Bank stocks lead late rebound as S&P raises outlook on sovereign rating

The key benchmark indices surged to the day's highs at the fag end of the trade after global rating agency Standard & Poor's revised India's rating outlook to stable from negative. S&P affirmed the 'BBB-' long-term and 'A-3' short-term sovereign credit ratings on India. Index heavyweight Reliance Industries (RIL) edged higher. But, capital goods, FMCG stocks fell. Auto stocks were mixed. Banking and metal stocks rose. The BSE 30-share Sensex was up provisionally up 44.46 points or 0.25%, up close to 115 points from the day's low. But the market breadth was negative.

The revision in outlook reflects S&P's view that India's fiscal position could now begin to recover and that its economy will remain on a strong growth path. The government budget targets a general government (including central and state governments) deficit of 8.3% in the fiscal year ending 31 March 2011, from 9.8% in the previous fiscal year, S&P said. S&P also estimated that India's gross domestic product will grow 8% in the year ending March 31, 2011, higher than its forecast earlier, adding India's external position was resilient. Even so, India's ratings continue to be constrained by the government's high debt burden and deficit, as well as India's weak fiscal profile, the rating agency said.

Stocks were volatile as traders rolled over positions in the derivatives segment from the March 2010 series to the April 2010 series ahead of the expiry of the near-month March 2010 contracts on Thursday, 25 March 2010. The Sensex slipped into the red soon after initial gains. The market regained positive zone shortly. The market once again slipped into the red, with the Sensex hitting a fresh day's low in mid-morning trade.

The market recouped entire losses later. However, the intraday recovery proved short-lived. The Sensex hit a fresh intraday low in early afternoon trade. The market hit fresh intraday low in afternoon trade as Asian stocks fell. The market cut losses soon after hitting a fresh intraday low in mid-afternoon trade. The market regained positive zone later. The Sensex surged to the day's at the fag end of the trading session following the S&P upgrade.

The stock market remains closed on Wednesday, 24 March 2010, on account of Ram Navmi.

The food price inflation eased in early March 2010 but fuel inflation continued to rise, adding upward pressure on headline inflation and maintaining the case for the Reserve Bank of India (RBI) to raise rates at its April 2010 policy review. Data released on Thursday showed the food price index rose 16.30% in the year to 6 March 2010, lower than an annual rise of 17.81% in the previous week, continuing a downward trend for the second straight week.

However, a decision in late February 2010 to raise retail fuel prices has stoked fuel price inflation. The fuel price index rose 12.68% in the year to 6 March 2010 up from an annual rise of 11.38% in the previous week. The primary articles index was up 14.16% in the year to 6 March 2010.

The headline inflation topped expectations and came within touching distance of double digits in February 2010, making a rate increase by the Reserve Bank all but inevitable at its scheduled April 2010 policy review. Annual wholesale price inflation accelerated to 9.89% in February, the highest since October 2008 and well above the Reserve Bank of India's end-March projection of 8.5% and the 8.56% January reading.

The inflation data comes on the heels of a 16.7% annual jump in industrial output in January, with the unexpectedly strong economic pickup also backing the case for the central bank to raise policy rates by at least 25 basis points.

With growth firmly on track and inflation rising beyond its comfort zone, the Reserve Bank of India (RBI) should consider carefully returning to normal monetary policy, deputy chairman of the Planning Commission Montek Singh Ahluwalia said on Wednesday.

Coming back to stocks, encouraging Q4 March 2010 advance tax figures of top Indian firms, indicating good Q4 March 2010 results, boosted the bourses in the past three days. The Sensex hit a 2-month high on Wednesday, 17 March 2010. The market has also witnessed a strong post-Budget rally driven by sustained buying by foreign funds since the presentation of the Union Budget 2010-2011 on 26 February 2010. As per data from the stock exchanges, foreign institutional investors (FIIs) bought stocks worth a net Rs 10041.13 crore this month, till 17 March 2010.

The stock market has applauded the Union Budget 2010-2011 due to its thrust on infrastructure development, government's pledge to reduce fiscal deficit over the next three years, a smaller-than-expected 2% hike in excise duties, and reduction in taxes for individuals which will boost disposable income. The Finance Minister has assumed a modest GDP of about 8% and inflation of about 4.5% for 2010-2011.

Going ahead, the key triggers for the stock market are structural reforms such as decontrol of petrol and diesel prices, targeting of food subsidies, and financial sector reforms such as increase in foreign direct investment in insurance sector.

Several companies have paid a higher tax this quarter according to the preliminary data, indicating better fourth quarter results. Reliance Industries has paid Rs 770 crore as advance tax for the March quarter compared with Rs 365 crore a year ago. Infosys' tax outgo has doubled to Rs 250 crore from Rs 125 crore. Tata Consultancy Services paid Rs 178 crore, compared from Rs 53 crore earlier. State-run Union Bank of India paid Rs 185 crore compared with Rs 253 crore a year ago. ICICI Bank's Q3 advance tax stood at Rs 350 crore versus Rs 250 crore a year ago. Asian Paints paid Rs 60 crore, versus Rs 43 crore year earlier.

