Small-cap, mid-cap indices tank as market corrects after a steep rally

The key benchmark indices dropped from multi-month highs as weak European markets and lower US index futures triggered profit taking after a recent solid surge. The BSE 30-share Sensex was down 437.63 points, or 2.9%, off close to 545 points from the day's high. The Sensex fell below psychological 15,000 mark and the S&P CNX Nifty fell below psychological 4,500 mark.

The market was volatile. A sharp fall in the BSE Sensex within seconds of commencement of trade took market men by surprise. Equally surprising was an instant rebound when it moved into the green. However, the recovery was short lived. The market weakened in morning trade before cutting losses. Volatility was high in early afternoon trade. The market slumped in late trade.

European shares fell on Monday, led by commodity stocks and banks but drugmakers offered some support. Key benchmark indices in France, Germany and UK were down by between 1.26% to 1.59%.

European election results out over the weekend showed that conservative parties gained ground, with the move delivering a blow to socialists who had hoped to gain support in the economic downturn.

Asian markets were mixed. Stocks rose in Japan buoyed by a weaker yen that pushed up exporters such as Canon Inc. Japanese stocks rose even after a government report showed the country's current-account surplus narrowed in April 2009 as the global recession cut demand for exports. The Nikkei was up 1%.

China's Shanghai Composite was up 0.52%. George Soros, chairman and founder of Soros Fund Management LLC, said China will be the first country to recover from the global financial crisis, the Shanghai Daily reported today.

But key benchmark indices in Hong Kong, Singapore, South Korea and Taiwan were down between 0.1% to 3.34%.

US stocks futures slumped on worries that higher borrowing costs will threaten a recovery of the US economy. Trading in the US index futures indicated the Dow could fall 80 points at the opening bell today, 8 June 2009.

Yields on 10-year Treasury notes rose 2 basis points to 3.85%. Yields move in the opposite direction to prices. The sell-off in the bond market also has fueled concern about stock valuations.

Wall Street ended a choppy session on a flat note on Friday, 5 June 2009. Concerns that higher borrowing costs will threaten an economic recovery overshadowed a better-than-estimated employment report. The Dow was up 12.89 points, or 0.2%, to 8,763.13. The S&P 500 index was down 2.37 points, or 0.3%, to 940.09, and the Nasdaq Composite Index fell 0.60 points, or less than 0.1%, to 1,849.42.

The US Labor Department said on 5 June 2009 payrolls fell by 345,000 in May 2009. The job losses were much lower than expectations. On the flip side, the unemployment rate jumped to 9.4%, the highest in more than two decades and higher than the 9.2% expected.

The Bank for International Settlements said in its quarterly report today that the worst of the global recession may be over as governments and central banks have been successful in restoring investor confidence.

Closer home, foreign funds made heavy purchases of Indian stocks in the past three months. Their inflow totaled Rs 2,599 crore in June 2009 (till 5 June 2009) after buying hefty Rs 20,606.80 crore in May 2009. FII inflow in calendar year 2009 totaled Rs 23,918.40 crore (till 5 June 2009).

On the back of heavy buying by foreign funds, the Sensex had jumped 5456.24 points or 56.55% in calendar year 2009 to 15,103.55 on 5 June 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex was up 6,943.15 points or 85.08% on 5 June 2009.

Meanwhile, as a major boost to the capital markets, 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.

President Pratibha Patil addressed to a joint session of both houses on Thursday, 4 June 2009 formally disclosing the agenda of the UPA coalition government. She said that the government would aim to revive economic growth with higher investments in sectors such as infrastructure, while adhering to fiscal prudence. Patil said steps would be taken to encourage foreign investment inflows, list shares of state-run firms and infuse more capital in banks. The government's immediate priority must be to focus on management of the economy that will counter the effect of the global slowdown, she added.

Patil said the new regime will develop a roadmap for listing public sector units, co-ordinate with other countries to bring back illegal money stashed in secret bank accounts, recapitalise public sector banks, and bring in the pension reforms bill.

On the economic front, the government's immediate focus would be on sectors that are adversely hit, especially small and medium enterprises, exports, textiles, commercial vehicles, infrastructure and housing.

Meanwhile, equity analysts are raising earnings forecasts of India Inc on hopes that the new government will focus on infrastructure sector and push economic reforms to boost growth. Bulls may retail hold this month on expectations of favourable announcement for the industry in the Union Budget 2009-2010

The government reportedly plans to list only two state-owned companies Oil India (OIL) and National Hydroelectric Power Corporation (NHPC) this financial year through initial public offerings (IPOs) even as it aims to mop up Rs 6,500 crore via disinvestments by the year-end. The government will also dilute its holding in some companies where it holds more than 90% stake, including trading firms MMTC and State Trading Corporation of India (STC), as per a detailed annual disinvestment plan to be presented with the Union Budget in early July. The Budget will also contain the new government's broad sell-off plans for its first three years.

