Rally in banking, capital goods shares helps India outperform global markets

Key benchmark indices surged, recovering from a more than 7% slide from multi-month highs in the past eleven trading sessions, as speculators took fresh positions betting on economic reforms in the Union Budget 2009-10. Positive global cues also lifted sentiment. The BSE 30-share Sensex gained 419.02 points or 2.92% to 14,764.64, led by rally in index heavyweights Reliance Industries and ICICI Bank. Rally in banking and capital goods shares helped Indian indices outperform global peers.

A key trigger for the rally was the reduction in lot sizes of derivative contracts by the National Stock Exchange, which became effective from today, 26 June 2009. Lower lot size has made the contracts affordable to small traders and retail investors who took fresh positions today, 26 June 2009, ahead of the budget.

The National Stock Exchange
(NSE) had in late May 2009, announced a reduction in the lot size of a number of derivatives contracts as a part of a periodic review to meet a previously set value of the contract at Rs 2 lakh. Thus, the lot size of Maruti Suzuki has been reduced to 200 from 800 and that of Steel Authority of India (Sail) has been cut to 1350 from 5400. The lot size of Axis Bank has been halved to 450 from 900 and for Reliance Industries to 150 from 300. State Bank of India's lot size, too, has been halved to 132 from 264.

Today's rally on the bourses was amid a roller-coaster intraday ride. After an initial surge triggered by firm global stocks, the market soon pared gains. The market firmed up again in morning trade. It came sharply off the higher level in early afternoon trade. The market firmed up once again later. The market extended gains in afternoon trade. The market pared gains in mid-afternoon trade. before bouncing back to fresh intraday high. The rally gathered further momentum in late trade.

The 50-unit S&P CNX Nifty advanced 133.65 points or 3.15% to 4375.50. With effect from today, 26 June 2009. Nifty has become a free-float market capitalisation based index from its earlier full-market capitalisation method. As a result, weights of public sector undertakings - ONGC, NTPC, Steel Authority of India (Sail), Power Grid Corporation and National Aluminum Company, in Nifty has come down by at least 50%.

Other stocks that have seen a drop in weightage due to the change in methodology include Bharti Airtel, Reliance Communications, Tata Consultancy Services, DLF and Wipro. On the other hand, Infosys Technologies, ICICI Bank, Larsen and Toubro, HDFC and HDFC Bank stand to gain from this change as their weightages almost double from earlier.

On the macro front, there are concerns that poor rains could cap a recovery in the economy. A weak monsoon could hit rural demand for consumer goods. Monsoon rains, which run from June to September, have weakened and are expected to be below normal, Prithviraj Chavan, minister of science and technology, said after trading hours on Wednesday, 24 June 2009 in a briefing in New Delhi. The minister said the 2009 monsoon rainfall would be 93% of the long-term average, lower than an earlier forecast of 96%. However, the government ruled out the possibility of a drought

Foreign funds have been on a selling drive recently after aggressively buying during the past three months or so. Foreign institutional investors (FIIs) sold shares worth Rs 1038.10 crore on Thursday, 25 June 2009. FIIs sold shares worth Rs 4188.40 in nine trading days till 25 June 2009. However they are still net equity buyers to the tune of Rs 2759.90 in June 2009 (till 25 June 2009) and Rs 23233.40 in calendar 2009.

The next major trigger for the market is the Union Budget 2009-2010. 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 the year ending March 2010 (FY 2010) and 7.8% in the year ending March 2011 (FY 2011).

Finance Minister Pranab Mukherjee would present the budget on 6 July 2009. The Railway Budget will be presented on 3 July 2009 and the Economic Survey would be presented on 2 July 2009.

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.

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.

European markets were trading firm today, 26 June 2009 as rise in crude and metals prices boosted commodity stocks, while financial stocks recovered after recent losses. Key benchmark indices in UK, Germany and France were up by between 0.12% and 0.28%.

Asian markets were trading higher today, 26 June 2009 as commodity prices jumped amid optimism the US recession may ease after the economy shrank less than expected in the first quarter. Key benchmark indices in Hong Kong, China, Taiwan, South Korea, Singapore and Japan were up by between 0.11% and 1.78%. While Hong Kong's Hang Seng index extended gains, China's Shanghai Composite index reversed early losses to clawed back in green.

Crude oil prices jumped past $70 a barrel on Thursday, 25 June 2009 after the US government said that the economy may be faring better than previously thought. Light sweet crude for July delivery gained $1.56 to settle at $70.20 a barrel on the New York Mercantile Exchange.

