Tax reforms, economic data boost bourses

The key benchmark indices soared as proposed a surge in industrial production in June 2009 reinforced expectations that the economy is recovering. A draft direct tax code which proposes to reduce tax rates on individuals and corporates and scrapping of the Securities Transaction Tax (STT), also boosted sentiment. The rally on the domestic bourses was also a part of rally across global stocks triggered by signs of a revival in the global economy and the US Federal Reserve's decision on Wednesday, 12 August 2009, to keep interest rates low for a prolonged period.

Interest rate sensitive, banking, realty, and auto stocks galloped as headline inflation remained in the negative zone for the ninth week in a row. Metal stocks valued on firm global metal prices. Oil & gas stocks rose as crude advanced. The BSE 30-share Sensex jumped 498.33 points or 3.32%.

The market breadth, indicating the overall health of the market, was strong. All the 30 stocks from Sensex pack were in green. All the sectoral indices on BSE were in the positive zone.

A bout of intraday volatility was witnessed. The Sensex opened with an upward gap after the US Federal Reserve on Wednesday said US interest rates will remain low even as the US central bank was more optimistic about the economic outlook. The market extended gains in early afernoon trade. The market pared gains before hitting a fresh intraday high in afternoon trade. Profit taking pulled the market off the higher level later. The market surged sharply in mid-afternoon trade after a consolidation in afternoon trade. It extended gains in late trade.

Inflation based on the wholesale price index declined 1.74% in the year through 1 August 2009, after falling 1.58% in the previous week, data released by the government in early afternoon today showed. However, the decline in headline inflation is only due to a statistical effect caused by sharply higher prices a year earlier and consumer price inflation remains high. The government revised upwards inflation for the week ended 6 June 2009 to a fall of 1.01% from earlier 1.61% decline.

Bulls, nonetheless, took heart from the robust industrial production data. In sharp contrast to the gloom in the farm sector, India's industrial output expanded 7.8% in June 2009, at the fastest pace in 16 months, beating forecasts by a wide margin, data released by the government during trading hours on Wednesday, 12 August 2009, showed. Stocks had witnessed a strong intraday rebound that. The strong growth in industrial production may help offset the impact of deficient rains.

Global rating agency Standard & Poor's (S&P) during trading hours today, 13 August 2009, said India's economy will continue to grow despite global downturn on the back of strong domestic demand. S&P said the potential threats to growth include revival of inflation, high interest rates and persistent global sluggishness.

India's monsoon rainfall deficit has widened further, increasing the risk of crop damage. Monsoon was 56% below normal in week to 12 August 2009 and was 72% below normal in soya bean growing central region in past one week, India Meteorological Department said on Thursday. Monsoon rains were 29% below normal during the period from 1 June 2009 to 12 August 2009. India relies on rain for 60% of its irrigation and on agriculture for 17% of its economy. The weather office chief Ajit Tyagi today told a television channel that the situation was grim and low rainfall would hurt winter-sown crops as well.

Further, foreign trade data continues to show a gloomy picture. India's imports declined by 37% in July 2009 to $18.31 billion compared to $29 billion in July 2008 while exports dropped by 26.6% to $12.53 billion compared to $17 billion in July 2008.

Meanwhile, the draft direct tax code released by the government after trading hours on Wednesday, has proposed a reduction in corporate tax rate to 25% from 30% now. It also 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.

European shares edged higher on Thursday, with sentiment improving after the Federal Reserve said the US economy was showing signs of leveling out and data showed German and French GDP rose in the second quarter. The key benchmark indices in France, Germany and UK were up by between 1.17% to 1.74%.

German and French economies unexpectedly grew in the second quarter, bringing an end to their worst recessions since World War II. Gross domestic product rose a seasonally adjusted 0.3% from the first quarter, Germany's Federal Statistics Office in Wiesbaden said today. The French economy also expanded 0.3%, Finance Minister Christine Lagarde said.

Asian stocks rose today after the US Federal Reserve said the recession is easing and pledged to keep interest rates low. The key benchmark indices in Hong Kong, Japan, Singapore and Taiwan rose by between 0.79% to 2.08%. Chinese stocks reversed losses and rose 0.89%.

Trading in US index futures indicated the Dow could rise 101 points at the opening bell today, 13 August 2009.

US markets rallied on Wednesday, 12 August 2009 on the back of an improved outlook from the Fed and an encouraging housing report. The Federal Reserve kept its benchmark short-term interest rates steady near zero as expected and said it would likely stay there for an extended period. The Fed said it will extend to the end of October a program to buy longer-term government securities.

The Dow jumped 120.16 points, or 1.3%, to 9,361.61. The S&P 500 index added 11.46 points, or 1.2%, to 1,005.81, while the Nasdaq Composite Index gained 28.99 points, or 1.5%, to 1,998.72.

