Market snaps two day winning streak

The key benchmark indices snapped last two days' strong gains as investors took a breather after a solid rally in the past three months. IT and oil stocks fell even as metal stocks rose. Index heavyweight Reliance Industries came off intraday lows. The BSE 30-share Sensex was down 55.34 points, or 0.36%, up close to 175 from the day's low and off close to 155 points from the day's high. The barometer index had jumped 800.89 points or 5.46% to 15,466.81 on Wednesday, 10 June 2009 from 14,665.92 on Monday, 8 June 2009.

The market was volatile today. The market slipped into the red soon after a firm opening triggered by higher Asian stocks. It recovered from the day's low in mid-morning trade. It swung between the positive and negative terrain later. The market recovered some ground after hitting fresh day low in afternoon trade. Recovery gathered steam later after Finance Minister Pranab Mukherjee said the government would focus on infrastructure, agriculture and employment generating sectors to protect growth and jobs. But the market weakened again in late trade.

European markets cut initial losses and moved into green from red as pharma and utility stocks rose. Key benchmark indices in France, Germany and UK were up by between 0.24% to 0.54%.

Asian stocks were mixed after fluctuating between positive and negative zones. Key benchmark indices in Hong Kong and South Korea and Taiwan rose by between 0.03% to 1.63%.

But Japan's Nikkei was down 0.1%. Japan's economy shrank less than the government initially estimated as business investment and inventories fell at a slower pace. Gross domestic product shrank at a record 14.2% annual pace in the three months ended 31 March 2009, less than the 15.2 % reported last month, the Cabinet Office said today in Tokyo.

China's key stock index fell from a 10-month high, led by transport and commodity companies, as a record slump in the nation's exports spurred concern that equity gains have outpaced prospects for economic growth. The Shanghai Composite Index, which tracks the bigger of China's exchanges, fell 18.93, or 0.7%, to 2,797.32 at the close, after gaining as much as 0.4% earlier.

Australian employers cut fewer workers than estimated in May 2009, adding to signs the economy may recover faster than other developed nations.

Trading in the US index futures indicated Dow could rise 12 points at the opening bell today, 11 June 2009.

US markets closed flat with a negative bias on Wednesday, 10 June 2009, but well off their intraday lows. Stocks had opened higher, but those gains quickly faded as a jump in oil prices and sharp rise in lending rates spurred worries that higher borrowing costs and oil prices will threaten a recovery of the US economy. The Dow fell 24.04 points, or 0.3%, to 8,739.02. The S&P 500 index fell 3.28 points, or 0.4%, to 939.15. The Nasdaq Composite Index fell 7.05 points, or 0.4%, to 1,853.08.

US Treasury prices fell on Wednesday, sending benchmark yields up to 4% for the first time in eight months, after an auction of 10-year notes heightened concerns over the burgeoning US budget deficit. The sell-off in the bond market also has fueled concern about stock valuations.

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.

Foreign funds are aggressively buying in Indian stocks. Foreign funds are aggressively buying in Indian stocks. FII inflow in June 2009 totaled Rs 4,602.30 crore (till 10 June 2009). FII inflow in calendar year 2009 totaled Rs 25,921.70 crore (till 10 June 2009).

On the back of heavy buying by foreign funds, the Sensex jumped 5,819.50 points or 60.32% in calendar year 2009 as on 10 June 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex jumped 7,306.41 points or 89.53% on 10 June 2009.

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.

Meanwhile, the government reportedly is considering a proposal to restore the rate of service tax to its earlier level of 12%. The government had reduced the service tax rate to 10% in the third stimulus package which was unveiled in February 2009. This option of withdrawing the service tax cut is being weighed on account of spiralling government expenditure, a result of the government's attempts to boost the economy and shrinking revenues due to the slowdown in economic activity.

Finance minister Pranab Mukherjee today 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.

Mukherjee had 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. Mukherjee said banks have agreed to explore the possibility of reducing rates after a meeting with chiefs of state-run banks.

