Sensex hits 10-month on PM's optimism on economic growth

The BSE Sensex attained its highest closing since 12 August 2008 as market erased all the losses incurred on Monday (8 June 2009) on Prime Minister (PM) Manmohan Singh comments that Indian economy can achieve 8% to 9% growth with a high savings rate. Data showing surge in inflow in equity mutual funds and gains in Chinese equities further bolstered sentiment. The BSE 30-share Sensex jumped 461.08 points, or 3.14%, up close to 600 points from the day's low. The Sensex had lost 437.63 points, or 2.9% on Monday.

The Sensex regained the psychological 15,000 mark. The near 3% fall on Monday had pulled the Sensex below the 15,000 level that day. The S&P CNX Nifty moved past the 4,500 mark. Market breadth turned positive in late trade after remaining weak for the most part of the day.

The market was volatile. The Sensex dropped in volatile early trade as media reports that the government may defer a proposal to decontrol pricing of gasoline and diesel because of the increase in crude oil prices weighed on the sentiment. An opposition to divestment by regional party DMK which is a key ally of the Congress-led coalition government at the centre also weighted on the sentiment. The market bounced back shortly. The market extended gains later.

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. "In last one year our economy was affected and our growth rate declined to about 7%," the Prime Minister told the Lok Sabha, replying to the motion of thanks on President Pratibha Patil's address to both houses of Parliament.

"I don't promise you we won't be affected by the international conditions, but we will be able to achieve a growth rate of 8-9%, even when the world grows at a lower rate," he said in his 45-minute address. "This year, we will be able to maintain a growth of 7%."

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). "We cannot spend our way into prosperity. But there is scope to increase the allocations, particularly for infrastructure," the Prime Minister said, hoping finance minister Pranab Mukherjee will address this issue in the upcoming national budget.

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. "Much ground has been covered, a lot more has to be done."

The PM's speech comes amid the backdrop of concerns that the government's two key allies viz. the DMK and Trinamool Congress (TC) may oppose economic reforms. 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.

DMK chief M Karunanidhi's daughter and Rajya Sabha MP, Kanimozhi, on Monday signaled that the government could not count on her party's support for its disinvestment plans and should avoid the temptation of selling stakes in state-run firms for generating revenue. The DMK accounts for 18 members of the Parliament and is the third-biggest constituent of the Congress-led UPA government at the Centre.

A newspaper report today said 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 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.

Any setback to 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.

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.

European stocks rose amidst volatile trade on Tuesday as buoyant oil prices boosted heavyweight energy shares such as Total and BP. Key benchmark indices in France, and Germany were up by between 0.02% to 0.18%. But UK's FTSE 100 fell 0.11%.

Some Asian stocks recovered from the early slide in what has been a volatile day for most markets. China's benchmark stock index rose to a 10 month-high, reversing earlier declines, as consumer-related companies gained on optimism figures due this week will show retail sales growth accelerated in May 2009.

The Shanghai Composite Index, which tracks the bigger of China's exchanges, gained 19.55, or 0.7%, to 2,787.89 at the close after falling as much as 1.7%. It closed at its highest since 1 August 2008.

But Key benchmark indices in Hong Kong, Japan, Taiwan, South Korea were down by between 0.8% to 3.22%.

US stocks futures swung between gains and losses. Trading in the US index futures indicated Dow could slide 14 points at the opening bell today, 9 June 2009.

Most US stocks fell for a second day in a row on Monday as a drop in health-care and materials shares overshadowed a late-day rally spurred by Nobel Prize-winning economist Paul Krugman's prediction the recession will end by September 2009. Financials bounced back from an early decline. The Dow was up 1.36 points to 8,764.49. The S&P 500 index slipped 0.95 points, or 0.1%, to 939.14, and the Nasdaq Composite Index fell 7.02 points, or 0.4%, to 1,842.40.

