Sell-off in IT stocks, RIL pull Sensex off 8-month high

The BSE Sensex crawled up marginally today extending gains for the second straight day on hopes a new stable government will be able to push reforms. However, the 50 unit S&P CNX Nifty fell marginally. The combined turnover in the cash and futures & options segment of BSE and NSE totaled Rs 1.57 lakh crore which is a new record.

Volatility was immense. A sell-off in IT stocks and index heavyweight Reliance Industries (RIL) pulled the market sharply off the higher level. Realty and capital goods stocks rose. Banking stocks were volatile. The Sensex rose 17.82 points or 0.12%, off close to 630 points from the day's high and up close to 470 points from the day's low

The market was highly volatile. The Sensex slipped into the red on profit taking after a sharp surge at the onset of the trading session that pushed the barometer index Sensex to its highest level in more than eight months. The market soon recovered to trade in green in morning trade. It extended gains later.

Volatility was immense in afternoon trade. The market pared gains after a sharp surge in early afternoon trade. It further pared gains in mid-afternoon trade. A sell-off in IT stocks and RIL pulled the Sensex to the break even level at about 15:00 IST. A recovery was witnessed shortly. However, the recovery proved short-lived and the market slipped into the red in late trade.

Indian stocks had witnessed a historic rally on Monday, 18 May 2009, when the key indices viz. the Sensex and the Nifty surged more than 17% each on hopes a new stable government will be able to push reforms. A clear mandate for the Congress-led United Progressive Alliance (UPA) has boosted hopes a strong coalition would be able to push through economic reforms that would boost foreign investment.

Dr Manmohan Singh who is set to become Prime Minister of India for the second term after a thumping victory of the Congress-led UPA government in election on Tuesday, 19 May 2009, said the new government will revive economic growth and make it even more inclusive. Dr Singh said daunting challenges lay ahead as the global economy is passing through difficult times.

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.

Dr Manmohan Singh met President Pratibha Patil on Monday and submitted the resignations of his Council of Ministers. Manmohan Singh formally stepped down as the Prime Minister. President Pratibha Patil on Monday dissolved the 14th Lok Sabha with immediate effect and asked the Prime Minister and his Council of Ministers to continue in office till the new government is formed. The President is expected to invite Dr. Singh to form the next government today, 19 May 2009.

Armed with a decisive mandate, Dr Singh will meet the President to show the UPA alliance has the numbers, and formally stake claim to form a new government at the Centre.

Meanwhile, the Congress party today, 19 May 2009, elected Dr Singh as leader of its parliamentary party today, a formal stamp for Singh to take charge as prime minister for a second consecutive term. The Congress parliamentary party also elected Sonia Gandhi as its chairperson. The formalities set rolling the process of government formation, a day after Singh resigned as prime minister on Monday.

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, with the Congress-led UPA set to form the next government.

A near term trigger for the market will be allocation of portfolios in the new government. It remains to be seen who gets 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. The ministers should be named this week. 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.

Among the 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, Trade Minister Kamal Nath, and External Affairs Minister Pranab Mukherjee. As per market talks, P Chidambaram could retain his home portfolio.

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. Restoring fiscal health is also required. In this regard, disinvestment is an immediate channel for raising funds

The fiscal deficit jumped to an estimated 10.6% of the nation's gross domestic product in the year ended 31 March 2009.

Foreign funds have aggressively bought Indian stocks in the recent past. FII inflow in May 2009 totaled Rs 10,324 crore (till 18 May 2009) while their inflow in calendar year 2009 totaled Rs 10,680.50 crore.

European stocks rose on Tuesday, gaining ground for the fourth straight session and led by banking stocks such as BNP Paribas while investors braced for key US housing data. Key benchmark indices in France, Germany and UK were up by between 0.69% to 2.06%.

Exports from the 16-nation euro region rose for a second month in March 2009, the European Union reported on Monday, 18 May 2009

The pace of contraction in world economic output appears to be easing and recovery could begin at the end of this year, World Bank President Robert Zoellick told Spanish television on Tuesday.

Asian stocks rose today as higher confidence among US homebuilders, a surge in oil prices and a drop in bank borrowing costs stoked optimism the global economy is recovering. Key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan, rose by between 0.9% to 3.83%.