Inflation based on the wholesale price index rose 0.13% in the year through 30 May 2009, a record low, government data showed at 12:00 IST today. Inflation was 0.48% in the year through 23 May 2009. However, the government revised upwards inflation for the week ended 4 April 2009 to 0.83% from 0.18%.

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.

A change in the Reserve Bank of India's current loose monetary policy stance if and when it takes place may weigh on equities. 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.

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.

Any disappointment on reforms may weigh on the stock market at a time when many equity analysts have been raising earnings forecasts of India Inc on hopes that the new government will push economic reforms to boost growth.

The petroleum minister had recently said 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.

As per media reports, the government will stick to the course of disinvestment plans it has charted out despite DMK's opposition to it. Finance minister Pranab Mukherjee will prepare the road map for the programme in his Budget. DMK leader and M Karunanidhi's daughter, Kanimozhi, who had spoken out against disinvestment in the Rajya Sabha during the debate on the motion of thanks to the President's address on Monday, has already clarified that her party will take a case-by-case view on the issue. The divestment in three to four companies could be taken up in the immediate run. These include NHPC, Power Finance Corporation and REC report said.

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 was down 55.34 points, or 0.36%, to 15,411.47. The Sensex rose 101.93 points at the day's high of 15,568.74 in early trade. At the day's low of 15,240.73, the Sensex fell 226.08 points in afternoon trade.

The S&P CNX Nifty was down 17.55 points or 0.38% to 4,637.70. Nifty June 2009 futures were at 4649, at a premium of 11.30 points as compared to the spot closing of 4637.70. Turnover in NSE's futures & options (F&O) segment was Rs 63,464.28 crore, lower than Rs 73,359.99 crore on Wednesday, 10 June 2009.

BSE clocked a turnover of Rs 7,587 crore lower than Rs 8,340.01 crore on Wednesday, 10 June 2009.

The BSE Mid-Cap index was down 0.22% and outperformed the Sensex. The BSE Small-Cap index was down 0.9%. It underperformed the Sensex.

The BSE Metal index (up 2.95%), the BSE Auto index (up 0.84%), the BSE FMCG index (up 0.23%), the BSE Healthcare index (up 0.03%), the BSE Bankex (down 0.34%), outperformed the Sensex.

The BSE IT index (down 2.58%), the BSE PSU index (down 1.84%), the BSE Oil & Gas index (down 1.65%), the BSE Capital Goods index (down 1.28%), the BSE Power index (down 1.19%), the BSE Consumer Durables index (down 1%), the BSE Realty index (down 0.82%), the BSE TECk index (down 0.67%), underperfomed the Sensex.

The market breadth, indicating the overall health of the market was weak. On BSE, 968 shares rose as compared with 1,768 that declined. A total of 54 shares remained unchanged.

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

Oil stocks fell even as oil moved past $72 a barrel on Thursday, heading for a third consecutive day of gains, after data showed falling US crude and product inventories, adding to signs that oil demand may have bottomed out. Cairn India fell 1.06 %. But India's largest state-run oil exploration firm by sales ONGC fell 4.01%. The rise in crude oil prices would result in higher realizations from crude sales for oil exploration firms.

The International Energy Agency today increased its forecast of 2009 world oil demand by 120,000 barrels a day, citing stronger-than-forecast first quarter data from countries belonging to the Organization for Economic Cooperation and Development. Global oil demand is projected at 83.3 million barrels a day, down 2.9% compared to year earlier.

PSU OMCs fell on rise in crude oil prices. HPCL, BPCL and IOCL fell by between 1.32% to 5.07%. State-run oil marketing firms suffer revenue loss on domestic sale of petrol, diesel, LPG and kerosene at a controlled price.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) was down 0.88% to Rs 2,299.75 on profit taking after recent strong gains. Nevertheless, the stock came off the day's low of Rs 2,341. The stock had surged recently 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.

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) this week when the court re-opens after summer vacations.

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.

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 2.87%. 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 0.67% on Wednesday.

India's third largest software services exporter by sales Wipro fell 2.18% as its ADR fell 1.41% on Wednesday. India's largest software services exporter by sales TCS fell 0.81%.

