Market gains for the third day in a row ahead of Union budget

Key benchmark indices rose for the third day in a row after the Railway Minister Ms Mamta Banerjee today announced a number of new initiatives in the 2009-2010 Rail Budget including a plan to improve infrastructure facilities across a large number of railway stations. The market ignored weak global cues a day ahead of the announcement of the Union Budget 2009-2010 on Monday, 6 July 2009. The market breadth was positive after swinging between positive and negative zone in intraday trade.

The BSE Sensex has risen 419.21 points or 2.89% in the past three trading sessions from 14,493.84 on Tuesday, 30 June 2009. The progress of India's annual monsoon also aided sentiment. The Indian meteorological department today said that monsoon has covered the entire country. The quantum and distribution of rain in this crucial sowing month holds key.

The BSE 30-share Sensex rose 239.63 points or 1.63%, up close to 400 points from the day's low. Index heavyweight Reliance Industries (RIL) edged higher in volatile trade. Banking, healthcare, capital goods and power stocks rose.

Volatility was high. After a weak opening, the market soon cut losses on intraday rebound in many Asian stocks. The weak opening was due to an overnight setback in US stocks caused by dismal US job data. The recovery gathered steam when the Sensex moved into the green from red in morning trade. The market surged in early afternoon trade after the Rail Minster began her speech on rail budget.

The market slipped into the red in choppy afternoon trade after the Rail Minister announced a populist plan to issue passes for Rs 25 to the poor for a to travel up to 100 kilometre. The market bounced back later.

The Railway Minster kept freight rates and passenger pare unchanged. Improving passenger amenities is a priority area for the Indian railways and it will set up a panel to look at innovative financing for unviable projects, the Rail minister said on Friday . Ms Banerjee announced a populist plan to issue passed for Rs 25 to poor for to travel up to 100 kilometre. This is for lower income groups with salary up to Rs 1500 per month. Rail projects should not be gauged by economic viability but governed by social viability, she said.

The Railway Minister said the Railways will set up a new coach factory in public-private partnership. The railway ministry has plans to develop important stations through private-public partnership, she said The Rail Minister also said that the Raiways will put land to productive use along freight corridor. The Raiways Minister said a panel will be set up to look at utilisation of railways optic fibre network.

Ms Banerjee said private operation of freight terminals will be encouraged. She said the Railways will develop 50 stations with international level facilities and improving passenger amenities is a priority area. The Railway Minister said the Raiways will develop multi-functional complexes at railway stations.

Raiways will buy 18,000 wagons in the current financial year which could boost orders for wagon makers BEML, Titagarh Wagons and Texmaco. Monthly season ticket called Izzat at Rs 25 announced for travel up to 100 km. The Railways plan to develop multi-functional complexes with shopping malls, food stalls, medicines and variety stores in different parts of the country. The Railways will also provide infotainment services in major long-distance trains. The Raiways will introduce twelve non-stop point-to-point trains between select cities. India will provide additional budgetary support of Rs 5,000 crore to its railways in 2009/10 and its financing arm Indian Railways Finance Corporation will issue tax-free bonds, the railways minister said on Friday.

Earlier in the day, Finance Minister Pranab Mukherjee said in a written reply to parliament that price stability is high on the government agenda. Meanwhile, junior finance minister Namo Narayan Meena said the government expects to expects to raise Rs 1,854 crore ($386 million) from stake sales in two state-run firms NHPC and Oil Indiain the current financial year to March 2010. The government is also considering revival of loss making Tyre Corporation of India and CIWTC.

European stocks dropped in a volatile trade on grim US jobs data. The key benchmark indices in France and Germany were down by between 0.07% to 0.5%. UK's FTSE 100 rose 0.19%.

Asian stocks were mixed. Key benchmark indices in Japan, Taiwan, South Korea, Singapore fell by between 0.03% to 0.61%. But key benchmark indices in China, Hong Kong, and South Korea rose by between 0.14% to 0.92%. A weak US job data stoked concern the global economic recovery is faltering.