The Fed said that the economic activity is leveling out and conditions in financial markets have improved further in recent weeks. But the Fed warned at the same time that economic activity is likely to remain weak for some time. It also said household spending, while stabilizing, is still weak as a result of the grim labor market and tight credit.

Closer home, concerns about the spread of swine flu remain. The government cracked down on price gouging and hoarding of face masks and flu drugs on Wednesday as the toll from Swine flu climbed to 17. In Mumbai, India's financial hub, schools and colleges were closed for a week and cinema halls shut for three days. The health ministry has asked states to set up more screening centres and prod private hospitals to help cope with large numbers of people demanding tests.

The BSE 30-share Sensex jumped 498.33 points or 3.32% at 15,518.49. The Sensex surged 524.97 points to the day's high of 15,545.13 in late trade. At the day's low of 15,207.96, the Sensex rose 187.80 points in early trade.

The S&P CNX Nifty was up 147.50 points or 3.31% to 4,605. Nifty August 2009 futures were at 4621.05 at a premium of 16.05 points as compared to the spot closing of 4605. Turnover in NSE's futures & options (F&O) segment was Rs 65,552.20 crore, lower than Rs 73,347.15 crore on Wednesday, 12 August 2009.

BSE clocked a turnover of Rs 6077 crore, higher than Rs 5917.26 crore on Wednesday, 12 August 2009.

The market breadth, indicating the overall health of the market, was very strong. On BSE, 2211 shares advanced as compared with 515 that declined. 61 shares remained unchanged.

Equities have risen sharply this year on the back of heavy buying by foreign funds. The Sensex is up 5871.18 points or 60.85% in calendar year 2009 as on 13 August 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 7,358.09 points or 90.16% as on 13 August 2009. FII inflow in calendar year 2009 totaled Rs 35,745.10 crore (till 11 August 2009) as per data from the Securities & Exchange Board of India (Sebi)

Coming back to today's trade, the BSE Mid-Cap index was up 3.59% and the BSE Small-Cap index was up 4.11%. Both the indices outperformed the Sensex.

The BSE Realty index (up 6.86%), the BSE Metal index (up 5.57%), the BSE Auto index (up 4.41%), the BSE Bankex (up 4.41%), the BSE Capital Goods index (up 4.2%), the BSE FMCG index (up 3.94%), outperformed the Sensex.

The BSE IT index (up 1.65%), the BSE Healthcare index (up 1.68%), the BSE Oil & Gas index (up 1.88%), the BSE Teck index (up 2.03%), the BSE Consumer Durables index (up 2.64%), the BSE Power index (up 2.76%), the BSE PSU index (up 2.98%), underperformed the Sensex.

All the 30 stocks from Sensex pack rose. India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) rose 1.59% to Rs 2,023.45. Reliance Industries has reportedly pulled out of a consortium led by Oil and Natural Gas Corporation (ONGC) which has formally bid for a 40% stake in an oil field in Venezuela, leaving the state-run company to find another partner to bid for the foreign oil block.

RIL recently filed a caveat in the Supreme Court, seeking to be heard before it considers any petition by National Thermal Power Corporation (NTPC). RIL had bid to supply gas to NTPC's projects for 17 years at $2.34 per mmbtu. But RIL did not sign the contract and the matter is pending in Bombay High Court for resolution. NTPC is expected to file a petition challenging last month's order of the Bombay High Court that allowed RIL to amend its plea in its dispute with NTPC.

A dispute between Reliance Industries and Reliance Natural Resources on gas sales is now before the Supreme Court. Cross-appeals between RIL and RNRL, will come up for hearing before the Supreme Court on 1 September 2009.

Oil exploration stocks rose as crude oil futures ended higher for the first time in four sessions on Wednesday. Cairn India rose 1.79%. As per reports, the company is likely to start crude production from its Rajasthan oil fields later this month. The company has already reached pricing agreements for the crude with principal buyers, Indian Oil Corp and Mangalore Refinery and Petrochemicals.

India's largest state-run oil exploration firm by sales ONGC rose 2.99%. Crude rose 71 cents, or 1.02 at $70.16 a barrel on the New York Mercantile Exchange on Wednesday. Rise in crude oil prices would result in higher realizations from crude sales for oil exploration firms.

Auto stocks rose on bargain hunting after a recent steep fall triggered by concerns arising from scanty rains. Auto firms derive substantial revenue from rural India. Mahindra & Mahindra, Maruti Suzuki India, Hero Honda Motors, TVS Motor Company, rose by between 2.1% to 7.06%.

India's largest commercial vehicle maker by sales Tata Motors rose 5.86%. As per recent reports, the automaker has almost finalized short term funding for its two British luxury brands without the loan guarantee from the UK government.

Realty shares rose as 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. Phoenix Mills, Ackruti City, Omaxe, Indiabulls Real Estate, Ansal Properties, DLF rose by between 2.9% to 8.4%.

