Market slips for the second straight day on profit taking

The key benchmark indices extended losses for the second straight day as investors took profits ahead of the weekend on a more than 90% rally since early March 2009. Stocks from interest rate sensitive sectors viz. auto, banking and realty fell as an improved industrial production data raised fears that the rate cutting cycle may come to an end sooner than later. But index heavyweight Reliance Industries bucked the weak trend and so did metal stocks.

The BSE 30-share Sensex fell 173.53 points, or 1.13%, off close to 360 points from the day's high and up close to 60 points from the day's low. The market breadth, indicating the overall health of the market turned weak in contrast to a positive breadth earlier in the day.

Industrial production data rose 1.4% in April 2009 compared to an upwardly revised 0.75% fall in March 2009. Manufacturing production rose 0.7% in April 2009, data released by the government during trading hours today, 12 June 2009, showed.

The stock market was volatile. The market pared gains in early trade after a firm start triggered by higher Asian stocks. It regained strength later. The market came off the higher level after hitting its highest level in the past one year in mid-morning trade.

A sell-off was witnessed soon after the industrial production data for in April 2009 hit the market in early afternoon trade. The improved industrial production data raised fears that the rate cutting cycle may come to an end sooner than later. Volatility was immense in mid-afternoon trade.

Investors have been betting that falling interest rates in India may help sustain strong domestic demand and also support a larger capital expenditure programme of India Inc. Late last week, India's biggest private sector bank by net profit ICICI Bank cut prime lending rate by 50 basis points.

Interest rates in India are falling thanks to ample liquidity in the banking system, low headline inflation and a loose monetary policy stance of the Reserve Bank of India. However, inflation may rise if oil and metal prices which have risen sharply in 2009 continue to rally.

Finance minister Pranab Mukherjee on Wednesday said banks should provide credit at reasonable rates to spur growth, saying cuts in official rates by the Reserve Bank of India had not been passed on. This will help restore the environment for rapid growth and ensure that the growth process benefits, he said.

Overseas markets were mostly lower. European shares slipped in volatile trade ahead of a G8 meeting as investors paused for breath to discern further signs of economic recovery. Key benchmark indices in France, Germany and UK were down by between 0.34% to 0.54%.

Asian stocks were mixed. Key benchmark indices in Hong Kong and South Korea rose by between 0.52% to 0.65%. But key benchmark indices in Taiwan and Singapore fell by between 0.2% to 1.81%.

Japan's Nikkei rose 1.55% to 10,135.82, its first close above 10,000 mark since October 2008 as consumer confidence was better than expected in May 2009, climbing for a fifth-consecutive month, government figures showed Friday, 12 June 2009. The consumer confidence index, excluding one-person households, stood at 35.7 in May 2009, up from a 32.4 reading in April 2009, according to data from the Cabinet Office.

China's Shanghai Composite fell 1.91% as airlines dropped after the World Health Organization declared the first influenza pandemic since 1968 and oil prices rose, while healthcare companies rallied. China's industrial production rebounded in May 2009, adding to signs that the world's third-biggest economy is recovering from its worst slump in almost a decade. Output rose 8.9% in May 2009 over May 2008 the statistics bureau said today, after gaining 7.3% in April 2009.

US index futures reversed gains. Trading in US index futures indicates Dow could fall 8 points at the opening bell today, 12 June 2009.

US markets rose on Thursday as retail sales in May 2009 rose for the first time in three months, and initial jobless claims declined last week to the lowest level since January 2009. The Dow gained 31.90 points, or 0.4%, to 8,770.92. The S&P 500 added 5.74 points, or 0.6%, to 944.89. The Nasdaq Composite Index was up 9.29 points, or 0.5%, to 1,862.37.

Initial claims for unemployment benefits fell by 24,000 last week to 601,000, a much sharper drop than expected. Retail sales also shot up 0.5% in May 2009, marking the first gain in three months.

Closer home, Indian stocks have soared in the past three months on a view that ample global liquidity and a return of risk appetite will help India Inc help raise funds for expansion which in turn will boost corporate profits. India Inc has already raised almost Rs 5,000 crore from three qualified institutional placements (QIPs) so far in 2009 and announced plans to raise another Rs 20,000 crore.

Many equity analysts have been raising earnings forecasts of India Inc on hopes that the new government will provide thrust on the infrastructure sector and push economic reforms to boost growth. Citigroup expects the economy to grow by 6.8% in 2009/10 and 7.8% in 2010/11.

