ONGC surges in choppy market

The key benchmark indices ended flat in what was a choppy trading session. Fears the government may make dividend taxable in the hands of shareholders weighed on investors sentiment after the finance ministry's annual economic survey survey presented to the parliament suggested a rationalization of the dividend distribution tax.

The BSE 30-share Sensex rose 13.02 points or 0.09%, up close to 190 points from the day's low but off close to 105 points from the day's high. Weak European stocks and lower US index futures weighed on the domestic bourses. Index heavyweight Reliance Industries was weak. But ONGC surged. Metal and realty stocks rose but auto stocks fell.

Wide differences in prices of some side counters such as Sical Logistics, McNally Bharat Engineering, Subex, KEI Industries, IMP Powers in early trade on the two bourses viz. BSE and NSE today created confusion among investors. The prices of these side counters rose sharply in intraday trade on BSE due to relaxation in daily circuit filter of 5%. There was, however, no change in circuit filters in these stocks on NSE. This is unusual because as per the current policy of the two stock exchanges, any changes in daily price bands are done simultaneously by the two exchanges i.e. whenever the price band of a scrips is revised, the change takes effects on both the exchanges on the same day.

BSE later reinstated the 5% circuit filter on these stocks during market hours. It is, however, not known whether trades done at prices executed above the 5% circuit filters in these stocks on BSE will be canceled.

Currently, there are four slabs of circuit filters on individual stocks on BSE and NSE. These are 2%, 5%, 10% and 20%. No price band are applicable on scrips on which derivative products are available or scrips included in indices on which derivative products are available

Volatility was high right from the onset of the trading session on the stock market today. The key benchmark indices dropped after a positive start triggered by higher Asian markets. Concerns arising from a glut in share sales weighed on the bourses in early trade. Worries over inflation was another reason for nervousnesses in early trade after the hike in fuel price announced by the government after market hours on Wednesday, 1 July 2009. The market bounced back in mid-morning trade.

The market pared soon after surging to the fresh day's high after the presentation of the annual economic survey by the finance ministry in parliament which suggested a strong push for policy reforms. The market extended losses in afternoon trade. It cut losses later. Volatility was immense in the last one hour of trade.

Suggesting sweeping tax reforms, the Economic Survey released ahead of Monday's (6 July 2009) budget announcement for the fiscal year ending in March 2010, asked for 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 survey also 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 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, data released just ahead of the survey showed inflation declined 1.3% in 12 months to 20 June 2009 compared to fall of 1.14% in the preceding week . Inflation had dipped to negative in early June 2009 for the first time since 1977-78. But inflation for the year through 25 April 2009 was revised upwards to 1.75% from 0.7%.

The government had on Wednesday hiked petrol price by Rs 4 per litre and diesel by Rs 2 per litre.

Meanwhile, corporate India appears to be in a rush to raise funds by share sales to institutional investors. Bajaj Hindusthan (BHL) on Wednesday raised Rs 723 crore through a qualified institutional placement (QIP). A number of firms have 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.

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.

European shares were trading lower on Thursday as investors took a cautious stance ahead of the influential US non-farm payroll figures. Commodity stocks fell tracking weakness in crude and metal prices. Key benchmark indices in France, Germany and UK were down by between 0.81% to 1.57%.

Most of the Asian stocks were trading lower today, 2 July 2009. While, Key benchmark indices in Japan, Singapore, Hong Kong and South Korea fell by between 0.01% to 1.09%. The key benchmark indices in China and Taiwan rose by between 1.35% to 1.73%.

Trading in the US index futures indicated Dow could fall 56 points at the opening bell today, 2 July 2009.

US markets shut in the green but off highs yesterday, 1 June 2009 after a barrage of economic reports. The Dow gained 57.06 points, or 0.7%, to 8,504.06. The S&P 500 index rose 4.01 points, or 0.4%, to 923.33. The Nasdaq composite index was up 10.68 points, or 0.6%, to 1,845.72.

In economic news, the June 2009 ISM manufacturing index rose to 44.8 from 42.8 in May 2009, slightly higher than expected. Meanwhile, the ADP employment change report showed more than-expected job losses for June 2009 at 4,73,000 jobs.

