Sugar, construction shares, PSUs vault as party continues in small-caps and mid-caps

Hectic buying continued in small-cap and mid-cap shares even as consolidation was witnessed in large-cap stocks after strong gains in the past 2-1/2 months. Volatility was high with the key benchmark indices swinging between positive and negative zone throughout the day. Realty, metal and FMCG stocks rose even as IT stocks fell. The BSE 30-share Sensex gained 26.07 points or 0.19%, up close to 95 points from the day's low and off close to 115 points from the day's high.

Ranbaxy Laboratories jumped more than 20% after Daiichi Sankyo on Sunday, 24 May 2009, took complete control of the firm after all representatives of the former Indian promoter family resigned from the board. But India's top cellular services operator by sales, Bharti Airtel fell close to 6% after a firm start after the company said on Monday it was exploring a potential deal to buy a 49% stake in South African telecom firm MTN.

Volatility was high. After a firm opening, the key benchmark indices soon gave away gains in choppy trade. The market later swung between the positive and negative zone. The market pared gains after surging to the fresh intraday high in early afternoon trade. The market recovered after falling to the fresh intraday day low in mid-afternoon trade. The market moved between positive and negative zones in late trade.

Volatility may remain high this week ahead of the expiry of May 2009 futures and options (F&O) contract on Thursday, 28 May 2009.

European stocks reversed early gains and turned negative on Monday, losing ground for the third session in a row, after a key business sentiment survey in Germany came in weaker than expected. Key benchmark indices in France and Germany fell by between 0.53% to 0.72%.

A leading indicator of German business activity rebounded in May 2009, hinting that the economic slump is easing, though the gain was less than expected. The Ifo business climate index, released Monday, rose for the second straight month, to 84.2 in May 2009 from 83.7 in April 2009. The outcome fell below forecasts for a reading of 85.

In Asia, Japan's Nikkei 225 average gained 1.31% after Bank of Japan Governor Masaaki Shirakawa said the economy is likely to experience a mild recovery as exports and production improve. He, however, said the outlook on the economy remains fraught with considerable uncertainties.

Chinese stocks climbed into positive territory after slumping to a three-week low in the morning following the end of a ban on IPOs, as PetroChina, the most heavily weighted share, rose following a deal to buy a stake in Singapore Petroleum Company. The Shanghai Composite Index rose 0.48%

South Korea's Kospi index was down 0.2% after President Lee Myung Bak immediately convened an emergency security meeting following a nuclear test by North Korea. North Korea's official news agency today, 25 May 2009, said North Korea has conducted a successful underground nuclear test.

US stocks dropped on Friday, 22 May 2009, as government borrowing costs climbed to a six-month high and investors sold shares before the holiday weekend. The Dow Jones industrial average lost 14.81 points, or 0.18%, to 8,277.32. The S&P 500 Index was down 1.33 points, or 0.15%, to 887. The Nasdaq Composite Index dropped 3.24 points, or 0.19%, to 1,692.01.

Closer home, Dr Manmohan Singh was on Friday 22 May 2009 sworn-in as Prime Minister for a second consecutive term. Among others who took oath as Cabinet Ministers include Pranab Mukherjee, Sharad Pawar, A K Antony, P Chidambaram, Mamata Bannerjee, S M Krishna, Ghulam Nabi Azad, Sushil Kumar Shindae, S Jaipal Reddy, Vayalar Ravi, Meira Kumar, Ambika Soni.

Among the key portfolios, Pranab Mukherjee will head Finance Ministry, Mr P Chidambaram- Home ministry, Mr A K Antony-defence ministry and Mr S M Krishna- foreign & external affairs ministry.

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 first two days will be taken up by members of the 15th Lok Sabha taking oath of the rest of the cabinet ministers. 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 newspaper report quoted Mukherjee as saying that the President's address on 4 June 2009 will unveil the new agenda of the government. Mukherjee said 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 said. The Finance Minster (FM) said he was hopeful that the economy will recover by the second half of the year ending March 2010.

On the impact of the stimulus packages, the minster said that their effect would be felt in sectors like automobiles soon. The minister said that he was not in the alarmists' column over fiscal deficit.

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.

Meanwhile, after holding out for three days, DMK has finally relented on the power-sharing formula offered by Congress at the Centre, settling for seven ministerial berths, including three Cabinet and four minister of states (MoS) slots, reports suggest. The MoS slots will be filled by S S Palanimanickam, who was a minister in the previous government too, actor-turned-politician D Napoleon, educationist S Jagatratchagan and the relatively unknown MP from Namakkal, S Gandhiselvan, who is one of the three Vanniyar faces of DMK in the 15th Lok Sabha. Ms Kanimozhi, for whom a MoS post was being sought by the party, is believed to have opted out.

DMK on Thursday 21 May 2009 said it has decided not join the the Congress-led UPA government but the party will provide support the government from outside. This after the talks between DMK and Congress over ministerial berth for DMK broke down over berth sharing.

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. 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.

Closer home, foreign institutional investors have turned sellers after the recent aggressive buying in Indian stocks. Foreign institutional investors (FIIs) sold shares worth a net Rs 694.70 crore on Friday, 22 May 2009 FII inflow in May 2009 totaled Rs 14,242.40 crore (till 22 May 2009). FII inflow in calendar year 2009 totaled Rs 14,955 crore (till 22 May 2009).

The BSE 30-share Sensex was up 26.07 points or 0.19% to 13,913.22. The Sensex rose 140.91 points at the day's high of 14,028.06 in early afternoon trade. At the day's low of 13,819.25, the Sensex fell 67.92 points in mid-afternoon trade.

