Small-cap, mid-cap indices nudge higher

Key benchmark indices ended slightly lower after witnessing intraday volatility, ending three-day winning streak. Fears of rise in interest rates following rise in food inflation weighed on the sentiment. Weak global cues also played spoilsport after strong gains on the domestic bourses over the past three trading session. Firm global stocks had aided the rally on the domestic bourses recently. The BSE 30-share Sensex was down 28.31 points or 0.17%, up 83.65 points from the day's low and off 53.26 points from the day's high. The Sensex fell below the psychological 17,000 mark. It had settled a tad above the 17,000 level on Wednesday, 3 March 2010.

India VIX, a volatility index based on the S&P CNX Nifty index option prices, rose after a recent steep slide. The index rose 1.11% to 20.98. The index had witnessed a steep fall in the previous three trading sessions after the government tabled the Union Budget for 2010-2011 in the parliament on Friday, 26 February 2010. 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.

The market drifted lower in early trade on profit taking after last three days' strong gains triggered by the finance minister's pledge to cut fiscal deficit in the Union Budget 2010-2011 late last week. The market recovered from lower level in morning trade. However, the intraday recovered proved short-lived. The Sensex hit a fresh intraday low in early afternoon trade. The market once again cut losses in mid-afternoon trade as select index pivotals rebounded from lower level.

Food price index rose 17.87% in the 12 months to 20 February 2010, faster than the annual rise of 17.58% in the previous week, government data released today, 4 March 2010 showed. The fuel price index was up 9.59%. The primary articles index rose 15%. Higher inflation is likely to add pressure on the central bank to raise interest rates in April 2010.

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.

Congress president Sonia Gandhi has reportedly signaled her support for a move to raise taxes on fuel in last year's Budget. The Congress president has reportedly praised finance minister Pranab Mukherjee for a well-balanced budget and said growth is the engine of the Budget

Prime Minister Manmohan Singh had earlier ruled out rolling back a price hike in 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 factory-gate taxes and import duties on the fuels as part of last week's 2010-11 union budget 2010-11, which stressed fiscal prudence to cut a wide deficit

Coming back to equities, the market breadth, indicating the overall health of the market, was strong. Telecom shares gained on fresh buying. Banking shares were mixed ahead of a meeting of bankers with the Reserve Bank of India tomorrow, 5 March 2010 to discuss the implementation of the base rate. Auto stocks declined on profit booking. Software pivotals slipped on reports top IT firms are mulling salary hike for the financial year 2010-11, which will impact profitability.

Business activity among Indian service companies grew at its fastest pace in 17 months in February 2010, climbing for the third straight month as both output and new orders increased, a survey showed on Wednesday, 3 March 2010. The HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 60.9 in February 2010, its highest since September 2008, and compared with 59 in January 2010. The business expectations sub-index rose for the second straight month to 73.1 in February 2010, its highest in four months. It stood at 66.6 in January 2010.

European stocks were lower Thursday as investors adopted a cautious stance ahead of key meetings of the Bank of England (BOE) and European Central Bank (ECB). As per market expectations, both the BOE and ECB are widely expected to keep rates at record lows. Key benchmark indices in UK, Germany and France were down by between 0.09% to 0.37%.

On Wednesday, Greece announced further austerity measures designed at getting its fiscal deficit down to levels acceptable to the rest of Europe. Ongoing worries about Greek debt are expected to be one reason for the European Central Bank policymakers to keep rates on hold on Thursday.

Asian shares were trading lower Thursday as Wall Street's tepid performance Wednesday failed to inspire markets, but shippers were up in Japan and mining plays were supporting Australian stocks. Investors were cautious ahead of the influential US jobs data for February 2010 on Friday, 5 March 2010. The key benchmark indices in Hong Kong, South Korea, Singapore, China, Japan and Taiwan were down by between 0.26% to 2.38%.

Wall Street ended little changed on Wednesday, 3 March 2010 as worries about bank regulation and a setback for drug company Pfizer offset signs of improvement in the labor market and services sector. The Dow Jones Industrial Average was down 9.22 points, or 0.09%, to 10,396.76 and the Nasdaq Composite Index fell 0.11 point at 2,280.68. However, the Standard & Poor's 500 Index was up 0.48 points, or 0.04%, at 1,118.79.

The Beige Book survey of economic conditions released Wednesday by the Federal Reserve gave mixed signals about prospects for the US economy. The economy again improved modestly in February, the survey said, but loan demand remained weak and there were no signs of improvement in the labor market.

Meanwhile President Barack Obama's administration moved to rein in America's largest banks Wednesday, sending Congress new rules blocking mega-mergers and barring investments seen as too risky. With Obama's presidency still dominated by the economic fallout from the banking crisis, the Treasury sent lawmakers proposed new rules that would prevent financial firms from becoming "too-big-to-fail."

