Market extends post-Budget gains in broad-based rally

The key benchmark indices surged for the second straight day after finance minister Pranab Mukherjee offered to progressively cut fiscal deficit over the next three fiscal years, changed personal tax rates which will lift disposable incomes in the hand of individuals and reduced surcharge on corporate tax for domestic companies to 7.5% from 10% in Union Budget 2010-2011 late last week.

Data showing a surge in manufacturing activity in the month of February and rise in exports for the third consecutive month in January also lifted sentiment. The BSE 30-share Sensex rose 343.01 points or 2.09%. The S&P CNX Nifty crossed the psychological 5,000 mark. The Sensex had risen 175.35 points or 1.08% to 16,429.55 on the Budget day on Friday 26 February 2010.

The market surged in early trade tracking overnight gains in global stocks when the Indian market was closed for the Holi festival. The market pared gains in morning trade. The market surged in mid-morning trade with the Sensex hitting a fresh intraday high. The market once again pared gains in early afternoon trade. The market surged again in afternoon trade. The Sensex struck a fresh intraday high in mid-afternoon trade. The market extended gains in late trade.

India VIX, a volatility index based on the S&P CNX Nifty index option prices, tumbled for the second day in a row. The index declined 9.95% to 21.63. The index had tanked 18.71% to Friday, 26 February 2010, the day when the Budget was announced. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days. Typically, volatility surges ahead of a major event such as the Budget. It falls after the event.

Index heavyweight Reliance Industries rose on reports of a possible acquisition of Canada's Value Creation. Auto stocks extended Friday's sharp gains on robust vehicle sales in the month of February 2010 over February 2009. India's largest commercial vehicle maker by sales Tata Motors rose more than 12% after the company reported strong vehicle sales in the month just gone by. Banking, metal stocks also rose. Barring the realty index, all the other sectoral on indices on BSE were in green

Prime Minister Manmohan Singh on Monday ruled out rolling back a price hike in retail fuel prices despite pressure from his main allies, saying populist policies would hurt the economy in the long-term. Petrol prices rose about 6% and diesel prices by 7.75% after the government increased excise duties and import duties on the fuels in Union Budget 2010-2011, which stressed fiscal prudence to cut a wide deficit.

The Finance Minister in his budget speech on Friday, 26 February 2010 said the government aims to introduce the Goods and Services Tax (GST) and implement the direct tax code from 1 April 2011. The peak rate of excise duties has been raised to 10% from 8% as a first step towards the winding down of fiscal stimulus measures. However, the service tax was retained at 10%. The government has estimated Rs 40000 crore from disinvestment for FY 2010-11. It has estimated Rs 35000 crore from sale of third generation telecom auctions.

The finance minister has raised personal income tax slabs which will result in increase in disposable incomes which in turn may boost consumption. The minimum alternate tax (MAT) has been raised to 18% from 15% of book profits. The fiscal deficit is pegged at 5.5% of GDP for 2010-2011, lower than an estimated 6.8% for the current fiscal year. The planned expenditure will rise 15% in 2010-2011. The increase in non-plan expenditure is only 6% for 2010-2011. The finance minister said the government also aimed to reduce the deficit further to 4.8% of GDP in the year starting 1 April 2011, and to 4.1% in the year from 1 April 2012. He said there is a need to review stimulus and move towards fiscal consolidation and review public spending.

A thrust on the infrastructure sector augurs well from a long-term growth perspective. 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.

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.

The Finance Minister plans to tighten his belt on non-plan expenditure that includes heads like subsidies and administrative costs etc. He has forecast a small 6% growth in non-plan expenditure. The budget projects an 11% reduction in the government's subsidy bill for 2010-11, driven essentially by a massive drop in petroleum subsidies and some decline in fertiliser subsidies.

However, any sharp surge in crude oil prices will result in higher oil subsidies. The Finance Minister has provided only Rs 3108 crore towards oil subsidy for 2010-2011 and also indicated that he will not issue bonds this year as well. This means that he is either assuming that crude oil prices are going to remain very low or he is making an implicit assumption that the Kirit Parikh Committee report in some form will be implemented. It may be recalled that the Kirit Parikh Committee has suggested freeing of auto fuel prices and raising kerosene prices by Rs 6 a litre and cooking gas Rs 100 per 14.2-kg cylinder.

