Small-cap, mid-cap indices outperform Sensex indices

Buoyant industrial production data, a new Direct Taxes Code providing a simple tax structure for better compliance, and optimistic comments from the US Federal Reserve on the US economy lifted the key benchmark indices in the week ended Friday, 14 August 2009. The rise was despite the key indices sliding in in 3 out of 5 trading sessions in the week. Small and mid-cap shares outperformed the Sensex.

The BSE Sensex rose 251.39 points or 1.66% to 15,411.63 in the week ended 14 August 2009. The S&P CNX Nifty gained 98.65 points or 2.20% to 4580.05 in the week.

The BSE Mid-Cap index jumped 170.56 points or 3.14% to 5,603.81 and the BSE Small-Cap index rose 218.80 points or 3.53% to 6,412.56

India's industrial production expanded 7.8% in June 2009, adding to signs that the economy has been spared from the worst of the global recession and is well on its way to a turnaround. Data released by the government on 12 August 2009, showed that industrial growth was higher than the 5.45% seen in June 2008.

Industrial output expanded at its fastest pace in 16 months in June 2009, beating forecasts by a wide margin, as higher salaries of government employees and stimulus spending boosted consumer demand. The growth was much higher than a revised 2.2% growth in May 2009. The growth in industrial production for May 2009 was revised downwards to 2.2% from 2.7%. Planning commission deputy chairman Montek Singh Ahluwalia said positive trend in industrial output will continue.

The government after trading hours on 12 August 2009, released a brand new Direct Taxes Code that will replace the 1961 Income Tax Act and other direct tax laws, providing a simple tax structure for better compliance. The draft direct tax code proposes a reduction in corporate tax rate to 25% from 30% now. It has also proposed a reduction in taxes on individuals.

The new tax code proposes to phase out profit-linked exemptions for companies and replace them with investment-linked incentives. Business losses will be allowed to be carried forward indefinitely, while rules for capital gains and mergers and acquisitions will be rationalised, according to the draft plan.

The code proposes abolition of STT, which is now levied on purchase of shares and bonds. However, investors will have to pay a capital gains tax on profits earned by them on investments irrespective of the tenure of investments. In other words, there is no distinction between short term and long term capital gains, though gains realised after one year will be eligible for indexation benefits. Currently, short-term capital gains on sale of shares are taxed at 15% and there is no long-term capital gains tax on sale of shares sold after one year. The government is hoping to implement the new code from 2011.

The US Federal Reserve kept interest rates at near zero at its two-day meet that ended on 12 August 2009. The central bank in a statement said US economic activity was leveling out and the financial sector had continued to improve in the last few weeks. The Fed kept its benchmark federal funds rate at a 0-0.25% range and pledged to keep rates low 'for an extended period'.

Foreign funds, which were the key drivers of the recent rally, turned sellers in August 2009 after remaining net buyers in previous five months. FII outflow in August 2009 totaled Rs 522.90 crore (till 12 August 2009). FII inflow in calendar year 2009 totaled Rs 35,646.80 crore.

The monsoon situation remains grim with the country heading into the worst drought year over the last two decades. Monsoon was 56% below normal in week to 12 August 2009 and was 72% below normal in the soyabean growing central region in past one week, India Meteorological Department (IMD) said on 13 August 2009. Monsoon rains were 29% below normal during the period from 1 June 2009 to 12 August 2009.

The progress of monsoon is closely watched as more than two-thirds of the people live in villages and 60% of the farm land depends on the annual rains.

Equities have risen sharply this year on the back of heavy buying by foreign funds. The Sensex is up 5764.32 points or 59.75% in calendar year 2009 as on 14 August 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 7,251.23 points or 88.85% as on 14 August 2009.

Trading for the week began on a subdued note. The BSE 30-share Sensex fell 150.47 points or 0.99% at 15,009.77 on Monday, 10 August 2009 on fears scanty rains may hamper a nascent revival in the domestic economy. The S&P CNX Nifty fell 43.75 points or 0.98% to 4,437.65.

Key benchmark indices advanced on Tuesday, 11 August 2009, snapping a three-day falling trend, on bargain hunting in auto stocks. Volatility was high with the barometer index BSE Sensex moving in and out of the psychological 15,000 mark during the day's trade. The Sensex rose 64.82 points or 0.43% at 15,074.59. The S&P CNX Nifty rose 33.70 points or 0.76% to 4,471.35.

Selling pressure by foreign funds weighed on the bourses on Wednesday, 12 August 2009, offsetting a stronger-than-expected domestic industrial production data for June 2009. The BSE 30-share Sensex slipped 54.43 points or 0.36% at 15,020.16 and the S&P CNX Nifty declined 13.85 points or 0.31% to 4,457.50.

Markets rallied on Thursday, 13 August 2009 as strong global cues coupled with a draft direct tax code which proposed to reduce tax rates on individuals and corporates and scrapping of the Securities Transaction Tax (STT), lifted sentiment. The BSE 30-share Sensex jumped 498.33 points or 3.32% at 15,518.49 and the S&P CNX Nifty was up 147.50 points or 3.31% to 4,605.

Profit taking after Thursday (13 August 2009)'s sharp rally pulled market lower on Friday, 14 August 2009. The BSE 30-share Sensex shed 106.86 points or 0.69% at 15,411.63 and the S&P CNX Nifty was down 24.95 points or 0.54% to 4,580.05.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) rose 1.92% to Rs 2034.30 in the week. The company found natural gas reserves in a well drilled on its NEC-25 block in Mahanadi basin, off the Orissa coast, the company's junior partner Niko Resources of Canada said on Friday, 14 August 2009.

