Auto, cement, FMCG stocks lead recovery

The key benchmark indices snapped Monday's (6 July 2009) near 6% post-budget losses on a view that a sharply higher government spending in the Union Budget 2009-2010 will aid a recovery in the economy. Higher European stocks and US index futures also supported the domestic bourses.

The BSE 30-share Sensex advanced 127.05 points or 0.9%, off close to 85 points from the day's high and up close to 175 points from the day's low. Index heavyweight Reliance Industries extended Monday's (6 July 2009)'s losses following an increase in the Minimum Alternate Tax (MAT) in the Budget. The market breadth, indicating the overall health of the market, was weak.

As per the provisional data, foreign funds today, 7 July 2009, dumped shares worth a net Rs 921.39 crore. On the other hand, domestic institutions mopped up stocks worth a net Rs 790.16 crore

The market was volatile. The market pared gains after a firm start triggered by higher Asian equities. It regained strength later after falling in the red for a brief period in mid-morning trade. The market once again pared gains in early afternoon trade. Volatility was immense in afternoon trade. Volatility continued in mid-afternoon trade.

Transport minister Kamal Nath said today the government aims to attract $10 billion a year in overseas funding for roads and targets investment of $ 20 billion a year for road building.

Finance Minister Pranab Mukherjee said government spending has to fill a gap left by lower private investment, a day after he sharply raised government spending in the Union Budget 2009-2010 on Monday, 6 July 2009. Higher government spending on infrastructure sector and rural economy will help facilitate recovery in the economy.

Reduction in personal income tax
will leave more money in consumers hand which may boost consumer spending. The basic exemption limit on personal income tax was raised by Rs 15,000 for senior citizens and by Rs 10,000 for others. The 10% surcharge on personal income tax was also abolished in the Budget.

Analysts said continuance of previously provided indirect tax breaks will also help help facilitate a recovery in the economy. There was no across-the-board increase in excise duties after a sharp reduction in duties in two stages since December 2008 which was announced as a part of the government's stimulus package for the economy.

The Finance Minister said today that manufacturing is showing better performance but the economic slowdown is not over yet. He further said tax receipts are on a downward path and there is a need to boost spending. He said India must come back to higher growth path at the earliest.

Absence of any big bang economic reforms in the Union Budget 2009-2010 had triggered a nearly 6% slide on the bourses amid heavy volumes on Monday. The Union Budget 2009-2010 did not contain any major reforms such as a roadmap to increase foreign direct investment in insurance sector and decontrol fuel prices. Lack of financial sector reforms and a clear roadmap on divestment were other sources of disappointment. The government set an very small target of Rs 1120 crore from divestment for the financial year ending March 2010. A surge in fiscal deficit target added to the market's woes. Finance Minister (FM) Pranab Mukherjee set a sharply higher fiscal deficit target to 6.8% for the financial year ending March 2010 after he increased spending on roads, power and aid to the poor.

The market had expected some announcement on decontrol on fuel prices but the FM only said that a panel will be set up to look into the pricing of petrol and diesel. The market was also surprised by the FM keeping a mum on Foreign Direct Investment (FDI) policy at a time when expectations were running high that the government will announce a roadmap for hike in foreign direct investment in insurance sector to 49% from 24%.

The next major trigger for the market is earnings of India Inc. for the quarter ended June 2009. India's second largest IT major by sales Infosys kickstarts the result season on 10 July 2009.

European shares turned positive after a subdued start. Key benchmark indices in France, Germany and UK rose by between 0.46% to 0.8%.

Asian markets were mixed. Key benchmark indices in Singapore, South Korea, Taiwan were up by between 0.27% to 0.98%. The key benchmark indices in Hong Kong, China and Japan fell by between 0.34% to 1.13%.

US index futures reversed early losses. Trading in the US index futures indicated Dow could rise 17 points at the opening bell today, 7 July 2009.

Wall Street ended Monday's session mixed. Gloomy earnings expectations weighed on sentiment. The Dow Jones gained 44.13 points, or 0.5%, to 8,324.87. S&P 500 index rose 2.30 points, or 0.3%, to 898.72. The Nasdaq Composite Index fell 9.12 points, or 0.5%, to 1,787.40.

Back home, the projected FY 2010 fiscal deficit is much higher than the 5.5% deficit forecast by Mukherjee in an interim budget in February 2009, and also higher than the 6.2% deficit recorded by the government in the previous year ended 31 March 2009.