The rules would ban government-insured banks from mergers and takeovers if the new company would hold more than 10% of the sector's debt, according to the proposals. Banks would also be barred from trading in stocks or other, sometimes risky, financial instruments for their own benefit -- so-called proprietary trading. The Obama administration was forced to pump hundreds of billions of dollars into the US financial sector to cover losses from complex financial investments linked to the subprime mortgages.

Trading in US index futures indicated a flat opening of US markets on Thursday, 4 March 2010.

Closer home, Finance minister Pranab Mukherjee's budgetary proposals last week offered a progressive cut in fiscal deficit over the next three fiscal years, changed personal tax rates lifting disposable incomes in the hand of individuals and reduced surcharge on corporate tax for domestic companies to 7.5% from 10%.

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.

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.

Finance Minister Pranab Mukherjee on Wednesday said India's economic recovery is still being driven by public spending and is not yet broad-based, further clouding the debate on the timing of rate hikes by the central bank.

The economy is likely to do better in the quarter to March than the three preceding quarters, Finance Secretary Ashok Chawla said on Friday, 26 February 2010. 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.

The BSE 30-share Sensex was down 28.31 points or 0.17% to 16,971.70. The index fell 111.96 points at the day's low of 16,888.05 in afternoon trade. The Sensex rose 24.95 points at the day's high of 17,024.96 in early trade.

The S&P CNX Nifty was down 7.85 points or 0.15% to 5080.25

The market breadth, indicating the overall health of the market, was strong. On BSE, 1721 shares advanced as compared with 1173 that declined. A total of 77 shares remained unchanged.

The BSE Mid-Cap index rose 0.78% to 6,693.93 and the BSE Small-Cap index rose 0.81% to 8,430.32. Both these indices outperformed the Sensex.

Sectoral indices on BSE displayed mixed trend. The BSE Metal index (up 1.56%), the BSE Realty index (up 2.50%), and the BSE Consumer Durables index (up 1.62%), outperformed the Sensex.

The BSE Oil & Gas index (down 0.63%), the BSE IT index (down 1.03%), ands the BSE Teck index (down 0.67%), underperformed the Sensex.

The total turnover on BSE amounted to Rs 5221 crore, higher than Rs 5037 crore on Wednesday, 3 March 2010

Among the 30-member Sensex pack, 16 gained while the rest slipped. Hindalco (down 1.35%), HDFC (down 0.74%), and ONGC (down 0.44%), edged lower from the Sensex pack.

Telecom shares gained on fresh buying. India's second largest cellular services provider by sales Reliance Communications surged 2.12% to Rs 164.10 and was the top gainer from the Sensex pack. India's largest cellular services provider by sales Bharti Airtel rose 0.07%.

The Centre on 25 February 2010 issued notices inviting bids from private telecom players to participate in the auction of radio frequency spectrum for third generation (3G) telephony. The schedule calls for the process to end on 10 April 2010. The government also said auction for spectrum for broadband services will also be held two days after the process concludes for 3G spectrum.

3G or third generation telecom services allow faster connectivity than what is available now, and will enable applications such as internet TV, video-on-demand, audio-video calls and high-speed data exchange.

Realty shares gained after the Finance Minister while presenting the Union Budget 2010-11 said pending projects will be allowed 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.

DLF (up 1.99%), Unitech (up 3.49%), Indiabulls Real Estate (up 3.99%), HDIL (up 1.83%), Omaxe (up 1.75%), and Parsvnath Developers (up 2.29%), gained.

Banking shares were mixed ahead of the meeting of bankers with the Reserve Bank of India tomorrow, 5 March 2010 to discuss the implementation of the base rate. India's largest bank by net profit and branch network State Bank of India rose 0.71%. India's second largest private sector bank by net profit HDFC Bank rose 0.06%

However, India's largest private sector bank by net profit ICICI Bank declined 1.21%.

As per reports, with the 1 April 2010 deadline to migrate to the base rate model fast approaching, bank chiefs are likely to raise concerns about the new system and seek an extension of the deadline during their scheduled meeting with top Reserve Bank (RBI) officials tomorrow. The base rate is a function of the cost of deposits.

IT pivotals slipped on reports the three IT majors Infosys, Wipro and TCS are mulling salary hike for the financial year 2010-11, which will impact profitability. According to a media reports, the three IT giants are planning to hike salaries in the 8% to 12% range from 1 April 2010.

India's second largest software firm by sales Infosys Technologies lost 0.98% and India's largest software firm by sales TCS slipped 0.90%.

India's third largest software firm by sales Wipro fell 0.74% and India's fourth largest software firm by sales HCL Technologies declined 0.40%.

