Banking, metal stocks lead a near 3% Sensex slide

The key benchmark indices slumped after the global rating agency Standard & Poor's said there is risk that its sovereign credit ratings on India may be lowered. Weak global stocks also dampened investor sentiment. The BSE 30-share Sensex fell 401.30 points or 2.83%. Banking, metal, capital goods and realty stocks led the fall. Index heavyweight Reliance Industries dropped in volatile trade. The market breadth was weak.

Intraday volatility was high. The market tumbled soon after a weak opening triggered by lower Asian stocks and overnight setback in US stocks. The market cut losses in mid-morning trade on media reports that the government will have a disinvestment road map in place in about three months to bridge the high fiscal deficit. Intraday recovery gathered further steam in afternoon trade after Planning Commission deputy chairman Montek Singh Ahluwalia said the government's 2009/10 budget was pro-growth and addressed the stimulus needs of the economy. But the recovery proved short-lived. The market slumped in late trade.

As per the provisional data, foreign funds today, 8 July 2009, sold shares worth a net Rs 828.01 crore. Domestic funds bought shares worth a net Rs 594.07 crore.

Global rating agency Standard & Poor's Ratings Services today said it maintains its view that India's high fiscal deficits are not sustainable in the medium term and if fiscal consolidation is delayed, there is a risk that the sovereign credit ratings on India may be lowered. S&P ranks India's long-term local-currency rating at BBB-, their lowest investment grade.

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

Trade minister Anand Sharma today said steps already taken by the government will help revive industrial output. He said cement and steel output rose 13% each in June 2009 over June 2008. Sharma said exports are declining at a slower pace due to government assistance to exporters. He said exports fell 29% in June 2009 from year earlier. The government will officially release export figures for the month of June on 3 August 2009

Meanwhile, steel minister Virbhadra Singh said Indian steel consumption could rise 6 to 8 % in 2009/10.

Indian government is reportedly planning to sell about 10-20% stake in listed blue chip companies. Among those likely to be targeted are ONGC, Indian Oil Corporation (IOC), NTPC, Bharat Heavy Electrical (Bhel) and Steel Authority of India (Sail). Considering that these companies are profitable, selling stakes at the opportune time could fetch the government a neat revenue that could help bridge the fiscal deficit.

The government set an very small target of Rs 1120 crore from divestment for the financial year ending March 2010 in the Union Budget 2009-2010 which it unveiled on Monday, 6 July 2009.

European shares fell on Wednesday, mirroring big losses on Wall Street on Tuesday and losing ground for the fifth straight session, as investors braced for the start of the corporate earnings season. Key benchmark indices in France and UK were down by between 0.01% to 0.48%. Germany's DAX was flat.

Though in the red, Asian stocks were off early lows. Key benchmark indices in China, Hong Kong, South Korea, Singapore and Taiwan were down by between 0.28% to 0.79%.

Japan's Nikkei fell 2.35% after the latest data showed Japanese core machinery orders fell 3% from a month earlier in May 2009.

US index futures were volatile. Trading in the US index futures indicated Dow could rise 3 points at the opening bell today, 8 July 2009.

US markets closed deep in the red yesterday, 7 July 2009 as stocks fell to their lowest level in 10 weeks amid growing doubts about an economic recovery. The Dow slipped 161.27 points, or 1.9%, to 8,163.60. The S&P 500 index fell 17.69 points, or 2%, to 881.03. The Nasdaq Composite Index lost 41.23 points, or 2.3%, to 1,746.17.

The BSE 30-share Sensex fell 401.30 points or 2.83% to 13,769.15. At the day's low of 13,701.76, Sensex fell 468.70 points in morning trade. The Sensex fell 130.87 points at the day's high of 14,039.58 in early trade.

The S&P CNX Nifty was down 123.25 points or 2.93% to 4,078.90. Nifty July 2009 futures were at 4064, at a discount of 14.90 points as compared to the spot closing of 4078.90. Turnover in NSE's futures & options (F&O) segment surged to Rs 66,588.76 crore from Rs 60,222.63 crore on Tuesday, 7 July 2009.

BSE clocked a turnover of Rs 5,384 crore slightly higher than Rs 5,304.88 crore on Tuesday, 7 July 2009.

The market breadth, indicating the overall health of the market, was extremely weak. On BSE, 557 shares rose as compared with 1,979 that fell. A total of 59 shares remained unchanged.

From the 30 shares Sensex pack, 24 fell and one rose.

On the back of heavy buying by foreign funds, the BSE Sensex is up 4,121.84 points or 42.72% in calendar year 2009, as on 8 July 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 5,608.75 points or 68.73% as on 8 July 2009.

Foreign institutional investors' (FII) inflow in July 2009 totaled Rs 3,581.20 crore (till 7 July 2009). FII inflow in calendar year 2009 totaled Rs 28,125.40 crore (till 7 July 2009).

Coming back to today's trade, the BSE Mid-Cap index was down 3.66% and the BSE Small-Cap index was down 3.73%. Both the indices underperformed the Sensex.

