Market extends gains as Fed pledges to hold rates at record-lows

The key benchmark indices reversed steep intraday losses and ended firm after the US Federal Reserve on Wednesday, 4 November 2009, promised again to keep interest rates exceptionally low for an extended period because it expects only a weak recovery. Metal, realty, auto and telecom stocks led the rally. The BSE 30-share Sensex rose 151.77 points or 0.95%, up close to 500 points from the day's low. The Sensex had jumped 3.29% on Wednesday.

The Sensex today, 5 November 2009, regained the psychological 16,000 mark. Index heavyweight Reliance Industries jumped. Another index heavyweight ICICI Bank also gained. The market breadth was strong.

Intraday volatility was immense. The market drifted lower in early trade on weak Asian stocks. The market cut losses in mid-morning trade. However, the intraday recovery proved short-lived. The market tumbled to a fresh intraday low in early afternoon trade. The market soon cut losses. The market weakened again later before cutting losses. A sharp rally was witnessed in mid-afternoon trade. But the market soon lost ground. The market surged to hit a fresh intraday high in late trade.

With short-term interest rates very low, global traders have turned to borrowing funds cheaply in the US and then reinvesting the proceeds in equities and commodities, looking to lock in higher returns and benefiting from further erosion in the dollar. There has been a solid surge in inflows in emerging markets equity funds this year.

These so called US dollar carry trades have kept putting pressure on the dollar as investors short the currency to invest elsewhere.

Meanwhile, the Union Cabinet today decided that there should be at least 10% public holding in all profitable state-run firms. The Cabinet also decided that all the unlisted, but profitable state-run enterprises, must be quoted and traded on the stock exchanges. The decision means there will a deluge of public offerings by state-run firms over the next few years.

Union Home Minister P Chidambaram said there were a large number of central undertakings identified by the Department of Disinvestment for sale of equity. In another major decision taken on Thursday, the government decided that proceeds from the divestment of equity in state-run firms can be directly used for capital expenditure on social sector programmes, rather than routing it through the National Investment Fund. Out of 419 public sector firms under the central government, 51 are listed.

Chidambaram said to qualify for divestment and listing, a state-run company should have a positive net worth, no accumulated losses and have made net profits for the past three consecutive years. On the decision to use proceeds from divestment directly, the home minister said this was on a special dispensation for the next three years and restricted to programmes identified by the Planning Commission and accepted by the government. Thus far, proceeds from divestment went to the National Investment Fund that has a corpus of over Rs.2,000 crore.

Meanwhile, the government has raised the price it will pay to farmers to buy new season wheat to Rs 1,100 per 100 kilogram, Chidambaran said on Thursday. The government paid farmers Rs 1,080 per 100 kg for the 2009 harvest.

The finance ministry today said it is reviewing existing tax laws including that on saving schemes, capital gains of non-residents and tax agreements with various nations. The tax authorities are also considering changes in rules on the Minimum Alternate Tax (MAT) based on gross assets, taxation of foreign companies operating in India, charitable firms and house property, it said. The government is also considering scraping exemptions on saving schemes and taxing them at the time of withdrawal.

On the basis of interactions with the stakeholders, the government has identified nine critical areas for further detailed examination.

The government's income tax receipts rose 2.9% to Rs 63,195 crore in April-October 2009 while April-October corporate tax receipts rose 4.6% to Rs 110000 crore. Direct tax receipts rose 3.9% to Rs 173000 crore

The government said today it will release monthly wholesale price index (WPI) for October 2009 on 12 November 2009 and there will be no more weekly headline inflation data. It said food article index rose 13.39% and the primary articles index rose 8.94% in the year to 24 October 2009. The fuel price index fell 6.2%

Planning Commission Deputy Chairman Montek Singh Ahluwalia on Wednesday said the government would push for reforms in the financial sector but said such a move would not jeopardise India's growth prospects. He also said food price inflation was a concern but it should moderate by the end of this year. Ahluwalia said the country would miss a target of 9% annual growth between 2007/08 and 2011/12 as the global slump and the weakest monsoon in four decades hit output. The planning commission plans to reset the target.

The economy is expected to expand by 6.3% in the year to March 2010, the Planning Commission said in a report on Wednesday. The plan panel expects wholesale price inflation to go beyond 4-5% by end of March 2010.