But trading in the US index futures indicated the Dow could fall 18 points today, 26 June 2009.

US stocks surged on Thursday, 25 June 2009 as investors were relieved after government data showed gross domestic product shrank last quarter by 5.5%, lesser than economists' expectations of 5.7%. The Dow Jones industrial average jumped 172.54 points, or 2.08%, to 8,472.40, snapping a four-day losing streak. The Standard & Poor's 500 Index gained 19.32 points, or 2.14%, to 920.26. The Nasdaq Composite Index advanced 37.20 points, or 2.08%, to 1,829.54

In other economic data, initial jobless claims jumped by 15,000 to 627,000 last week, higher than the expected 6,00,000. Continuing claims crept up to 6.74 million.

The BSE 30-share Sensex advanced 419.02 points or 2.92% to 14,764.64. The Sensex opened 27.95 points higher at 14,373.57, also its day's low. At the day's high of 14,781.94, the Sensex rose 436.32 points in late trade.

The 50-unit S&P CNX Nifty was up 133.65 points or 3.15% to 4375.50. Nifty July 2009 futures were at 4384, a premium of 8.50 points as compared to spot closing. Turnover in NSE's futures & options segment declined to Rs 48071.62 core today, 26 June 2009 as compared with Rs 95928.31 crore on Thursday, 25 June 2009.

The BSE Sensex had lost 1121.19 points or 7.24% in 11 trading sessions to 14345.62 on Thursday, 25 June 2009, from a multi-month closing high of 15,466.81 on 10 June 2009. The barometer index is up 5117.33 points or 53.04% in calendar year 2009 as on 26 June 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 6604.24 points or 80.93% as on 26 June 2009

Coming back to today's trade, the BSE clocked a turnover of Rs 5512 crore as compared to Rs 5655 crore on Thursday, 25 June 2009.

The market breadth, indicating the overall health of the market, was strong. On BSE, 1682 shares advanced as compared with 974 that declined. 100 shares remained unchanged.

The BSE Mid-Cap index rose 2.4% to 5,170.90 and the BSE Small-Cap index advanced 1.89% to 5,800.75. But both these indices underperformed the Sensex

Sectoral indices on BSE displayed mixed trend. The BSE Capital Goods index (up 2.94%), the BSE IT index (up 3.64%), BSE Bankex (up 4.31%), and the BSE Realty index (up 2.99%), the BSE Consumer Durables index (up 3.17%), the BSE Oil & Gas index (up 2.94%), the BSE Metal index (up 2.69%), outperformed the Sensex

The BSE TECk index (up 2.84%), BSE Power index (up 2.37%), the BSE Healthcare index (down 1.49%), the BSE Auto index (up 1.12%), the BSE FMCG index (up 1.72%), the BSE PSU index (up 1.84%), underperformed the Sensex.

Among the 30-member Sensex pack, 26 advanced while only 4 of them slipped.

Banking and financial shares vaulted mirroring firm American depository receipt (ADRs) and hopes of financial sector reforms in the Union Budget 2009-10. India's largest private sector bank by net profit ICICI Bank surged 9.06% to Rs 762 after its ADR jumped 4.75% on Thursday, 25 June 2009. It was the top gainer from the Sensex pack. The counter clocked volume of 23.86 lakh shares

India's second largest private sector bank by net profit HDFC Bank rose 2.09% after its ADR advanced 3.12% on Thursday, 25 June 2009.

India's biggest bank in terms of branch network State Bank of India (SBI) rose 2.51%. The bank on Wednesday, 24 June 2009 said it will cut its benchmark prime lending rate by 50 basis points to 11.75% per annum from 29 June 2009.

India's top housing mortgage firm by total income Housing Development Finance Corporation gained 2.62%.

Karnataka Bank (up 4.08%), Kotak Mahindra Bank (up 4.81%), Axis Bank (up 4.98%), Canara Bank (up 2.75%), and Punjab National Bank (up 3.16%), edged higher

Indiabulls Financial Services rose 5% after 15 lakh shares changed hands in two block deals on BSE and NSE combined. A block deal of seven lakh shares was struck on BSE at Rs 184 per share and another deal of eight lakh shares was executed on NSE at the same price. The two block deals combined constituted 0.59% of the company's equity.

As per street expectations, banks may get tax relief on interest earned on infrastructure lending in the Union Budget 2009-2010. A tax relief on infrastructure lending will enable banks to lend more to the sector. This relief was withdrawn by the government in 2007. Bankers have also sought rebate for long-term deposits, which are necessary for infrastructure funding.