Trading in US index futures indicated the Dow could rise 40 points at the opening bell on Tuesday, 19 May 2009.

US markets on Monday, 18 May 2009 closed at the session's high helped by banks and financial services stocks. The Dow gained 235.44 points, or 2.9%, to 8,504.08. The S&P 500 index gained 26.83 points, or 3%, to 909.71. The Nasdaq composite index added 52.22 points, or 3.1%, to 1,732.36. A reading showed home builder sentiment rose for the second month in a row and at the highest level since September 2008.

The BSE 30-share Sensex rose 17.82 points or 0.12% to 14,302.03 its highest closing since 11 September 2009. The Sensex jumped 646.33 points at the day's high of 14,930.54 in mid-afternoon trade, its highest level since 9 September 2008. At the day's low of 13,834.13, the Sensex fell 450.08 points in early trade.

The S&P CNX Nifty was down 4.70 points or 0.11% to 4,318.45. Nifty May 2009 futures were at 4340.95, at a premium of 22.50 points over the spot closing of 4318.45.

The turnover on NSE's futures & options segment was Rs 105985.51 crore. Turnover was a paltry Rs 2599.35 crore on NSE's F&O segment yesterday, 18 May 2009, as trading was restricted to just a few seconds after a solid surge in the key benchmark indices viz. the Sensex and the Nifty triggered market-wide circuit breakers and shut down the market.

BSE clocked a turnover of Rs 11751 crore much higher a paltry Rs 127 crore on 18 May 2009 when trading was halted at 11:55 IST after market-wide circuit filters were applied after a solid surge.

The Sensex has risen 4654.72 points or 48.24% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the has Sensex has surged 6,141.63 points or 75.26%.

Coming back to today's trade, the market breadth, indicating the overall health of the market, was strong. On BSE, 1,928 shares rose as compared with 747 that fell. A total of 42 shares remained unchanged.

From the 30 share Sensex pack, 18 stocks rose while rest fell.

The BSE Mid-Cap index rose 3.6% and the BSE Small-Cap index rose 2.5%. Both these indices outperformed the Sensex.

The BSE Realty index (up 12.8%), the BSE Bankex (up 6.84%), the BSE Capital Goods index (up 6.33%), the BSE Auto index (up 3.64%), the BSE Power index (up 3.18%), the BSE Metal index (up 3.02%), the BSE PSU index (up 2.65%), the BSE Consumer Durables index (up 0.88%) outperformed the Sensex.

The BSE IT index (down 10.1%), the BSE TECk index (down 5.12%), the BSE Healthcare index (down 4.34%), the BSE FMCG index (down 4.12%), the BSE Oil & Gas index (down 3.18%) underperfomed the Sensex.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) fell 5.94% to Rs 2,219 on profit taking after a recent sharp surge. 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.

Banking stocks rose in choppy trade on hopes for financial reforms by the UPA government. India's largest private sector bank by net profit ICICI Bank rose 7.35% to Rs 758.60. The stock hit the high of Rs 797 and a low of Rs 688. Its American depository receipt (ADR) rose 25.22% on Monday, 18 May 2009.

India's second largest private sector bank by operating income HDFC Bank was up 2.08% to Rs 1,407.60. The stock hit the high of Rs 1,498 and a low of Rs 1,210. Its ADR rose 21.29% overnight.

India's biggest bank in terms of branch network State Bank of India rose 11.19% to Rs 1,754.45 on hopes 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 stock hit the high of Rs 1,842 and a low of Rs 1,555.

India's biggest dedicated housing finance firm by operating income HDFC was up 0.12%. As per recent reports, HDFC is likely to cut deposit rates and follow it with a cut in lending rates

Realty stocks rose on expectations stability at the Centre will attract more money from foreign investors into the sector. DLF, Housing Development & Infrastructure, and Unitech rose by between 10.61% to 24.94%.

Indiabulls Real Estate gained 1.14% extending yesterday's 28.07% surge after the company's shareholders approved raising up to $600 million through share sale to qualified institutional buyers.

But outsourcing focussed IT stocks tumbled on a firm rupee. India's second largest software services exporter by sales Infosys fell 11.65% even after its American depository receipt (ADR) rose 8.99% overnight.

