Key indices eke out small gains ahead of Budget

The market logged marginal gains after seeing wild swings throughout the week driven by expectations from the Union budget and global factors. The market edged lower in three out of five trading sessions. Small and mid-cap stocks underperformed their large-cap peers during the week.

The forthcoming week is likely to be highly volatile driven by expectations from the upcoming Union Budget. The highly eventful week begins with the Railway Budget 2010-11 on 24 February 2010 to be followed by tabling of Economic Survey on 25 February 2010 and the Union Budget 2010-11 on 26 February 2010. Also, the expiry of February 2010 derivatives contracts on Thursday, 25 February 2010 will add to the volatility on the bourses.

The US Federal Reserve on Thursday, 18 February 2010, raised the discount rate from 0.5% to 0.75% effective 19 February 2010 and said the move will encourage financial institutions to rely more on money markets, rather than the central bank, for short-term loans. It was the first increase in the discount rate in more than three years, and the move widens the discount rate spread over the top range for the federal funds rate to 0.5%. The central bank also cited last month's statement, which said economic conditions are likely to warrant exceptionally low levels of the federal funds rate, or the target rate for overnight loans between banks, for an extended period.

Earlier, on 12 February 2010, China ordered banks to set aside more deposits as reserves for the second time in a month, as loan growth quickened and property prices surged. The reserve requirement will increase 50 basis points effective 25 February 2010.

Back home, a foreign brokerage predicts that Indian equity and equity-linked offerings may jump by as much as 33% this year as companies and the government tap a growing pool of domestic capital as the economy recovers. Indian companies may raise $25 billion to $30 billion in share sales in 2010, up from $22 billion last year.

C. Rangarajan, the prime minister's economic adviser, on Friday, 19 February 2010 said that India's economy is likely to grow at over 7.2% in the current fiscal year ending March 2010. The prime minister's economic advisory council said on Friday that inflation was a down-side risk to its projected growth rate of at least 8.2% in 2010/11, and any policy action would have to factor in the "significant" danger of high food inflation spreading into broader prices.

Although the large deficits this year and the last year did have a counter-cyclical impact, it is necessary to initiate measures towards fiscal consolidation in the forthcoming budget, the council said in its review of the financial year 2009/10. The fiscal imbalance is a matter of concern and the process of consolidation must begin in the next financial year itself, the prime minister's economic advisory council said on Friday.

The wholesale price inflation is seen at around 8.5% by the end of March, Rangarajan said. He also said that the government's market borrowing in the next fiscal year ending March 2011 is likely to be around or slightly lower than Rs 4,51,000 crore ($97 billion) in the current fiscal year

The government on 15 February 2010 amended rules for foreign currency convertible bonds (FCCB) to allow issuers to revise their conversion price, a move aimed at reducing price uncertainty in a volatile equity market. The change will give issuers a window of 6 months to adjust the conversion price of their bonds to the higher of either the two weeks average or the six months average of the issuing company's stock. The decision unveiled by the finance ministry applies to companies that issued FCCBs before 27 November 2008.

Food inflation rose for the fourth straight week in early February 2010, heightening worries that it was driving up headline inflation past official forecasts and increasing the chance of the Reserve Bank of India (RBI) pushing up rates. The government data showed the food price index rose 17.97% for the year through 6 February 2010. The fuel price index rose 9.89% while primary articles price index rose 16.23 % for the year through 6 February 2010.

The wholesale price index (WPI) rose 8.56% in January 2010 from a year earlier, driven by higher food prices, government data showed on Monday, 15 February 2010. The latest reading on the WPI was the highest since November 2008. It was higher than an annual 7.3% rise in December 2009.

The rise was driven by a 17.4% jump in food prices, which rose on weak monsoon rains and flooding from last year. Inflation in manufacturing picked up to 6.55% from about 5% in December 2009, a sign that inflationary pressures were spreading to other sectors of the economy. In January, the Reserve Bank of India (RBI) had raised the wholesale price inflation forecast for the current year to end-March to 8.5 % from 6.5%.

Industrial output grew at its fastest pace in at least a decade in December 2009, in further evidence of a strong economic recovery that could allow the government to follow the Reserve Bank in withdrawing stimulus. Industrial output grew 16.8% in December from a year earlier, up from revised annual rise of 11.8% in November, data showed on Friday, 12 February 2010.

Since December 2008, the government has announced stimulus packages equivalent to about 12% of GDP to boost infrastructure and support economic recovery, while the Reserve Bank of India cut its key lending rate by 425 basis points between October 2008 and April 2009.

The BSE Sensex rose 39.04 points or 0.24% to 16,152.59 in the week ended Friday, 19 February 2010. The S&P CNX Nifty rose 18.05 points or 0.37% to 4844.90

The BSE Mid-Cap index fell 77.38 points or 1.19% to 6,509.74 and the BSE Small-Cap index declined 98.51 points or 1.19% to 8,303.08. Both these indices underperformed the Sensex.

FII outflow in February 2010 totaled Rs 203.20 crore, as on 17 February 2010. FII had sold equities worth Rs 302.70 crore in January 2010. FII outflow in the calendar year 2010 totaled Rs 703.70 crore.

