Small-cap, mid-cap stocks are the flavour of the day

Fall in index heavyweights Reliance Industries
, ICICI Bank, Infosys, Bharti Airtel, HDFC pulled the pulled the barometer index BSE Sensex lower today after last two days' gains. Volatility was high. Auto stocks rose. Hectic buying was witnessed a number of non-Sensex stocks. The BSE 30-share Sensex lost 241.37 points or 1.69%, off close to 345 points from the day's high and up close to 85 points from the day's low. The Sensex fell below psychological 14,000 mark for a brief period in late trade before regaining that level.

The market was volatile. After an initial slide, the market soon bounced back and moved into the green on reports the key government departments have drawn up a slew of proposals to populate an ambitious reform agenda for the first 100 days of Dr Manmohan Singh's second term as the Prime Minister of India. The market once again slipped into the red shortly. The market bounced back with the Sensex surging to the day's high in mid-morning trade as Asian stocks rose.

But the rally was short-lived as the market slipped into the red once again in early afternoon trade. The market cut losses in choppy mid-afternoon trade as European stocks rose.

The Congress party-led coalition has the support of 322 lawmakers, Prime Minister-elect Manmohan Singh said on Wednesday, 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. 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).

Meanwhile, 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.

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.

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, the stock market will keep a close eye on the allocation of portfolios in the new government. It remains to be seen who gets the key ministries viz. power, transport and education sectors likely to be decided at the crucial UPA meet scheduled to be held in New Delhi today. 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. FII inflow in May 2009 totaled Rs 15,368.80 crore (till 19 May 2009) while their inflow in calendar year 2009 totaled Rs 15,725.30 crore.

Meanwhile, raising funds from the bourses may soon become a simpler, shorter process, as the market regulator reportedly plans an overhaul of existing norms to raise funds by way of IPO, QIP and rights issue taking them closer to standard global practices, reports suggest

European shares edged up on Wednesday, on course for a fifth day of gains, with miners among the top gainers. Key benchmark indices in France and Germany were up by between 0.22% to 0.5%. But UK's FTSE 100 fell 0.4%.

Asian stocks rose as oil traded above $60 a barrel and the Baltic Dry Index, a measure of shipping costs for commodities, jumped for a 13th-straight session to a level not seen since 8 October 2008. Key benchmark indices in Japan, South Korea, Singapore and Taiwan were up by between 0.39% to 0.72%. But key benchmark indices in China and Hong Kong were down 0.39% to 0.94%.

The Japanese economy contracted an annualized 15.2% in the three months ended 31 March 2009, less than some economists predicted.

Trading in US index futures indicated Dow could rise 9 points at the opening bell on Wednesday, 20 May 2009.

US markets ended a rocky session on a mixed note on Tuesday 19 May 2009 as the rally in bank stocks fizzled and an unexpected drop in the housing starts left investors a little shaky. The Dow Jones Industrial Average shed 29.23 points or 0.34%, to close at 8,474.85 and the S&P 500 Index lost 1.58 points or 0.17%, to 908.13. However, the Nasdaq Composite gained 2.18 points or 0.13% at 1,734.54.

In economic news, US housing starts tumbled 12.8% to 458,000 units in April 2009 over April 2008. Building permits for April 2009 hit a rate of 4,94,000. Both marked record lows.

The BSE 30-share Sensex lost 241.37 points or 1.69% to 14,060.66. The Sensex jumped 103.48 points at the day's high of 14,405.51 in mid-morning trade. At the day's low of 13,976.49, the Sensex fell 325.54 points in late trade.

The S&P CNX Nifty was down 48.15 points or 1.11% to 4,270.30. Nifty May 2009 futures were at 4286.80, at a premium of 16.50 points over the spot closing of 4270.30. Turnover in NSE's futures & options (F&O) segment declined to Rs 70570.87 crore from Rs 105985.51 crore on Tuesday, 19 May 2009.

BSE clocked a turnover of Rs 8,390 crore, lower than Rs 11781.35 crore on Tuesday, 19 May 2009.

Small-cap and mid-cap stocks witnessed hectic buying. The BSE Mid-Cap index rose 6.03% to 4673.77 and the BSE Small-Cap index rose 8.86% to 5,208.18.

Small-cap and mid-cap indices have risen sharply in the past two months. From a low of 2,553.49 on 9 March 2009, the BSE Mid-Cap index has galloped 2,120.28 points or 83.03%. The BSE Small- Cap index has jumped 2,341.50 points or 81.67% from a low of 2,866.68 on 9 March 2009.

The Sensex has risen 4413.35 points or 45.74% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has surged 5,900.26 points or 72.3%. The BSE Consumer Durables index (up 9.69%), the BSE Metal index (up 5.22%), the BSE Auto index (up 4.7%), the BSE PSU index (up 2.93%), the BSE Healthcare index (up 1.93%), the BSE Capital Goods index (up 1.48%), the BSE Power index (up 1.32%), the BSE Realty index (up 0.38%), the BSE FMCG index (down 0.02%), the BSE IT index (down 0.02%), the BSE TECk index (down 1.33%), outperformed the Sensex.

The BSE Bankex (down 2.45%) and the BSE Oil & Gas index (down 2.09%), underperfomed the Sensex.