India's largest software services exporter by sales TCS fell 8.15%. 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 third largest software services exporter by sales Wipro fell 9.13% even after its ADR rose 7.48% overnight.

The rupee today surged to its highest level in five months in early deals. It cooled off later. The partially convertible rupee was at 47.72 per dollar, firmer than its Monday's (18 May 2009)'s close of 47.88/90. It rose as high as 47.27 in early trade, its strongest since 19 December 2008, at which point it was up 10.4% from its record low of 52.2 in early March 2009.

A firm rupee affects operating margins of IT firms negatively as IT companies derive a lion's share of revenue from exports

Shares of power and capital goods companies surged following a thumping victory of the Congress-led United Progressive Alliance (UPA) government in the Lok Sabha elections, clearing the way for the landmark civilian nuclear deal with the US. Reliance Infrastructure, Hindustan Construction Company, Bharat Heavy Electricals, Crompton Greaves, Tata Power Company, A B B, and Walchandnagar Industries rose by between 0.16% to 10.34%.

India's largest engineering and construction firm by sales Larsen & Toubro jumped 8.82% to Rs 1346.25 after the company bagged three orders aggregating Rs 518.20 crore from various customers in Oman. However the stock came off the day's high of Rs 1,469.70.

The nuclear deal will give India access to US nuclear fuel and technology without joining the 1970 Nuclear Non-Proliferation Treaty. It is potentially worth billions of dollars to US and European nuclear supplier companies and would give India more energy alternatives to drive its booming economy.

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, Tata Motors, Bajaj Auto, rose by between 0.88% to 7.76%.

India's largest tractor maker by sales Mahindra & Mahindra surged 9.03% after the company said the workers union at the Nashik plant have withdrawn strike from yesterday, 18 May 2009.

FMCG stocks fell as investors pulled out from the so called defensive stocks. ITC, Hindustan Unilever, Marico, Nestle India, Dabur India fell by between, 1.68% to 7.14%.

Healthcare stocks fell as investors pulled out from the so-called defensive stocks. Dr Reddy's Laboratories, Sun Pharmaceuticals Industries, Biocon, Lupin, Pfizer, Ranbaxy Laboratories and Cipla, fell by between 1.32% to 9.35%.

Metal stocks gained following a jump in copper prices on London Metal Exchange. Tata Steel, National Aluminum Company, Sterlite Industries and Steel Authority of India, rose by between 3.09% to 13.8%.

Copper for delivery in three months jumped $131, or 2.9%, to $4,651 a metric tonne in London, leading gains in industrial metals, after US homebuilder confidence increased to an eight-month high, and on economists' expectations that US housing starts rose last month.

Construction stocks rose on expectations that the Congress-led UPA government will increase infrastructure spending, including new power plants, to boost growth. Hindustan Construction Company, Nagarjuna Construction Company, IVRCL Infrastructure & Projects and Gammon Infrastructure, rose by between 9.88% to 21.33%.

Shares of state-run companies rose on hopes of recommencement of the PSU disinvestment programme after the Congress-led UPA government got a clear mandate in the Lok Sabha election. Dredging Corporation of India, HMT, Corporation), Shipping Corporation of India, Hindustan Copper, Power Finance Corporation, Central Bank of India, rose by between 1.14% to 17.53%.

It may be recalled that the BJP-led National Democratic Alliance (NDA) had vigorously pursued PSU divestment. However, it was put in deep freeze in the last five years by the Congress-led United Progressive Alliance (UPA) government as the Left parties which supported the UPA government from outside, were bitterly opposed to the idea.

Airlines stocks rose on hopes the newly elected government may allow foreign direct investment in the sector. Jet Airways, Kingfisher Airlines rose by between 0.12% to 3.26%.

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.

Cals Refineries clocked the highest volume of 10.2 crore shares on BSE. Unitech (4.4 crore shares), IFCI (3.39 crore shares), Reliance Natural Resources (3.03 crore shares) and DLF (2.4 crore shares) were the other volume toppers in that order.

DLF clocked the highest turnover of Rs 897.37 crore on BSE. Reliance Capital (Rs 580.14 crore), ICICI Bank (Rs 537.55 crore), Reliance Industries (Rs 505 crore) and State Bank of India (Rs 473.96 crore) were the other turnover toppers in that order.