Market surges as Ambani brothers end non-compete pact

The key benchmark indices surged in early trade as index heavyweight Reliance Industries (RIL) and Anil Dhirubhai Ambani group (ADAG) shares surged after the feuding Ambani brothers - Mukesh and Anil ended non-compete pact. Metal stocks gained as metal prices rose on the London Metal Exchange on Friday, 21 May 2010.

The market breadth was strong. All the sectoral indices on BSE rose. The S&P CNX Nifty was below the psychological 5,000 mark after crossing that level at the onset of the trading session. The BSE 30-share Sensex was up 216.02 points or 1.31%, off close to 60 points from the day's high and up close to 165 points from the day's low.

Volatility may remain high in near term as traders roll over positions in the derivatives segment from May 2010 series to June 2010 series ahead of the expiry of the near-month May 2010 contracts on Thursday, 27 May 2010.

Most Asian stocks rose on Monday tracking gains on Wall Street on Friday, 21 May 2010. However, investors remain cautious about fiscal and debt problems in the euro zone. The key benchmark indices in China, Indonesia, Hong Kong, Singapore and Taiwan rose by between 0.27% to 3.14%. But, the key benchmark indices in Japan and South Korea fell by between 0.04% to 0.28%.

Trading in US index futures indicated that the Dow could fall 26 points at the opening bell on Monday, 24 May 2010.

US stocks snapped a three-day losing streak on Friday as investors bought beaten-down shares including banks on bets the financial regulation bill won't be as onerous as some had feared. Bank shares rose a day after the US Senate approved a sweeping overhaul of regulation of Wall Street firms, capping months of wrangling over the biggest changes since the 1930s. The Dow Jones Industrial Average gained 125.38 points, or 1.25% to 10,193.39. The Standard & Poor's 500 Index jumped 16.10 points, or 1.50% to 1,087.69. The Nasdaq Composite Index rose 25.03 points, or 1.14% to 2,229.04.

Back home, India's monsoon rains are on track to hit the country's southern coast on 30 May 2010, and the Laila cyclone in the Bay of Bengal would not derail the vital June-September rainfall, a weather office spokesman told a news agency last week. The India Meteorological Department (IMD) in late April 2010 said rainfall is likely to be 98% of the long-term average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The quantum of rainfall in the crucial sowing month of July and distribution of rainfall during the monsoon season also holds key.

The latest data showed the food price inflation picked up for the second consecutive week in early May 2010. The food price index rose 16.49% in the year to 8 May 2010, a tad higher than the prior week's annual reading of 16.44% as fruit and vegetables prices climbed on the back of a heat wave. The fuel price index was steady at 12.33%, while the primary articles index was up 16.19% versus 16.76%

While the headline inflation declined to 9.59% in April 2010 from 9.9% rise in March 2010, the data for February 2010 was revised upwards to 10.06% from provisional figure of 9.89%, the latest government data showed. The RBI has forecast the headline inflation to ease to 5.5% at end-March 2011 on expectations of a normal monsoon.

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.

The RBI expects India's economy to expand 8% in the year ending March 2011 (FY 2011) with an upward bias, assuming a normal monsoon this year and sustenance of good performance of the industrial and services sectors on the back of rising domestic and external demand. The RBI at its annual policy review on 20 April 2010 said it will continue to monitor macroeconomic conditions, particularly the price situation closely and take further action as warranted.

In its World Economic Outlook in April 2010, the International Monetary Fund (IMF) pegged India's GDP growth forecast at 8.75% in calendar 2010 and 8.5% in calendar 2011. IMF's optimism was based on expectations of strengthening of domestic demand as the labour market improves. Expectations of increase in investment on the back of strong corporate profitability, rising business confidence and favourable financing conditions, were other factors cited by IMF for its prediction of strong growth in India's economy.

The fourth quarter corporate results have been decent. The combined net profit of a total of 2,301 companies rose 23.8% to Rs 58.802 crore on 24.3% rise in sales to Rs 5,82,064 crore in the quarter ended March 2010 over the quarter ended March 2009.

At 9:20 IST, the BSE 30-share Sensex was up 216.02 points or 1.31% to 16,661.63. The Sensex gained 279.30 points at the day's high of 16,724.91 in early trade. The index rose 49 points at the day's low of 16,494.61 in early trade.

The S&P CNX Nifty was up 67.60 points or 1.37% to 4,998.75. It hit a high of 5,020.65.

The BSE Mid-Cap index rose 1.88% and the BSE Small-Cap index rose 2.04%.

The market breadth, indicating the overall health of the market was strong. On BSE, 1218 shares declined as compared to 178 shares that advanced. A total of 17 shares were unchanged.

From the 30 share Sensex pack, 23 stocks rose and rest fell.

Index heavyweight Reliance Industries (RIL) jumped 3.93% after the two Ambani brothers Mukesh and Anil took a step towards reconciliation in their long-running feud on Sunday, ending non-compete agreements. Both groups said they aim to reach a conclusion soon for a gas supply agreement between Mukesh Ambani's RIL and younger brother Anil's Reliance Natural Resources (RNRL).

The scrapping of the non-compete agreement between the two groups means RIL can enter financial services, telecom and infrastructure sectors whereas the ADAG can enter petroleum and petrochemical businesses. Reliance Industries and the ADAG said they agreed to cancel all existing non-compete pacts the groups had signed in 2006 and entered into a new non-compete pact only for gas-based power generation.

The settlement comes two weeks after the Supreme Court ruled in Mukesh Ambani's favour in a bitter public dispute over gas pricing. The court on 7 May 2010 ordered the brothers to renegotiate within six weeks a private natural gas supply contract between Reliance Industries and Reliance Natural Resources. The new contract must abide by a government price of $4.2 per million metric British thermal unit (mmBtu), compared with $2.34 per mmBtu the brothers agreed on in 2005 for a 17-year period.

Shares of Anil Dhirubhai Ambani group (ADAG) firms soared boosted by the truce between the two Ambani brothers. Reliance Infrastructure (up 7.44%), Reliance Communications (up 4.95%), Reliance Power (up 10.57%), Reliance Natural Resources (up 20%) and Reliance Capital (up 6.03%) jumped.

Tata Power Company fell 1.54% ahead of its Q4 result today.

India's largest FMCG maker by sales Hindustan Unilever fell 0.37% ahead of its Q4 result tomorrow, 25 May 2010.

Metal stocks rose after LMEX, a gauge of six metals traded on the London Metal Exchange, rose 2.91% on Friday, 21 May 2010. Sterlite Industries, Jindal Steel & Power, Jindal Saw, Hindalco Industries, JSW Steel, Tata Steel, Steel Authority of India, National Aluminum Company, Hindustan Zinc, rose by between 1.55% to 3.21%.