Foreign funds made heavy purchases of Indian stocks in the past three months. FII inflow in June 2009 totaled Rs 2,893.90 crore (till 8 June 2009) after an inflow of a hefty Rs 20,606.80 crore in May 2009. FII inflow in calendar year 2009 totaled Rs 24,213.30 crore (till 8 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, members of the Securities and Exchange Board of India (Sebi) have reportedly suggested a phased reduction of the securities transaction tax as part of a package of measures to develop the capital markets.

Finance Minister Pranab Mukherjee is likely to present the Union Budget in the first week of July 2009 with focus on the common man while providing special attention to sectors hit hard by global crisis. Railway Budget for the year 2009-10 would be presented on 1 July 2009 followed by Economic Survey on 2 July 2009.

Meanwhile, 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.

Falling interest rates will also support a larger capital expenditure programme of India Inc. Lower interest rates will also help sustain strong domestic demand. Late last week, India's biggest private sector bank by net profit ICICI Bank cut prime lending rate by 50 basis points

The BSE 30-share Sensex jumped 461.08 points, or 3.14%, to 15,127, its highest closing since 12 August 2008. The Sensex rose 495.30 points at the day's high of 15,161.22 in late trade. At the day's low of 14,526.69, the Sensex fell 139.23 points in early trade.

The S&P CNX Nifty was up 121.05 points, or 2.73%, to 4,550.95. Nifty June 2009 futures were at 4456, at a premium of 5.05 points as compared to the spot closing of 4550.95. Turnover in NSE's futures & options (F&O) segment surged to Rs 69,273.85 crore from Rs 65,877.10 crore on Monday, 8 June 2009.

On the back of heavy buying by foreign funds, the Sensex has jumped 5,479.69 points or 57.88% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 6,966.60 points or 85.37%.

Coming back to today's trade, BSE clocked a turnover of Rs 7,975 crore higher than Rs 7,357.83 crore on Monday, 8 June 2009.

The market breadth, indicating the overall health of the market, was positive compared to the weak breadth earlier in the day. On BSE, 1,449 shares rose as compared with 1,312 that declined. A total of 42 shares remained unchanged.

The BSE Mid-Cap index was up 3.15% and outperformed the Sensex.The BSE Small-Cap index was up 1.67%. It, however, underperformed the Sensex.

The BSE Realty index (up 6.25%), the BSE IT index (up 4.79%), the BSE Metal index (up 4.28%), the BSE Consumer Durables index (up 4.18%), the BSE Capital Goods index (up 4.04%), the BSE TECk index (up 3.75%), outperformed the Sensex.

The BSE Healthcare index (up 1.8%), the BSE Power index (up 1.98%), the BSE Auto index (up 2.07%), the BSE Bankex (up 2.54%), the BSE PSU index (up 2.54%), the BSE Oil & Gas index (up 2.61%), the BSE FMCG index (up 2.87%), underperfomed the Sensex.

From the 30 share Sensex pack 28 rose while the rest fell.

Natural gas producers rose on reports the forthcoming Budget may classify mineral oil as hydrocarbons, thus extending a seven-year tax holiday given to crude oil explorers to producers of natural gas, including ONGC and Reliance Industries. India's largest state-run oil exploration firm by sales ONGC rose 1.92%.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) was up 3.79% to Rs 2,271.90. Analysts expect strong growth in 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 RNNL's upcoming 7400 megawatt (MW) power project at Dadri in Uttar Pradesh.

PSU OMCs fell on reports rising crude oil prices may force the government to defer a proposal to decontrol petrol and diesel prices. Indian Oil Corporation, Bharat Petroleum Corporation and Hindusthan Petroleum Corporation fell by between 1.84% to 4.28%. Deregulating oil now, when crude oil prices have already crossed $67 a barrel, would result in petrol prices immediately going up by Rs 3 per litre, report suggested.

Outsourcing focussed IT stocks rose on talks worst may be over for the US economy and the US banking system. Nobel Prize-winning economist Paul Krugman on Monday said US recession will end by September 2009. US is the biggest market for Indian IT firms.

India's second largest software firm by sales Infosys Technologies rose 3.6%. The company said today 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.