While Standard & Poor's said the fiscal deficit was within the boundary of their expectation, Fitch Ratings said the budget doesn't alleviate pressure on India's ratings. Moody's Investors Service said on Tuesday that India's budget for 2009/10 is consistent with a stable outlook on its sovereign ratings, although it said the commitment to cut a debt overhang was weak.

S&P ranks India's long-term local-currency rating at BBB-, their lowest investment grade. Fitch has a BBB- long-term rating on India, also their lowest investment-grade level. Moody's has a Baa3 foreign currency rating and Ba2 local currency sovereign rating, which is non-investment grade, on India.

The BSE 30-share Sensex was up 127.05 points or 0.9% to 14,170.45. The Sensex rose 208.48 points at the day's high of 14,251.88 in early trade. At the day's low of 14,000.68, Sensex fell 42.72 points in mid-morning trade.

The S&P CNX Nifty was up 36.45 points or 0.88% to 4,202.15. Nifty July 2009 futures were at 4193, at a discount of 9.15 points as compared to the spot closing of 4202.15. Turnover in NSE's futures & options (F&O) segment was Rs 60,222.63 crore, sharply lower than Rs 96,656.53 crore on Monday, 6 July 2009.

BSE clocked a turnover of Rs 5,285 crore, lower than Rs 7,330.76 crore on Monday, 6 July 2009.

The market breadth, indicating the overall health of the market, turned weak from positive breadth in early trade. On BSE, 1,061 shares rose as compared with 1,464 that fell. A total of 97 shares remained unchanged.

From the 30 shares Sensex pack, 18 rose and rest fell.

The BSE Sensex is up 4,523.14 points or 46.88% in calendar year 2009 as on 7 July 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 6,010.05 points or 73.64% as on 7 July 2009.

Coming back to today's trade, the BSE Mid-Cap index was up 0.92% and outperformed the Sensex. The BSE Small-Cap index was down 0.33% and underperformed the Sensex.

The BSE Auto index (up 3.92%), the BSE FMCG index (up 3.83%), the BSE Capital Goods index (up 1.67%), outperformed the Sensex.

The BSE PSU index (down 1.75%), the BSE Oil & Gas index (down 1.32%), the BSE IT index (down 0.38%), the BSE Metal index (down 0.14%), the BSE Realty index (down 0.1%), the BSE Bankex (up 0.46%), the BSE Consumer Durables index (up 0.49%), the BSE TECk index (up 0.5%), the BSE Healthcare index (up 0.57%), the BSE Power index (up 0.97%), underperformed the Sensex.

India's largest private sector firm by market capitalisation Reliance Industries (RIL) fell 2.02% to Rs 1,855.35. The Supreme Court today declined to stay the Bombay High Court's verdict in a dispute over the sale of natural gas by Reliance Industries (RIL to Reliance Natural Resources (RNRL).

The Supreme Court didn't grant Reliance Industries' plea to stay the order of the Bombay High Court until the resolution of the case and issued notices to the companies and the Centre. Both companies have to reply to appeals filed by each other by 20 July 2009, when the matter is scheduled to be heard, a bench headed by Chief Justice K.G. Balakrishnan said in New Delhi today. The government must also respond by then, the court said.

RIL, late last week, moved the Supreme court, challenging the Bombay High Court judgment asking it to supply gas to the former at a price that is 44% lower than fixed by the government. In its appeal filed in the Supreme Court on Saturday 4 July 2009, Reliance Industries contended that the high court had erred in deciding the three terms - quantity, tenure and price of gas supply to power plants of Reliance Natural Resources (RNRL) affiliates.

Meanwhile, RIL's tax liability would rise after Finance Minister Pranab Mukherjee increased the rate of minimum alternate tax (MAT) to 15% from 10% of book profit. RIL pays taxes under MAT. RIL's total tax liability stood at Rs 3028 crore in the year ended March 2009 (FY 2009), which included deferred taxes of Rs 900 crore and fringe benefit tax of Rs 54 crore. While higher MAT may result in increase in tax outgo, the scrapping of the fringe benefit tax (FBT) may help mitigate the impact to some extent. The government has scrapped FBT in the Union Budget 2009-2010.

