Breadth strong

The key benchmark indices continued their uptrend to hit fresh intraday highs in mid-morning trade as global stocks rose. The BSE 30-share Sensex was up 230.96 points or 1.42%. Metal stocks surged on higher metal prices on the London Metal Exchange. Consumer durables, IT and banking stocks rose. Index heavyweight Reliance Industries also edged higher. The market breadth was strong. All the sectoral indices on BSE were in the green.

Asian stocks rose on Wednesday, 17 February 2010, for the sixth time in seven days on speculation the global economy is recovering as commodity prices gained. US manufacturing expanded faster than estimated and Barclays Plc more than doubled profit. The key benchmark indices in Hong Kong, Indonesia, Japan, South Korea and Singapore rose by between 0.67% to 2.51%. Stock markets in China and Taiwan were closed for the Lunar New Year holidays

Meanwhile, European ministers told Greece on Tuesday it may need to take further steps to bring a swollen debt under control and calm "irrational" financial markets, as wage cuts already announced by Athens sparked another strike. At a European Union meeting, finance ministers from Germany, Austria and Sweden led the charge, with Germany's deputy finance minister saying Greece should mimic Ireland and Latvia, both of which are slashing spending and wages savagely. Greek Finance Minister George Papaconstantinou said after a meeting of finance ministers in Brussels that there's no actual need for a bailout by the European Union.

Trading in US index futures indicated the Dow could gain 17 points at the opening bell on Wednesday, 17 February 2010.

US stocks logged their best single-session percentage advance in three months on Tuesday, 16 February 2010, as buyers returned from an extended weekend. A sharp drop in the dollar, better than expected earnings, positive data and M&A activity boosted the market. The Dow gained nearly 170 points, or 1.7%, to close at 10,268.81. It was the best point and percentage gain since 9 November, last year. The S&P 500 advanced 1.8% and the Nasdaq rose 1.4%.

Minutes from the Federal Open Market Committee's 26 and 27 January 2010 meeting are slated for release today. Policymakers had maintained their pledge to hold interest rates near zero at the time.

Closer home, Finance Minister Pranab Mukherjee said on Wednesday the economy may grow at more than 8% in the fiscal year 2010/11, after growing at around 7.5% in the current fiscal year ending March 2010.

The government's chief statistician Pronab Sen said on Tuesday the wholesale price inflation could cross 10% by end-March, depending how food prices behave in the next two weeks. He said the Reserve Bank of India (RBI) could tighten monetary policy even earlier than an April policy review. The monthly index touched a 14-month high of 8.56% in January 2010, leaping over the central bank's end-March target of 8.5%. The food articles index rose an annual 17.43% in January, near an 11-year high. The manufacturing inflation was up at 6.55% in January, in a sign that food inflation was impacting other sectors.

There are expectations that the central bank may take some monetary action at its next policy review in April 2010 as industrial output growth also picked up pace, growing 16.8% in December from a year earlier. RBI Deputy Governor Subir Gokarn said last week that no monetary action was expected before April unless there was a completely unanticipated or unwarranted event.

Sen said any hike in petrol and diesel prices, as recommended by a government panel on fuel pricing, would have more impact on the consumer price index than on wholesale price inflation. Sen said that although industrial production grew at a higher-than-expected 16.8% in December from a year ago, the government should wait for further consolidation of economic recovery before withdrawing fiscal stimulus measures. India has provided fiscal stimulus measures worth around Rs 1,86,000 crore ($40 billion) and further additional spending of about $4 billion since December 2008.

The Reserve Bank of India cannot target inflation as transmission of monetary policy is muted in the country, its governor D Subbarao said on Tuesday. He added it was difficult for monetary policy to attack supply-side driven inflation.

The high fiscal deficit is not sustainable over a long period and consolidation of public finances was needed as growth picks up, C. Rangarajan, the prime minister's economic advisory panel chairman said on Tuesday.

The next major trigger for the market is the Union Budget 2010-2011 on 26 February 2010. Among the key issues, analysts and economists expect the Finance Minister to provide a roadmap for introduction of key direct and indirect tax reforms viz. the direct tax code (DTC) and the Goods & Services Tax (GST) in the Budget. The GST will enable the Indian corporate sector to get much-needed relief from a multiplicity of state and Central taxes. However, several critical issues need to be resolved before it can be put in place. The Finance Minister must utilize this opportunity to effect a smooth transition to this new system.

The hope of direct tax reform has risen with the release of the draft Direct Tax Code by the government in calendar 2009. The Direct Taxes Code is supposed to replace the Income Tax Act by consolidating and amending income tax provisions for all categories of people and institutions. The DTC proposes doing away with tax exemptions and bringing under the tax purview a number of entities including trusts that pay no tax at the moment. The thrust of the new code is to promote efficiency and equity by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base.

Meanwhile, the government may increase excise duties as a first step towards a gradual winding down of fiscal stimulus measures. It may also raise the service tax rate to 12% from 10%. It may be recalled that the government had slashed the Central Value Added Tax (Cenvat) rate for excise duty from 14% to 8% in two rounds starting in December 2008. It had also cut service tax by 2 percentage points. These reductions were effected in order to provide a stimulus to domestic industry. Since the overall prospects for growth are much brighter today, the finance minister may well withdraw a part of the stimulus in order to boost tax revenue.

