Interest rate sensitive stocks slide as inflation hits 16-month high

Encouraging advance tax figures of top Indian firms for Q4 March 2010 triggered intraday recovery on the domestic bourses in what was a choppy trading session. The market closed flat for the day. However, the broad market was weak as lower global stocks weighed on investor sentiment. Index heavyweight Reliance Industries (RIL) rose on reports it has paid sharply higher advance tax in the fourth and final installment which falls due on 15 March 2010.

Interest rate sensitive auto, banking and realty stocks fell on rate-hike worries as headline inflation reached 16-month high. FMCG and IT stocks rose. The BSE 30-share Sensex was down 1.63 points or 0.01%, up close to 105 points from the day's low and off close to 30 points from the day's high.

Stocks were volatile. The market moved lower in early trade tracking weak Asian stocks. It cut losses later. The market weakened again later with the Sensex hitting a fresh intraday low in morning trade. It pared gains in early afternoon trade as figures of Q4 advance tax filtered in. The recovery gathered further steam with the Sensex later moving into positive zone. The Sensex hit a fresh intraday high in mid-afternoon trade. The market moved between positive and negative terrain in late trade.

NSE's volatility index, India VIX, rose 2.69% at 20.26. The index had witnessed a steep post-Budget slide. Typically, volatility surges ahead of a major event such as the Budget. It falls after the event. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

The Q4 March 2010 advance tax payment numbers of top Indian firms have started trickling in. Reliance Industries has paid Rs 770 crore as advance tax for the March quarter compared with Rs 365 crore a year ago. 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.

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.

On the macro front, the latest data showed that inflation based on the wholesale price index (WPI) jumped 9.89% in February 2010, a 16-month high. The food price index in WPI rose 17.79%. The WPI in February was higher than a rise of 8.56% in January 2010. Meanwhile, the WPI for December 2009 revised upwards to 8.1% from a provisional rise of 7.31%. At its January policy review, the Reserve Bank had raised its WPI inflation projection for end-March 2010 to 8.5%.

Chief economic adviser in the finance ministry Kaushik Basu said the wholesale price inflation is expected to remain at a 16-month high in March 2010. Reserve Bank deputy governor Shyamala Gopinath said in a television interview on Monday that inflation would ease over a period of time.

Growth in the industrial output eased in January, after a record expansion in December. Finance Minister Pranab Mukherjee cited the data in parliament to argue that India's economic growth was not merely government-spending driven.

The data released on Friday showed industrial output grew 16.7% in January, below an upwardly revised 17.6% growth in December. Between April and January, industrial output in Asia's third-largest economy expanded 9.6%. It grew 2.6% in the year to March 2009. Manufacturing output grew by an annual 17.9% in January, easing from 18.5% growth recorded in December.

The economy is seen expanding by more than 7.2% in the year to March 2010, with growth accelerating to 8.5% in 2010/11 and 9% in 2011/12.

The Reserve Bank is expected to raise its key lending rate by as much as 50 basis points in April 2010 to tame inflation. The rate hike would come two months after Pranab Mukherjee raised factory gate taxes in the budget for 2010/11, the beginning of unwinding stimulus measures. Mukherjee said on Friday corrective economic steps have to be taken to tame inflation.

The government's plan to borrow $100 billion in the year to March 2011 has added to expectations market rates would rise and hurt industry.

Meanwhile, the Union Cabinet has reportedly approved a proposal to allow foreign universities to set up units in the country. The proposal will now go to parliament for ratification.

Coming back to stocks, equities have witnessed a good 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 8187.65 crore this month, till 12 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.

Europe stocks opened flat to weaker on Monday, ahead of a slow day on the corporate and economic news side and softer Asian markets setting the tone. The key benchmark indices in France, Germany and UK fell by between 0.08% to 0.2%.

Most Asian stocks fell on Monday after weak US consumer confidence data overshadowed strong retail numbers and curbed demand for risky assets. The key benchmark indices in China, Hong Kong, South Korea, Singapore and Taiwan fell by between 0.24% to 1.46%. But, key benchmark indices in Japan and Indonesia rose by between 0.01% to 0.12%.

US index futures weakened Monday as a rating agency said the risks to credit ratings of Triple-A nations including the United States have grown as China's premier warned of the risks of a double-dip recession. Trading in US index futures indicated that the Dow could fall 31 points at the opening bell on Monday, 15 March 2010.

Moody's Investors Service said the risks are growing to the four largest AAA-rated countries -- Germany, France, the UK and the US. Meanwhile, Chinese Premier Wen Jiabao warned of a double-dip recession given financial system risks and continued high unemployment in some countries.

Mixed economic data kept US stocks near break even on Friday 12 March 2010. Sales at US retailers increased 0.3% in February, the Commerce Department said, compared with a 0.2% decline projected by economists. But a separate report showed consumer sentiment edged lower in early March, according to a survey that noted a less positive view of the job outlook. In other economic data, the Commerce Department said business inventories were unchanged in January, compared with a forecast for a 0.2% rise.