State Bank of India has paid Rs 1857 crore verses Rs 1810. HDFC paid Rs 280 crore, unchanged from a year earlier. Tata Motors paid Rs 115 crore versus Nil a year ago. Bank of Baroda paid Rs 300 crore verses Rs 280. Zee Entertainment Enterprises paid Rs 97 crore versus Rs 109. Tata Steel paid Rs 513 crore versus Rs 406 crore. L&T paid Rs 270 crore versus Rs 275 crore. Bajaj Auto paid Rs 177 crore versus Rs 60 crore. M&M paid Rs 235 crore versus nil a year earlier.

Cement maker ACC paid Rs 330 crore compared to Rs 340 crore a year ago. Ambuja Cement paid Rs 120 crore, compared with Rs 125 crore a year ago. Aditya Birla Group firm Grasim Industries paid Rs 216 crore as advance tax in the period under review, as compared to Rs 65 crore a year ago. Life Insurance Corp of India (LIC) has paid Rs 864 crore as advance tax for the March quarter, compared with Rs 810 crore year ago.

Meanwhile, a core group of central ministers and state chief ministers will reportedly work out a long-term strategy for sustained agricultural growth to strengthen the government's efforts to tame soaring food prices and address concerns over food security. The core group, set up by the prime minister on Monday, comprises finance minister Pranab Mukherjee, agricultural minister Sharad Pawar and chief ministers of 10 key states.

The United States and India signed an agreement on Wednesday to strengthen trade and investment ties following through on a pledge leaders of the two countries made last year.

European shares slipped back from the previous session's 17-month closing highs in early trade on Thursday, with banks and commodity stocks taking the most points off a key index. The key benchmark indices in France, Germany and UK fell by between 0.07% to 0.34%.

Asian stock markets fell on Thursday on reports Greek may seek financial help from the International Monetary Fund over the April 2-4 Easter weekend due to little hope for aid from the European Union. The key benchmark indices in China, Hong Kong, Singapore, Indonesia, Japan, and South Korea fell by between 0.14% to 0.95%. But, Taiwan's Taiwan Weighted rose 0.49%.

Trading in US index futures indicated that the Dow could shed 9 points at the opening bell on Thursday, 18 March 2010.

Investors will look at weekly US jobless claims data, due later in the global day for clues on the strength of the recovery in the world's biggest economy

US markets moved higher for the third straight session & hit afresh 52-week highs on Wednesday, 17 March 2010. Renewed pledge from the Fed for low rates and a drop in inflation at the producer level helped fuel the market's momentum. Producer prices for February fell 0.6%, which was a sharper drop than expected, but core prices climbed a tame 0.1%, as expected.

The Dow Jones Industrial Average closed 47.69 points or 0.45% higher at 10,733.67. The Nasdaq Composite ended at 2,389.09, up 11.08 points or 0.47% and the S&P 500 was at 1,166.21, up 6.75 points or 0.58%.

Closer home, the BSE 30-share Sensex was up 44.46 points or 0.25% to 17,534.54 as per provisional figures. The barometer index rose 58.05 points at the high of 17,548.13 at the fag end of the trading session. The Sensex fell 72.47 points at the day's low of 17,417.61 in mid-afternoon trade.

The S&P CNX Nifty was up 19 points or 0.36% at 5250.90 as per provisional figures.

The BSE Mid-Cap index rose 0.37% and the BSE Small-Cap index rose 0.06%.

BSE clocked at turnover of Rs 5188 crore, slightly higher than Rs 5122.93 crore on Wednesday, 17 March 2010.

The market breadth, indicating overall health of the market was weak. The breadth was positive earlier in the day. On BSE, 1222 shares advanced as compared with 1596 that declined. A total of 101 shares remained unchanged.

Among the 30 Sensex stocks, 15 stocks fell and the rest rose.

Index heavyweight Reliance Industries (RIL) rose 0.65% to Rs 1073.50, extending recent rally triggered by expectations of good Q4 March 2010 results. But the stock was volatile. It moved between positive and negative zone on alternate bouts of buying and selling. It hit a low of Rs 1062.30 and a high Rs 1078.50. As per the market buzz, RIL's Q4 advance tax surged to Rs 770 crore in Q4 March 2010 from Rs Rs 365 crore a year ago. Meanwhile, Reliance Industries is reportedly seeking a joint venture with Atlas Energy to develop the US firm's Marcellus Shale gas operations.

Reliance Industries on Sunday, 14 March 2010 announced a sports and entertainment joint venture with IMG Worldwide, a global leader in sports marketing and management. The equal venture, IMG Reliance, will set up modern infrastructure and coaching facilities for sports and create and operate sports and entertainment assets including celebrity management.

India's second largest software services exporter by sales Infosys rose 1.83% to Rs 2789.40, gaining for the third straight day. It hit an all-time high of Rs 2792.15 today. Its ADR rose 1.7% on Wednesday. Infosys' fourth quarter advance tax payment doubled.

Banking stocks reversed early fall on bargain hunting. India's largest bank by net profit and branch network State Bank of India (SBI) rose 1.03%. The bank has not sought the government's nod for a rights issue or a follow-on share issue, a senior finance ministry official said on Wednesday. R. Gopalan, secretary for financial services, also said there is no plan to bar banks from non-core activities.