The S&P CNX Nifty was down 0.95 points or 0.02% to 4,237.55. Nifty May 2009 futures were at 4241.05, at a premium of 3.50 points as compared to the spot closing of 4237.55. Turnover in NSE's futures & options (F&O) segment was Rs 65,141.03 crore, lower than Rs 68,152.60 crore on Friday, 22 May 2009.

BSE clocked a turnover of Rs 7324 crore, higher than Rs 7130.73 crore on Friday, 22 May 2009.

The Sensex is up 4,265.91 points or 44.21% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 5,752.82 points or 70.49%.

The market breadth, indicating the overall health of the market, was strong. On BSE, 2,464 shares rose as compared with 318 that fell. A total of 30 shares remained unchanged.

The BSE Mid-Cap index was up 2.83% and the BSE Small-Cap index was up 5.01%. Both the indices outperformed the Sensex.

Small-cap and mid-cap stocks have witnessed a solid surge in the past 2-1/2 months. From a low 2,553 49 on 9 March 2009, the BSE Mid-Cap index has risen a staggering 2,336.66 or 91.5%. The BSE Small-Cap index has jumped 2,922.75 or 101.95% from a low of 2,866.68 on 9 March 2009.

Coming back to today's trade, the BSE Consumer Durables index (up 4.79%), the BSE Realty index (up 4.25%), the BSE Healthcare index (up 2.83%), the BSE FMCG index (up 2.73%), the BSE Metal index (up 1.96%), the BSE PSU index (up 1.79%), the BSE Auto index (up 1.11%), the BSE Oil & Gas index (up 0.64%), the BSE Bankex (up 0.25%), the BSE Capital Goods index (up 0.25%), outperformed the Sensex.

The BSE Power index (up 0.11%), the BSE IT index (down 0.33%), The BSE TECk index (down 0.89%), underperfomed the Sensex.

From the 30 share Sensex pack, 19 stocks rose while rest fell.

India's top mobile operator by sales, Bharti Airtel fell 5.41% after the company said 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. The Bharti stock was the major loser from the Sensex pack.

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.

Oil stocks were down on 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. Cairn India fell 3.47%. India's largest oil exploration firm by revenue ONGC fell 0.59%.

But, India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) rose 0.47% to Rs 2,193.35. The stock hit a high of Rs 2,214 and a low of Rs 2,155.

PSU OMCs rose. BPCL, HPCL and IOCL rose by between 3.93% to 8.72%.

The proposal to levy a special oil tax was part of the recommendations of the BK Chaturvedi Committee, appointed to look into oil pricing as a replacement for the current subsidy-sharing plan that has been criticised for its lack of transparency.

The government spent a staggering Rs 1,03,182 crore on oil subsidies in 2008-09 to keep the pump prices of motor fuel and cooking gas under control. The enormity of the burden, which is almost 2% of the country's GDP, is prodding the Manmohan Singh government to take a hard look at its hydrocarbons policy.

Metal stocks gained after a gauge of six metals in London advanced 2.7% on Friday, 22 May 2009, the most since 6 May 2009. Sterlite Industries, Hindalco Industries, Steel Authority of India, Hindustan Zinc and Tata Steel, rose by between 0.65% to 5.94%.

Realty stocks rose on expectations that stability at the Centre will attract more money from foreign investors into the sector. DLF, Unitech, Akruti City, Omaxe rose by between 4.99% to 8.28%.

Outsourcing focussed IT stocks fell after the Federal Reserve recently 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.

India's largest software services exporter by sales TCS fell 0.39%. India's third largest software services exporter by sales Wipro fell 0.56% even as its ADR rose 0.83% on Friday.

India's second largest software services exporter by sales Infosys fell 0.75% even as its ADR rose 0.22% on Friday.

Healthcare stocks rose on hopes newly elected UPA government will give primary importance to healthcare segment and health of citizens. Cipla, Biocon, Wockhardt, Lupin, Glenmark Pharmaceuticals rose by between 0.01% to 13.7%.

India's largest drugmaker by sales Ranbaxy Laboratories jumped 20.73%. 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. The stock was the major gainer from the Sensex pack.

Bank stocks fell in volatile trade after recent solid gains 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) fell 0.68% to Rs 1,719.85. The stock hit a high of Rs 1745 and a low of Rs 1697.10. 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 0.79% to Rs 1,358.25. The stock hit a high of Rs 1,386.95 and a low of Rs 1,349. Its ADR rose 2.22% on Friday.

But India's largest private sector bank by net profit ICICI Bank rose 0.11% to Rs 703.55. The stock hit a high of Rs 717 and a low of Rs 696.25. Its American depository receipt (ADR) rose 5.32% on Friday, 22 May 2009.

India's biggest dedicated housing finance firm by operating income HDFC fell 1.63%. 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

Sugar stocks rose on hopes sugar prices may firm up on lower output. Balrampur Chini, Shree Renuka Sugars and Bajaj Hindustan, rose by between 5.76% to 8.57%.

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 4.32% to 8.46%.

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, Power Finance Corporation, Central Bank of India rose by between 1.95% to 10%.

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.

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, Hero Honda Motors, Bajaj Auto, Mahindra & Mahindra and Tata Motors rose by between 0.07% to 2.01%.

Cals Refineries clocked the highest volume of 14.36 cror shares on BSE. Suzlon Energy (8.4 crore shares), Reliance Natural Resources (3.36 crore shares), Ispat Industries (2.7 crore shares) and Satyam Computer Services (2.5 crore shares) were the other volume toppers in that order.

Suzlon Energy clocked the highest turnover of Rs 748.04 crore on BSE. Reliance Natural Resources (Rs 278.10 crore), DLF (Rs 199.90 crore), Reliance Industries (Rs 197.49 crore) and Reliance Capital (Rs 191.57 crore) were the other turnover toppers in that order.