India's largest software services exporter by sales TCS rose 5.95%. India's third largest software services exporter by sales Wipro rose 4.37% even as its ADR fell 1.37% on Monday.

Satyam Computer Services hit 10% upper circuit 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.

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 in a deal worth about $580 million. Shares of Tech Mahindra rose 25.46%.

Realty stocks gained on expectations that stability at the Centre will attract more money from foreign investors into the sector which in turn will boost growth. Unitech, Akruti City and Omaxe rose by between 5% to 9.06%.

Indiabulls Real Estate rose 2.57% after a block deal of 10.02 lakh shares was executed on BSE at Rs 212.40 per share.

DLF the country's largest-listed real estate firm, rose 10.07% after the firm said it saw signs of recovery in the beaten down residential property sector and expected prices to start climbing.

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 rose as LMEX, a gauge of six metals traded on the London Metal Exchange, rose 0.39% to 2,368.70 on Monday, 8 May 2009. Hindustan Zinc, Steel Authority of India, National Aluminum Company, Hindalco Industries rose by between 0.55% to 4.53%.

India's largest steel maker by sales Tata Steel rose 5.28% even as Moody's Investors Service downgraded the rating of both Tata Steel and its UK subsidiary Tata Steel UK (Corus) by a notch.

The corporate family rating of Tata Steel was lowered to Ba3 from Ba2, while Tata Steel UK to B2 from B1. The rating action reflects the anticipated weakening of Tata Steel's consolidated financial profile over the intermediate term, driven by the weakness in the steel markets and the significant operating challenges faced by the company's European operations

. India's second largest telecom services provider by sales Reliance Communications rose 7.37% on reports it is close to awarding a $500-$600 million operations and maintainence contract to French telecom infrastructure provider Alcatel-Lucent.

Bank stocks rose on 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. India's largest private sector bank by net profit ICICI Bank rose 1.56% even as its American depository receipt (ADR) fell 4.02% on Monday, 8 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 1.16% even as its ADR fell 3.1% on Monday.

India's biggest bank in terms of branch network State Bank of India (SBI) gained 4.02%. As per recent reports, SBI may cut lending rates by 25 basis points.

India's biggest dedicated housing finance firm by operating income HDFC rose 1.2%.

Cement, construction and capital goods rose on a likely focus of the government on the infrastructure sector. India Cements, Ultratech Cements, ACC, Ambuja Cements rose by between 1.89% to 6.58%.

Bharat Heavy Electricals, Larsen & Toubro, Praj Industries and Punj Lloyd rose by between 0.8% to 6.8%.

Among construction stocks, Hindustan Construction Company, IVRCL Infrastructure & Projects and Gammon Infrastructure, fell by between 6.69% to 9.15%.

Auto stocks rose on improved sales in May 2009. Tata Motors, Mahindra & Mahindra, Maruti Suzuki India and Bajaj Auto fell by between 1.92% to 8.08%.

Healthcare stocks rose on hopes the government will give primary importance to healthcare segment and health of citizens. Sun Pharmaceuticals Industries, Ranbaxy Laboratories, Biocon, Wochardt, Pfizer, Dr Reddy's Laboratories, Cipla rose by between 0.08% to 6.37%.

Shares of state-run firms despite DMK's opposition to divestment. Neyveli Lignite Corporation, MMTC, NMDC, HMT and Shipping Corporation of India, Engineers India rose by between 0.61% to 10%. The BSE PSU index rose 2.54% to 8,528.11.

Unitech clocked the highest volume of 3.39 crore shares on BSE. Ispat Industries (2.62 crore shares), Suzlon Energy (2.4 crore shares), Jaiprakash Associates (1.94 crore shares) and IFCI (1.73 crore shares) were the other volume toppers in that order.

Tata Steel clocked the highest turnover of Rs 663.93 crore on BSE. Suzlon Energy (Rs 302.90 crore), Unitech (Rs 301.02 crore), DLF (Rs 271.57 crore) and Reliance Industries (Rs 252.21 crore) were the other turnover toppers in that order.