A comfortable victory last month for the Congress-led United Progressive Alliance (UPA) government in elections for the 15th Lok Sabha has raised hopes for economic reforms. Reforms virtually came to a halt in the past five years of the Congress-led alliance government at the centre, when the Communists provided support to the government from outside for a large part of the five-year term. Left parties are opposed to economic reforms.

Foreign funds are aggressively buying in Indian stocks. FII inflow in June 2009 totaled Rs 5,595.40 crore (till 11 June 2009). FII inflow in calendar year 2009 totaled Rs 26,914.80 crore (till 11 June 2009).

Mutual funds, too, have started received fresh investor money after a solid surge in the stock prices in the past three months. Net inflows into domestic equity mutual funds rose to Rs 1,930 crore in May 2009, the highest in 14 months, and more than twice the amount in the first four months of 2009, according to data from the Association of Mutual Funds in India.

Finance minister Pranab Mukherjee on Thursday said there was a need to find ways to bring the economy back to higher growth path without increasing the fiscal deficit. He said the government would focus on infrastructure, agriculture and employment generating sectors to protect growth and jobs.

But rising metal prices is a cause of concerns for manufacturing companies as their raw material costs may shoot up.

The government's oil subsidy bill may remain high and it could continue to put pressure on the already high fiscal deficit if the government does not resort to decontrol of oil prices. However, the surging rupee against the dollar may mitigate the impact to some extent as India is a major importer of crude.

Petroleum Secretary R.S. Pandey on Wednesday said the government is committed to reforms in fuel pricing but it wants to ensure affordable fuel supply. Pandey's comments come in the backdrop of a newspaper report on Tuesday that the government may defer a proposal to decontrol pricing of gasoline and diesel because of the increase in crude oil prices. Trinamool Congress (TC), a key ally in Prime Minister Manmohan Singh's government, opposes lifting controls on fuel pricing. With her eye on a series of local elections coming up in West Bengal, she told a Bengali television channel on Monday that her party would protest against any move which would result in higher fuel prices.

The government fixes the price of petrol and diesel and compensates state refiners, such as Indian Oil Corporation, HPCL and BPCL by supplying domestic crude oil at a discount and by issuing bonds to shore up their balance sheets.

The petroleum minister had said late last month that he will submit a proposal for deregulation of oil products to the Cabinet in six to eight weeks. If government removes price controls on petrol and diesel, it would benefit PSU OMCs and also the government, which has been issuing oil bonds to share PSU OMC's burden. It would also persuade private refiners, such as Reliance Industries and Essar Oil, to reenter the oil-marketing business.

Finance Minister Pranab Mukherjee on 26 May 2009 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.

Investor expectations from the new government are high. Investors expect financial sector reforms such as increase in the cap on foreign direct investment in insurance sector to 49%, from 26% at present.

Unveiling the agenda of the government, President Pratibha Patil in her speech addressed to a joint session of both houses had last week indicated government's intension to divest stake in state-run firms. The government, however, intends to retain control over state-run firms and will continue to hold at least 51% stake. But some investors are concerned that the government's two key allies viz. the DMK and Trinamool Congress (TC) may oppose economic reforms.

Prime Minister Manmohan Singh on Tuesday said India will achieve an economic growth of at least 7% this fiscal and promised more resources for areas like infrastructure and public services. He said India will be able a growth rate of 8-9%, even when the world grows at a lower rate.

The Prime Minister said the reason behind his optimism was that India's savings rate, which determines the money that can be deployed for development projects, was still high at 35% of gross domestic product (GDP).

Manmohan Singh also sought to allay fears that pump priming of the economy by way of stimulus packages announced earlier and measures that will follow in the ensuing months would fuel inflation. "It (expenditure towards infrastructure) will not add to inflation, but to our economic growth."

According to the Prime Minister, fiscal deficit had increased sharply but even then India had enough resources to spend on flagship programmes thanks to the average annual growth of 8.6% achieved during the past five years. He also said that his government was deeply committed to the agenda listed in the President's address, adding flagship programmes will be further strengthened and public delivery system made more transparent.

The BSE 30-share Sensex fell 173.53 points, or 1.13%, to 15,237.94. The Sensex rose 188.83 points at the day's high of 15,600.33 in early afternoon trade, its highest level since 18 June 2008. At the day's low of 15,174.28, the Sensex fell 237.19 points in mid-afternoon trade.