The BSE Auto index (down 0.23%), the BSE FMCG index (down 0.9%), the BSE Healthcare index (down 1.31%), the BSE PSU index (down 1.4%), the BSE Oil & Gas index (down 1.98%), the BSE IT index (down 2.36%), the BSE TECk index (down 2.47%), outperformed the Sensex.

The BSE Realty index (down 8.47%), the BSE Capital Goods index (down 5.05%), the BSE Metal index (down 4.22%), the BSE Bankex (down 4.09%), the BSE Power index (down 3.64%), the BSE Consumer Durables index (down 2.98%), underperformed the Sensex.

India's largest private sector firm by market capitalisation Reliance Industries (RIL) shed 1.4% to Rs 1,829.35. The stock was volatile. It hit a high of Rs 1,890.10 and a low of Rs 1,800. The Supreme Court on Tuesday 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 RIL' 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. 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.

Oil stocks fell as crude oil hit six-week low on Tuesday on speculation that a US government report will show an increase in weekly US crude inventories as the recession cut demand. India's largest state-run oil exploration firm by revenue ONGC fell 3.89%. Cairn India fell 6.23%. The fall in crude oil prices would result in lower realizations from crude sales for oil exploration firms. Crude oil for August delivery fell $1.12, or 1.7%, to $62.93 a barrel on the New York Mercantile Exchange on Tuesday, the lowest settlement since 26 May 2009.

But the fall in oil price boosted shares of PSU OMCs. BPCL, HPCL and Indian Oil Corporation rose by between 2.86% to 4.31% Lower crude oil prices will reduce under-recoveries at the state-run oil firms on domestic sale of petrol, diesel, LPG and kerosene at a controlled price. The government, last week, 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 the finance minister said it will set up a expert panel to look into the matter of fuel pricing.

Realty stocks extended last two day's losses as finance minister made no major announcement to boost the debt ridden sector reeling under slump in demand for new homes in the Budget. DLF, Omaxe, Unitech, Indiabulls Real Estate, Housing Development & Infrastructure, Akruti City fell by between 7.68% to 10.81%.

Capital goods and construction stocks fell even as the Budget laid a major emphasis on infrastructure development. Siemens, Praj Industries, Siemens, ABB, Larsen & Toubro, Bharat Heavy Electricals fell by between 2.59% to 7.05%.

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.

Among construction stocks, Hindustan Construction Company, IVRCL Infrstructure & Projects and Nagarjuna Construction Company fell by between 4.86% to 6.73%.

But cement stocks rose for the second straight day as a thrust on the infrastructure sector in the Budget may boost cement demand. ACC, Ambuja Cements, Ultratech Cement and Grasim Industries, rose by between 0.63% to 3.09%. The four cement pivotals had risen 3.87% to 5.34% on Tuesday.

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.

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 3.02%. India's largest private sector bank by net profit ICICI Bank fell 5.82%. Its American depository receipt (ADR) fell 0.21% on Tuesday, 7 July 2009. India's second largest private sector bank by net profit HDFC Bank fell 3.49% as its ADR fell 1.08% overnight.

India's biggest dedicated housing finance firm by operating income Housing Development Finance Corporation fell 1.5% as the finance minister did not announce a hike in tax sops for housing loans in the Budget contrary to market expectations.

Auto stocks rose on retention of lower excise duties in the Budget. India's largest car maker by sales Maruti Suzuki India rose 2.13%. India's largest commercial vehicle maker by sales Tata Motors rose 0.46%. India's largest bike maker by sales Hero Honda Motors rose 1.51%.

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.

IT stocks fell on worries US economic recovery may take longer than expected. US is the biggest market for Indian IT firms. TCS, Wipro and Infosys fell by between 0.82% to 2.3%.

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. 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.

Power stocks fell as no major benefits were announced for the sector by the Finance Minister in the Budget. Reliance Infrastructure, PowerGrid Corporation of India, Tata Power Company, Reliance Power fell by between 0.96% to 7.04%.

FMCG stocks fell even 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, Hindustan Unilever, ITC, United Spirits, Dabur india fell by between 0.57 % to 8.58%.

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.

Metal stocks fell after LMEX, a measure of six metals traded on the London Metal Exchange, fell 1.18% on Tuesday, 7 July 2009. Steel Authority of India, Tata Steel, Sterlite Industries, Hindalco Industries, National Aluminum Company fell by between 0.2% to 8.93%.

Unitech clocked the highest volume of 3.64 crore shares on BSE. Cals Refineries (2.61 crore shares), Suzlon Energy (1.79 crore shares), Ispat Industries (1.25 crore shares) and Satyam Computer Services (1.24 crore shares) were the other volume toppers in that order.

Reliance Industries clocked the highest turnover of Rs 342.72 crore on BSE. Unitech (Rs 247.84 crore), Tata Steel (Rs 197.77 crore), Reliance Infrastructure (Rs 183.02 crore), Educomp Solutions (Rs 182.54 crore) were the other turnover toppers in that order.