The BSE 30-share Sensex rose 13.02 points or 0.09% to 14,658.49. The Sensex opened 48.84 points higher at 14,694.31. At the day's high of 14,764.35, the Sensex rose 118.88 points in early afternoon trade. The Sensex lost 175.78 points at the day's low of 14,469.69 in afternoon trade.

The S&P CNX Nifty gained 7.95 points or 0.18% to 4,348.85. Nifty July 2009 futures were at 4333.55, at a discount of 15.30 points as compared to the spot closing of 4348.85. Turnover in NSE's futures & options (F&O) segment was Rs 52,918.55 crore, lower than Rs 55,613.06 crore on Wednesday, 1 July 2009.

BSE clocked a turnover of Rs 5,972 crore higher than Rs 5,770.71 crore on Wednesday 1 July 2009.

The stock market has risen sharply in the past four months or so, on heavy buying by foreign funds. The BSE Sensex is up 5,011.18 points or 51.94% in calendar year 2009 as on 2 July 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 6,498.09 points or 79.62% as on 2 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 163.70 crore on 1 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 24,696.10 crore (till 1 July 2009).

Coming back to today's trade, the BSE Metal index (up 3.26%), the BSE PSU index (up 1.95%), the BSE Realty index (up 1.55%), the BSE Healthcare index (up 0.84%), the BSE Consumer Durables index (up 0.44%), the BSE Power index (up 0.28%), the BSE Oil & Gas index (up 0.12%) outperformed the Sensex.

The BSE Capital Goods index (down 1.01%), the BSE Auto index (down 0.91%), the BSE TECk index (down 0.58%), the BSE Bankex (down 0.52%), the BSE FMCG index (down 0.08%), the BSE IT index (up 0.06%), underperformed the Sensex.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,452 shares rose as compared with 1,141 that fell. 93 shares remained unchanged.

Among the 30-member Sensex pack, 15 fell while rest advanced.

India's largest private sector firm by market capitalisation Reliance Industries (RIL) fell 2.29% to Rs 2,010.15 after the company said on Wednesday, 1 July 2009, 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 as government hiked petrol and diesel prices yesterday. HPCL and IOCL rose by between 1.51% to 2.73%. BPCL fell 0.11%. Higher fuel prices will reduce underrecoveries at the state-run oil firms on domestic sale of petrol and diesel at a controlled price.

India's largest oil exploration firm by sales ONGC rose 7.02% after company's chairman and Managing Director R. S. Sharma said the company's fuel subsidy burden for the current year will be significantly lower than the previous year, if the crude prices stay around the current level. GAIL India jumped 7.85%.

The current government-controlled fuel pricing regime in India forces state-run producers such as ONGC to partially subsidise state oil marketing companies to sell products at low prices to consumers.

Metal stocks rose after LMEX, a gauge of six metals traded on the London Metal Exchange, rose 2.9% yesterday, 1 July 2009. Sterlite Industries, Hindustan Zinc, Hindalco Industries, Jindal Steel, Steel Authority of India rose by between 0.67% to 3.77%.

India's largest steel maker by sales Tata Steel rose 6.37% on reports the plans to sell global depositary receipts worth about $600 million.

Auto stocks fell on worries fuel price hike may hamper auto sales. India's top small car maker by sales Maruti Suzuki India fell 1.53%. The company's total vehicle sales rose 22.63% to Rs 75,109 units in June 2009 over June 2008. Maruti's domestic sales rose 9.5% to Rs 61,773 units, while exports soared 175.8% to Rs 13,336 units in June 2009 over June 2008. The company announced June 2009 sales figures during trading hours on Wednesday, 1 July 2009.

India's largest tractor maker by sales Mahindra & Mahindra fell 0.27% even as its domestic sales jumped 24% to 22,526 units in June 2009 over June 2008.

India's largest commercial vehicle maker by sales Tata Motors fell 1.67%. Tata Motors on Wednesday reported a 3.91% decline in its total sales to 45,399 units in June 2009 over June 2008.

India's largest bike maker by sales Hero Honda Motors slipped 0.96% despite a 23.7% surge in sales to 3,65,734 units in June 2009 over June 2008.

Healthcare stocks rose after economic survey suggested a decontrol of drug prices. Cipla, Lupin, Sun Pharmaceutical Industries, Piramal HealthCare rose by between 0.09% to 2.46%. The survey suggested removal of price controls on all drugs except on essential drugs which have less than five producers.