The Dow Jones industrial average gained 12.85 points, or 0.12%, to end at 10,624.69 on Friday. The Standard & Poor's 500 Index shed 0.25 point, or 0.02%, to 1,149.99. The Nasdaq Composite Index dipped 0.80 point, or 0.03%, to close at 2,367.66.

It is widely expected that the US Federal Reserve will keep the fed funds rate, its key lending rate, at a historic low near zero when it meets on Tuesday, 16 March 2010. That means investors and analysts will again pore over the economic assessment statement the Fed releases. They will be looking for changes to the Fed's wording and its members' voting patterns to get a sense of when rates might go up.

It could take several months of solid, significant economic growth before the Fed starts to tinker with the language of its statement or interest rates. Consistent job growth is probably the single biggest factor the Fed will look at when determining when to considering raising rates.

Meanwhile, finance ministers from countries using the euro hope to agree on Monday on a way of providing heavily indebted Greece with financial aid, despite French and German doubts that a deal will be reached.

Close home, the BSE 30-share Sensex was down 1.63 points or 0.01% to 17,164.99. The barometer index rose 28.87 points at the high of 17,195.49 in mid-afternoon trade. The Sensex fell 105.48 points at the day's low of 17,061.14 in morning trade.

The S&P CNX Nifty was down 8.10 points or 0.16% at 5128.90. Nifty March 2010 futures were at 5,135.65, at a premium of 6.75 points over spot closing of 5,128.90. Turnover in NSE's futures & options (F&O) segment was Rs 61,582.01 crore, lower than Rs 64,652.67 crore on Friday, 12 March 2010.

The BSE Mid-Cap index fell 0.74% and the BSE Small-Cap index fell 0.83%. Both the indices underperformed the Sensex.

The BSE IT index (up 1.37%), the BSE Teck index (up 0.98%), BSE FMCG index (up 0.74%), outperformed the Sensex.

The BSE PSU index (down 1.38%), the BSE Capital Goods index (down 1.09%), the BSE Bankex (down 1.03%), the BSE Realty index (down 0.79%), the BSE Auto index (down 0.71%), the BSE Power index (down 0.61%), the BSE Consumer Durables index (down 0.54%), the BSE HealthCare index (down 0.28%), the BSE Oil & Gas index (down 0.17%), the BSE Metal index (down 0.15%), underperformed the Sensex.

BSE clocked a turnover of Rs 3355 crore, lower than Rs 4073.55 crore on Friday, 15 March 2010.

The market breadth indicating the overall health of the market was weak. On BSE, 984 shares advanced as compared with 1839 that declined. A total of 70 shares remained unchanged.

Among the 30-member Sensex pack, 15 fell while the rest rose.

Index heavyweight Reliance Industries (RIL) rose 0.64% to Rs 1027.75. The stock came off the day's low of Rs 1014.10. As per the market buzz, RIL's Q4 advance tax surged to Rs 770 crore from Rs Rs 365 crore a year ago.

Reliance Industries on Sunday 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.

Realty shares fell as the Budget proposed to impose service tax on the realty sector both on commercial rentals as well as on sale of under-construction housing units. The service tax would come to be about 3.5% of the cost of the apartment that includes the value of the land and also the cost of construction, realty body Credai said recently. Unitech, Indiabulls Real Estate, DLF, HDIL fell by between 0.13% to 2.84%.

Realty major DLF recently hinted that properties would turn dearer as developers would have to pass on the service tax burden to end-users.

FMCG stocks rose on government's thrust on rural spending and social schemes in the Union budget. India's largest FMCG maker by sales Hindustan Unilever (HUL) rose 2.62% on bargain hunting after a sharp fall in past few days after the company's competitor Procter & Gamble raised the weight of its 'Tide Naturals' detergent powder by 25%, effectively offering consumers lower pricing. HUL's Q4 advance tax payment rose to Rs 170 crore from Rs 130 crore a year ago.

Among other FMCG stocks, Tata Tea, Nestle India, ITC, Britannia Industries and United Spirits rose by between 0.25% to 0.9%.

Banking stocks fell on expectations the central bank may raise rates to tame inflation. India's largest bank by net profit and branch network State Bank of India (SBI) fell 1.45%. Its Q4 advance tax payment rose to Rs 1857 crore from Rs 1810 a year earlier. State Bank of India (SBI) chairman OP Bhatt recently said the bank is looking at tapping the retail bond market next year with a 10-year issue, although the initial issue size may be as small as Rs 50-100 crore.

Meanwhile, 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 ICICI Bank fell 1.44% to Rs 923.40. Nevertheless, the stock came off the day's low of Rs 915.40 as the private sector bank's Q3 advance tax payment surged to Rs 350 crore versus Rs 250 crore a year ago. Its ADR fell 0.1% on Friday.

India's largest private sector bank by net profit HDFC Bank rose 0.58%. Its ADR fell 1.03% on Friday.