The market breadth, indicating the overall health of the market, was strong. On BSE, 2,394 shares rose as compared with 305 that fell. A total of 43 shares remained unchanged.

From the 30 share Sensex pack, 16 stocks rose while rest fell.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) fell 3.78% to Rs 2,150.95, extending losses for the second day in a row. The stock had lost 5.2% on Tuesday, 19 May 2009 after surging close to 21% on Monday 18 May 2009. 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.

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. India's largest car maker by sales Maruti Suzuki India rose 4.45%.

India's largest tractor maker by sales Mahindra & Mahindra surged 8.18% after the company said the workers union at the Nashik plant have withdrawn strike from 18 May 2009.

India's largest commercial vehicle maker by sales Tata Motors rose 19.12% as firm reportedly will open book-building on Wednesday to sell Rs 4200 crore ($877 million) of bonds, 12% more than planned because of strong demand for its paper.

The debentures will be issued in four tranches. Credit rating agency CRISIL has given the debentures AAA rating. Tata Motors bought the Jaguar and Land Rover brands last year, and is raising funds to cover the $1.9 billion residual bridge loan taken for the acquisition.

Banking stocks fell in choppy trade after a recent sharp surge triggered by expectations that the UPA government will pursue financial sector reforms. India's second largest private sector bank by operating income HDFC Bank was down 2.36% as its American depository receipt (ADR) fell 4.11% on Tuesday, 19 May 2009.

India's largest private sector bank by net profit ICICI Bank fell 6.56%. Its American depository receipt (ADR) fell 0.34% overnight.

But India's biggest bank in terms of branch network State Bank of India rose 1.47% 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.

India's biggest dedicated housing finance firm by operating income HDFC fell 5.73%. 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 and the State Bank of India (Amendment) Bill. The former Bill seeks to bring about regulations, while the amendments to the law governing SBI will enable the Centre to reduce its stake to 51% from current 59.41%.

Metal stocks rose even as a copper prices declined in China. Hindustan Zinc, Hindalco Industries, National Aluminum Company and Steel Authority of India, rose by between 0.14% to 7.09%.

India's largest steel maker by sales Tata Steel jumped 12.81% on reports the company has secured a Rs 2000-crore from Life Insurance Corporation of India for infusing funds into its UK subsidiary Tata Steel, UK.

Shanghai copper prices eased on Wednesday, under pressure from a sharp decline in Japan's economy and an unexpected fall in US housing starts in April 2009 that defused investor confidence for an economic recovery.

Realty stocks rose on expectations stability at the Centre will attract more money from foreign investors into the sector. Housing Development & Infrastructure, Omaxe, Akruti City and Unitech rose by between 4.13% to 20%.

Indiabulls Real Estate gained 3.35% gaining for the third straight day after the company's shareholders approved raising up to $600 million through share sale to qualified institutional buyers.

But India's largest realty player DLF fell 7.77% on profit taking after the stock surged 65.46% in the preceding four trading sessions.

Outsourcing focussed IT stocks rose on bargain hunting after Tuesday's steep fall that was triggered by a firm rupee. India's largest software services exporter by sales TCS rose 0.8%. 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 rose 2.31% even after its ADR fell 2.87% overnight. But India's second largest software services exporter by sales Infosys fell 1.9% after its American depository receipt (ADR) fell 5.39% overnight.

The rupee extended gains on Wednesday. The partially convertible rupee was at 47.42 per dollar, higher than its Tuesday's close of 47.75/76. A firm rupee affects operating profit of IT firms negatively as they earn most of their revenues 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, ABB, and Walchandnagar Industries rose by between 1.26% to 12.23%.

India's largest engineering and construction firm by sales Larsen & Toubro jumped 0.97% extending gains for the second straight day after the company bagged three orders aggregating Rs 518.20 crore from various customers in Oman. The company announced the order win during trading hours on Tuesday, 19 May 2009

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.

Some FMCG stocks fell as investors pulled out from the so called defensive stocks. ITC, United Breweries, Godrej Consumer HealthCare and Dabur India, fell by between, 0.13% to 6.53%.

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, Ranbaxy Laboratories and Cipla, rose by between 0.26% to 6.63%.

Sugar stocks rose as sugar prices are set to rise further on fall in sugar output. Bajaj Hindustan, Balrampur Chini, Triveni Engineering rose by between 2.71% to 11.13%.

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 3.11% to 24.06%.

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, Shipping Corporation of India, Hindustan Copper, Power Finance Corporation, Central Bank of India, rose by between 4% to 19.8%.

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 and SpiceJet rose by between 13.81% to 27.36%.

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 7.27 crore shares on BSE. Unitech (3.67 crore shares), Reliance Natural Resources (3.03 crore shares), Ispat Industries (2.68 crore shares) and Kashyap Technologies (2.12 crore shares) were the other volume toppers in that order.

DLF clocked the highest turnover of Rs 321.05 crore on BSE. Tata Steel (Rs 316.15 crore), Reliance Industries (Rs 294.67 crore), Unitech (Rs 271.60 crore) and Reliance Capital (Rs 251.83 crore) were the other turnover toppers in that order.