Earlier, Finance Minister Pranab Mukherjee said on Tuesday, 3 October 2009 that the government has to continue with its fiscal stimulus and is confident of attaining it medium-term fiscal targets. He said non-farm credit growth remained an area of concern and said banks have been told to enhance credit growth.

Comments by the Finance Minister on Tuesday that there are no immediate plans to place curbs on capital inflows, send equities surging on Wednesday, 4 November 2009. His comments have put to rest speculation of government clamping capital controls after a deluge of foreign portfolio inflows this year. Brazil, another emerging economy, had last month slapped a 2% tax on foreign investments into equities and fixed income instruments.

The Reserve Bank of India at its monetary policy review, on 27 October 2009, left its key rates unchanged, but raised the wholesale price-based inflation projection for end-March 2010 sharply to 6.5% with an upward bias, from 5 % earlier.

Meanwhile, the finance ministry has reportedly firmed up details of its budget announcement that listed companies will have to achieve at least 25% public holding in a phased manner, opening up the possibility of a plethora of equity offerings from such firms. Beginning 1 April 2010, those companies falling short of the set target would have to divest at least 5% stake within a year and a similar amount in the following year till they reach the threshold prescribed, reports suggest.

The HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to a 13-month peak of 56.78 in October 2009 after having dropped to a three-month low of 54.37 in September 2009. The index has been above 50, which separates expansion from contraction, for six months. Before that, it shrank for six months, hitting a trough of 40.3 in February 2009.

The business expectations sub-index recorded its fastest expansion since March 2008, at 79.47 in October 2009, compared with 74.82 in September 2009. Better market conditions, promotional strategies and good reputations were the main reasons for the increased confidence, the survey said

Rising crude oil costs have raised India's subsidy burden but the government has not taken any decision to revise state-set fuel prices, Oil Secretary R.S. Pandey said on Wednesday

European shares edged lower on Thursday, with banks and commodity stocks the biggest losers. The key benchmark indices in France, Germany and UK were down by between 0.43% to 0.59%.

At a regular policy meeting, the Bank of England (BoE) today, 5 November 2009, decided to expand its quantitative easing program by 25 billion pounds. Some in the market had expected an even bigger expansion of the program that buys up gilts and other assets. The BoE kept interest rates in the UK at a record low of 0.5%.

The European Central Bank (ECB) also holds a regular meeting later in the day on interest rates. Market watchers expect the ECB to keep rates at a record low 1% at its meeting, though they will be keeping a close eye on any clues to exit strategies.

UK new car registrations rose 31.6% in October 2009 to 168,942 units, the Society of Motor Manufacturers and Traders said Thursday.

British manufacturing and industrial output jumped more than expected in September 2009, government data showed Thursday. Manufacturing output saw a 1.7% monthly rise, while falling 9.3% from the year-ago level. Economists had forecast a 1% monthly rise and a 9.7% year-on-year decline. Industrial production saw a 1.6% monthly rise and a 10.3% year-on-year decline. Economists had expected a 1.3% monthly rise and a 10.2% annual fall.

Asian stocks fell on Thursday weighed by Wall Street's weak finish overnight and as the US Federal Reserve's policy statement provided few fresh cues. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 0.63% to 1.75%. But China's Shanghai Composite rose 0.85%.

The Federal Open Market Committee left its target interest rate unchanged and maintained its language suggesting ultra-low rates would be maintained for an extended period. The result was widely expected. Earlier, some investors were worried the Fed's language would be more hawkish.

Trading in US index futures indicated Dow could fall 5 points at the opening bell on Thursday, 5 November 2009.

In US on Wednesday, the Dow Jones Industrial Average lost most of its intraday gains in the last half hour of trade and closed up just 0.2%. Stocks had opened higher earlier in the day as investors cheered some encouraging readings on the economy.

The Dow rose 30.23 points, or 0.3%, to 9,802.14. The S&P 500 index rose 1.09 points, or 0.1%, to 1,046.50. The Nasdaq Composite Index fell 1.80 points, or 0.1%, to 2,055.52.

The Fed specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline. The Fed said household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

In a statement, the Fed said the US economy had continued to pick up since its last meeting in September 2009, but it expressed concern the recovery was likely to be muted. The US central bank was more explicit than it had been previously on why it expects to be able to keep rates exceptionally low for a long time, citing the slack that has built up in the economy and the lack of an inflationary threat.