As per reports, the finance ministry has budgeted only Rs 14,954 crore cash compensation for the three state-owned oil marketing firms (PSU OMCs) for 2009-10 against their demand of Rs 31,000 crore for selling cooking fuel below the cost. Additionally, the three PSU OMCs will make a revenue loss of around Rs 14,000 crore on retail sale of petrol and diesel in the current financial year, which will be fully met by the upstream companies - ONGC, OIL India and GAIL India.

Earlier, PSU OMCs were given oil bonds to make up their revenue losses, but on Friday, the Finance Minister made it clear that the government was against continued fuel subsidies and would not give oil bonds.

Though the Finance Minister said that the government will implement the Direct Tax Code from 1 April 2011, there is no clarity on actual changes in direct taxes from 1 April 2011. Further, there is also uncertainty with regards to rates under the new GST. One really does not know what the Central GST rate will be in April 2011. States also will charge State GST on the same base as that of Central GST. So the States will have a big say in fixing the rate. It has also to be a revenue neutral rate (RNR) which therefore will involve a lot of arithmetical exercise involving all the taxes which will be subsumed in the GST. It is most uncertain what it will be.

Global rating agency Moody's Investor's Service said on Tuesday, 2 March 2010, the latest Budget represents a strong intention to renew fiscal discipline, which coupled with a fuel price increase announced last week are positive for its sovereign rating on India. Moody's rates India's local currency sovereign rating as Ba2 and assigned a positive outlook in December 2009.

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.

Meanwhile, the latest hike in petrol and diesel prices will further increase headline inflation. Higher inflation will put further pressure on interest rates which in turn may impact corporate and consumer confidence. However, Prime Minister Manmohan Singh on Monday tried to allay fears of fuel price hike stoking inflation. He said the direct effect on the Wholesale Price Index (WPI) will be no more than 0.4%.

Food prices will be keenly watched in coming weeks for the second and third round impacts of the fuel price rise. Market men see a 25 basis points hike in the repo and reverse repo rates each by the RBI at the April 2010 policy review.

The government has set its gross market borrowing target for 2010/11 at a record Rs 4.57 lakh crore, up by 1.3% percent from the previous year, sending bond yields into a tizzy and sparking fresh worries on liquidity.

The economy is likely to do better in the quarter to March than the three preceding quarters, Finance Secretary Ashok Chawla said on Friday. The economy grew a slower than expected 6% annually in the December quarter, data showed on Friday.

The manufacturing industry in February 2010 grew at its fastest pace in 20 months, expanding for the third month thanks to expanding output and new orders, a survey showed. The HSBC Markit Purchasing Managers' Index , based on a survey of 500 companies, rose to 58.5 in February, its strongest reading since June 2008, from 57.7 in January. A reading above 50 means activity is expanding.

Exports rose an annual 11.5% in January 2010 to $14.3 billion, the third consecutive rise after 13 straight months of decline, the government said on Tuesday. Imports rose 35.5% from a year earlier to $24.7 billion. The trade deficit stood at $10.4 billion in January compared with $5.4 billion a year earlier. Exports for April-January, the first 10 months of the 2009/10 fiscal year, were down 17.8% at $131.9 billion from the same period in the previous year.

European stock edged higher on Tuesday, tracking firmer US and Asian markets. The key benchmark indices in France, Germany and UK rose by between 0.35% to 0.46%.

Asian shares traded mostly higher Tuesday, with technology stocks gaining ground around the region, while Hong Kong lost ground after disappointing earnings results from HSBC. Chinese stocks were lower, with trade cautious ahead of China's annual parliament sessions starting Friday. The Australian dollar traded near a one-week high after the central bank raised its cash rate another quarter of a percentage point to 4%, in a move expected by most economists.

The key benchmark indices in Indonesia, South Korea, Japan and Taiwan rose by between 0.26% to 1.29%. But the key benchmark indices in China Singapore and Hong Kong fell by between 0.07% to 0.72%.

The pace of Chinese manufacturing eased last month, suggesting that slower government spending and steps to curb credit growth could be taking some of the steam out of the world's third-largest economy. The Purchasing Managers' Index (PMI) derived from a survey conducted by the China Federation of Logistics and Purchasing for the National Bureau of Statistics (NBS) fell to 52 in February from 55.8 in January.

Trading in US index futures indicated that the Dow could rise 20 points at the opening bell on Tuesday, 2 March 2010.

US markets kicked off March with gains on Monday, 1 March 2010 led by technology stocks after an encouraging report on chip sales and strong outlook from Sandisk. Some M&A activity too gave the broader market a boost. The Dow Jones Industrial Average gained 78.53 points, or 0.8%, to close at 10,403.79, led by Intel. The tech-heavy Nasdaq jumped 1.6%, while the S&P 500 added 1%.

