RIL leads 101- points Sensex slide

The benchmark key indices snapped last two days' winning streak as lower Asian stocks weighed on investor sentiment. The rally in the preceding two sessions also prompted investors to book profit. The BSE 30-share Sensex fell 101.07 points or 0.62%, up 40.67 points from the day's low and off 124.67% points from the day's high.

India VIX, a volatility index based on the S&P CNX Nifty index option prices, rose 2.48% to 29.76. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

The market dropped in early trade as most Asian stocks fell. It cut losses in morning trade. The market once again trimmed losses after hitting fresh intraday lows in mid-morning trade. The market once gain came off the lows in early afternoon trade. However, the intraday rebound proved short lived. The market lost ground again in afternoon trade. The Sensex hit fresh a fresh intraday low in mid-afternoon trade.

The market may remain volatile in the near term as traders roll over positions from February 2010 derivatives contracts to March 2010 contracts ahead of the expiry of the near-month February 2010 contracts on Thursday, 25 February 2010.

European stocks fluctuated as disappointing results from Akzo Nobel NV offset better-than-estimated earnings from ABB. The key benchmark indices in France and UK rose by between 0.7% to 0.31%. Germany's DAX was down 0.05%.

Asian stocks fell on Thursday from two-week highs after companies reported declining earnings and as lower metal prices dragged down mining companies. The key benchmark indices in Indonesia, Hong Kong, Singapore and South Korea were down by between 0.38% to 0.89%.

Japan's Nikkei rose 0.28% in a volatile trade. The Bank of Japan (BoJ) at a policy meeting today kept its key interest rate on hold at 0.1% by unanimous vote as widely expected, maintained its overall economic view, and didn't issue any new policy initiatives, though it repeated its pledge to do all it could to pull Japan out of deflation.

Bank of Japan Governor Masaaki Shirakawa said Thursday that the central bank's understanding of midterm price stability isn't an explicit inflation target. "If we focus on price movements too much we could overlook imbalances in the overall economy," Shirakawa told reporters. Finance Minister Naoto Kan explicitly said Tuesday that both the government and the BoJ both aim for falling domestic prices to rise about 1% a year.

Trading in US index futures indicated that the Dow could fall 4 points at the opening bell on Thursday, 18 February 2010.

Wall Street ended in positive zone after a choppy session on Wednesday, 17 February 2010. Positive economic data supported gains. US housing starts rose in January 2010. The Dow Jones Industrial average gained 40.43 points, or 0.39%, to 10,309.24. The Standard & Poor's 500 Index added 4.64 points, or 0.42%, to 1,099.51. The Nasdaq Composite Index rose 12.10 points, or 0.55%, to 2,226.29.

The Federal Reserve raised its 2010 US GDP forecast to 3.2% from 3%. Despite the improved forecast, officials continue to believe that economic conditions warrant exceptionally low interest rates. Officials also worry about the impact of the persistently high unemployment.

The head of the International Monetary Fund Dominique Strauss-Kahn has urged individual countries to act fast and work together on financial regulatory reform, if the problem of preventing another crisis is to be tackled efficiently.

Closer home, the Reserve Bank of India (RBI) governor D Subbarao said on Thursday that the central bank stands by its end-March inflation forecast of 8.5%, and expects current inflation to moderate by July. The central bank governor said that he hops that the hike in the cash reserve ratio (CRR) at a recent policy review will go a long way in managing inflation expectation.

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.

Farm minister Sharad Pawar said on Wednesday that high food prices have started to ease and will dip further next month. But Finance Minister Pranab Mukherjee is still worried about inflation amid signs that the headline number may hit 10% by March. Despite a string of government efforts to ease concerns, rising prices are posing a big challenge for the Congress-led government, particularly high food prices, and they may prompt the central bank to raise interest rates even before April. Pawar said prices would start coming down in the next seven to 10 days. Food prices rose an annual 17.4% in January 2010, easing slightly from a rise of 19.2% in December.

But, the headline inflation accelerated to its fastest pace in 14 months in January 2010, rising an annual 8.56%, above the central bank's revised end-March inflation forecast of 8.5%. On Tuesday, India's chief statistician Pronab Sen said that headline inflation could top 10% by the end of March. A government panel has advised eliminating price controls for gasoline and diesel and an income-linked rise in kerosene and cooking gas prices. The RBI is widely expected to raise borrowing rates at its April review after surprising markets with a bigger-than-expected rise in banks' cash reserve requirements in January.

Pranab Mukherjee also said economic growth in the fiscal year 2010/11 (April-March) could top 8%, following a growth at around 7.5% in the current fiscal year ending March. The government officials have forecast the economic growth in the current year in the range of 7-8%.

