Sensex retraces from two-month high; breadth negative

The key benchmark indices cut gains in the later half of day's trade after hitting their highest level in nearly two months earlier in the day. The BSE 30-share Sensex was provisionally up 106.39 points or 0.61%, off close to 90 points from the day's high. The market breadth turned weak in contrast to a strong breadth earlier in the day. World stocks rose after the US Fed held benchmark rates near zero and maintained its pledge to keep them low for an extended period.

Metal stocks rose on gains in metal prices on London Metal Exchange on Tuesday, 16 March 2010. Capital goods stocks also rose. But realty stocks fell. Index heavyweight Reliance Industries trimmed early gains.

The market surged in early trade tracking firm global stocks. It extended gains in morning trade. The market trimmed gains in early afternoon trade after hitting its highest level in nearly two months in morning trade. The market moved in a narrow range in afternoon trade. A bout of volatility was witnessed in mid-afternoon trade as the Sensex traded off the day's highs.

Equities have 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 9225.19 crore this month, till 16 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.

European shares hit two-month highs on Wednesday, led by the banking sector, after the US Federal Reserve pledged to keep interest rates near zero for an extended period. The key benchmark indices in France, Germany and UK rose by between 0.21% to 0.49%.

Earlier in the day Asian stocks rose boosted by the Fed decision. The key benchmark indices in China, Hong Kong, Japan, Indonesia, South Korea, Singapore and Taiwan rose by between 0.79% to 3.25%.

The Bank of Japan kept its key interest rate unchanged at 0.1% Wednesday by unanimous vote, as had been widely expected, and also announced plans to double the scale of a lending program introduced in December 2009. The central bank also said it will encourage a decline in the longer-term interest rates by substantially increasing the amount of funds to be provided through the fixed-rate operation.

Meanwhile, the World Bank raised its 2010 growth and inflation forecasts for China and recommended a tighter monetary policy as well as a stronger exchange rate to restrain inflation expectations and asset bubbles.

Trading in US index futures indicated that the Dow could gain 22 points at the opening bell on Wednesday, 17 March 2010.

US markets closed higher on Tuesday, 16 March 2010 after the Federal Reserve held benchmark rates near zero and renewed its pledge to keep them exceptionally low for an extended period. The S&P 500 closed at highest levels since October 2008. Weakness in the dollar aided the rally in US stocks.

In other important economic data, Housing starts for February hit a higher-than-expected rate of 5,75,000 and building permits for February made a smaller-than-expected dip to an annualized rate of 6,12,000. The Dow Jones Industrial Average closed 43.83 points or 0.41% higher at 10,685.98. The Nasdaq Composite ended at 2,378.01, up 15.80 points or 0.67% and the S&P 500 was at 1,159.46, up 8.95 points or 0.78%.

The US Federal Reserve renewed its pledge on Tuesday to keep interest rates near zero for an "extended period" even as it sounded more upbeat about jobs. Still, it repeated its view that the economy's recovery would likely be moderate for a time and that inflation was likely to remain subdued. The US Central Bank said that the Fed's policy continues to anticipate that economic conditions, including low rates of resource utilisation, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the Federal funds rate for an extended period.

International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn said on Wednesday he was worried countries were not working together closely enough to overcome the global economic crisis. Working together will help lay the groundwork for stronger and more stable growth, he told a committee in the European Parliament.

Close home, 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.

On the macro front, 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. The December inflation figure was revised upwards to 8.1% from 7.3%. Rising inflation and the government's plan to borrow a record $100 billion in the fiscal year that starts 1 April 2010, most of which is expected in the first half, have weighed on bond prices.

Finance Minister Pranab Mukherjee on Tuesday expressed hope that the economy would soon return to a high growth trajectory, but cautioned that high inflation and heavy borrowings posed significant challenges. India could see double-digit inflation in March, the Finance Minister said.

C Rangarajan, chairman of Prime Minister's economic advisory council on Tuesday expressed concern over rising inflation and said he is hopeful that the numbers will come down in a few months because of the decline in food prices.

The Reserve Bank of India should consider carefully returning to normal monetary policy, Montek Singh Ahluwalia, deputy chairman of India's Planning Commission, said on Wednesday. He added that headline inflation is expected to come down over the next two months

Meanwhile, Railway minister Mamata Banerjee has reportedly refused to include any of the public sector companies under her ministry in the government's divestment plan, a development that could force the government to meet its sell-off target for the next fiscal from fewer companies.

As per provisional figures, the BSE 30-share Sensex was up 106.39 points or 0.61% to 17,489.57. The barometer index rose 193.60 points at the high of 17,576.78 in morning trade, its highest since 20 January 2010. The Sensex rose 6.29 points at the day's low of 17,389.47 in early trade.

The S&P CNX Nifty was up 35.10 points or 0.68% at 5233.20 as per provisional figures. It hit the day's high of 5260.50 in morning trade, its highest since 19 January 2010.

The BSE Mid-Cap index rose 0.14%. The BSE Small-Cap index fell 0.11%. Both these indices underperformed the Sensex.

BSE clocked a turnover of Rs 5104 crore, higher than Rs 3752.03 crore on Tuesday, 16 March 2010.

The market breadth turned weak in the latter part of the trading session. The breadth was strong earlier in the day. On BSE, 1231 shares advanced as compared with 1582 that declined. A total of 104 shares remained unchanged.

From the 30 Sensex stocks 23 stocks rose and the rest fell.

Index heavyweight Reliance Industries (RIL) fell 0.15% to Rs 1065.20 on profit taking after recent strong gains. The stock came off the day's high of Rs 1,082.90. Reliance Industries is reportedly seeking a joint venture with Atlas Energy to develop the US firm's Marcellus Shale gas operations. 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.

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.

Reliance Communications, India's No. 2 mobile services provider by sales rose 0.12% after the company said it has formed a partnership with Polycom Inc. to launch video conferencing services in India. Reliance said in a statement on Wednesday it expected a revenue upside of Rs 400 crore ($88 million) over 5 years from the tie-up.

India's largest car maker by sales Maruti Suzuki India fell 1.71% 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 1.01%. The company paid Rs 235 crore in advance tax in Q4 March 2010 versus nil payment a year earlier.

Metal stocks rose after LMEX, a gauge of six metals traded on the London Metal Exchange, rose 1.34% on Tuesday, 16 March 2010. Steel Authority of India, Sterlite Industries, National Aluminum Company, Jindal Saw, JSW Steel, Hindalco Industries rose by between 0.21% to 2.42%.

India's largest steel maker by sales Tata Steel rose 0.81%, gaining for the straight third day. 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) rose 1.7%, extending Tuesday's 2.8% gains. The company today 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, ABB, Bharat Heavy Electricals, BEML and Crompton Greaves rose by between 0.1% to 2.53%.

Realty shares reversed early gains 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, Phoenix Mills fell by between 0.08% 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.

Piramal Healthcare rose 1.41% after a leading foreign broker rated the stock as 'buy' with a 12 months price target of Rs 515 per share.

Triveni Engineering and Industries jumped 5.09%, extending gains for the second day after the company's board approved demerger of the steam turbine business into a separate company to be named Triveni Turbines.