The Finance Minster may project a lower fiscal deficit for 2010-11 based on higher revenue projections due to economic rebound. It remains to be seen if there are structural reforms to reduce the subsidy burden such as decontrol of petrol and diesel prices as recommended by the Kirit Parikh committee recently.

It also remains to be seen if there is any progress on financial sector reforms. The pending financial sector reforms include raising the foreign direct investment (FDI) cap in private sector insurance companies from 26% to 49% - a Bill for which is pending in Parliament.

As far as government expenditure is concerned, the thrust areas could be agriculture, water resources, power, roads & other infrastructure projects and social sector schemes.

At 11:20 IST, the BSE 30-share Sensex was up 230.96 points or 1.42% to 16,457.64. The Sensex rose 2.23 points at the day's low of 16,228.91 in early trade. The barometer index jumped 253.81 points at the day's high of 16,480.49 in mid-morning trade.

The S&P CNX Nifty was up 65.10 points or 1.34% to 4,920.85.

The BSE Mid-Cap index rose 1.25% and the BSE Small-Cap index rose 1.16%.

The market breadth, indicating the overall health of the market was strong. On BSE, 1863 shares advanced as compared with 613 that declined. A total of 76 shares remained unchanged.

All the 30 stocks from the Sensex pack rose.

Index heavyweight Reliance Industries (RIL) rose 1.07% extending Tuesday's near 1% rise. RIL recently submitted a $2 billion expression of interest for Value Creation Inc, a Canada-based private firm which holds oil sands assets.

The government has reportedly demanded another $2.7 million from Reliance Industries towards royalty and profit petroleum payments on gas produced from the Krishna-Godavari (KG) D6 for the six-month period from April-September 2009, arguing that the company did not take into account the marketing margin it levies while calculating the dues.

Meanwhile, dashing dreams of Reliance Industries' (RIL) acquisition of bankrupt chemical giant LyondellBasell, unsecured creditors of the Dutch firm have reportedly agreed to settle a dispute over claims and support reorganisation plans of its management. LyondellBasell has offered an additional $150 million towards claims of the unsecured creditors.

Tata Power Company rose 1.80%, extending gains for the second consecutive day, after the company signed a pact with Korea East West Power for operation and maintenance of projects in Asia, Middle East and Africa.

IT stocks rose on strong economic data in the US. US is the largest export market for Indian IT firms. India's third largest software services exporter Wipro rose 0.34% extending Tuesday's 1.46% gains. Its ADR rose 3.26% on Tuesday. A Wipro employee has reportedly embezzled crores of rupees over the past three years, sending India's third-largest software exporter scrambling to tighten internal controls in the finance division where the fraud took place.

The employee had been working with the company for the past three years in the 'controllership' division within the finance department. This cell is responsible for keeping the company's financial books and also has powers to authorise payments whenever needed.

India's largest IT exporter by sales Tata Consultancy Services rose 0.74% extending Tuesday's 1.4% gains. TCS' Passport Seva Project, which aims to issue passports in flat three days, is all set to be launched shortly. India's second largest IT exporter by sales Infosys rose 0.61% extending Tuesday's 1.53% gains. Its ADR rose 2.7% on Tuesday.

Consumer durables stocks rose on strong consumption demand as the economy picks up. Titan Industries, Rajesh Exports, Lloyd Electric, Asian Star Company, Videocon Industries, Gitanjali Gems rose by between 0.73% to 7.09%.

Rate sensitive banking shares rose after the central bank said last week it will introduce from 1 April 2010 a new base rate to price credit more transparently, replacing the existing benchmark prime lending rate (BPLR). India's largest private sector bank by net profit ICICI Bank rose 1.44% extending Tuesday's 1.97% gains. Its ADR rose 1.95% on Tuesday. India's largest bank by net profit and branch network State Bank of India rose 1.15% extending Tuesday's 1.41% gains. India's second largest private sector bank by net profit HDFC Bank rose 2.3%. Its ADR rose 1.81% on Tuesday.

The Reserve Bank of India said the base rate will be the new reference rate for determining lending rates. According to draft guidelines, the RBI has proposed that the actual lending rate charged to borrowers would be the base rate plus borrower-specific charges including product-specific operating cost, credit-risk premium and tenure premium said.

Metal stocks rose after LMEX, a gauge of six metals traded on the London Metal Exchange, jumped 4.18% on Tuesday, 16 February 2010. Steel Authority of India, Sterlite Industries, National Aluminum Company, Hindustan Zinc, JSW Steel rose by between 1.39% to 4.32%.

Tata Steel, the world's No. 8 steelmaker, rose 4.33% as the firm posted its first consolidated quarterly profit in four quarters and said reviving global demand would further boost earnings in the three months to March 2010. After trading hours on Tuesday, Tata Steel said its consolidated net profit for the December 2009 quarter, which includes its UK unit Corus, fell 42%, although higher prices and increased volumes led to a rise in its operating profit margins.

Tata Steel said its consolidated net profit in the October-December period fell to Rs 473 crore from Rs 814 crore last year. Revenue fell 20% to Rs 26,069 crore. The stock rose 2.23% on Tuesday ahead of the result.

Hindalco Industries rose 4.1% gaining for the fourth straight day on reports the company hopes to complete raising Rs 4900 crore of debt in the next two weeks to achieve financial closure for Utkal Alumina Refinery, a 15 lakh tonne per annum project in Orissa.

Sree Sakthi Paper Mills gained 4.78%, after the company's board approved a modernization-cum-expansion programme with a capital outlay of Rs 11.62 crore.