RIL leads 2.3% Sensex slide after unfavorable court ruling on gas sales

The key benchmark indices fell for the third straight day as investors cashed in on gains after a recent solid surge in stock prices. Weak global markets triggered profit taking. World stocks fell after a call from the world's top finance ministers to rein in unprecedented monetary and fiscal stimulus. Index heavyweight Reliance Industries (RIL) tumbled following an unfavourable court ruling on gas sales. RIL slipped more than 7.5% after the court directed RIL and Reliance Natural Resources (RNRL) to sign gas supply deal. RNRL rose close to 25%.

Metal, capital goods, realty and auto stocks fell. The BSE 30-share Sensex was down 362.42 points, or 2.38%, up close to 70 points from the day's low and off close to 385 points from the day's high. The barometer index has lost 591.29 points or 3.82% in last three trading sessions. The Sensex today fell below the psychological 15,000 mark. The S&P CNX Nifty fell below the 4,500 mark.

Volatility was immense. The market edged lower in early trade on weak Asian stocks and lower US index futures. Bank stocks led a strong rebound later as the Sensex moved into green from red as reports of a cut in state-set post office return rates raised expectations that other rates in the economy would also trend lower. The recovery proved short-lived as an unfavourable court ruling in mid-morning trade pulled index heavyweight RIL lower.

The market extended losses later. It staged a strong intraday rebound in the past 30 minutes or so of trade.

Indian investors will closely watch the first installment of advance tax figures of India Inc. This will be a major trigger for the market as it provides clue to the corporate earnings of India Inc in Q1 June 2009. Companies have to pay advance tax in four installments. The first installment is due on 15 June 2009.

World stocks fell after finance ministers from the Group of Eight leading industrialized countries on Saturday, 13 June 2009, said they have begun discussing how to unwind the fiscal and monetary policy measures undertaken in response to the financial and economic crisis that spread last year. Noting a recovery in stock markets, rising consumer and business confidence and improvement in financial markets, the group "discussed the need to prepare appropriate strategies for unwinding the extraordinary policy measures taken to respond to the crisis once the recovery is assured," the finance ministers said in a statement.

"These 'exit strategies', which may vary from country to country, are essential to promote a sustainable recovery over the long term," they said.

European shares fell on Monday, tracking losses in Asia, and with mining and energy shares suffering from lower commodities prices. Key benchmark indices in France, Germany and UK were down by between 1.67% to 2.1%.

Most Asian stocks declined today, led by commodity companies, after metals and oil prices fell. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were down by between 0.95% to 3.45%.

But China's stocks rose 1.67% in volatile trade after the government signaled it will continue to ensure sufficient liquidity to bolster domestic demand and sustain economic growth. Chinese Premier Wen Jiabao said the government would adjust its 580 billion-dollar stimulus package announced late last year to meet changing economic conditions.

His comments came as data released last week showed China's exports plummeted for a seventh straight month in May 2009 as result of severe downturns in the key North American and European markets. But, China's industrial output and retail sales growth both accelerated in May 2009 from previous months as stimulus measures kicked in, fuelling hopes that the country could lead a global recovery.

Singapore retail sales suffered their biggest drop since 1999 as shoppers cut back on big-ticket items such as cars and furniture amid the city-state's worst ever recession. The statistics department said Monday that retail sales fell 11.7% in April 2009 after dropping 7.3% in March and 5.5 % in February. The government also said it slightly revised up its first quarter unemployment rate to 3.3% from 3.2% initially reported in April. The jobless rate was 2.5% in December 2008

Trading in the US index futures indicated Dow could fall 98 points at the opening bell today, 15 June 2009.

It was a lacklustre session for the US markets on Friday, 12 June 2009. The benchmark indices closed flat on that day. The Dow gained 28.34, or 0.3%. Nasdaq shed 3.57 points, or 0.2% while the S&P 500 added 1.32 points, or 0.1%.

Closer home, Finance Minister Pranab Mukherjee would present the Union Budget on 6 July 2009 and not 3 July, as was reported earlier, the Parliamentary Affairs Ministry said today. The Railway Budget will be presented on 3 July 2009 and the Economic Survey would be presented on 2 July 2009.

The government reportedly is considering a proposal to hike income-tax exemption available for interest payment on home loans to Rs 2.5 lakh a year, to boost demand and rebuild the slowdown-hit housing industry. At present, taxpayers taking housing loans are eligible for income-tax exemption on interest payment of up to Rs 1.5 lakh every year. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.

Media reports also suggest that the upcoming Union Budget may bring some pleasant surprises for corporate India. Apart from doing away with the fringe benefit tax (FBT), the government is also considering removal of cess and surcharge on corporate taxes. Instead, the government may levy a common rate of direct tax on corporate income this fiscal onwards. Indian companies are charged a corporate tax of 30%, along with a surcharge of 10% and an educational cess of 2% on tax payable. As per the Finance Bill of 2007, the surcharge on income-tax was not levied on all firms with a taxable income of Rs 1 crore or less. The total tax payable, including surcharge and cess, stands at about 34% for a domestic company. The government is now looking to charge a single tax close to 34%.

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.

As per reports, the government may cut interest rates on on small savings schemes which currently yields 8% by 50 to 75 basis ponits. A rate cut in the small savings scheme rate will allow banks to bring down their lending rates.

Finance minister Pranab Mukherjee last 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.

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.

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.

Finance minister Pranab Mukherjee recently 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. Rising oil prices are a cause for concern, Oil Minister Murli Deora said today.

Foreign funds are aggressively buying in Indian stocks. FII inflow in June 2009 totaled Rs 6,114.10 crore (till 12 June 2009). FII inflow in calendar year 2009 totaled Rs 27,433.50 crore (till 12 June 2009).