SBI's Q4 advance tax payment rose to Rs 1857 crore from Rs 1810 a year earlier. A bill seeking to reduce Centre's shareholding in the SBI from 55% now to 51% and to allow the bank to raise more capital from the market through preference shares, was introduced in the Lok Sabha recently. The amendment bill seeks to provide for enhancement of the capital of SBI by issue of preference shares, to enable it to raise resources from the market by public issue or preferential allotment or private placement. The bill also aims to provide for flexibility in the management of the bank

India's largest private sector bank by net profit HDFC Bank rose 0.04%. Its ADR rose 0.56% on Tuesday.

India's largest private sector bank by net profit ICICI Bank rose 1.36%, gaining for the third straight day. The bank's Q3 advance tax payment surged to Rs 350 crore versus Rs 250 crore a year ago. Its ADR rose 2.55% on Tuesday.

Metal stocks rose after LMEX, a gauge of six metals traded on the London Metal Exchange, rose 1.67% on Wednesday, 17 March 2010. Steel Authority of India, National Aluminum Company, Jindal Saw, Jindal Steel & Power, JSW Steel, Hindalco Industries rose by between 0.17% to 2.36%.

India's largest steel maker by sales Tata Steel rose 1.12%, gaining for the straight fourth day. Its Q4 advance tax payment rose to Rs 513 crore from Rs 406 crore a year earlier.

Auto stocks were mixed. India's largest bike maker by sales Hero Honda Motors rose 0.58%, reversing early fall. Hero Honda has shortlisted Karnataka as one of the states for setting up its fourth manufacturing plant. Hero Honda Motors has reportedly proposed an investment of Rs 2,000 crore for the upcoming plant.

India's largest car maker by sales Maruti Suzuki India fell 1.01%, extending recent losses triggered by fears increase in competition may dent sales. Last week Ford India entered the small car market with 'Figo'.

Maruti Suzuki India, last week said that Japanese auto giant Nissan has placed orders for 35,000 units of its small car A- Star for 2010-11 to sell it in the European market. Nissan sources the A-Star from Maruti's Manesar facility and sells it in the European market as 'Pixo'.

India's largest tractor maker by sales Mahindra & Mahindra (M&M) fell 3.02%, extending Wednesday's 0.9% decline. The company paid Rs 235 crore in advance tax in Q4 March 2010 versus nil payment a year earlier.

India's largest commercial vehicle maker by sales Tata Motors' was flat. Tata group's global sales rose 59% in February from a year earlier, the company said in a statement on Monday.

A rise in raw material prices coupled with costs associated with new emission norms could force them to increase prices further, which may hit volumes. The government raised excise duties on large cars and sport utility vehicles by 2%, which was immediately passed on by vehicles makers, including top carmaker Maruti Suzuki and utility vehicle makers Mahindra & Mahindra and Tata Motors. From 1 April 2010, all vehicles will have to comply with Euro IV emission norms across 13 major cities, adding to costs and setting the stage for another round of price hikes.

India's largest engineering & construction firm by sales Larsen & Toubro (L&T) was flat at Rs 1624. The stock came off the day's low of Rs 1601.10. The company on Wednesday said it got orders worth Rs 1013 crore. The company on Monday said that it won orders worth Rs 2000 crore. L&T's advance tax payment fell marginally to Rs 270 crore in Q4 March 2010 from Rs 275 crore a year earlier.

Among other capital goods stocks, Bharat Hevy Electricals, SKF India, ABB, Siemens, Praj Industries, Crompton Greaves fell by between 0.15% to 2.18%.

ITC, India's top cigarette maker by sales, fell 1.12%. As per recent reports, ITC has increased prices by up to 20% following a duty hike in the Budget. A sharp hike in prices has in the past impacted volumes of the cigarette major negatively.

ITC, which had increased the prices of its flagship brand Gold Flake Kings by 7% prior to the Budget, has raised prices again by 8% to 20% across all brands, reports suggest. Cigarette business generates more than half of ITC's revenue and was the biggest contributor to its profit during the December 2009 quarter.

Among other FMCG stocks, Dabur India, Tata Tea, Britannia Industries and United Spirits fell by between 0.09% to 1.8%.

But, Hindustan Unilever rose 0.36%. According to reports, the company plans to take legal action against striking workers at its Haldia factory, where work has stopped since 2 March 2010 due to a strike by the Hindustan Unilever Shramik Union.

Tyre makers rose on recent reports tyre manufacturers are mulling a price hike following a surge in natural rubber prices. Apollo Tyres, CEAT, J K Tyre and Industries and MRF rose by between 2.85% to 10.88%. While companies such as CEAT and Birla Tyres have reportedly decided to hike prices by 2-5%, others like Apollo Tyres and JK Tyre are closely tracking the market before taking a final call on the quantum of increase.

Triveni Engineering & Industries rose 1.89%, extending gains for the third straight day after the company's board approved demerger of the steam turbine business into a separate company to be named Triveni Turbines.