The government has the scope to raise funds through asset sales of state-run firms, the deputy chief of the Planning Commission said on Monday. Montek Singh Ahluwalia also told a news conference that there was a need for limiting subsidies.

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.

Investors expect financial sector reforms such as increase in the cap on foreign direct investment in insurance sector to 49%, from 26% at present. 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.

Mukherjee said the government will stick to fiscal deficit target of 5.5% of GDP in the current financial year that ends on March 2010 (FY 2010). He said the government is committed to fiscal consolidation in 2-3 years. The minister said he would be able to announce the full-budget for FY 2010 by the first week of July 2009 and try to get it approved by 31 July 2009. He said the common man will be the focus of the government policy.

Ample global liquidity 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 lost 437.63 points, or 2.9%, to 14,665.92. The Sensex rose 97.27 points at the day's high of 15,200.82 hit in the early trade. At the day's low of 14,604.23, the Sensex fell 499.32 points in late trade.

BSE clocked a turnover of Rs 7,335 crore, lower than Rs 8,997.38 crore on Friday, 5 June 2009.

The S&P CNX Nifty was down 157 points, or 3.42%, to 4,429.90. Nifty June 2009 futures were at 4413.50, at a discount of 16.40 points as compared to the spot closing of 4429.90. Turnover in NSE's futures & options (F&O) segment was Rs 65,877.10 crore, slightly lower than Rs 65,938.39 crore on Friday, 5 June 2009.

The market breadth, indicating the overall health of the market, turned weak in contrast to a strong breadth in early trade. On BSE, 577 shares rose as compared with 2,242 that declined. A total of 33 shares remained unchanged.

The BSE Mid-Cap index was down 5.45% and the BSE Small-Cap index was down 5.8%. Both the indices underperformed the Sensex.

The BSE Realty index (down 10.54%), the BSE Metal index (down 6.51%), the BSE Bankex (down 4.42%), the BSE Consumer Durables index (down 4.41%), the BSE PSU index (down 4.32%), the BSE Power index (down 3.46%), the BSE Capital Goods index (down 3.18%), underperfomed the Sensex.

The BSE IT index (up 1.57%), the BSE TECk index (down 1.21%), the BSE Healthcare index (down 2.22%), the BSE Oil & Gas index (down 2.52%), the BSE FMCG index (down 2.56%), the BSE Auto index (down 2.66%), outperformed the Sensex.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) was down 1.04% to Rs 2,188.90. The stock was volatile. The stock hit a high of Rs 2,260 and a low of Rs 1,847.90 so far during the day. Its German unit Trevira, a specialty polyester manufacturer, became bankrupt last week. Reliance Industries had acquired Trevira five years ago for Rs 440 crore. This acquisition in 2004 had propelled Reliance to the position of the world's largest polyester fibre and yarn producer.

Meanwhile, 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.

Oil exploration stocks fell after crude oil prices dropped. India's biggest state-run oil exploration firm by revenue Oil & Natural Gas Corporation (ONGC) declined 5.59% and Cairn India fell 5.29%. US crude oil futures and London Brent prices fell by more than $1 a barrel on Monday after a stronger US dollar and profit-taking prompted a retreat from a seven-month high above $70 hit last week. Nymex crude fell $1.06 to $67.38 while London Brent was down $1.04 at $67.30. The fall in crude oil prices would result in lower realizations from crude sales for oil exploration firms.

Banking stocks fell as higher bond yields will result in diminution in value of banks' bond portfolio. India's largest private sector bank by net profit ICICI Bank was down 3.58% even as its American depository receipt (ADR) rose 1.34% on Friday, 5 June 2009.

ICICI Bank cut prime lending rate by 50 basis points with effect from Friday, 5 June 2009. The benchmark advance rate, or the rate that it charges its top customers, will drop to 15.75% from 16.25%. It also cut floating reference rate (FRR) applicable to floating rate retail loans (including floating rate home loans) by 50 basis points. The revised FRR will be 12.75% from 13.25%. All the existing floating rate customers to benefit from the cut.

India's second largest private sector bank by operating income HDFC Bank was down 1.37% even as its ADR rose 0.47% on Friday.

India's biggest bank in terms of branch network State Bank of India (SBI) was down 6.76%. As per recent reports, SBI may cut lending rates by 25 basis points.

India's biggest dedicated housing finance firm by operating income HDFC was down 3.78%.

Bond yields rose on Monday after the authorities raised the auction size for a fourth consecutive week, indicating the government could be borrowing more than expected. The government said after the market closed on Friday it would raise Rs 15000 crore on Thursday, 11 June 2009, up from a scheduled Rs 12000 crore.

