Reserve projected a deeper recession. Key benchmark indices in China, Hong Kong, Japan, Singapore, South Korea were down by between 0.86% to 2.57%. Taiwan's Taiwan Weighted rose 0.23%.

Singapore's gross domestic product declined 14.6% in quarter ended March 2009 after shrinking 16.4% between October and December 2008. The Ministry of Trade and Industry said it saw "no decisive indicators of economic recovery." For all of 2009, the ministry said it was keeping its forecast for a 6%-9% contraction. If correct, it would be the worst economic decline since Singapore's independence from Malaysia in 1965

US stock futures slipped Thursday, as Standard & Poor's move to lower the credit-rating outlook on Britain raised fears that a downgrade of the US government's debt rating could be coming soon as well. Trading in US index futures indicated the Dow could fall 43 points at the opening bell on Thursday, 21 May 2009.

Like the UK, US public spending has swelled, the country's central bank has embarked on quantitative easing and interest rates are at ultra-low levels in reaction to the credit-led recession

US markets ended lower on Wednesday, 20 May 2009, as American Express Company said legislation to curb credit-card fees may reduce lending to consumers. The Dow Jones Industrial Average shed 52.81 points or 0.62%, to 8,422.04. The S&P 500 lost 4.66 points or 0.51%, to 903.47 and the Nasdaq Composite fell 6.70 points or 0.39%, to 1,727.84.

Fed policy makers projected a fourth-quarter US contraction of 1.3% to 2% from a year earlier, according to minutes of an April 28-29 meeting released yesterday, 20 May 2009. That compares with January projections for a contraction of 0.5% to 1.3%. US unemployment surged to 8.9% in April 2009, a level not seen since 1983.

The BSE 30-share Sensex lost 324.12 points or 2.31% to 13,736.54. The Sensex rose 28.85 points at the day's high of 14,089.51 in afternoon trade. At the day's low of 13,704.43, the Sensex fell 356.23 points in late trade.

The S&P CNX Nifty was down 59.40 points or 1.39% to 4,210.90. Nifty May 2009 futures were at 4219.50, at a premium of 8.60 points over the spot closing of 4210.90. Turnover in NSE's futures & options (F&O) segment inched up to Rs 71702.09 crore from Rs 70570.87 crore on Wednesday, 20 May 2009.

BSE clocked a turnover of Rs 7,951 crore lower than Rs 8415.09 crore on Wednesday, 20 May 2009.

The BSE Mid-Cap index was almost unchanged at 4,673.87. The BSE Small-Cap index rose 2.58%. Both the indices outperformed the Sensex.

From a recent high of 14,302.03 on Tuesday, 19 May 2009, the Sensex has lost 566.49 points or 3.95%. Yet, the Sensex is up 4099.31 points or 42.48% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 5,576.14 points or 68.33%.

Coming back to today's trade, the BSE PSU index (up 2.75%), the BSE Oil & Gas index (up 0.82%), the BSE Consumer Durables index (up 0.81%), the BSE Healthcare index (down 0.36%), the BSE TECk index (down 1%), the BSE Power index (down 1.19%), the BSE Realty index (down 1.31%), the BSE Metal index (down 1.5%), the BSE FMCG index (down 1.86%), the BSE IT index (down 1.88%), the BSE Auto index (down 2.07%), outperformed the Sensex.

The BSE Bankex (down 2.91%), the BSE Capital Goods index (down 5.41%) underperfomed the Sensex.

The market breadth, indicating the overall health of the market, was strong. On BSE, 2,100 shares rose as compared with 636 that fell. A total of 40 shares remained unchanged.

From the 30 share Sensex pack, 24 stocks fell while rest rose.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) fell 1.59% to Rs 2,116.80 on profit taking after a recent sharp surge. The stock was volatile. It hit a high of Rs 2,177.85 and a low of Rs 2,107. Analysts expect strong growth in 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 biggest state-run oil exploration firm by revenue Oil & Natural Gas Corporation (ONGC) rose 8.41%, as crude oil rose. Crude oil for July 2009 delivery jumped 3.2% to $62.04 a barrel in New York yesterday, 20 May 2009, the highest settlement since 10 November 2008. The rise in crude oil prices would result in higher realizations from crude sales for oil exploration firms.

PSU OMCs rose on 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. BPCL, HPCL and IOCL, rose by between 10.22% to 14.64%.

With international crude oil prices hovering between $50 a barrel and $60 a barrel, the oil ministry reportedly feels it is the right time to free petrol and diesel prices from government control. Petrol prices may be raised by about Rs 2 per litre and diesel rates cut by Rs 0.30 a litre if the proposal to free auto fuel prices from state control is approved by the incoming Cabinet.

According to the proposal, state-run IOC, BPCL and HPCL will be given freedom to fix rates of petrol and diesel till the time crude oil stays below $75 a barrel. If it breaches this mark, the government will step in to protect the interests of consumers.

Auto stocks fell on concerns a likely partial decontrol of petrol and diesel prices will result in an immediate rise in retail prices of petrol and diesel. Maruti Suzuki India, Mahindra & Mahindra and Heor Honda Motors fell by between 2.43% to 6.93%.

India's largest commercial vehicle maker by sales Tata Motors fell 1.77% on profit taking after recent solid surge. The company has raised Rs 4,200 crore through the issue of secured non-convertible debentures (NCD) in the local market. In a statement issued on Wednesday, 20 May 2009, the company said the funds raised will be used for part repayment of the $3-billion bridge loan facility taken for acquiring Jaguar Land Rover (JLR) last year. Of this, Tata Motors had earlier pre-paid $1.11 billion.