In another shift, the Fed said it would buy only about $175 billion of debt issued by federal housing agencies. It had planned to buy up to $200 billion to help keep mortgage costs low. The the Fed said it curtailed purchases because the supply of the debt was scarce.

In the latest economic data from the US, the ISM on Wednesday reported its gauge of the services sector dropped to 50.6 in October from 50.9 in September. The ADP reported that fewer jobs were lost in October than in previous months. ADP only estimates private sector jobs, not government jobs

The US government releases its official October employment report on Friday, 6 November 2009. The US unemployment rate is forecast at 9.9% in October 2009, slightly higher than 9.8% in September 2009, while non-farm payrolls are forecast to fall 175,000 from a drop of 263,000. But given the strong manufacturing data for the month which was released recently, the unemployment number could be better than expected

Governments and central banks around the world have injected trillions of dollars in the past year or so to pull the world out of a most severe recession since the 1930s Great Depression.

Meanwhile, policymakers from the Group of 20 club of rich and developing nations will gather in St Andrews, Scotland, on 6-7 November 2009 to follow up on agreements made at a leaders' summit in Pittsburgh in September 2009. The Chancellor, Alistair Darling, will host the meeting, with ministers acting on agenda items set for them at the Pittsburgh summit - economic recovery and finding funds to tackle climate change.

Closer home, the supply of paper by Indian firms appear limitless, raising concerns that additional share sales will suck liquidity from the secondary equity market. As per reports, Indian firms have garnered about $9 billion (Rs 32,400 crore at the current exchange rates) through sale of shares and convertible bonds to institutional buyers since April 2009. Indian companies are taking advantage of a surge in liquidity to recapitalize and fund capital expenditure after being starved of cash last year.

The BSE 30-share Sensex rose 151.77 points or 0.95% to 16063.90. The Sensex fell 347.24 points at the day's low of 15564.89 in early afternoon trade. The Sensex rose 180.25 points at the day's high of 16092.38 in late trade.

The S&P CNX Nifty gained 54.75 points or 1.16% to 4765.55. Nifty November 2009 futures were at 4,777, at a premium of 11.45 points as compared to the spot closing of 4,765.55. Turnover in NSE's futures & options (F&O) segment surged to Rs 96,498.50 crore from Rs 72,239.34 crore on Wednesday, 4 November 2009.

BSE clocked a turnover of Rs 5950 crore, higher than Rs 5142.75 crore on Wednesday, 4 November 2009.

The market breadth, indicating the overall health of the market was strong. On BSE, 1816 shares advanced as compared with 840 that declined. A total of 74 shares remained unchanged. The breath was negative in early trade.

From the 30 share Sensex pack, 23 stocks rose and rest fell.

From a low of 15,404.94 on 3 November 2009, the Sensex has gained 658.96 points or 4.27% in the last two trading sessions to current 16063.90. The Sensex is up 6416.59 points or 66.51% in calendar year 2009, as on 5 November 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 7903.50 points or 96.85%, as on 5 November 2009.

FII inflow in October 2009 totaled Rs 8303.80 crore, till 30 October 2009. Their inflow amounted to Rs 68,441.10 crore in the calendar year 2009.

The BSE Mid-Cap index rose 2.02% and the BSE Small-cap index gained 1.82%. Both these indices outperformed the Sensex.

The BSE Metal index (up 2.93%), the BSE Realty index (up 2.58%), the BSE Power index (up 2.56%), the BSE Auto index (up 1.93%), the BSE Oil & Gas index (up 1.68%), the BSE PSU index (up 1.67%), the BSE Capital Goods index (up 1.41%), the BSE Teck index (up 1.17%) and outperformed the Sensex.

The BSE Healthcare index (up 0.93%), the BSE Bankex (up 0.91%), the BSE Consumer Durables index (up 0.39%), the BSE IT index (don 0.07%), the BSE FMCG index (down 0.08%), and underperformed the Sensex.

Energy giant Reliance Industries rose 1% to Rs 1939.80. The stock came off the day's low of Rs 1850.90. One of the judges on Wednesday withdrew from the Supreme Court hearing on gas dispute, citing potential conflict of interest. Justice B. Sudershan Reddy replaces R.V. Raveendran on the three-member bench headed by Chief Justice K.G. Balakrishnan. Raveendran stepped down yesterday saying his daughter works at a law firm that advises Mukesh Ambani's Reliance Industries.

