Metal, banking stocks lead rally

The key benchmark indices rose for the second straight day tracking firm global stocks. The BSE 30-share Sensex jumped 202.23 points or 1.25%. Metal, banking, consumer durables and auto stocks rose. The market breadth was strong.

India VIX, a volatility index based on the S&P CNX Nifty index option prices, rose 1.08% to 29.04. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

The market opened on a firm note tracking gains in Asian stocks. The market extended gains in mid-morning trade. After a small correction, the market regained strength in early afternoon trade. The market came off the higher level in afternoon trade. Volatility ruled the roost as the market further pared gains in mid-afternoon trade. The market regained strength later

European equities advanced for a third straight session on Wednesday as forecast-beating results from BNP Paribas helped banking stocks and stronger commodity prices supported mining and energy shares. The key benchmark indices in France, Germany and UK rose by between 0.55% to 1.31%.

A pledge made overnight by Euro-zone countries to back Greece through its debt turmoil continued to ally concern over the region's fiscal problems.

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 0.89% to 2.72%. Stock markets in China and Taiwan were closed for the Lunar New Year holidays

Trading in US index futures indicated Dow could gain 20 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, Farm Minister Sharad Pawar said on Wednesday that food prices have started falling and will dip further next month. But the government will not restrain large sugar firms from buying sugar from the domestic market, Pawar said. Pawar said the wheat harvest would exceed last year's record 80.6 million tonnes, giving a slightly higher forecast than last week's formal government estimate of 80.28 million tonnes.

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. He further said that the government's measures to tame rising inflation would take some time to make an impact.

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 stock 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 road map for the introduction of the 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 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.

The BSE 30-share Sensex rose 202.23 points or 1.25% to 16,428.91. The Sensex rose 2.23 points at the day's low of 16,228.91 in early trade. The barometer index jumped 254.21 points at the day's high of 16,480.89 in early afternoon trade.

The S&P CNX Nifty rose 58.25 points or 1.2% to 4,914. Nifty February 2010 futures were at 4902.10, at a discount of 11.90 points over spot closing of 4914. On Tuesday, 16 February 2010, Nifty February 2010 futures had ended at premium over the spot price.

The BSE Mid-Cap index rose 0.79% and the BSE Small-Cap index rose 0.61%. Both the indices underperformed the Sensex.

The BSE Consumer Durables index (up 3.34%), BSE Metal index (up 3.24%), BSE Bankex (up 1.75%) outperformed the Sensex.

The BSE Realty index (down 1%), BSE IT index (down 0.22%), BSE Healthcare index (up 0.15%), BSE PSU index (up 0.44%), BSE Power index (up 0.57%), BSE FMCG index (up 0.61%), BSE Oil & Gas index (up 0.97%), BSE Auto index (up 1.2%), BSE Capital Goods index (up 1.24%), and underperformed the Sensex.

The market breadth, indicating the overall health of the market was strong. On BSE, 1678 shares advanced as compared with 1118 that declined. A total of 93 shares remained unchanged.

From the 30 share Sensex pack, 22 shares rose while the rest fell.

BSE clocked a turnover of Rs 4496 crore, higher than Rs 3743.57 crore on Tuesday, 16 February 2010.

Index heavyweight Reliance Industries (RIL) rose 1.44% 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, Reliance Industries may reportedly be forced to raise its offer for LyondellBasell or abandon its bid all together after the target settled a dispute with creditors that paved the way for an exit from bankruptcy. Lyondell said on Tuesday it would continue with its reorganisation plan aimed at exiting bankruptcy.

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 0.98% 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 1.69% extending Tuesday's 1.41% gains. India's second largest private sector bank by net profit HDFC Bank rose 2.95%. 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, Hindustan Zinc, JSW Steel rose by between 0.28% to 3.7%.

Tata Steel, the world's No. 8 steelmaker, rose 6.37% 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 5.2% 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.

Consumer durables stocks rose on strong consumption demand as the economy picks up. Titan Industries, Lloyd Electric, Asian Star Company, Videocon Industries, Gitanjali Gems rose by between 0.84% to 8.67%.

Rate sensitive auto stocks rose on strong sales in the month of January 2010. India's top small car manufacturer by sales Maruti Suzuki India rose 1.8% extending Tuesday's 1.6% gains. As per reports the company expects a 20% growth in sales and hopes to double its exports to around 1.6 lakh units this fiscal ended March 2010. India's biggest tractor maker by sales Mahindra & Mahindra (M&M) rose 1.4% gaining for the straight fourth day.

India's largest commercial vehicle maker by sales Tata Motors rose 1.19% extending Tuesday's 3.02% gains. Tata Motors on Tuesday 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 defence contract to supply light bullet-proof vehicles.

The company said on Monday its global vehicle sales for January nearly doubled to 85,714 units from a year earlier. The sales include UK-based luxury brands Jaguar and Land Rover, whose sales nearly trebled in the month to 16,269 units from a year ago, the company said in a statement. It had earlier said domestic sales, including trucks, buses and cars, jumped an annual 77 % in January.

Shares of bus makers Ashok Leyland and Tata Motors may benefit in case of further allocation of government expenditure towards the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in the Union Budget 2010-11.