Capital goods stocks fell on profit taking after a recent solid surge triggered by expectations of increased infrastructure spending by the Congress-led UPA government to boost growth. India's biggest engineering & construction firm by revenue L&T lost 8.59% to Rs 1242.60 and India's biggest power equipment maker by revenue Bhel shed 3.73% to Rs 1964.30.

Banking stocks fell on profit taking after they rose recently on hopes the UPA government will pursue financial sector reforms. India's largest private sector bank by net profit ICICI Bank fell 5.15%. Its American depository receipt (ADR) fell 2.77% overnight.

India's biggest bank in terms of branch network State Bank of India (SBI) fell 3.7%. 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 second largest private sector bank by operating income HDFC Bank fell 0.51%. Its American depository receipt (ADR) fell 1.63% on Wednesday, 20 May 2009.

India's biggest dedicated housing finance firm by operating income HDFC fell 5.01%. 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 act 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

Outsourcing focussed IT stocks fell after the Federal Reserve disclosed in its minutes from the last rate-setting meeting that it lowered its forecast for growth of the US economy this year given the weakness in the first quarter. US is the biggest market for Indian IT firms. A firm rupee also weighed on IT stocks.

India's largest software services exporter by sales TCS fell 4.25%. TCS last week it has been selected for a five-year IT services contract for auto maker Volkswagen group's operations in the United Kingdom.

India's second largest software services exporter by sales Infosys fell 2.05% as its American depository receipt (ADR) fell 2.45% overnight.

India's third largest software services exporter by sales Wipro fell 4.86%. Its ADR fell 0.72% overnight.

The rupee extended its recent solid surge. The partially convertible rupee was at 47.34 per dollar, stronger from its Wednesday's close of 47.47/48. It is up close to 10% since hitting a record low of 52.2 in early March 2009. A firm rupee affects operating profit of IT firms negatively as they earn most of their revenues from exports.

Some FMCG stocks fell as investors pulled out from the so-called defensive stocks. ITC, Hindustan Unilever, United Breweries, Marico, Nestle India and Dabur India, fell by between, 1.2% to 5.92%.

Healthcare stocks rose on hopes newly elected UPA government will give primary importance to healthcare segment and health of citizens. Dr Reddy's Laboratories, Biocon, Lupin, and Wochardt, Pfizer rose by between 1.06% to 11.83%.

India's largest drug maker by sales Ranbaxy Laboratories rose 2.66% after chairman Malvinder Mohan Singh said that the company will be able to wipe out its forex losses in the quarter ending June 2009 and head back towards profitability if rupee appreciates further. Ranbaxy posted losses of over $150 million last quarter due to the mark-to-market hit on forex derivative contracts due to depreciation in rupee. Rupee is now sub 48 mark after touching 52 mark in March 2009.

Realty stocks fell on profit taking after recent surge on expectations stability at the Centre will attract more money from foreign investors into the sector. Indiabulls Real Estate, Unitech, DLF, Ansal Properties fell by between 0.56% to 3.62%.

But, Sobha Developers jumped 10% and Housing Development and Infrastructure rose 0.99% on reports these two realty firms may raise a total of Rs 3,000 crore by the end of next month through qualified institutional placement.

Airlines stocks rose on hopes the newly elected government may allow foreign direct investment in the sector. Jet Airways, and SpiceJet rose by between 3.94% to 5.62%. While Kingfisher Airlines fell 3.01%.

The Indian aviation industry has been plagued by large losses, rising debt levels and a serious liquidity crunch. According to reports, measures like increasing the present cap on Foreign Direct Investment (FDI) in the aviation sector as well as withdrawing the restrictions on investment by foreign airlines in the domestic carriers are important to save the industry from the current crisis that it finds itself in.

Currently, foreign airlines are not allowed to pick up equity in aviation companies while foreign investors and financial institutions can hold up to a 49% stake.

Cement stocks fell on profit taking after recent surge triggered by hopes UPA government's likely thrust on infrastructure sector would boost cement demand. Grasim Industries, ACC, Ambuja Cements fell by between 1.08% to 3.68%.

India's second largest telecom services provider by sales Reliance Communications rose 4.52% after S P Shukla, president for wireless business, said revenue and profit will improve in the current quarter as the company gradually eliminates free voice services offered to new users. The company logged net additions of 2.2 million in April 2009 down from about 3 million in March 2009, after axing some free users.

India's largest steel maker by sales Tata Steel fell 1.45% even as Managing Director B. Muthuraman said sales volume in India will grow 25% in the fiscal year ending March 2010 (FY 2010). He expects profit margins to remain healthy in the current fiscal year

Cals Refineries clocked the highest volume of 4.32 crore shares on BSE. Kashyap Technologies (3.18 crore shares), Ispat Industries (2.48 crore shares), Reliance Natural Resources (2.44 crore shares) and Unitech (2.04 crore shares) were the other volume toppers in that order.

Housing Development & Infrastructure (Rs 277.96 crore), ICICI Bank (Rs 242.20 crore), DLF (Rs 240.59 crore), Reliance Industries (Rs 210.56 crore) and Tata Steel (Rs 209.59 crore) were the other turnover toppers in that order.