Sensex down nearly 5% in two days as foreign funds cash in on gains

The key benchmark indices extended losses for the second straight day as investors took profits after a recent solid surge in share prices. A newspaper report that the government may rollback excise duty cuts in a bid to return to fiscal prudence amid slack revenue collections, weighed on the sentiment. Selling by foreign funds also weighed on the sentiment The BSE 30-share Sensex was down 257.31 points or 1.77%, off close to 360 points from the day's high and up close to 80 points from the day's low. The barometer index has plunged 692.38 points or 4.62% in the past two trading sessions.

Realty, capital goods and metal stocks led the fall. Index heavyweight Reliance Industries slipped in volatile trade. The market breadth was weak.

The market was volatile. The market dipped in red in early trade after swinging between the positive and negative terrain at the onset of the trading session. The market bounced back soon after extending losses in early trade. The Sensex moved into green from red. It later slipped into the red again in mid-morning trade. The market surged to the fresh intraday high in afternoon trade after the wholesale price index fell into the negative terrain. A total reversal of trend was witnessed in afternoon trade as the Sensex tumbled to intraday low. The market extended losses later. The market came off the lower level in mid-afternoon trade.

The government may reportedly spare select sectors from a proposed increase in excise duty rates in the upcoming budget, as officials consider plans for a wholesale rollback of recent duty cuts, in a bid to return to fiscal prudence amid slack revenue collections. The Central value added tax (Cenvat) which covers almost 96% of the goods that attract excise duty, was cut to 10% last December and further to 8% in February 2009 under a series of fiscal stimulus measures, launched by the government to shield the economy from the slowdown.

A lot of these cuts could be reversed in the upcoming Budget on 6 July 2009. There could be lower rollback in case of sectors where recovery was not strong. The rollback in duty cuts could be as four percentage points in those sectors expected to turn buoyant soon. Steel and cement could see the excise duty go up to 12%, the report said.

Fears of a rollback of Cenvat cut offset optimism that falling interest rates in India may help sustain strong domestic demand and a larger capital expenditure programme of India Inc. Inflation based on the wholesale price index declined 1.6% in the year through 6 June 2009 compared with the previous week's annual rise of 0.13%, data released by the government today, 18 June 2009, showed. That's the first drop since December 1978, according to the central bank's monthly data.

Interest rates 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 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.

European stocks fell after fluctuating between gains and losses in volatile trade. Key benchmark indices in France, Germany and UK were down by between 0.13% to 0.58%.

British retail sales volume tumbled 0.6% in May 2009, leaving sales 1.6% below the level seen in the same month last year, the Office for National Statistics reported Thursday.

Asian stocks fell today amid concerns a rally since March 2009 had made stocks too expensive relative to earnings prospects. Key benchmark indices in Hong Kong, Singapore South Korea ,Taiwan and Japan were down by between 0.83% to 1.7%.

But China's Shanghai Composite rose 1.56% after the World Bank raised its growth forecast for the country this year. The country's economy will expand 7.2% this year, up from a 6.5% forecast in March, the bank said.

Trading in the US index futures indicated Dow could rise 11 points at the opening bell today, 18 June 2009.

The US markets closed yesterday's session flat. The Dow Jones industrial average was down 7.49 points, or 0.1%, to 8,497.18. The broader S&P 500 index fell 1.26 points, or 0.1%, to 910.71, and the Nasdaq Composite Index was up 11.88 points, or 0.7%, to 1,808.06.

On the economic front, mortgage applications fell 15.8% to 514.4 last week, the lowest in nearly seven months. Trade deficit fell nearly 35% to around 101 billion dollars in the first quarter, the lowest since the fourth quarter of 2001. But, consumer prices edged up marginally higher, up 0.1%.

Closer home, the data on advance tax payments reported since Monday for the first quarter of the financial year indicated banks and fast moving consumer goods (FMCG) firms have done well in the first quarter, but realty companies continue to perform badly. Automobile sector have also paid higher taxes this year, show the revenue department's initial estimates. Indian companies paid around Rs 23,000 croe in advance tax for the first quarter of FY 2010, almost flat at the previous year's receipts.

Among manufacturing sector companies, Reliance Industries' first installment of advance tax payments fell by 7.65% to Rs 314 crore. Similarly, almost all Tata group companies, barring Tata Power, have paid lower advance tax.