US stocks tumbled on Thursday, 2 July 2009 on disappointing jobs data. The Dow Jones plunged 223.32 points, or 2.6%, to 8,280.74. The S&P 500 index fell 26.91 points, or 2.9%, to 896.42 and the Nasdaq Composite Index fell 49.20 points, or 2.7%, to 1,796.52. US labor department said US employers cut 4,67,000 jobs in June 2009, over 100,000 more than economists had forecast. That pushed the nation's unemployment rate to 9.5% a level not seen since August 1983.

US market remains shut on Friday, 3 July 2009, on account of Independence Day.

Back home, the near-term major trigger for the stock market is the Union Budget 2009-10 on Monday, 6 July 2009. The Union Budget 2009-2010 attains significant importance in the wake of the global financial crisis.

Suggesting sweeping tax reforms, the Economic Survey released yesterday, 2 July 2009 called for a review and phasing out of surcharges, cesses and transaction taxes such as commodities transaction tax (CTT), securities transaction tax (STT) and fringe benefit tax (FBT). The survey also suggested a rationalising the dividend distribution tax (DDT) so that dividend is taxed in the hands of receiver. As per the current dispensation, a company pays tax on dividend declared to shareholders which is called dividend distribution tax. The dividend is tax-free in shareholders hand.

The Economic Survey said economy could grow around 7% in the year ending March 2010 if the US economy recovers by September 2009. It further said economy could return to 8.5-9% growth in medium terms if reforms are pursued. It said government should free diesel and petrol prices at the earliest. The report said government should take advantage of the recent low price in oil costs to free petrol and diesel prices.

The Economic Survey has called for introduction of standardized credit default swaps on exchanges subject to strict contols, introduction of exchange traded derivatives such as interest rates swaps, foreign direct investment in multi format retail starting with food retail, raising foreign equity share in insurance to 49%, rationalising dividend distribution tax and revival of disinvestment plan to generate at least Rs 25,000 crore annually. The survey has also called for reforms in petroleum, fertilizers, food subsidies to reduce leakages, ensure targeting. The survey also called for an auction of third-generation mobile phone spectrum.

It also called for implementation of a goods and services tax (GST) by April 2010 to maximise revenues and simplify the tax regime. It also called for "greater urgency" to removing hurdles to investment in infrastructure by government and the private sector. The survey said inflation is no longer a worry and called for an urgent return to the targeted fiscal deficit of 3%.

The survey said it be challenging to fund $500 billion of planned spending on roads and power plants over five years as the economic slowdown and the global financial crisis have made it difficult to raise funds.

The survey has also called for passage of pending bills on pension, insurance and forward contract reforms.

Meanwhile, corporate India appears to be in a rush to raise funds by share sales to institutional investors. GVK Power & Infrastructure's qualified institutional placement was reportedly oversubscribed. Reports also suggest that Emami has garnered Rs 310 crore through a qualified institutional placement (QIP).

Earlier, Bajaj Hindusthan (BHL) on Wednesday raised Rs 723 crore through a QIP. A number of firms announced plans this week to raise funds through shares sales to institutional investors, taking advantage of a solid surge in share prices in the past three months. Brokers expect companies to raise over $10 billion in the current financial year by way of share placements and initial public offers. But a glut in share sales by companies may keep a lid on share prices in the secondary market. On the flip side, the raising of funds will help corporates finance expansion and reduce debt. But it will result in equity dilution which the stock market normally does not like due to earnings dilution.

The BSE 30-share Sensex rose 254.56 points or 1.74% to 14,913.05. The Sensex opened 105.77 points lower at 14,552.74. The Sensex lost 158.75 points at the day's low of 14,499.74 in early trade. At the day's high of 14,945.85, the Sensex rose 287.36 points in late trade.

The S&P CNX Nifty rose 75.40 points or 1.73% to 4,424.25.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,334 shares rose as compared with 1,264 that fell. 82 shares remained unchanged.

Among the 30-member Sensex pack, 25 rose while rest fell.