The S&P CNX Nifty was down 54.30 points or 1.17% to 4,583.40. It hit a high of 4,693.20 in mid-morning trade, its highest since 6 June 2008.

Nifty June 2009 futures were near spot price at 4584.35, as compared to the spot closing of 4583.40. Turnover in NSE's futures & options (F&O) segment surged to Rs 75,452.41 crore from Rs 63,464.28 crore on Thursday, 11 June 2009.

On the back of heavy buying by foreign funds, the Sensex has jumped 5,590.63 points or 57.95% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 7077.54 points or 86.73%.

BSE clocked a turnover of Rs 7,868 crore, higher than Rs 7,628.57 crore on Thursday, 11 June 2009.

The BSE Mid-Cap index was down 2.1%. The BSE Small-Cap index was down 2.21%. Both the indices underperformed the Sensex.

The BSE Metal index (up 1.93%), the BSE Oil & Gas index (up 1.38%), outperformed the Sensex.

The BSE Realty index (down 2.49%), the BSE Auto index (down 2.41%), the BSE TECk index (down 2.4%), the BSE Consumer Durables index (down 2.29%), the BSE Capital Goods index (down 2.27%), the BSE Bankex (down 2.12%), the BSE Power index (down 1.62%), the BSE IT index (down 1.53%), the BSE Healthcare index (down 1.36%), the BSE PSU index (down 1.29%), the BSE FMCG index (down 1.16%), underperfomed the Sensex.

The market breadth, indicating the overall health of the market turned weak from the positive breadth earlier in the day. On BSE, 707 shares rose as compared with 2,026 that declined. A total of 45 shares remained unchanged.

From the 30 share Sensex pack 26 fell while the rest rose.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) rose 2.48% to Rs 2,372.30 on market talks the government may extend a seven-year tax holiday given to crude oil explorers to producers of natural gas in the Union Budget 2009-2010. But the stock came off the day's high of Rs 2,372.30.

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.

The Bombay High Court is likely to deliver the final judgement on the legal tussle over the supply of gas from Reliance Industries (RIL) to Reliance Natural Resources (RNRL) shortly. The basic argument in the RIL-RNRL case pertains to the pricing and quantum of gas RIL has to supply s from its Krishna Godavari basin to RNRL for RNRL's upcoming 7400 megawatt (MW) power project at Dadri in Uttar Pradesh.

Realty stocks fell on profit taking after a recent sharp surge triggered by expectations that stability at the Centre will attract more money from foreign investors into the sector which in turn will boost growth. Akruti City, Unitech, DLF, and Omaxe fell by between 0.17% to 5.8%.

Unitech and Indiabulls Real Estate, have already raised funds through qualified institutional placements (QIPs). A number of other realty funds have decided to raised funds by way of QIPs. The promoters of DLF last month sold a 10% stake in the secondary equity markets.

Engineering-to-construction major Larsen & Toubro (L&T) was down 2.6% after it sold its entire 11.49% stake in UltraTech Cement yesterday, 11 June 2009. Other capital goods stocks, Punj Lloyd, Praj Industries, Crompton Greaves fell by between 1.22% to 5.2%.

India's largest electric equipment maker by sales Bharat Heavy Electricals fell 2.45% even after it got orders worth Rs 4,015 crore from Hindalco Industries.

Auto stocks fell on profit taking after recent surge triggered by improved sales in the month of May 2009. Tata Motors, Mahindra & Mahindra, Hero Honda Motors, Bajaj Auto, Maruti Suzuki India fell by between 0.31% to 3.92%.

Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange jumped 4.2% in on Thursday. Hindustan Zinc, Tata Steel, Sterlite Industries and National Aluminum Company rose by between 0.78% to 7.85%.

Iron ore miner Sesa Goa rose 5.62% after it acquired the mining assets of Dempo Group in the western state of Goa for Rs 1750 crore to boost its output of iron ore. The announcement was made after market hours on Thursday, 11 June 2009. With the acquisition, Sesa Goa will have access to Dempo's mining leases, rights and infrastructure.

Bank stocks reversed early gains as a surge in bond yields will result in diminution in value of banks' bond portfolio. Bond yield rose to a two-month high on Friday after an unexpected rise in industrial output in April from a year earlier, suggesting the economy is turning around faster than expected.