In the previous hearing on 27 October 2009, the Supreme Court had observed that gas is a national resource owned by the Government and, therefore, subject to Government policy. The Court also asked why the brothers cannot settle the matter through arbitration or mutual consensus. The two brothers are fighting a legal battle in the apex court over division of natural gas produced by RIL from KG-D6. The Supreme Court began hearing arguments on the dispute from 20 October 2009.

The government on 27 October 2009 allocated additional 50 million cubic metres a day (mmscmd) of gas from Reliance Industries-operated east coast block D6. Power plants and refineries will get the bulk of Reliance Industries' gas from the Krishna-Godavari basin beyond the previously allotted 40 million metric standard cubic metres per day (mmscmd).

The empowered group of ministers (eGoM) also made some allotments for Reliance's petrochemical plants and refineries.

Oil exploration stocks were mixed as crude futures settled above $80 a barrel Wednesday after a surprise draw in oil inventories and as the dollar took a big step back toward lows for the year against the euro. Light, sweet crude for December 2009 delivery settled 80 cents, or 1%, higher at $80.40 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.

Cairn India rose 2.11% after the company signed a pact with Reliance Industries for supply of crude oil. India's biggest state-run oil exploration firm by revenue Oil & Natural Gas Corporation (ONGC) rose 1.88%. But, India's second biggest state-run oil exploration firm by revenue Oil India fell 0.05%.

PSU OMCs rose as crude oil declined on Thursday, snapping three-days of gains. Fall in crude oil prices will reduce under-recoveries on domestic sale of petrol, diesel, kerosene and LPG at controlled prices. HPCL, Indian Oil Corporation (IOC) and BPCL rose by between 0.26% to 1.43%.

Crude oil for December 2009 delivery fell as much as 82 cents, or 1% to $79.58 a barrel on Asian electronic trading.

Metal stocks rose as LMEX, a gauge of six metals traded on the London Metal Exchange, rose 1.59% on Wednesday, 4 November 2009. Hindalco Industries, National Aluminum Company, Hindustan Zinc and Sterlite Industries rose by between 0.41% to 5.08%.

Steel stocks reversed early losses on reports major steel producers have posted strong sales volumes for the month of October 2009. Steel Authority of India (Sail) rose 2.15%. Sail has posted 28% growth in saleable steel volumes to 0.85 million tonnes in October 2009 over October 2008.

JSW Steel rose 7.34%. JSW steel's sales doubled to 0.4 million tonnes in October 2009 over October 2009.

Among other steel stocks Bhushan Steel, Tata Steel and Jindal Steel & Power rose by between 2.4% to 5.92%.

Demand for steel remains strong auto, rural construction and infrastructure sectors. Also demand for construction grade steel has improved post monsoon season, and has resulted into higher sales. Another reason for the surge in sales in October 2009 was lower base effect, as last year demand dropped significantly owing to economic downturn. Most steel companies had cut production in October last year due to the global economic crisis and steep fall in demand.

Telecom stocks rose on reports the Department of Telecom (DoT) will seek a fast-track approval from the finance ministry to slash the annual licence fee by up to a third for telecom operators with large network presence. It will also propose to the finance ministry that all licence fee be exempted for landline services, reports suggest. Bharti Airtel, reliance Communications and Idea Cellular rose by between 4.5% to 5.34%.

Auto stocks reversed early fall on jump in sales in October 2009 . Low interest rates and attractive benefits offered by companies pushed the aggregate sales of the industry in October 2009. The auto sales figures were announced on 2 November 2009.

India's largest small car marker by sales Maruti Suzuki India rose 1.82% The company's total sales grew 32.4% to 85415 units in October 2009, compared with 64490 units posted in the same month a year ago.

India's largest tractor maker by sales Mahindra & Mahindra rose 3.56%. The company's overall sales climbed 32% in October this year to 18,410 units against 13,935 units in the same month last year.

India's largest truck marker by sales Tata Motors rose 1.09%. Its total sales grew 18% to 20,011 units last month against 17,014 units in the same period last year.

India's second largest bike marker by sales Bajaj Auto rose 1.4% The company reported 51.06% rise in total two-wheeler sales to 2,49,974 units in October 2009 as compared with 1,65,477 units in the same period a year ago.