Meanwhile, the government has restored tax holiday to natural gas producers which will benefit RIL. In the last financial year's budget, the government had removed seven-year tax holiday on natural gas production while continuing the same for oil production. However, the tax benefit on natural gas will be available only for future gas discoveries i.e from the forthcoming New Exploration Licensing Policy (NELP) round VIII onwards.

Oil stocks were mixed as crude oil fell for a fifth day in New York today on a stronger dollar and concerns that slow fuel consumption will lead to an increase in US stockpiles. India's largest oil exploration firm by revenue ONGC fell 1.91%. But Cairn India rose 0.3%. The fall in crude oil prices would result in lower realizations from crude sales for oil exploration firms. Oil for August 2009 delivery fell as much as 50 cents, or 0.8%, to $63.58 a barrel in electronic trading on the New York Mercantile Exchange.

Shares of three state-run oil marketing firms BPCL and Indian Oil Corporation rose by between 0.14% to 0.42% on fall in crude oil prices. But HPCL fell 0.19%. Lower crude oil prices will reduce underrecoveries at the state-run oil firms on domestic sale of petrol, diesel, LPG and kerosene at a controlled price. The government had recently hiked petrol prices by Rs 4 per liter and diesel prices by Rs 2 per liter.

But contrary to market expectations, the Union Budget 2009-2010 did not include a roadmap for decontrol of fuel prices in the country but only said it will set up a expert panel to look into the matter of fuel pricing.

Capital goods and construction stocks rose after the budget laid major emphasis on infrastructure development. Siemens, Praj Industries, Siemens, ABB, Larsen & Toubro, Bharat Heavy Electricals rose by between 0.21% to 2.52%.

Among construction stocks, Hindustan Construction Company, IVRCL Infrstructure &Projects and Nagarjuna Construction Company rose by between 3.11% to 9.04%.

Finance Minister Pranab Mukherjee on 6 July 2009, provided a thrust on various infrastructure projects in the budget which will benefit construction firms in the form of increased orders. The government announced more spending for urban, water and road projects. The allocation to National Highway development program allocation was increased 23% to Rs 15948 crore.

To ensure that infrastructure projects do not face financing difficulties arising from the current downturn, the government has decided that India Infrastructure Finance Company (IIFCL) will refinance 60% of commercial bank loans for Public Private Partnership (PPP) projects in critical sectors over the next fifteen to eighteen months.

Cement stocks rose on thrust on the infrastructure sector in the Budget which may boost cement demand. ACC, Ambuja Cements, Ultratech Cement and Grasim Industries rose by between 3.87% to 5.34%.

Meanwhile, the differential excise duty structure for the cement industry was kept unchanged. Besides there was no change in the import duty of basic inputs like coal, petroleum coke, gypsum etc.

Steel stocks fell as the Finance Minister did not announce measures to safeguard the domestic industry against cheap imports in the budget. Bhushan Steel, JSW Steel, Steel Authority of India, Jindal Steel fell by between 0.04% to 4.3%.

But, India's largest steel maker by sales Tata Steel rose 0.42% after the company said on Tuesday that steel sales from its Indian operations rose 19 % to 497,000 tonnes in June 2009 over June 2008. The Indian operations account for about a quarter of the group's total annual global capacity of 30 million tonnes, which includes its Anglo-Dutch unit Corus.

Auto stocks rose on retention of lower excise duties in the Budget. Mahindra & Mahindra, Maruti Suzuki India, Hero Honda Motors rose by between 4.34% to 5.8%.

There was no across-the-board increase in excise duties after a sharp reduction in excise duties in two stages since December 2008 which was announced as a part of the government's stimulus package for the economy. A section of the market was fearing rollback of excise duties due to signs of a recovery in the Indian economy.

The specific excise duty applicable to big cars and utility vehicles of engine capacity 2,000 cc and above was reduced to Rs 15000 per per vehicle from Rs 20000 per vehicle.

FMCG stocks rose as the finance minister reiterated the government's thrust on the agriculture sector. FMCG firms derives a substantial revenue from rural sector. Aries Agro, Advanta India, Jain Irrigation, Tata Tea, Marico, United Spirits, Dabur india rose by between 1.13 % to 12.68%.

Finance Minister Pranab Mukherjee, while presenting the Union Budget for 2009-10, said the government will ensure that agriculture grows by at least 4% per year.

The government has announced additional interest rate subvention of 1% to farmers who pay short-term farm loans on schedule. The government has also decided to extend agriculture debt waiver by six months and to provide additional Rs 1000 crore over interim budget for irrigation.