Banks' non-performing assets have reportedly shot up nearly 30% at the end of calendar 2009 from a year ago due to stress in many sectors and farm loan waiver, indicating sharply lower profits for banks and possibility of curbs on exposure to sectors that have contributed to the bad assets.

India's largest mortgage lenger by market capitalisation Housing Development Finance Corporation fell 1.46% on reports the company's advance tax payment for Q4 March 2010 was unchanged at Rs 280 crore compared with Q4 March 2009.

IT stocks rose as rupee dropped against the dollar. Higher advance tax payment by top IT firms aided the rally. India's third largest software services exporter by sales Wipro rose 2.71%. Its ADR rose 0.39% on Friday.

India's largest software services exporter by sales Tata Consultancy Services (TCS) rose 2.27%, with the stock gaining for the fourth day. The company said today it signed a five year contract with Malaysia Airlines for providing end-to-end information technology infrastructure services. Meanwhile, TCS has paid Rs 178 crore in advance tax compared with Rs 53 crore a year earlier.

India's second largest software services exporter by sales Infosys rose 1.07%, as its fourth quarter advance tax payment doubled. Its ADR fell 1.42% on Friday.

The rupee weakened on Monday, weighed down by gains in the dollar against major currencies and losses in the local sharemarket. The partially convertible rupee was at 45.60 per dollar, weaker than 45.43/44 at close on Friday, 12 March 2010. The rupee has witnessed a strong rally in the past few days. A firm rupee negatively impacts operating profit margin of IT firms as the sector derives a lion's share of revenue from exports.

India's largest steel maker by sales Tata Steel rose 0.42%. Its Q4 advance tax payment rose to Rs 513 crore from Rs 406 crore a year earlier.

India's largest engineering & construction firm by sales Larsen & Toubro (L&T) fell 0.7%. Its Q4 advance tax payment fell marginally to Rs 270 crore versus Rs 275 crore a year earlier.

Auto stocks fell as 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 car maker by sales Maruti Suzuki India fell 1.19%, with the stock down for the fourth straight day on 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 bike maker by sales Hero Honda Motors fell 0.36%. 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.

Bajaj Auto fell 0.8%. Its Q4 advance tax payment surged to Rs 177 crore from Rs 60 crore a year earlier.

India's largest tractor maker by sales Mahindra & Mahindra (M&M) fell 2.77%. The company paid Rs 235 crore in advance tax versus nil payment a year earlier.

India's largest commercial vehicle maker by sales Tata Motors' rose 0.91% after group global sales rose 59 % in February from a year earlier, the company said in a statement on Monday.

India's second largest mobile services provider by sales Reliance Communications rose 0.57% after the company's wireless users crossed 10 crore mark by mid-March 2010. Mahesh Prasad, president of wireless business told the media that the additions came from subscribers in both the GSM and CDMA platforms. He added that the company will reach the next 10 crore user subscription mark in the next 1,000 days. As of January 2010, Reliance Communications' total subscriber base stood at 9.66 crore.

India's largest mobile services provider by sales Bharti Airtel rose 0.17%. As per reports, SingTel may help with the funding for Bharti Airtel's $9 billion acquisition of Zain's African assets. SingTel owns 32% stake in Bharti Airtel.

Consumer durables stocks fell on profit taking after recent gains triggered on hopes rise in disposable income following widening of tax slabs in the Union Budget 2010-11 may boost sales. Titan Industries, Asian Star Company, Gitanjali Gems, Videocon Industries fell by between 0.49% to 3.78%.

India's largest drug maker by sales Ranbaxy Laboratories rose 0.46% extending gains for the second straight day. The company said on Friday it is planning to achieve $3 billion in consolidated turnover by 2012 as part of its medium-term business plan.

But other healthcare stocks fell. Sun Pharmaceutical Industries, Glenmark Pharmaceuticals, Pfizer, Cipla, Biocon and Novartis India fell by between 0.37% to 2.67%.

Infrastructure stocks fell on profit taking after recent gains triggered by the government's thrust on the infrastructure sector in the latest Budget. The Finance Minister has provided Rs 1.73 lakh crore for infrastructure development in 2010-2011, which accounts for over 46% of the total plan expenditure for the year. Gammon India, Punj Lloyd, Nagarjuna Construction Company, and Bharat Heavy Electricals fell by between 0.64% to 2.77%.

Cals Refineries clocked the highest volume of 2.75 crore shares on BSE. Shree Renuka Sugars (1 crore), Texmo Pipes (0.66 crore shares), Suzlon Energy (0.39 crore shares) and Birla Power Solutions (0.37 crore shares) were the other volume toppers in that order.

Man Infrastructure clocked the highest turnover of Rs 126.67 crore on BSE. Texmo Pipes (Rs 100.82 crore), Aban Offshore (Rs 96.95 crore), Shree Renuka Sugars (Rs 75.88 crore) and Infosys (Rs 72.6 crore) were the other turnover toppers in that order.