Rate sensitive realty shares fell on profit taking. Housing Development & Infrastructure, Akruti City, DLF, Indiabulls Real Estate rose by between 0.2% to 3.29%.

Unitech fell 0.73%. Recently Telenor bought a further 7.15% stake in its telecom joint venture Unitech Wireless by pumping in additional Rs 2022 crore of fresh equity.

Unitech and DLF would be the chief beneficiaries if the government providers thrust to afforable housing projects in the forthcoming budget

Software majors rose on strong economic data in US. US is the biggest export market for Indian IT firms. Wipro and TCS rose 0.04% and 0.44% respectively. But India's largest IT exporter by sales Infosys Technologies fell 0.62%.

The rupee strengthened to a two-week high today, as a broad fall in the dollar versus major units and a firm domestic stock market boosted sentiment. The partially convertible rupee was at 46.10/11 per dollar, after rising to 45.95 in early trade, its highest since 3 February 2010 and stronger than its 46.21/22 close on Tuesday, 16 February 2010. A firm rupee adversely affects operating profit margin of IT firms as the sector derives a lion's share of revenue from exports.

The IT sector is looking for an extension of the tax holiday for the Software Technology Park of India (STPI) scheme. The government provides tax benefits under Section 10 (A) of Income Tax Act for units set up in the Software Technology Parks of India (STPIs), which is due to expire on 31 March 2011 (FY 2011). If the scheme is extended by one more year till 31 March 2012 (FY 2012), it will boost FY 2012 earnings of IT firms

India's largest listed telecom service provider by sales Bharti Airtel rose 2.44% on bargain hunting after the stock tumbled 13.6% in the preceding three trading sessions. According to reports, Bharti Airtel hopes to conclude the deal to buy Zain's African assets by 25 March 2010 and does not see funding as an issue. A series of announcements on the deal would also be made over the next couple of days, reports added.

India's second largest listed telecom service provider by sales Reliance Communications rose 1.97%.

Infrastructure stocks moved up on hopes the government may accelerate spending on the infrastructure sector in the Union Budget 2010-11. Gayatri Projects, Punj Lloyd, Hindustan Construction Company, IVRCL Infrastructure rose by between 0.49% to 5.69%.

India's largest drug maker by sales Ranbaxy Laboratories rose 0.25% extending Tuesday's 7.23% jump. Daiichi Sankyo recently said it will launch new innovative products in Mexico through the marketing division of Ranbaxy's Mexican subsidiary Ranbaxy Mexico.

Among other healthcare stocks. Lupin, Divi's Laboratories, Biocon, Pfizer rose by between 0.71% to 4.16%.

FMCG stocks rose on buoyant consumption demand. Britannia Industries, ITC, United Spirits, Hindustan Unilever rose by between 0.05% to 2.8%.

Excise duty on fast moving consumer goods (FMCG) is expected to go up by 200-300 basis points in the 2010-11 Budget. Higher excise duty may result in margin pressure on some companies. Companies may resort to price hikes with a lag of one or two quarters. Firms such as Dabur India, Godrej Consumer Products and Marico will be relatively less impacted as they do have production units in excise-exempt locations.

India's largest power utility firm by sales NTPC fell 0.39%. The company's follow on public offer managed to scrape through early this month with the issue getting subscribed 1.2 times. The issue, through which the government is divesting 5% of its stake, at a floor price of Rs 201 a share, opened on 3 February 2010 and closed on 5 February 2010. At the floor price, the follow-on-public offer (FPO) is valued at Rs 8,286 crore.

Among other power stocks, CESC, Reliance Infrastructure, Reliance Power rose by between 0.02% to 1.93%.

India's largest engineering and construction firm by sales Larsen & Toubro rose 1.93% extending Tuesday's 0.99% gains. The company said last week it won orders worth Rs 582 crore.

India's largest power equipment maker by sales Bharat Heavy Electricals rose 0.65% extending gains for the fourth day. Bharat Heavy Electricals (Bhel), will reportedly form a joint venture company with Japan's Toshiba Corp. that will build power transmission links across India and will also cater to the distribution business. The company last week secured a contract for the electro-mechanical equipment package for a 1,200 megawatt hydroelectric project in Bhutan valued at Rs 1,016 crore.

Among other capital goods stocks, BEML, ABB, Siemens and Punj Lloyd rose by between 0.33% to 3.92%.

Castrol India rose 1.22%, extending recent gains ahead of the company's board meeting on Thursday, 18 February 2010 to consider bonus issue.

Cals refineries clocked the highest volume of 2.52 crore shares on BSE. Ruchi Soya Industries (1.34 crore shares), Mahindra Satyam (0.78 crore shares), Hindustan Fertilisers & Chemicals (0.66 crore shares) and K Sera Sera (0.54 crore shares) were the other volume toppers in that order.

Tata Steel clocked the highest turnover of Rs 197.22 crore on BSE. Ruchi Soya Industries (Rs 121.02 crore), VIP Industries (Rs 95.33 crore), Reliance Industries (Rs 92.59 crore) and Aban Offshre (Rs 87.88 crore) were the other turnover toppers in that order.