Interest rate sensitive stocks rally

The market moved higher last week as global stocks rallied after European leaders on 9 May 2010 announced a rescue package to prevent Greece's fiscal woes from triggering a broader sovereign-debt crisis in the region. Most sectoral indices on BSE rose.

The BSE Realty index led the rally in sectoral indices, followed by Auto, Consumer Durables, Bankex, FMCG and IT index in that order. The BSE Metal and Capital Goods indices ended lower.

On the macro front, the latest economic data showed industrial output rose lower than expected 13.5% in March 2010. The growth was also slower than February's 15.1% expansion. Manufacturing sector output rose 14.3% in March 2010. Industrial output rose 10.4% in the 2009/10 fiscal year, faster than the 2.6% growth clocked in the previous fiscal year.

FII outflow in May 2010 totaled Rs 2,355.70 crore, while the inflow in the calendar year 2010 totaled Rs 27,650.10 crore (till 12 May 2010). Foreign institutional investors (FIIs) are the key driver of the Indian market.

The fourth quarter corporate results announced so far have been fairly encouraging. The combined net profit of a total of 1,713 companies rose 26.5% to Rs 47972 crore on 27.5% rise in sales to Rs 479207 crore in the quarter ended March 2010 over the quarter ended March 2009.

The BSE Sensex 225.49 points or 1.34% to 16,994.60 in the week ended Friday, 14 May 2010. The S&P CNX Nifty rose 75.45 points or 1.5% to 5,093.50 in the week.

The BSE Mid-Cap index rose 1.58% and the BSE Small-Cap index gained 1.16% in the week. The Mid-Cap index outperformed the Snesex. But the Small-Cap index underperformed the Sensex.

Trading for the week began on an upbeat note. The key benchmark indices recouped a large portion of previous week's steep losses in a single trading session on Monday, 10 May 2010, as global stocks rallied after European leaders on Sunday, 9 May 2010, announced a rescue package to prevent Greece's fiscal woes from triggering a broader sovereign-debt crisis. The BSE 30-share Sensex surged 561.44 points or 3.35% to 17,330.55. The S&P CNX Nifty rose 175.55 points or 3.5% to 5,193.60.

The key benchmark indices edged lower in choppy trade on Tuesday, 11 May 2010, as world stocks retreated after previous session's (10 May 2010) solid surge amid uncertainty over euro-zone countries' ability to reduce their deficits. The BSE 30-share Sensex fell 189.02 points or 1.09% to 17,141.53. The S&P CNX Nifty declined 57.45 points or 1.11% to 5,136.15.

The key benchmarks eked out small gains in volatile trade Wednesday, 12 May 2010, on higher European stocks and recovery in US index futures. Interest rate sensitive banking and realty stocks rose as lower-than-expected growth in industrial production in March 2010 helped ease rate-hike worries. The BSE 30-share Sensex rose 54.28 points or 0.32% to 17,195.81. The S&P CNX Nifty rose 20.50 points or 0.4% to 5156.65.

The key benchmark indices gained for the second consecutive session on Thursday, 13 May 2010, as Asian stocks rose. The BSE 30-share Sensex rose 70.06 points or 0.41% to 17,265.87. The S&P CNX Nifty was up 22.25 points or 0.43% to 5178.90.

The key benchmark indices slumped again on Friday, 14 May 2010, tracking weak European stocks and lower US index futures. The BSE 30-share Sensex fell 271.27 points or 1.57% to 16,994.60. The S&P CNX Nifty fell 85.40 points or 1.65% to 5,093.50.

India's largest truck maker by sales Tata Motors rose 6.98%. The company's global vehicles sales rose 53% to 77,732 units in April 2010 over April 2009. Global sales include that of Jaguar and Land Rover brands, which rose 61% to 17,909 vehicles.

India's largest tractor maker by sales Mahindra & Mahindra rose 6.98%. However, India's largest two-wheeler maker by sales Hero Honda Motors fell 0.72% and India's largest car maker maker by sales Maruti Suzuki India fell 1.36%.

Private sector power utility and infrastructure firm Reliance Infrastructure rose 4.69% to Rs 1026. A prominent foreign broker maintained overweight rating on the stock with a revised target price of Rs 1280 per share.

According to the brokerage, although a Supreme Court ruling on gas sales went against the company, it has removed a big overhang from the stock. The focus will now move toward execution of the various power and infrastructure projects, which will drive stock performance, the report added. The Supreme Court ruled in favour of Mukesh Ambani controlled Reliance Industries on a gas dispute with Anil Dhirubhai Ambani Group's Reliance Natural Resources (RNRL). Reliance Infrastructure is a part of the Anil Dhirubhai Ambani Group.

Another private sector power utility Tata Power Company rose 3.93%.

India's largest realty developer by market capitalisation DLF rose 4.81%. India's second largest realty developer by market capitalisation Unitech rose 4.08%.

India's largest private sector bank by market capitalisation ICICI Bank rose 4.03%. Private sector lender HDFC Bank rose 5.73%. However, state-run State Bank of India fell 0.17%.

Index heavyweight Reliance Industries (RIL) rose 0.94%. The Supreme Court ordered the two firms - Reliance Industries and Reliance Natural Resources (RNRL) to renegotiate a gas deal based on government policy on gas utilization.

Earlier, the Bombay High Court, in its order dated 15 June 2009 had directed that RNRL will get assured supply of 28 mmscmd of gas from RIL's Krishna-Godavari basin for 17 years at $2.34 per million British thermal units (mBtu). The gas price was 44.28% lower than the price fixed by the government for gas sale from the RIL block in the KG basin at $4.2 mBtu.

Drug maker Cipla tumbled 8.35% on disappointing fourth quarter result. It was the biggest loser in the Sensex last week. The company's net profit rose 8.93% to Rs 275.53 crore in Q4 March 2010 over Q4 March 2009. The result was announced after market hours on Friday, 7 May 2010.

Telecom stocks tumbled after the telecom regulator suggested telecom firms to pay a one-time fee for holding radio-spectrum beyond 6.2 mega hertz based on 3G prices. Idea Cellular (down 10.53%), Bharti Airtel (down 8.08%) and Reliance Communication (down 5.46%), tumbled.

Trai chairman JS Sarma was quoted by media as saying the plan to charge a one-time fee for holding 2G radio spectrum in excess of 6.2 MHz would mean mobile phone companies must pay Rs 30,000-35,000 crore more to the government. The worst affected companies will be Bharti Airtel, BSNL, Idea Cellular and Vodafone Essar, which hold 2G spectrum beyond 6.2 megahertz (MHz).

Investors are concerned as Trai's recommendations will have negative impact on the industry. After soaring 3G auction rates, which is to be followed by broadband auctions, telecom companies may now have to pay extra for 2G. This coupled with uncertainties in the sector and one paise per second tariffs could continue to weigh on telecom stocks.