IT stocks fell on profit taking after recent a rally in the sector triggered by 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 fell 0.04% even as its American depository receipt (ADR) rose 1.5% on Wednesday.

India's largest software services exporter by sales TCS fell 0.56%. But, India's third largest software services exporter by sales Wipro rose 0.74% even as its ADR fell 0.85% on Wednesday.

Banking stocks edged higher in choppy trade after the economic survey said the government should allow a phased increase in the FDI limit in banks. Voting rights in banks should be aligned with equity holdings, the Survey said

India's largest private sector bank by net profit ICICI Bank rose 0.34% as its ADR gained 4.17% overnight. India's second largest private sector bank by net profit HDFC Bank rose 0.01% as its American depository receipt (ADR) rose 0.96% yesterday, 1 July 2009.

But, India's biggest bank in terms of branch network State Bank of India (SBI) fell 1.17%. 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.

Capital goods stocks fell on profit taking after the recent surge triggered by hopes the government may boost spending on the infrastructure sector. Siemens, Praj Industries, Thermax, Siemens, ABB, Larsen & Toubro, Bharat Heavy Electricals fell by between 0.28% to 3.03%.

Some cement stocks were mixed amid higher dispatches in the month just gone by. Aditya Birla group Grasim Industries rose 4.27% and another group firm UltraTech Cement rose 0.47%. The Aditya Birla Group said on Wednesday cement shipments rose 21.7% to 3.14 million tonnes in June 2009 over June 2008. The group's cement business includes flagship Grasim Industries and unit UltraTech Cement.

Jaiprakash Associates was almost unchanged at close even as cement sales rose 29% at 8.04 lakh tonnes in June 2009 over June 2008. Shree Cement cement rose 0.61% after cement sales rose 28% at 7.78 lakh tonnes in June 2009 over June 2008.

Ambuja Cements fell 0.45% even after company reported on Wednesday its shipments rose 8.2% to 1.59 million tonnes in June 2009 over June 2008.

Telecom firms were weak after the economic survey suggested auctioning radio frequencies for the forthcoming 3G mobile services. Bharti Airtel, Reliance Communications, Idea Cellular fell by between 0.01% to 2.27%.

The survey has also 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 fell on poor start for the India's annual monsoon. FMCG firms derive substantial revenue from the rural markets. REI Agro, Nestle India, United Breweries, United Spirits, Tata Tea, Hindustan Unilever fell by between 0.14% to 4.41%.

Fertiliser firms rose as economic survey called for reforms in fertilizer sector. GNFC, GSFC, National Fertiliser, Rashtriya Chemical & Fertilisers rose by between 0.12% to 6.55%.

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

Suagr stocks fell even as economic survey suggested to remove pricing controls on sugars. It also suggested converting subsidies to sugar producers into subsidies for consumers. Bajaj Hindustan, Balrampur Chini and Shree Renuka Sugars fell by between 0.73% to 2.74%.

Retail firms fell even as economic survey suggested foreign direst investment in multi format retail starting with food retail. Pantaloon Retail Vishal Retail, Shopper's Stop fell by between 1.01% to 4.95%.

Shares of companies that run insurance business fell on profit booking after they rose in intraday trade following the Economic Survey's suggestion for hiking foreign direct investment limit in the sector. Bajaj Finserv, Aditya Birla Nuvo and Reliance Capital fell by between 0.32% to 1.28%.

Shares of public sector companies rose after the Economic Survey recommended a disinvestment target of Rs 25,000 crore annually. Hindustan Copper, Power Finance Corporation, Central Bank of India, Mahanagar Telephone Nigam, Bharat Electronics, Chennai Petroleum Corporation and State Trading Corporation of India rose by between 0.13% to 6.5%.

Ispat Industries clocked the highest volume of 1.48 crore shares on BSE. Satyam Computer Services (1.47 lakh shares), Suzlon Energy (1.24 crore shares), NIIT (1.23 crore shares) and Unitech (1.17 crore shares) were the other volume toppers in that order.

Educomp Solutions clocked the highest turnover of Rs 422.09 crore on BSE. Tata Steel (Rs 264.60 crore), Reliance Capital (Rs 235.57 crore), Reliance Industries (Rs 226.56 crore) and ONGC (Rs 216.58 crore) are the other turnover toppers in that order.