Metal shares gained after LMEX, a gauge of six metals traded on the London Metal Exchange, climbed 1.52% on Thursday, 25 June 2009. Sterlite Industries (up 5.84%), JSW Steel (up 5.33%), Sesa Goa (up 2.38%), Hindalco Industries (up 2.01%), Hindustan Zinc (up 2.73%), and Nalco (up 0.72%), gained.

However, India's largest private sector steel maker by sales Tata Steel lost 2.80% to Rs 386.80, off sharply from the day's high of Rs 403, after consolidated net profit declined 59% to Rs 4950.90 crore on a 11.80% increase in sales to Rs 147594.93 crore in the year ended March 2009 over the year ended March 2008. The results were announced after market hours on Thursday, 25 June 2009. Tata Steel's standalone net profit rose 10.98% to Rs 5201.74 crore on a 23.32% rise in sales to Rs 24024.45 crore in the year ended March 2009 over the year ended March 2008.

India's largest private sector firm by market capitalisation Reliance Industries (RIL) jumped 3.39% to Rs 2026 on reports the company is evaluating options for future course of action after the Bombay high court on 15 June 2009 asked RIL to supply gas to Anil Ambani Group firm Reliance Natural Resources (RNRL) at prices lower than the government-approved. RNRL gained 3.40%.

The Bombay High Court has directed RIL and RNRL to sign gas supply deal. The court has asked RIL to supply 28 million metric standard cubic meters per day (mmscmd) of gas for 17 years at $2.34 per million metric British thermal unit (mmbtu) to RNRL. This is much lower than the price fixed by the government for gas sale from the RIL block in the KG basin at $4.2 million per metric British thermal unit. According to analysts the lower gas sale price will result in lower-than-expected earnings from gas sales for RIL.

India's largest oil exploration firm by sales Oil & Natural Gas Corporation (ONGC) rose 1.47% to Rs 1040.25 after Thursday's nearly 3% slide triggered by weak Q4 results which the company had announced after market hours on Wednesday, 24 June 2009. ONGC's net profit fell 16% to Rs 2206.76 crore on a 12.30% fall in net sales to Rs 13703.80 crore in Q4 March 2009 over Q4 March 2008.

Cairn India rose 4.80% on rise in crude oil prices. The rise in crude oil prices would result in higher realizations from crude sales for oil exploration firms such as Cairn India.

Shares of three state-run oil marketing companies rose on reports the Union Budget 2009-2010 may include a road map for a partial decontrol of auto fuel prices in the country. Hindustan Petroleum Corporation (up 2.52%), Indian Oil Corporation (up 0.65%) and Bharat Petroleum Corporation (up 1.11%), rose.

Infrastructure stocks rose on hopes the government may announce higher spending for the infrastructure projects in the Union Budget 2009-10. Bharat Heavy Electricals (up 2.99%), Larsen & Toubro (up 5.84%), Lanco Infratech (up 6.71%), Punj Lloyd (up 4.45%), IVRCL Infrastructures & Projects (up 8.42%), GMR Infrastructure (up 1.74%), and Jaiprakash Assciates (up 1.22%), gained.

J Kumar Infraprojects was locked in the 5% upper limit after the company bagged two orders aggregating Rs 8.56 crore. The company announced the fresh orders during trading hours today, 26 June 2009.

Rate sensitive realty stocks rose on expectations that stability at the Centre will attract more money from foreign investors into the sector which in turn will boost growth. DLF (up 2.27%), Indiabulls Real Estate (up 5.85%), Unitech (up 0.18%), Omaxe (up 5.85%), Akruti City (up 5%), HDIL (up 13.33%) rose.

India's largest private sector power generation company by net profit Tata Power Company rose 0.17% after the company entered into a memorandum of understanding with group firm Tata Steel to set up a 525 megawatt power plant in Netherlands. The company made this announcement after trading hours on Thursday, 25 June 2009.

India's largest private sector power generation company by net profit Reliance Infrastructure rose 1.67% on reports despite reports Tata Power Company, which supplies 500 megawatts of power to Reliance Infrastructure's distribution area in Mumbai, has decided to discontinue the supply from April 1, 2010.

India's largest commercial vehicle maker by sales Tata Motors rose 0.65%. The company reported a net loss of Rs 2505.25 crore in the year ended March 2009 as compared with net profit of Rs 2167.70 crore in the year ended March 2008. Net sales jumped 98.73% to Rs 70370.40 crore in the year ended March 2009 over the year ended March 2008. However the figures are not comparable as the year-ago numbers did not include that of Jaguar and Land Rover, as well as some other assets the company bought and sold during the year. The results were announced after market hours today, 26 June 2009.