The stock market has risen sharply in the past four months or so, on heavy buying by foreign funds. The BSE Sensex is up 5,265.74 points or 54.58% in calendar year 2009 as on 3 July 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 6,752.65 points or 82.74% as on 3 July 2009.

A strong global liquidity and increase in risk appetite boosted inflows after a comfortable victory for the Congress-led UPA government in parliamentary elections raised expectations of economic reforms. Foreign funds bought shares worth Rs 565.60 in first two days of July 2009. Foreign institutional investors (FIIs) bought shares worth a net Rs 3,224.70 crore in the month of June 2009 while their inflow in calendar year 2009 totaled Rs 25,109.90 crore (till 2 July 2009).

Coming back to today's trade, the BSE Mid-Cap index rose 0.83% and the BSE Small-Cap index rose 0.43%. But both the indices underperformed the Sensex.

The BSE Bankex (up 2.19%), the BSE Capital Goods index (up 1.9%), the BSE Power index (up 1.84%), the BSE Healthcare index (up 1.8%) outperformed the Sensex.

The BSE IT index (up 0.24%), the BSE FMCG index (up 0.42%), the BSE Metal index (up 0.53%), the BSE TECk index (up 0.56%), the BSE Consumer Durables index (up 0.63%), the BSE Auto index (up 0.85%), the BSE PSU index (up 0.87%), the BSE Oil & Gas index (up 0.96%), the BSE Realty index (up 1.18%) underperformed the Sensex.

India's largest private sector firm by market capitalisation Reliance Industries (RIL) rose 0.78% to Rs 2,025.85. But the stock witnessed intraday volatility. The company said on Wednesday, 1 July 2009, said it would appeal to the Supreme Court against a ruling that it should enter into a gas supply agreement with former group firm Reliance Natural Resources (RNRL).

RIL had said on Tuesday, 30 June 2009, it could not sign a gas supply agreement with Reliance Natural Resources (RNRL) as there was no clarity on government approval for the terms. RIL said it wanted the terms such as price, quantity and tenure to be subject to government approval. The Bombay High Court, in its order dated 15 June 2009, had directed that Anil Ambani's RNRL will get assured gas supply of 28 million metric standard cubic metre per day (mmscmd) of gas from RIL's Krishna-Godavari basin for 17 years at $2.34 million per metric British thermal unit (mmbtu). This is 44.28% less 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.

PSU OMCs rose for the second day in a row after the government hiked petrol and diesel prices on Wednesday, 1 July 2009. HPCL, BPCL, Indian Oil Corporation, rose by between 1.46% to 3.5%. The government on Wednesday hiked petrol price by Rs 4 per litre and diesel by Rs 2 per litre. Higher fuel prices will reduce underrecoveries at the state-run oil firms on domestic sale of petrol and diesel at a controlled price.

Power stocks rose on hopes the government may boost spending on the power sector in the budget. NTPC, Powergrid Corporation of India, Reliance Infrastructure, Reliance Power and Tata Power Company rose by between 0.94% to 3.17%.

Capital goods and infrastructure stocks rose on hopes the government may boost spending on the infrastructure sector in the budget on Monday. Siemens, Praj Industries, Thermax, Siemens, ABB, Thermax, Larsen & Toubro, Bharat Heavy Electricals rose by between 0.94% to 2.82%.

Among construction stocks, Hindustan Construction Company, Nagarjuna Construction Company, IVRCL Infrastructure & Company, rose by between 1.92% to 2.99%.

Banking stocks rose on expectations of financial sector reforms in the forthcoming budget. India's biggest bank in terms of branch network State Bank of India (SBI) rose 2.94%. The bank on Tuesday, 30 June 2009 introduced a new home loan scheme under which it offer loans up to Rs 30 lakh at fixed rates of 8% for the first year and 9% for the next two years. The bank's earlier offer of home loans at a fixed rate of 8% for the first year ended on Tuesday, 30 June 2009.

India's largest private sector bank by net profit ICICI Bank rose 3.05% even as its American depository receipt (ADR) fell 2.86% overnight. But, India's second largest private sector bank by net profit HDFC Bank rose 0.95% even as its American depository receipt (ADR) fell 2.07% overnight.