But Satyam Computer Services hit 10% upper circuit for the third straight day after 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.

Metal stocks rose on strong domestic demand. Steel Authority of India, Hindalco Industries, Tata Steel, Sterlite Industries and National Aluminum Company rose by between 1.9% to 7.92%.

Bank stocks cut intraday losses on recent reports the Reserve Bank of India may standardise the way banks calculate their prime lending rates (PLRs) and bar them from lending below their respective PLRs for more transparency. But the higher bond yields capped gains as it will result in diminution in value of their bond portfolio. Bond yields climbed to more than 2-month highs on Thursday due to lack of clarity about government borrowing, firmer US yields and rising oil prices. Bond yields and bond prices are inversely related.

India's largest private sector bank by net profit ICICI Bank rose 0.33% to Rs 750.30. The stock came off the day's low of Rs 735.10. Its American depository receipt (ADR) rose 0.22% on Wednesday, 10 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 second largest private sector bank by operating income HDFC Bank rose 3.85% as its ADR rose 4.63% on Wednesday.

But India's biggest bank in terms of branch network State Bank of India (SBI) was down 3.44% to Rs 1,696.25. The stock came off the day's low of Rs 1,681.10. As per recent reports, SBI may cut lending rates by 25 basis points. 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 biggest dedicated housing finance firm by operating income HDFC fell 0.17% to Rs 2,346.10. But the stock was off the day's low of Rs 2,306.10. 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.

At 10:42 IST, the 10-year benchmark bond yield was at 6.84% after hitting 6.91%, which was its highest since 8 April 2009. Only three trades were reported. It ended at 6.79% on Wednesday. Volumes were light at Rs 1145 crore on the central bank's trading platform with the 2016 bond being most traded.

The yield on the 7.59% bond maturing in 2016 was at 6.95%, below its previous closing of 6.99%.

Engineering-to-construction major Larsen & Toubro (L&T) was down 0.55% after it sold its entire 11.49% stake in UltraTech Cement. Other capital goods stocks, Bharat Heavy Electricals, Punj Lloyd, ABB Praj Industries fell by between 0.27% to 3.46%.

Realty stocks fell on profit taking after a recent 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. Orbit Corporation, Unitech, DLF, and Omaxe fell by between 1.16% to 3.99%.

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.

Cement and construction stocks fell on profit taking after a recent surge triggered by hopes that the government will focus on the infrastructure sector to boost growth. India Cements, ACC, Ambuja Cements fell by between 0.91% to 6.88%.

Among construction stocks, Nagarjuna Construction Company, IVRCL Infrastructure & Projects and Hindustan Construction Company fell by between 1.72% to 4.92%.

healthcare stocks rose on hopes the government will give primary importance to healthcare segment and health of citizens. Ranbaxy Laboratories, Biocon, Wochardt, Pfizer, Dr Reddy's Laboratories rose by between 0.6% to 3.01%.

Auto stocks were mixed after improved sales in the month of May 2009. Tata Motors and Mahindra & Mahindra rose by between 2.49% to 6.18%. But Bajaj Auto, Maruti Suzuki India and Hero Honda Motors fell by between 0.99% to 1.59%.

Telecom stocks were mixed on hopes government may speed up the auction process for the third generation WiMax services. Idea Cellular, Bharti Airtel rose by between 2.34% to 5.36%. Reliance Communications fell 0.81%.

Unitech clocked the highest volume of 3.3 crore shares on BSE. Ispat Industries (2.17 crore shares), Reliance Natural Reosurces (1.82 crore shares), Suzlon Energy (1.65 crore shares) and IFCI (1.59 crore shares) were the other volume toppers in that order.

Reliance Capital clocked the highest turnover of Rs 297.49 crore on BSE. Unitech (Rs 285.78 crore), Suzlon Energy (Rs 200.11 crore), Reliance Natural Reosurces (Rs 165.55 crore) and Sesa Goa (Rs 164.03 crore) were the other turnover toppers in that order.