Engineering major Larsen and Toubro has seen a 15.79 % rise, while Mahindra and Mahindra's advance tax payment went up by 25%.Engineering major Larsen and Toubro has seen a 15.79 % rise, while Mahindra and Mahindra's advance tax payment went up by 25%.The banking sector has put up a healthy show. State Bank of India is the highest taxpayer during the first quarter of 2009-10 with a 61.09% jump to Rs 1,068 crore. HDFC Bank has paid 16.28% higher advance tax to Rs 250 crore.

Even smaller banks such as IndusInd Bank (122 % increase to Rs 20 crore), Dena Bank (75 % rise to Rs 35 crore) and Yes Bank (42 % increase to Rs 27 crore) have followed the trend.

ACC posted 11% rise in advance tax to Rs 600 crore. India Oil Corporation paid advance tax of Rs 1.30 crore, HPCL paid advance tax of Rs 0.15 crore and BPCL paid advance tax of Rs 0.4 crore advance tax in Q1 June 2009. These three PSU OMC had paid nil advance tax in Q1 June 2008. NTPC (up 46% to Rs 275 crore), Bhel (up 7% to Rs 320 crore) were other higher tax payers.

Foreign funds have sold shares in last three days after aggressively buying in the past three months or so. Foreign funds sold shares totaling Rs 1,169.80 crore in three trading sessions from 15 June 2009 to 17 June 2009. FII inflow in June 2009 totaled Rs 4,962.40 crore (till 17 June 2009). FII inflow in calendar year 2009 totaled Rs 26,281.80 crore (till 17 June 2009).

Finance Minister Pranab Mukherjee would present the Union 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.

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 early this month had 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.

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 257.31 points or 1.77% to 14,265.53. The Sensex rose 107.89 points at the day's high of 14,630.73 hit in early afternoon trade. At the day's low of 14,188.25, the Sensex fell 334.59 points in mid-afternoon trade.

The S&P CNX Nifty was down 104.75 points or 2.4% to 4,251.40. Nifty June 2009 futures were at 4282, at a premium of 30.60 points as compared to the spot closing of 4,251.40. Turnover on NSE's futures & options (F&O) segment surged to Rs 83,936.67 crore from Rs 79,470.14 crore on Wednesday, 17 June 2009.

BSE clocked a turnover of Rs 7,148 crore, higher than Rs 6,968.96 crore on Wednesday, 17 June 2009.

The Sensex has jumped 4,618.22 points or 47.87% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 6,105.13 points or 74.81%

The market breadth turned weak from a positive breadth in early trade. On BSE, 543 shares rose as compared with 2,090 that declined. A total of 58 shares remained unchanged.

From the 30 share Sensex pack 24 stocks fell and rest rose.

The BSE Mid-Cap index was down 2.87% and the BSE Small-Cap index lost 3.7%. Both the indices underperformed the Sensex.

The BSE Realty index (down 5.8%), the BSE Metal index (down 4.88%), the BSE Power index (down 3.83%), the BSE Capital Goods index (down 3.73%), the BSE PSU index (down 3.49%), the BSE Oil & Gas index (down 2.16%), the BSE Consumer Durables index (down 2.07%), underperfomed the Sensex.

The BSE IT index (up 0.17%), the BSE Healthcare index (down 0.41%), the BSE TECk index (down 0.47%), the BSE FMCG index (down 0.6%), the BSE Bankex (down 0.71%), the BSE Auto index (down 0.92%) outperformed the Sensex

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) fell 1.26% to Rs 2,024.95 extending steep losses this week triggered by an unfavourable court ruling on gas sales. The stock was volatile and moved between the high of Rs 2,072 and low of Rs 1,991.15. The Bombay High Court has directed RIL and Reliance Natural Resources (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. The lower gas sale price will result in lower-than-expected earnings from gas sales for RIL.

RIL's advance tax payment fell 7.65% to Rs 1,068 crore in Q1 June 2009 over Q1 June 2008.

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.

India's largest oil exploration firm by sales ONGC fell 4.87% as its advance tax fell 33% to Rs 890.50 crore in Q1 June 2009 over Q1 June 2008.

PSU OMCs fell on reports the government may reimpose the duty on crude oil imports, its biggest source of customs revenue before the levy was scrapped last year, as it looks for fresh revenue streams to rein in mounting fiscal deficit. BPCL, HPCL and IOCL fell by between 2.2% to 3.48%.

The government had removed the duty last June to cushion domestic customers from the impact of global crude oil prices, which hit a record high of $147 per barrel. PSU OMCs import a large part of their crude oil requirements.