Trading for the week began on a dull note as the key benchmark indices declined on Monday, 15 February 2010 on worries the central bank may take more monetary action to check inflation after the latest data showed that the headline inflation jumped in January 2010. The BSE 30-share Sensex fell 114.24 points or 0.71% to 16038.35 and the S&P CNX Nifty fell 24.90 points or 0.52% to 4801.95.

However, the key benchmark indices jumped on Tuesday, 16 February 2010, as firm global stocks boosted investor sentiment. The BSE 30-share Sensex rose 188.33 points or 1.17% to 16,226.68 and the S&P CNX Nifty rose 53.80 points or 1.12% to 4,855.75.

The key benchmark indices rose for the second straight day on Wednesday, 17 February 2010, tracking firm global stocks. The BSE 30-share Sensex rose 202.23 points or 1.25% to 16,428.91 and the S&P CNX Nifty rose 58.25 points or 1.2% to 4,914.

Lower Asian stocks weighed on investor sentiment on Thursday, 18 February 2010. The BSE 30-share Sensex fell 101.07 points or 0.62% to 16,327.84 and the S&P CNX Nifty declined 26.25 points or 0.53% to 4887.75.

The key benchmark indices extended losses for the second straight day on Friday, 19 February 2010, in a highly choppy trading session weighed by the US Federal Reserve's decision to raise its discount rate. The BSE 30-share Sensex was down 136.21 points or 0.83% to 16,191.63 and the S&P CNX Nifty was down 42.85 points or 0.88% to 4844.90.

Index heavyweight Reliance Industries (RIL) fell 2.93% to Rs 984.25. The government has reportedly demanded another $2.7 million from RIL 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, RIL may reportedly raise its offer for LyondellBasell that will include cash and stock options for shareholders and creditors. It had offered a deal that would value the bankrupt petrochemicals maker at about $13.5 billion, but earlier this week the target firm settled a dispute with creditors, paving the way for an exit from bankruptcy.

India's largest mobile services provider by sales Bharti Airtel slumped 11.50% on concerns the leading mobile firm's $10.7 billion offer for Kuwaiti Zain's African assets could strain its finances.

Bharti Airtel said on Monday, 15 February 2010, it is in talks to buy the African assets of Kuwaiti telecom Zain for $10.7 billion, a deal that would give India's leading mobile operator a foothold in a largely untapped region with significant growth potential.

Auto stocks rose on the back of robust monthly sales. The auto industry posted its highest-ever monthly sales in January 2010 with over 11-lakh units, the Society of Indian Automobile Manufacturers (SIAM) said in its latest report.

India's largest commercial vehicle maker by sales Tata Motors rose 1.48% after the company on Tuesday, 16 February 2010 said it will hike commercial vehicle prices by up to 2% on account of new emission norms. The company also announced plans of bidding for a Rs 350-crore defense contract to supply light bullet-proof vehicles.

India's largest car maker by sales Maruti Suzuki India gained 1.11% after a senior official of the company told the media that the firm will add 3,000 employees in the next three years. Maruti Suzuki's head of human resources, S.Y.Siddiqui was quoted by the media as saying that the company is also investing Rs 200 crore to add showrooms and stockyards.

India's biggest tractor maker by sales Mahindra & Mahindra (M&M) rose 1.18%.

Metal stocks were mixed. Tata Steel, the world's number 8 steelmaker by capacity rose 5.35%. The company on Tuesday, 16 February 2010 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.

India's largest private sector aluminium maker by sales Hindalco Industries surged 8.32% 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.

Among other metal stocks Steel Authority of India rose 0.75%, Hindustan Zinc gained 0.25%, while Sterlite Industries slipped 2.70%.

Software pivotals gained on expectations from the budget 2010-11. The IT sector is looking for an extension of the tax holiday for the Software Technology Park of India (STPI) scheme.

India's second largest IT exporter by sales Infosys Technologies rose 1.28%. India's third largest IT exporter by sales Wipro advanced 1.59%. India's largest IT exporter by sales TCS moved up 1.12%.

Banking shares were mixed. India's largest private sector bank by net profit ICICI Bank rose 0.51%. India's second largest private sector bank by net profit HDFC Bank jumped 6.50%. But, India's largest bank by net profit and branch network State Bank of India fell 0.71%.

Shares of Syncom Healthcare settled at Rs 87.85 on BSE on its debut on 15 February 2010, a 17.13% premium over the initial public offer price of Rs 75. Syncom is engaged in marketing and manufacturing of drugs and formulations.

Shares of Vascon Engineers settled at Rs 147.20 on BSE on its debut on 15 February 2010, a 10.79% discount over the initial public offer price of Rs 165. Pune-based Vascon Engineers is an engineering, procurement and construction services and real estate development company.

Shares of Thangamayil Jewellery settled at Rs 71.10 on BSE on its debut on 19 February 2010, a 5.20% discount over the issue price of Rs 75. Madurai-based Thangamayil Jewellery manufactures and retails precious jewellery.