India's largest cigarette maker by sales ITC rose 6.77%, extending Monday's 3.13% gains after the Finance Minister left excise duty on cigarettes unchanged in the Union Budget 2009-2010.

Shares of drug makers rose after the Finance Minister Pranab Mukherjee reduced customs duty on life saving drugs in the Budget. Dr Reddy's Laboratories, Lupin, Piramal Healthcare, Biocon, Sun Pharmaceutical Industries rose by between 1.16% to 4.45%.

Finance minister on 6 July 2009, reduced basic customs duty on influenza vaccine and nine other specified life-saving drugs used for treating breast cancer, hepatitis-B, rheumatic arthritis, etc.

The government has also reduced basic customs duty for two bulk drugs used in manufacturing these medicines from 10% to 5%. Bulk drugs are processed raw materials used in manufacturing the final doses of medicines.

Bank stocks fell as government did not announce financial sector reforms in the Budget. Market expectations on financial sector reforms were high. The government's annual economic survey released ahead of the Budget had called for a phased increase in the foreign direct investment limit in banks. Voting rights in banks should be aligned with equity holdings, the Survey had said

India's biggest bank in terms of branch network State Bank of India (SBI) fell 1.13%. India's second largest private sector bank by net profit HDFC Bank fell 0.1% as its ADR fell 2.2% overnight. But, India's largest private sector bank by net profit ICICI Bank rose 2.51% even as its American depository receipt (ADR) fell 0.9% on Monday, 6 July 2009.

India's biggest dedicated housing finance firm by operating income Housing Development Finance Corporation rose 0.24%. The finance minister did not announce a hike in tax sops for housing loans contrary to market expectations.

Some realty stocks extended Monday's steep losses as finance minister made no major announcement to boost the debt ridden sector reeling under slump in demand for new homes. DLF, Omaxe, Housing Development & Infrastructure, Akruti City fell by between 0.37% to 5.34%.

India's largest cellular services provider in terms of market share Bharti Airtel rose 3.48% after the stock market regulator Securities & Exchange Board of India (Sebi) said Bharti is considering issuing global depositary receipts (GDRs) to South Africa's MTN and its shareholders. Sebi said MTN would need to make an open offer under Indian takeover rules only when the GDRs are converted by the South African firm and its shareholders to local shares with voting rights.

Bharti and MTN have been in exclusive talks that could lead to a merger creating the world's No. 3 wireless group with more than 200 million subscribers and combined revenue of $20 billion.

IT stocks rose as the Finance Minister extended deduction in respect of export profits under the Software Technologies Parks of India (STPI) scheme available under sections 10A and 10B of the Income-tax Act till the financial year 2010-11. IT majors, TCS and Wipro rose by between 1.34% to 1.94%. But, India's second largest IT major by sales Infosys fell 1.18%. In order to tide over the slowdown in exports, the Finance Minister proposed to extend the sun-set clauses for these tax holidays by one more year i.e. for the financial year 2010-11. Last year, the benefit under this section was extended to one year till 2009-2010.

Shares of fertiliser makers fell after the Finance Minister proposed a change in the method of subsidising fertiliser prices. Rashtriya Chemicals and Fertilizers, Nagarjuna Fertilizers & Chemicals, Zuari Industries, Chambal Fertilizers & Chemicals, National fertilizers, Gujarat State Fertilizers Company, Deepak Fertilisers and Petrochemicals Corporation, Tata Chemicals fell by between 0.03% to 8.8%.

Finance Minister Pranab Mukherjee, while presenting the Union Budget for 2009-10, proposed a change in the method of subsidising fertiliser prices by shifting to a 'nutrient based subsidy regime' from a 'product pricing regime'.

Cals Refineries clocked the highest volume of 4.53 crore shares on BSE. Reliance Natural Resources (1.89 crore shares), Unitech (1.72 crore shares), Suzlon Energy (1.51 crore shares) and IFCI (1.14 crore shares) were the other major volume toppers in that order.

Reliance Industries clocked the highest turnover of Rs 278.27 crore on BSE. Educomp Solutions (Rs 245.96 crore), ICICI Bank (Rs 207.19 crore), Reliance Infrastructure (Rs 194.17 crore) and Reliance Capital (Rs 189.48 crore) were the other turnover toppers in that order.