Unitech jumped rose 7.07% after index compiler MSCI added the stock in the MSCI Emerging Markets Index.

Metal shares rose after LMEX, a gauge of six metals traded on the London Metal Exchange, rose 2.38% on Wednesday, 12 August 2009. Steel Authority of India, Hindalco Industries, Hindustan Zinc, JSW Steel, Sterlite Industries rose by between 3.97% to 7.69%.

India's second largest aluminum producer by sales National Aluminium Company jumped 3.89% after the company raised aluminium prices for the second time this month following a rise in international prices of the metal.

Bank stocks rose on fall in headline inflation and on firm American depository receipts (ADR) on Wednesday. India's largest private sector bank by net profit ICICI Bank rose 6.53% as its ADR rose 3.78% on Wednesday.

India's second largest private sector bank by net profit HDFC Bank rose 1.65% as its ADR rose 1.83% on Wednesday.

India's biggest commercial bank in terms of branch network State Bank of India (SBI) rose 5.68%. Among other PSU banks, Bank of Baroda, Punjab National Bank, Bank of India, rose by between 0.07% to 4.12%

Construction, capital goods and cement shares rose as higher government spending on infrastructure sector in 2009-2010 to a provide a stimulus to the economy, may result in increase order flow for construction and capital goods firms and may help boost cement demand. Among construction shares, IVRCL Infrastructure & Projects, Era Infra Engineering, Hindustan Construction Company, Gayatri Projects, Nagarjuna Construction Company rose by between 3.33% to 5%.

Bidding is expected to start soon on 139 road projects covering 14,395 kilometres at a cost of about US$ 21 billion.

India's largest engineering and construction firm by sales Larsen & Toubro (L&T) rose 5.2% after a joint venture of the company bagged a Rs 4000-crore equipment order. The announcement was made on Wednesday.

Other capital goods stocks, Bharat Heavy Electricals, BEML, Thermax, ABB, Praj Industries rose by between 0.28% to 4.21%.

From the cement pack, UltraTech Cement, Grasim Industries, ACC, Ambuja Cements, rose by between 1.16% to 4.66%.

Power stocks rose as the NHPC IPO received robust investor response. The IPO which ended on Wednesday, was subscribed 23.74 times. Reliance Infrastructure, NTPC, Reliance Power, PowerGrid Corporation of India, Tata Power Company, CESC and GVK Power & Infrastructure, rose by between 1.42% to 6.72%.

Sun Pharmaceutical Industries rose 0.37% after the company recently got USFDA approvals for generic versions of Eloxatin and Imtrex.

India's largest drugmaker by sales Ranbaxy Laboratories rose 1.83% after company on Wednesday said it had entered the protein foods market with the launch of the Revitalite brand.

Other healthcare stocks, Wockhardt, Cipla, Glaxosmithkline Pharma, Pfizer, Sterling Biotech rose by between 0.51% to 8.23%.

India's largest mobile services provider by sales Bharti Airtel gained for the third straight day rising, 1.96%. The Securities Appellate Tribunal (SAT) on Tuesday 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.

India's second largest mobile services provider by sales Reliance Communications rose 3.18%. The company on Wednesday said it has tied-up with US-based Kodiak Networks for a nationwide roll-out of mobile conferencing service

FMCG stocks rose on bargain hunting after a recent slide triggered by concerns over scanty rains. FMCG firms derive substantial revenue from rural markets. Tata Tea, Dabur India, Nestle India, MArico, ITC, Hindustan Uniliver and United Spirits, rose by between 0.91% to 5.23%.

Airline stocks rose after aviation minister Praful Patel sad government will form a group of ministers (GoM) to look into airline industry's woes. Jet Airways, Kingfisher Airlines and SpiceJet rose by between 3.91% to 10.72%.

He further said the GoM will look into the ATF price issue. He said the industry is likely to grow 8.5% per year till 2015.

Sugar, tea and rice stocks rose as weak monsoon may further boost commodity prices which are already rising. From the sugar pack, Shree Renuka Sugars, Balrampur Chini Mills and Bajaj Hindustan rose by between 1.24% to 4.96%.

Tea stocks, Mcleod Russell, Asian Tea, Assam Tea Company, rose by between 1.97% to 6.53%.

Rice stocks, Kohinoor Foods and KRBL rose by between 6.33% to 9.93%.

Firstsource Solutions clocked highest volume of 2.55 crore shares on BSE. Cals Refineries (2.25 crore shares), Ispat Industries (1.72 crore shares), Unitech (1.66 crore shares) and Suzlon Energy (1.36 crore shares) were the other volume toppers in that order.

Housing Development & Infrastructure (Rs 273.50 crore), Tata Steel (Rs 169.67 crore), Reliance Industries (Rs 168.75 crore), DLF (Rs 162.01 crore) and Unitech (Rs 157.15 crore) were the other turnover toppers in that order.