On the back of heavy buying by foreign funds, the Sensex has jumped 5,228.21 points or 54.19% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 6,715.12 points or 82.28%.

Mutual funds, too, have started receiving 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.

Prime Minister Manmohan Singh recently 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).

The BSE 30-share Sensex was down 362.42 points, or 2.38%, to 14,875.52. The Sensex rose 23.09 points at the day's high of 15,261.03 in mid-morning trade. At the day's low of 14,807.26, the Sensex fell 430.68 points in late trade.

The S&P CNX Nifty was down 99.40 points or 2.17% to 4,484. Nifty June 2009 futures were at 4520, at a premium of 36 points as compared to the spot closing of 4484.

BSE clocked a turnover of Rs 7,078 crore lower than Rs 7,897.45 on Friday, 12 June 2009.

The BSE Mid-Cap index was down 2.33%. The BSE Small-Cap index was down 2.14%. Both the indices outperformed the Sensex.

The BSE FMCG index (up 0.58%), the BSE Bankex (down 0.22%), the BSE IT index (down 0.41%), the BSE Healthcare index (down 0.52%), the BSE PSU index (down 0.63%), the BSE TECk index (down 1.24%), the BSE Power index (down 1.62%), the BSE Consumer Durables index (down 1.7%), the BSE Auto index (down 2.11%), outperformed the Sensex.

The BSE Oil & Gas index (down 4.51%), the BSE Metal index (down 3.86%), the BSE Capital Goods index (down 3.66%), the BSE Realty index (down 3.31%), underperfomed the Sensex.

The market breadth, indicating the overall health of the market was weak. On BSE, 763 shares rose as compared with 1,878 that declined. A total of 62 shares remained unchanged.

From the 30 share Sensex pack 20 fell while the rest rose.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) fell 7.48% to Rs 2,180.45 after the Bombay High Court 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 RRNL. 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. RNRL rose 24.11%.

In January 2009, the Bombay High Court had issued an interim order saying Reliance Industries was allowed to sell gas at $4.2 per million British thermal units from its KG-D6 block in the Krishna Godavari basin off eastern India, pending a final judgment.

PSU OMCs rose on oil Minister Milind Deora's comments that the government may have to increase fuel prices if the recent rally in crude oil prices continues. BPCL, HPCL and IOCL rose by between 1.14% to 3.36%. The three state-run firms are selling fuel at a loss as crude oil prices have crossed $70 a barrel mark.

State-run oil marketing firms suffer revenue loss on domestic sale of petrol, diesel, LPG and kerosene at a controlled price.

Metal stocks fell as LMEX, a gauge of six metals traded on the London Metal Exchange fell 2.32% on Friday. National Aluminum Company, Hindalco Industries, Tata Steel, Sterlite Industries and Steel Authority of India fell by between 0.21% to 7.61%.

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 0.62% to 4.01%.

Capital goods stocks fell on profit taking after recent surge triggered on hopes government may boost spending on the infrastructure sector. Larsen & Toubro, ABB, Punj Lloyd, Bharat Heavy Electricals, Praj Industries, Crompton Greaves fell by between 1.83% to 4.92%.

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, DLF, Indiabulls Real Estate and Omaxe fell by between 4.03% to 5.939%.

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.

Bank stocks fell even as reports of a cut in state-set post office return rates raised expectations that other rates in the economy would also trend lower.

India's largest private sector bank by net profit ICICI Bank fell 0.94% as its American depository receipt (ADR) fell 2.32% on Friday, 12 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 was almost uncaged at Rs 1529.90. Its ADR fell 2.42% on Friday.

India's biggest bank in terms of branch network State Bank of India (SBI) rose 0.31% as an across-the-board 25 basis point cut in deposit rates will bring down the cost of funds. SBI on on Saturday, 13 June 2009 said it will cut deposit rates across all tenors by 25 basis points, with effect from 15 June 2009.

SBI chairman O.P. Bhatt recently 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 rose 0.31%. HDFC plans to raise up to Rs 4000 crore after its board last Tuesday 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,

Some cement stocks rose on hopes government may boost spending on the infrastructure sector to boost economic growth. ACC, Ambuja Cements, Grasim Industries rose by between 0.94% to 1.39%.

Some 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, Wockhardt, Sun Pharmaceuticals Industries, Glnmark Pharmaceuticals fell by between 1.22% to 4.32%.

FMCG stocks rose on expectations the government to continue with its rural focus. FMCG firms derive substantial revenue from the rural market. Britannia Industries, United spirits, ITC, Hindustan Unilever rose by between 0.35% to 1.94%.

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 0.44%. Its American depository receipt (ADR) was flat on Friday.

India's third largest software services exporter by sales Wipro fell 2% as its ADR fell 4.88% on Friday. Tata Consultancy Services and Wipro are reportedly among several multinational rivals preparing to bid for a $200 million outsourcing contract being considered by Britain's public postal service Royal Mail Group.

But, India's largest software services exporter by sales TCS rose 1.85%.

India's second-largest mobile operator by sales Reliance Communications fell 3.77%. It added 2.4 million users in May 2009, taking its total mobile subscribers to more than 7.7 crore, the company said on Monday.

Reliance Natural Resources clocked the highest volume of 10.5 crore shares on BSE. Unitech (2.7 crore shares), Satyam Computer Services (1.62 crore shares), Suzlon Energy (1.41 crore shares) and Reliance Power (1.3 crore shares) were the other volume toppers in that order.

Reliance Natural Resources clocked the highest turnover of Rs 1141.51 crore on BSE. Reliance Industries (Rs 464.22 crore), Bharti Airtel (Rs 427.59 crore), Reliance Power (Rs 260.65 crore) and Unitech (Rs 235.08 crore) were the other turnover toppers in that order.