In economic data, the ISM reported that the manufacturing sector continued to grow in February 2010, even though it fell to 56.5 from 58.4 in January, as the gauge remained over 50. On the consumer front, personal spending rose 0.5% in January, even though income gained only 0.1%. Spending on both durable and nondurable goods was strong.

In its second reading of fourth-quarter gross domestic product of US, the Commerce Department said the economy grew at a 5.9% annual rate, rather than the 5.7% pace it estimated last month.

Governments need to coordinate exit strategies but the pace at which they unwind stimulus measures depends on their individual circumstances, senior officials said on Saturday on the sidelines of a G20 deputy finance ministers' meeting.

Figures on Friday 26 February 2010 showed the British economy grew faster than previously estimated in the last three months of 2009, the quarter in which it emerged from the longest recession on record, but finance minister Alistair Darling reiterated his warning that support for the economy needed to remain in place.

Closer home, the BSE 30-share Sensex rose 343.01 points or 2.09% to 16,772.56. The barometer index rose 378.94 points at the day's high of 16,808.49 in late trade. The Sensex rose 8.90 points at the day's low of 16,438.45 in early trade.

The 50-unit Nifty rose 94.70 points or 1.92% to 5,017. Nifty March 2010 futures were at 5,034, at a premium of 17 points over spot closing of 5,017. Turnover in NSE's futures & options (F&O) segment was Rs 70,716.46 crore, sharply lower than Rs 1,16,981.30 crore on Friday, 26 February 2010.

The market breadth, indicating the overall health of the market, was strong. On BSE, 2042 shares rose as compared with 770 that declined. A total of 69 shares remained unchanged.

From the 30 share Sensex pack, 25 rose while rest declined.

The BSE Mid-Cap index rose 2.2% and the BSE Small-Cap index rose 2.33%. Both the indices outperformed Sensex.

All the sectoral indices on BSE rose. BSE Auto index (up 4.29%), Metal index (up 3.92%), Bankex (up 2.29%), and FMCG index (up 2.13%), outperformed the Sensex. BSE Oil & Gas index (up 0.11%), Realty index (up 0.31%), BSE PSU index (up 0.58%), Healthcare index (up 1.04%), Consumer Durables index (up 1.34%), BSE IT index (up 1.35%), Power index (up 1.81%) and Capital Goods index (up 1.91%), underperformed the Sensex.

BSE clocked a turnover of Rs 4179 crore, lower than Rs 5384.54 crore on Friday, 26 February 2010.

Index heavyweight Reliance Industries (RIL) rose 0.57%, extending Friday's 1.42% gains. RIL is reportedly on the verge of losing its bid for bankrupt petrochemical company LyondellBasell, as it baulks at rising valuation due to the recovering global economy, but that may help it focus on the possible acquisition of Canada's Value Creation.

RIL's bid for LyondellBasell, which it had raised 21% to about $14.5 billion from the initial $12 billion in November, may not be acceptable to creditors who are leaning towards the revival plan proposed by the current management, reports suggest.

FMCG stocks rose after a strong push for the rural sector in the Budget. Britannia Industries, ITC, United Spirits and Marico rose by between 0.78% to 4.27%.

Construction firms gained after the finance minister allocated Rs 1.73 lakh crore for infrastructure development in FY 2010-2011. Era Infra Engineering, Hindustan Construction Company, Larsen & Toubro, Gammon India, Punj Lloyd and Jaiprakash Associates rose by between 0.8% to 3.73%.

IT stocks rose on strong US economic data. US is the biggest export market for the Indian IT companies. Tata Consultancy Services, Wipro, Infosys rose by between 0.28% to 3.34%.

Shares of pharmaceutical firms rose after finance minister Pranab Mukerjee increased the weighted deductions for in house research and development from 150% to 200%. Wockhardt, Sun Pharmaceuticals Industries, Jubilant Organosys, Glenmark Pharma, Venus Remedies, Piramal Healthcare, Biocon and Suven Life Sciences rose by between 0.25% to 5.55%.

Auto stocks extended Friday's sharp gains as the government hiked the excise duty by 2% to 10% from 8% earlier. This came as a relief as the industry was fearing a 4% hike. A thrust on infrastructure and higher rural spending also augur well for the auto sector.

Ashok Leyland and Hero Honda Motor rose 4.72% to 1.42% respectively.