Meanwhile, weeks after Anil Ambani, Chairman of Reliance Natural Resources (RNRL) unleashed a scathing attack against his elder brother and Chairman of petrochemical major Reliance Industries (RIL), on the issue of supply of gas from the Krishna Godavari basin (KG basin) by RIL to RNRL, the Mukesh Ambani group on 7 August 2009, rejected all the allegations as baseless and malafide.

The Ambani brothers have been at loggerheads since the death of their father in 2002, and a 2005 settlement saw the Reliance group split into two. The dispute between Reliance Industries and Reliance Natural Resources (RNRL) is centred around the price and supply of gas from KG basin operating by RIL to RNRL for the power plants of Anil Dhirubhai Ambani group.

Auto stocks were mixed as robust July 2009 sales were offset by poor monsoon. Tata Motors (up 12.62%), and Maruti Suzuki India (up 4.26%), gained. But Mahindra & Mahindra (down 5.45%), Bajaj Auto (down 4.55%), Hero Honda Motors (down 0.21%), declined.

IT stocks rose as better than expected US jobs data underpinned hopes for a recovery in the world's largest economy. India IT companies derive a lion's share of revenues from exports to the US.

India's largest IT exporter by sales TCS rose 2.43%. The company recently bagged an order from multi-brand discount chain The Loot. TCS will manage the back-end and software support system for the retail chain.

India's third largest IT exporter by sales Wipro rose 2.25%. The company on 5 August 2009 said it has entered a five-year contract with US apparel retailer Charming Shoppes Inc. to provide information technology services.

India's second largest IT exporter by sales Infosys fell 0.10%. The company recently signed an agreement with BanColombia SA for its Finacle software to be used by the Colombian bank and its overseas units.

The US jobs report showed on 7 August 2009 that 2,47,000 jobs were cut from non-farm payrolls last month, which was less than the 320,000 expected. The unemployment rate eased for the first time since April 2009 at 9.4%

India's largest mobile services provider by sales Bharti Airtel gained 6.29%. The Securities Appellate Tribunal (SAT) on 11 August 2009 adjourned till 28 August 2009 the hearing on an appeal seeking greater clarity on a Securities & Exchange Board of India (Sebi) order, which exempts South Africa's MTN from making an open offer to shareholders of Bharti, if a merger deal between two telecom companies materialises.

On seeking guidelines on the proposed merger with MTN, Sebi in an order dated 22 June 2009 had said that telecom giant MTN need not make an open offer to Bharti shareholders in India as its stake in the domestic mobile company would be through the Global Depository Receipts (GDRs). The appeal was filed by a shareholder Deepak Mehra, who holds around 200 shares, arguing that MTN has to make an open offer to Bharti shareholders.

Metal shares rose on firm prices on the London Metal Exchange. Hindalco Industries (up 6.81%), National Aluminum Company (up 0.51%), JSW Steel (up 4.94%), rose. China is the world's largest consumer of copper and aluminum.

India's largest steel maker by sales Tata Steel rose 2.97% on reports the company plans to raise Rs 5000 crore through issue of securities and is seeking shareholder approval for the fund raising. The funds will be used for capital expenditure, the repayment of debt, acquisitions and working capital.

India's largest copper maker by sales Sterlite Industries gained 5.33% after the company said it has revised its offer to acquire Asarco, reducing the value of a copper price participation deal to $208 million, from a previous level of $770 million. The company will also offer $1.59 billion in cash. The consideration was changed to reflect an increase in copper prices and to meet the expectations of creditors, the firm said

Sterlite and Grupo Mexico are facing off in a Texan court in the final stage of a year-long tussle for acquiring the US based copper miner, which sought court protection in 2005 amid a worker strike and more than $1 billion of environmental damage and asbestos claims.

Rate sensitive realty rose on hopes the government's thrust on housing sector in the Union Budget 2009-2010 may help extend recovery in housing demand witnessed in the past few months. Omaxe (up 2.56%), Indiabulls Real Estate (up 3.34%), Anant Raj Industries (up 17.89%), gained

Unitech jumped rose 8.03% after index compiler MSCI added the stock in the MSCI Emerging Markets Index.

India's largest engineering and construction firm by sales Larsen & Toubro (L&T) rose 1.42% after a joint venture of the company bagged a Rs 4000-crore equipment order. The announcement was made on Wednesday, 12 August 2009.

Banks stocks gains as a recovery in the economy may boost lending growth. India's largest private sector bank by net profit ICICI Bank rose 0.83%. India's biggest commercial bank in terms of branch network State Bank of India (SBI) gained 3.19%. India's second largest private sector bank by net profit HDFC Bank rose 2.47%.

India's largest dedicated home loan lender HDFC fell 2.83% after firm reduced home loan rates by 50 basis points to 9% in the Rs 30 lakh to Rs 50 lakh segment for new loans on 13 August 2009.

Companies making oseltamivir (Tamiflu) rose following the spread of the deadly swine flu in India. Ranbaxy Laboratories (up 13.49%), Natco Pharma (up 38.04%), Cipla (up 3.37%), and Strides Arcolabs (up 7.30%), edged higher

Raj Oil Mills settled at Rs 119.30 a discount of 0.58% over its offer price of Rs 120 on its debut on 12 August 2009.

The NHPC initial public offer ended on 12 August 2009 with robust investors response. The IPO was subscribed 23.74 times.