India's biggest dedicated housing finance firm by operating income Housing Development Finance Corporation (HDFC) rose 7.74% on hopes the government may increase tax soaps on housing loan in the budget.

Healthcare stocks rose after economic survey suggested a decontrol of drug prices. Cipla, Biocon, Sun Pharmaceutical Industries, Lupin, Dr Redy's Laboratories, Ranbaxy Laboratories rose by between 0.42% to 4.77%. The survey suggested removal of price controls on all drugs except on essential drugs which have less than five producers.

Fertiliser stocks rose after the economic survey called for reforms in fertilizer sector. GNFC, GSFC, National Fertiliser, Rashtriya Chemical & Fertilisers, Chambal Fertilisers & Chemicals rose by between 1.12% to 8%.

The Economic survey on Thursday suggested removal of pricing controls on fertilizers and converting subsidies to fertiliser producers into subsidies for consumers.

Jain Irrigation rose 8.15% on a likely rural focus in Union budget. The market expects government will increase its budgetary allocation to irrigation from the last year's Rs 20,000 crore which might benefit the firm.

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 0.28% even as its American depository receipt (ADR) fell 3% on Thursday.

India's largest software services exporter by sales TCS rose 0.32%. India's third largest software services exporter by sales Wipro rose 1.13%

Telecom firms were mixed after the economic survey suggested auctioning radio frequencies for the forthcoming 3G mobile services. Bharti Airtel, Idea Cellular rose by between 0.07% to 1.64%. But, India's second largest telecom player by sales Reliance Communications fell 0.24%.

The survey suggested disaggregating spectrum from telecom licence. At present, a pan-Indian telecom licence comes bundled with spectrum. For GSM services, the licence has 4.4 MHz of start-up spectrum while a CDMA operator gets 2.2 MHz of air waves. The survey also suggested that spectrum should be "traded" freely among telcom firms having licences.

FMCG stocks rose on rural focus by the government in the forthcoming budget. FMCG firms derive substantial revenue from the rural markets. United Spirits, Nestle India, Marico, Dabur India, Tata Tea, Hindustan Unilever rose by between 0.19% to 3.1%.

Metal stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange, fell 1.15% yesterday, 2 July 2009. Sterlite Industries, Hindalco Industries, Hindustan Zinc, National Aluminum Company fell by between 0.68% to 1%.

Some steel stocks rose after the Railway Minister kept the freight rates unchanged. Jindal Steel, Steel Authority of India, Tata Steel rose by between 0.93% to 4.32%.

Cement stocks rose as there was no change in freight rates in rail budget. Ambuja Cements, Ultratech Cement, Grasim Industries and ACC rose by between 0.28% to 3.01%.

Realty stocks rose on hopes government may announce measures to stimulate demand for new homes. DLF, Indiabulls Real Estate and Unitech rose by between 0.37% to 1.83%.

Real estate firms had recently taken up QIP route to meet their working capital and debt requirements faced by liquidity crunch due to sharp slump in demand for new homes.

Shares of three train wagon makers fell even after the Railways announced a plan to buy 18,000 wagons in the current fiscal that ends in March 2010. BEML and Titagarh Wagons fell by between 4.98% to 5 %.

Texmaco was locked at lower circuit limit of 5% at Rs 114.45 on reports the company is not looking at making double-decker air-conditioned coaches immediately.

Reliance Natural Resources clocked the highest volume of 2.26 crore shares on BSE. Suzlon Energy (1.49 crore shares), Ispat Industries (1.33 crore shares), Sanraa Media (1.09 crore shares) and Satyam Computer Services (1.07 crore shares) were the other volume toppers in that order.

Educomp Solutions clocked the highest turnover of Rs 385.81 crore on BSE. Tata Steel (Rs 290.89 crore), Reliance Industries (Rs 220.96 crore), Reliance Natural Resources (Rs 195.94 crore) and Suzlon Energy (Rs 159.63 crore) were the other turnover toppers in that order.