Rate sensitive realty stocks fell on profit taking after the 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. Akruti City, Phoenix Mills, DLF, Indiabulls Real Estate, Unitech fell by between 3.3% to 8.93%.

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.

Metal stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange dipped 0.33% yesterday extending losses for a fourth day in a row. It was the longest losing stretch since February 2009. National Aluminum Company, Hindustan Zinc, Hindalco Industries, Jindal Steel, Steel Authority of India fell by between 0.49% to 6.66%.

India's largest steel maker by sales Tata Steel fell 6.71%. Its advance tax payment fell 36.39% to Rs 230 crore in Q1 June 2009 over Q1 June 2008.

Capital goods stocks fell on profit taking after a recent sharp surge triggered by hopes the government may boost spending on the infrastructure sector. Siemens, BEML, Thermax, Bharat Heavy Electricals, ABB, Punj Lloyd, fell by between 2.72% to 7.55%.

India's largest engineering and construction firm by sales Larsen & Toubro fell 3.49%. Its advance tax payment rose 15.79% to Rs 110 crore in Q1 June 2009 over Q1 June 2008.

Cement stocks fell on fears of a complete rollback in excise duty cuts in the forthcoming budget. ACC, Ultratech Cements, Ambuja Cements, India Cements, Grasim Industries fell by between 4.92% to 8.25%.

IT stocks rose on reports the forthcoming Union Budget may extend the corporate tax holiday enjoyed by export-oriented units and software parks by three more years, as the government looks forward to clearing the air for companies in these segments reeling under a demand slump in key Western markets.

India's second largest software firm by sales Infosys Technologies rose 0.64% as its American depository receipt (ADR) rose 1.06% on Wednesday. Meanwhile software giant Microsoft has reportedly awarded a $10-million BPO deal to the firm.

India's largest software services exporter by sales TCS rose 0.2%. TCS's advance tax payment fell 33.33% to Rs 50 crore in Q1 June 2009 over Q1 June 2008. But, India's third largest software services exporter by sales Wipro fell 0.24%. Its ADR was flat on Wednesday.

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. Ranbaxy's Laboratories, Cipla, Lupin, Sterling Biotech, Pfizer fell by between 0.43% to 3.96%.

Auto stocks fell on profit taking after a recent surge triggered by improved sales in the month of May 2009. India's largest car maker by sales Maruti Suzuki India fell 2.28%.

India's largest tractor maker by sales Mahindra & Mahindra fell 1.03%. Its advance tax payment rose 25% to Rs 17.5 crore in Q1 June 2009 over Q1 June 2008.

But, India's largest commercial vehicle maker by sales Tata Motors rose 1.34% on reports the company is gearing up for a big-ticket launch of a sports utility vehicle by 2010.

Bank stocks fell as higher bond yields will result in diminution in valuation of banks' bond portfolio. India's largest private sector bank by net profit ICICI Bank fell 2.58% . Its American depository receipt (ADR) fell 0.57% on Wednesday, 17 June 2009. ICICI Bank's advance tax payment rose 7.64% to Rs 366 crore in Q1 June 2009 over Q1 June 2008.

India's second largest private sector bank by operating income HDFC Bank fell 1.57%. Its ADR fell 2.51% on Wednesday. HDFC Bank's advance tax payment rose 16.28% to Rs 250 crore in Q1 June 2009 over Q1 June 2008.

But, India's biggest bank in terms of branch network State Bank of India (SBI) rose 2.33%. SBI's advance tax payment rose 61.09% to Rs 1,068 crore in Q1 June 2009 over Q1 June 2008. SBI 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 Housing Development Finance Corporation (HDFC) fell 0.38%. HDFC plans to raise up to Rs 4000 crore after its board recently 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 and HDFC Bank are reportedly set to reduce interest rates on term deposits by up to 0.25%.

But bond yields are rising due to concerns over government's hefty borrowing programme this year

Jaiprakash Associates clocked the highest volume of 4.22 crore shares on BSE. Unitech (2.82 crore shares), Satyam Computer Services (2.44 crore shares), Reliance Natural Resources (2.38 crore shares) and Ispat Industries (1.93 crore shares) were the other volume toppers in that order.

Jaiprakash Associates clocked the highest turnover of Rs 808.48 crore on BSE. Reliance Industries (Rs 327.76 crore), Reliance Capital (Rs 260.14 crore), Unitech (Rs 216.09 crore) and Reliance Natural Resources (Rs 215.83 crore) were the other turnover toppers in that order.