At 12:56 IST, the yield on the benchmark 10-year bond was at 6.94%, the highest since 8 April 2009, from 6.88% before the data. It had ended at 6.89% on Thursday. The yield on the most traded 6.07% bond maturing in 2014 was at 6.64%. It rose to 3 basis points to 6.69% after the data was released. It had ended at 6.63% in the previous session. Bond yields and bond prices are inversely related.

India's biggest bank in terms of branch network State Bank of India (SBI) fell 3.49% on reports its standard loans restructured together with pending applications for restructured loans from clients is close to Rs 21000 crore or about 4% of the loan book.

SBI chairman O.P. Bhatt during trading hours on Wednesday said said SBI's first priority is to absorb its associate banks. It is also looking to grow by buying domestic banks.

India's second largest private sector bank by operating income HDFC Bank fell 1.36% even as its ADR rose 2.03% on Thursday.

India's largest private sector bank by net profit ICICI Bank fell 1.31%. Its American depository receipt (ADR) rose 0.13% on Thursday, 11 June 2009. ICICI Bank cut prime lending rate by 50 basis points to 15.75% with effect from Friday, 5 June 2009. All the existing floating rate customers to benefit from the cut.

India's biggest dedicated housing finance firm by operating income HDFC fell 2.76%. HDFC plans to raise up to Rs 4000 crore after its board yesterday approved a proposal to raise Rs 4000 crore by selling bonds and warrants. The maximum dilution on conversion of all warrants to shares would be 3.5% of the expanded capital, HDFC said in a statement to the stock exchange after trading hours on Tuesday.

Power stocks fell on profit taking after a recent surge triggered by hopes that the government will focus on the infrastructure sector to boost growth. Reliance Infrastructure, NTPC, Tata Power Company fell by between 1.13% to 1.86%.

Healthcare stocks fell on profit taking after recent surge triggered by hopes the government will give primary importance to healthcare segment and health of citizens. Biocon, Dr Reddy's Laboratories, Ranbaxy Laboratories, Sun Pharmaceuticals Industries, Lupin, Cipla fell by between 1.75% to 6.03%.

Outsourcing focussed IT stocks fell on worries higher borrowing costs and oil prices will threaten a recovery of the US economy. US is the biggest market for the Indian firms.

India's second largest software firm by sales Infosys Technologies fell 1.35%. The company said on Tuesday it had won a new IT outsourcing contract from Telstra Corp, Australia's top phone company. The total value of the outsourcing contract is A$450 million ($355 million) over five years, Infosys said in a statement, but didn't disclose its share in the deal. EDS, a unit of Hewlett-Packard Co, and US technology major IBM are also part of the project. Its American depository receipt (ADR) fell 0.45% on Thursday.

India's largest software services exporter by sales TCS fell 1.42%. India's third largest software services exporter by sales Wipro fell 3.14% after Azim Premji Foundation sold 3 lakh shares or 0.02% stake in the company through open market transaction. Its ADR rose 2.22% on Thursday.

Satyam Computer Services fell 0.49% to Rs 80.45 after 98.70 lakh shares changed hands in six block deals on both the stock exchanges at a weighted average price of Rs 86.84 today. It posted a standalone net profit of Rs 181 crore ($38 million) on revenue of Rs 2290 crore in Q3 December 2008, it said in a filing to the stock exchange during trading hours on Tuesday.

It said it had total bank balances of Rs 373 crore as at 31 March 2009. Satyam was plunged into crisis after its founder quit in saying profits and assets had been falsified. Outsourcer Tech Mahindra won an auction in April 2009 for a controlling stake in Satyam.

The Indian rupee shed almost all the day's gains on Friday afternoon, following losses in local shares and the dollar's gains versus major currenices overseas but a better-than-expected factory output data supported. The partially convertible rupee was at 47.59/60 per dollar, almost unchanged from its Thursday's close of 47.61/62.

A firm rupee affects operating profit of IT firms negatively as they earn most of their revenues from exports.

Satyam Computer Services clocked the highest volume of 6.7 crore shares on BSE. Unitech (2.27 crore shares), Sesa Goa (2.22 crore shares), Ispat Industries (2.02 crore shares) and Suzlon Energy (1.76 crore shares) were the other volume toppers in that order.

Satyam Computer Services clocked the highest turnover of Rs 545.22 crore on BSE. Sesa Goa (Rs 451.72 crore), Reliance Industries (Rs 267.93 crore), Reliance Capital (Rs 224.56 crore), Tata Steel (Rs 220.95 crore) were the other turnover toppers in that order.