India's largest car maker by sales Maruti Suzuki India rose 1.78%, extending Friday's 4.46% gains as total vehicle sales rose 22% to 96,650 units in February 2010 over February 2009. The company has raised vehicle prices by Rs 3,000-Rs 13,000 following increase in excise duty in the Budget

India's largest tractor maker by sales Mahindra & Mahindra jumped 4.65%, after total vehicle sales surged 39.51% to 27,894 units in February 2010 over February 2009.

India's largest commercial vehicle maker by sales Tata Motors rose 12.1% as total vehicle sales rose 58.46% to 69,427 units in February 2010 over February 2009.

Bajaj Auto gained 1.73%, after total vehicle sales surged 75% to 2.68 lakh units in February 2010 over February 2009.

TVS Motor Company jumped 9.52%, after the company's total two wheeler sales rose 31% to 1,40,544 units in February 2010 over February 2009.

Another minor positive for auto companies was higher slabs for personal income tax that would leave more finance in hands of individuals.

Banking stocks gained after the finance minister said RBI is considering giving some additional banking licenses to private sector players. ICICI Bank, State Bank of India and HDFC Bank rose by between 0.64% to 2.94%.

Shares of state-run bank got a boost from the Finance Minister's proposal to provide Rs 16500 crore for recapitalisation to enable them to maintain minimum capital adequacy at 8% in tier I capital by 31 March 2011.

Metal stocks rose after LMEX, a gauge of six metals traded on the London Metal Exchange, rose 1.76% on Monday, 2 March 2010. Tata Steel, Steel Authority of India, Hindalco Industries, National Aluminum Company, Sterlite Industries rose by between 1.15% to 6.18%.

The government's proposal to introduce a competitive bidding process for allocating coal blocks for captive mining would ensure greater transparency and increased participation in production from these blocks. Coal is one of the key raw materials for the metal producers. The FM has also proposed to take steps to set up a "Coal Regulatory Authority" to create a level playing field in the coal sector. This would facilitate resolution of issues like economic pricing of coal and benchmarking of standards of performance.

India's largest power equipment maker by sales Bharat Heavy Electricals rose 3.15% after the company secured orders aggregating Rs 5778 crore to set up two coal-based power plants in Maharashtra.

Shares non-banking financial firms spurted after finance minister said the central bank is considering granting banking licenses to non-banking financial companies if they meet the criteria. Shriram Transport Finance Company, Bajaj Auto Finance, IDFC, IFCI and Reliance Capital rose by between 0.6% to 4.58%.

Realty shares fell as construction services have now been brought under the ambit of the service tax in an unexpected move that would raise cost of apartments that are still under construction. Indiabulls Real Estate, DLF, HDIL, Omaxe, Parsvnath Developers fell by between 0.19% to 1.65%.

As per the Budget proposal, the finance ministry has suggested that construction would be deemed to be a taxable service if the building or complex is still under construction and approval from the concerned regulatory authority which in most cases is the resident municipal authority, hasn't yet been granted.

On the positive side, the Finance Minister allowed pending projects to be completed within a period of five years instead of four years for claiming a deduction on profits. The norms for built-up area of shops and other commercial establishments in housing projects is also proposed to be relaxed to enable basic facilities for their residents.

PSU OMCs fell even as petrol prices rose about 6% and diesel prices by 7.75%. The Finance Minister has provided only Rs 3108 crore towards oil subsidy for 2010-2011 and also indicated that he will not issue bonds this year as well. BPCL, HPCL and Indian Oil Corporation fell by between 1.87% to 3.75%. Rise in fuel price will help oil marketing companies cut underrecoveries on domestic sale of petrol, diesel, kerosene and LPG at government controlled prices.

Cement stocks rose as cement companies across all capacities have reportedly hiked prices in the range of Rs 10-12 a bag, to offset the twin effects of the excise duty hike and the rise in diesel rates. ACC, Ambuja Cements, Ultratech Cements and Birla Corporation of India rose by between 0.75% to 4.3%.

Shri Ashtavinayak Cibe Vision clocked the highest volume of 2.31 crore shares on BSE. Cals Refineries (2.02 crore shares), Unitech (0.96 crore shares), IFCI (0.7 crore shares) and SpiceJet (0.66 crore shares) were the other volume toppers in that order.

Tata Motors clocked the highest turnover of Rs 239.87 crore on BSE. Tata Steel (Rs 125.15 crore), DLF (Rs 102.69 crore), Reliance Capital (Rs 100.62 crore) and HDIL (Rs 94.08 crore) were the other turnover toppers in that order