The rupee rose to fresh six week highs on Thursday as strong regional peers boosted sentiment, but marginal losses in the domestic stock market prevented a further sharp upside. The partially convertible rupee was at 45.80/81 per dollar, slightly stronger than 45.82/83 at close on Wednesday. A firm rupee adversely affects operating profit margins of IT firms as the sector derives a lion's share of revenue from exports.

Index heavyweight Reliance Industries (RIL) fell 0.89% to Rs 1012.90, off the day's high of Rs 1033.50. The stock halted three-day gains on profit booking. As per reports, RIL has no plans to increase its bid for bankrupt chemicals maker LyondellBasell Industries after creditors rejected a $14.5 billion offer.

Auto stocks dipped on profit booking after the recent gains which came on the back of the government announcing hike in excise duty by 2% to 10% from 8%. This came as a relief as the industry feared a 4% hike. A thrust on infrastructure and higher rural spending also augur well for the auto sector.

India's largest two-wheeler maker Hero Honda Motors fell 0.27%. The company on Tuesday reported a 16.13% increase in its sales at 3,82,096 units in February 2010 over February 2009, the best-ever reported by the company for the month of February.

India's largest car maker by sales Maruti Suzuki India fell 1.31%. The 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 commercial vehicle maker by sales Tata Motors fell 0.07% to Rs 806.95. The stock oscillated in a band of Rs 828.50 - Rs 798.20 in volatile trade. The company's total vehicle sales rose 58.46% to 69,427 units in February 2010 over February 2009.

India's largest tractor maker by sales Mahindra & Mahindra rose 0.07%. The company's total vehicle sales surged 39.51% to 27,894 units in February 2010 over February 2009.

India's second largest private sector power generation firm by sales Tata Power declined 0.35% to Rs 1329.90. Three bulk deals aggregating 22.50 lakh shares were executed on Tata Power scrip in opening trade on BSE at an average price of Rs 1337.51 a piece.

However, other power generation stocks gained. NTPC (up 0.27%), Torrent Power (up 0.35%), Reliance Infrastructure (up 1.79%), and Adani Power (up 0.89%), rose.

India's largest non-ferrous metal maker by sales Sterlite Industries India rose 0.08% after the company's American depository receipt, or ADR rose 2.22% to $17.93 on the New York Stock Exchange on Wednesday, 3 March 2010.

Sesa Goa soared 7.27% as strong demand lifted spot iron ore prices over the past few months. The stock hit a lifetime high of Rs 457.35 in intra-day trade today, 4 March 2010.

Hindustan Zinc surged 5.53% as metal prices rose on the London Metal Exchange on Wednesday, 3 March 2010.

Shipping shares rose after the Baltic dry index, which tracks rates to ship dry commodities, jumped 4.26% to 2,911 in London on Wednesday, 3 March 2010.

Mercator Lines (up 3.60%), Shipping Corporation of India (up 2.23%), Shreyas Shipping (up 1.88%), Varun Shipping Company (up 2.08%), GE Shipping Company (up 1.51%), and Essar Shipping (up 5.26%), edged higher.

The Baltic Dry Index (BDI) is showing signs of recovery in the New Year. During the depth of the global economic crisis in 2008, the BDI shed 90% of its value. In fact, from an all time high of 11,793 on 20 May 2008, the index nosedived to an all-time low of 663 in October 2008 as the global demand for raw materials slumped.

Fertliser shares gained on momentum buying. Zuari Industries (up 15.03%), Coramandel International (up 7.74%), Chambal Fertiliser (up 3.33%), Tata Chemicals (up 3.03%), and Deepak Fertiliser (up 2.27%), gained.

Moser Baer India climbed 5.07% after the government last week in its Union Budget for 2010-2011 offered tax breaks on products needed to set up solar power plants.

Sulzer India was locked at upper limit of 20% after the company said its Swiss parent plans to acquire the remaining stake of the company and delist its shares from the stock exchanges. The announcement was made during trading hours today, 4 March 2010.

Titan Industries rose 3.80% after the company's managing director Bhaskar Bhat told the media today, 4 March 2010, that the firm plans capital expenditure of about Rs 100 crore in the financial year 2010-2011.

Cals Refineries clocked the highest volume of 1.51 crore shares on BSE. Suzlon Energy (1.14 crore shares), Unitech (91.03 lakh shares), ARSS Infrastructure (85.38 lakh shares) and IFCI (62.43 lakh shares) were the other volume toppers in that order.

ARSS Infrastructure clocked the highest turnover of Rs 656.15 crore on BSE. Tata Power (Rs 313.58 crore), Tata Motors (Rs 140.45 crore), Sesa Goa (Rs 139.78 crore) and Tata Steel (Rs 110.72 crore) were the other turnover toppers in that order.