The government will review in April stimulus measures announced earlier for exporters, Trade Secretary Rahul Khullar said in New Delhi on Thursday. Exports rose an annual 9.3% in December to $14.6 billion, the second consecutive rise after 13 straight months of decline.

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 fell 101.07 points or 0.62% to 16,327.84. The Sensex fell 141.74 points at the day's low of 16,287.17 in mid-afternoon trade. The barometer index rose 23.60 points at the day's high of 16,452.51 in early trade.

The S&P CNX Nifty declined 26.25 points or 0.53% to 4887.75.

The BSE Mid-Cap index fell 0.62% and the BSE Small-Cap index fell 0.40%. The BSE Small-Cap index outperformed the Sensex.

The BSE Consumer Durables index (up 0.52%), BSE Bankex (up 0.32%), BSE IT index (up 0.19%), BSE Healthcare index (up 0.05%), BSE Capital Goods index (down 0.45%), BSE FMCG index (down 0.46%), BSE PSU index (down 0.61%), outperformed the Sensex.

The BSE Power index (down 0.67%), BSE Auto index (down 0.72%), BSE Metal index (down 1.37%), BSE Oil & Gas index (down 2.01%), and BSE Realty index (down 2.12%), underperformed the Sensex.

The market breadth, indicating the overall health of the market was weak. The breadth was positive earlier in the day. On BSE, 1060 shares advanced as compared with 1760 that declined. A total of 85 shares remained unchanged.

BSE clocked turnover of Rs 3982 crore, lower than Rs 4513.85 crore on Wednesday, 17 February 2010.

From the 30 share Sensex pack, 21 shares fell while the rest rose.

Index heavyweight Reliance Industries (RIL) fell 3.35% on profit taking. 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.

Metal stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange, fell 0.435% on Wednesday, 17 February 2010. NMDC, Sterlite Industries, Jindal Steel & Power, National Aluminum Company, Sesa Goa and Hindalco Industries fell by between 0.46% to 3.88%.

Tata Steel, the world's No. 8 steelmaker fell 1.29% on profit taking after gaining 6.37% on Wednesday. The firm on Tuesday 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 declined on profit taking after recent strong gains 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.

Rate sensitive auto fell as government is widely expected to raise excise duties on automobiles in Union Budget 2010-2011 next week. India's top small car manufacturer by sales Maruti Suzuki India fell 1.40% after gaining for last two trading sessions. 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) fell 1.38% after gaining for the last four trading sesions.

India's largest commercial vehicle maker by sales Tata Motors fell 0.22%. 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 defense 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.

A hike in excise duty will raise the cost of owning new vehicles. Coupled with the recent price hikes across segments, and the price increases likely in April 2010 on account of the change in emission norms, these potential price increases on excise duty increase may dampen demand.

On the flip side, bus makers Ashok Leyland (down 1.87%) and Tata Motors (down 0.22%) 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. Bus demand has been boosted this year by an order for 15,000 buses under JNNURM

Rate sensitive realty shares on expectations of rate hike by the central bank to tame surge in inflation. Indiabulls Real Estate, Sobha Developers, Akruti City, Orbit Corporation, Ansal Properties and Infrastructure and DLF fell by between 0.62% to 5.66%.

Unitech fell 4.63% extending losses for the straight second day. 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 affordable housing projects in the Union Budget 2010-11 next week.

Sugar stocks declined after prices of sugar futures in New York, a global benchmark, fell to an eight-week low on Wednesday, 17 February 2010. Shree Renuka Sugar, Balrampur Chini Mills, Simbhaoli Sugars Mills, Triveni Engineering & Industries, EID Parry (India) and DCM Shriram Industries fell by between 0.93% to 4.59%. Sugar futures slumped on Wednesday on concerns over a lack of nearby physical demand. Raw-sugar for May 2010 delivery declined 4.5% to 25.57 cents per pound on ICE Futures US yesterday. Earlier, the contract touched 25.46 cents, the lowest level since 22 December 2009.

Bharat Petroleum Corporation jumped 4.69% after the company said its unit discovered gas in Mozambique.

Prajay Engineers Syndicate jumped 5%, after the company's board approved raising upto $150 million through various modes.

Gee Kay Finance & Leasing Company topped the volume chart on the BSE with 2.18 crore shares changing hands on the counter. Cals Refineries (1.42 crore shares), Unitech (95.51 lakh shares), Shree Ashtavinayak Cine Vision (89.95 lakh shares) and Suzlon Energy (75.96 lakh shares), were the other volume toppers on the BSE.

Gee Kay Finance & Leasing Company reported a highest turnover of Rs 134.31 crore on the BSE. Reliance Industries (Rs 115.11 crore), Axis Bank (Rs 103.84 crore), Tata Steel (Rs 75.70 crore) and Unitech (Rs 68.84 crore), were the other turnover toppers on the BSE.