Sentiment was also dented by a smaller-than-expected loss of US jobs in May 2009 that slammed the US Treasury debt market on Friday, kindling fears the Federal Reserve might raise rates sooner than previously thought. At 10:50 IST, the yield on the 10-year benchmark bond was at 6.60%, above Friday's closing of 6.56%. Bond prices and bond yields are inversely related.

Realty stocks fell on profit taking after recent gains on expectations that stability at the Centre will attract more money from foreign investors into the sector which in turn will boost growth. DLF, Unitech, Omaxe fell by between 9.97% to 13.8%.

Indiabulls Real Estate slumped 10.06% on reporting net loss of Rs 3.90 crore in Q4 March 2009 as compared to net profit of Rs 27.82 crore in Q4 March 2008.

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 as US copper futures ended lower on Friday 5 June 2009, as currency-related sales weighed on metal prices after data showing the US economy lost a fewer-than-expected 345,000 jobs in May 2009. The data fueled a sharp rally in the dollar. Steel Authority of India, National Aluminum Company, Hindalco Industries and Sterlite Industries fell by between 3.27% to 9.07%.

India's largest steel maker by sales Tata Steel fell 10.21% even as its total steel sales rose 18% to 4.69 lakh tonnes in May 2009 over May 2008.

Cement stocks fell on profit taking after a recent rally triggered by healthy growth in cement shipments by most cement companies in May 2009. India Cements, Ultratech Cements, ACC, Ambuja Cements fell by between 3.28% to 8.06%.

Capital goods stocks fell on profit taking a recent surge triggered by hopes the government will provide a thrust to the infrastructure sector. Bharat Heavy Electricals, Crompton Greaves, Punj Lloyd, ABB, Siemens, Thermax, Praj Industries fell by between 0.65% to 8.03%.

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

Healthcare stocks fell on profit taking after a recent rally triggered by hopes the government will give primary importance to healthcare segment and health of citizens. Ranbaxy Laboratories, Biocon, Wochardt, Pfizer, Cipla fell by between 0.12% to 6.45%.

FMCG stocks fell on delay in monsoon. Marico, United Spirits, Tata Tea, Dabur India and ITC fell by between 2.07% to 7.33%. FMCG companies derive most of their revenues from the rural market.

According to the the India Meteorological Department (IMD), the monsoon, which normally hits Kerala coast on 1 June 2009, had reached there around a week earlier this year and was expected to make a rapid progress. However, cyclone Aila, which hit west Bengal region and the Bay of Bengal on 23 May 2009, had affected the progress of the monsoon.

Outsourcing focussed IT stocks rose on talks worst may be over for the US economy and the US banking system. US is the biggest market for Indian IT firms. A sharp slide in the rupee against the dollar also aided recovery in IT stocks. IT stocks had underperfromed the market in the past one month due to a sharp surge in the rupee against the dollar.

India's second largest software firm by sales Infosys Technologies rose 2.52%. Infosys Technologies reportedly plans to open a software development and back office centre in Brazil later this year to serve US customers better from a near-shore presence. Its ADR gained 1.21% on Friday.

India's third largest software services exporter by sales Wipro rose 3.36%. Its ADR rose 0.24% on Friday. India's largest software services exporter by sales TCS rose 2.29%.

A firm rupee affects operating margins of IT firms negatively as IT companies derive a lion's share of revenue from exports. The Indian rupee edged lower in early trade on Monday tracking the dollar's rise against major currencies overseas. The partially convertible rupee was at 47.54/55 per dollar, weaker from its previous close of 47.105/115.

Auto stocks fell on profit taking after recent surge triggered by improved sales in the month of May 2009. Tata Motors, Mahindra & Mahindra, Maruti Suzuki India and Bajaj Auto fell by between 1.78% to 6.25%.

Shares of state-run companies fell on profit taking after a recent surge triggered on hopes of recommencement of the PSU disinvestment programme by the Congress-led UPA government. Neyveli Lignite Corporation, MMTC, Hindustan copper, Central Bank of India, Power Finance Corporation, NMDC, HMT and Shipping Corporation of India fell by between 0.26% to 9.44%.

Airline stocks fell after the International Air Transport Association said on Monday that global airlines are likely to lose $9 billion this year, nearly double its estimate of just three months ago, as rising fuel prices and weak demand create an unprecedented crisis for the industry. Jet Airways, Kingfisher Airlines and SpiceJet fell by between 9.63% to 12.32%.

Dish TV clocked the highest volume of 7.32 crore shares on BSE. Unitech (3.4 crore shares), Suzlon Energy (2.32 crore shares), Reliance Naturla Resources (2.05 crore shars) and MRPL (1.96 crore shares) were the other volume toppers in that order.

Dish TV clocked the highest turnovewr of Rs 329 crore on BSE. Unitech (Rs 286.78 crore), Suzlon Energy (Rs 284.41 crore), Reliance Industries (Rs 230.43 crore) and Reliance Capital (Rs 212.45 crore) were the other turnover toppers in that order.