India's largest bike marker by sales Hero Honda Motors rose 2.32%. The company reported a marginal increase in October sales at 354,156 units as against 352,449 units in the same month last year

Rate sensitive realty shares reversed early fall on bargain hunting. Unitech, Omaxe, Akruti City DLF and Indiabulls Real Estate rose by between 0.46% to 6.42%.

Realty stocks had declined sharply in the past few days after the RBI raised the provisioning requirements for loans to commercial real estate from 0.4% to 1% in its monetary policy review meet on 27 October 2009.

IT stocks fell on profit taking after a recent sharp rally triggered by better than expected Q2 results. India's largest software company by sales Tata Consultancy Services (TCS) fell 0.31%. The company recently secured a 150 million pounds software implementation contract for 15 years from Cardiff city council, UK.

India's second largest software company by sales Infosys fell 0.74% even as its ADR rose 1.56% on Wednesday. Infosys said on Thursday its chairman's wife sold company shares worth $92 million for setting up a venture capital fund.

Sudha Murthy, wife of Infosys co-founder and chief mentor N.R. Narayana Murthy, sold 20 lakh shares, or about 22 % of her total holding, on the Bombay Stock Exchange on Thursday, the company said in a filing. Last month, Narayana Murthy, who co-founded Infosys with six other software engineers in 1981 with $250, had sold a total of 800,000 shares worth $37 million to set up a venture capital fund which he plans to set up in India. The company said the Murthys have confirmed they did not plan to raise further capital for the fund.

India's third largest software company by sales Wipro rose 0.42% as its ADR rose 2.36% on Wednesday. The company said on Thursday it had agreed to buy some personal care businesses of Yardley for about $45.5 million, adding to its consumer goods business. Wipro said it had signed an agreement with UK-based Lornamead group, which owns the Yardley brand, for the businesses in Asia, the Middle East, Australasia and some African markets.

FMCG stocks rose on defensive buying. Dabur India, United Spirits, Nestle India, Hindustan Unilever, Tata Tea and Marico rose by between 0.17% to 3.75%.

Banking shares rose on bargain hunting after recent fall. India's largest private sector bank by net profit ICICI Bank rose 2.04% as its ADR rose 7.19% on Wednesday. The bank's net profit rose 2.6% to Rs 1040.13 crore on a 12.7% decline in total income to Rs 8480.73 crore in Q2 September 2009 over Q2 September 2008. The result was announced during trading hours on 30 October 2009.

India's second largest private sector bank by net profit HDFC Bank rose 0.2% as its ADR rose 4.15% on Wednesday.

But, India's largest bank by net profit State Bank of India (SBI) fell 1.14%. The bank's consolidated net profit rose 28.29% to Rs 3,133.16 crore on 22% rise in consolidated income to Rs 33,101.65 crore in Q2 September 2009 over Q2 September 2008. The results were announced on 31 October 2009.

Last week, the RBI did not relax mark-to-market rules for bank's debt holdings at a quarterly policy review on 27 October 2009. The market was been agog with talks over the past few days of the central bank hiking the ceiling on the portion of government securities that banks can park in held-to-maturity (HTM).

Another trigger for the recent pressure on banking stocks was the central banks' decision to streamline provisioning requirement on non-performing assets. The RBI, last week, asked banks to ensure by September 2010 that the total provisioning coverage against non-performing or bad loans aren't less than 70% of the outstanding amount.

Select construction shares rose on government's thrust on infrastructure. Hindustan Construction Company, Gammon India, Punj Lloyd, Jaiprakash Associates rose by between 0.05% to 5.78%.

Higher government spending on infrastructure sector in the Union Budget 2009-2010 to provide a stimulus to the economy, may result in increase order flow for construction. The government has set a target of spending $20 billion a year on road construction.

Suzlon Energy clocked the highest volume of 2.95 crore shares on BSE. IFCI (2.48 crore shares), Unitech (1.78 crore shares), Cals Refineries (1.72 crore shares) and Reliance Natural Resources (0.94 crore shares) were the other volume toppers in that order.

Infosys clocked the highest turnover of Rs 499.13 crore on BSE. Housing Development & Infrastructure (Rs 229.09 crore), State Bank of India (Rs 197.70 crore), Reliance Capital (Rs 185.74 crore) and Suzlon Energy (Rs 184.43 crore) were the other turnover toppers in that order.