Other auto stocks saw mixed trend. India's largest tractor maker by sales Mahindra & Mahindra slipped 0.50% while India's top small car maker by sales Maruti Suzuki India gained 3.22%

Fears that scanty rains may hurt rural demand had pulled auto stocks lower on Thursday, 25 June 2009. Auto companies derive a substantial revenue from sales in the rural market.

Outsourcing focussed IT stocks mirrored gains in ADRs. India's second largest software firm by sales Infosys Technologies rose 3.45% as its ADR rose 1.49% on Thursday, 25 June 2009.

India's largest software services exporter by sales TCS rose 3.75%. India's third largest software services exporter by sales Wipro gained 2.51% following a 3.15% rise in its ADR on Thursday, 25 June 2009.

India's top pharma firm by market capitalisation Sun Pharma tumbled 12.36% to Rs 1138 after its subsidiary Carco Pharma tumbled 42.82% on Thursday, 25 June 2009 in the US markets. The US Food and Drug Administration said it seized more than 30 generic drugs made by Caraco Pharmaceutical Laboratories, in which Sun Pharma holds 70.21% stake, after the agency found manufacturing defects at the company's plants, including oversized tablets. Nevertheless, the stock rebounded sharply from day's low of Rs 1070 in opening trade

Other pharma stocks also witnessed a rub-off effect of Sun Pharma's slide. Ranbaxy Laboratories (down 4.33%), Lupin (down 6.14%), Wockhardt (down 3.93%), Aurobindo Pharma (down 0.50%), and Nicholas Piramal (down 0.60%), slipped.

FMCG and fertiliser companies, though up, underperformed the Sensex on forecast of below normal monsoon rains for the first time in four years.

Hindustan Unilever (up 2.60%), ITC (up 1.52%), Britannia Industries (up 0.19%), Bata India (up 2.14%), and United Spirits (up 0.89%), rose from the FMCG sector. FMCG firms derive a substantial revenue from rural markets.

Among fertiliser shares, Chambal Fertilisers & Chemicals (up 2.68%), RCF (up 1.15%), Nagarjuna Fertilisers (up 0.85%), Zuari industries (up 1.81%) and Deepak Fertilisers (up 1.26%) rose.

The fortunes of the fertiliser sector are linked to the monsoon. A normal monsoon boosts fertiliser demand helping fertiliser companies improve their profitability. The Indian Meteorological Department earlier this week said monsoon rains were 68% below normal for the week ended 24 June 2009.

Sugar shares gained on firm global sugar prices. Bajaj Hindusthan (up 1.83%), Triveni Engineering (up 1.86%), Ugar Sugar (up 3.81%), Sakthi Sugar (up 5%), and Balrampur Chini Mills (up 4.49%), rose.

Shares of select firms which depend on orders from railways gained on speculative buying on hopes of favorable announcement in the Railway Budget on 3 July 2009. Kalindee Rail Nirman Engineers (up 0.76%), Container Corporation of India (Concor) (up 1.03%), BEML (up 0.35%), Kernex Microsystems (up 5%), Titagarh Wagons (up 2.64%), Stone India (up 2.56%), Hind Rectifiers (up 0.41%), rose.

Tata Steel topped the turnover chart on BSE clocking a turnover of Rs 248.96 crore followed by Reliance Industries (Rs 211.64 crore), Suzlon Energy (Rs 205.48 crore), HDIL (Rs 192.90 crore) and ICICI Bank (Rs 175.90 crore).

IFCI led the volume chart on BSE notching volume of 2.50 crore shares followed by Ispat Industries (1.83 crore shares), Suzlon Energy (1.68 crore shares), Unitech (1.58 crore shares) and Reliance Natural Resources (1.45 crore shares).

HBL Power Systems surged 5% after net profit rose 35.6% to Rs 90.96 crore in the year ended March 2009 over the year ended March 2008. HBL Power Systems' net sales rose 27.9% to Rs 1243.90 crore in the year ended March 2009 over the year ended March 2008. The company announced the results after market hours on Thursday, 25 June 2009.

Bartronics India galloped 5.76% on buzz the company may likely win an order for a government initiated project to provide unique identification numbers to citizens of the country.

Apar Industries slumped 8.50% after the company posted consolidated a net loss of Rs 5.32 crore in the year ended March 2009 as compared to net profit of Rs 88.86 crore in the year ended March 2008. The company announced the results before trading hours today, 26 June 2009.