Frontline stocks outperform side counters

Anticipation of robust corporate financial performance boosted the domestic bourses after front line companies paid higher advance taxes for the first quarter ended June 2010. Rally in world stocks aided the rally on the domestic bourses as euro zone debt worries eased. The market rose in four out of five trading sessions last week.



Global rating agency Fitch Ratings raised India's local currency rating outlook to stable from negative. It forecast a decline in government debt to GDP ratio to 80% by March 2011 from 83% at the end of March 2010. It also upgraded India's growth forecast to 8.5% in the year to March 2011 from earlier forecast of 7% growth.

The government data released on 14 June 2010 showed a surge in headline inflation. Inflation based on the wholesale price index (WPI) rose an annual 10.16% in May 2010, faster than 9.59% rise in April 2010, government data showed on Monday. Meanwhile, inflation for March 2010 was revised upwards to 11.04% from a provisional rise of 9.9%.

Annual monsoon rains in the week to 16 June 2010 were 8% below normal, the India Meteorological Department (IMD) said on 17 June 2010. As per IMD update on 17 June 2010, southwest monsoon has further advanced into some more parts of east Madhya Pradesh, Chhattisgarh and Orissa.

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. Monsoon rains had hit Kerala on 31 May 2010, a day ahead of schedule. The south-west monsoon usually covers the entire country by mid-July. The weather office 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 government after market hours on Tuesday, 15 June 2010, proposed to impose capital gains tax on all stock market transactions by Indians and overseas funds as a part of changes in tax laws. As per the second draft of the direct tax code (DTC), the securities transaction tax (STT) will stay and rates will be calibrated. In its first draft DTC unveiled last year, the government had proposed to scrap the securities transaction tax.

The DTC has proposed taxing gains from investments in the stock market and also equity-linked mutual fund units at the applicable rate of taxation. The DTC has also proposed some taxes on income of foreign funds, treating all incomes from their investments in the stock market in India as capital gains.

The revised discussion paper on DTC has proposed computation of minimum alternate tax (MAT) on book profits basis. The earlier code had proposed MAT on gross assets. The revised discussion paper also makes it clear that profit-linked deductions of units already operating in special economic zones would be protected for the unexpired period. The tax proposals, which will replace the existing direct tax laws introduced decades ago, are expected to come into force in the next financial year starting 1 April 2011.

The BSE Sensex rose 505.87 points or 2.96% to 17,570.82 in the week ended 18 June 2010. The S&P CNX Nifty rose 143.25 points or 2.79% to 5262.60 in the week.

The BSE Mid-Cap index 1.32% and the BSE Small-Cap index 2.41%. Both the indices underperformed the Sensex.

The key benchmark indices logged gains for the fourth running day on Monday, 14 June 2010, after global rating agency Fitch Ratings raised India's local currency rating outlook to stable from negative. The BSE 30-share Sensex rose 273.22 points or 1.60% to 17,338.17. The S&P CNX Nifty rose 78.35 points or 1.53% to 5,197.70.

Key benchmark indices extended gains for the fifth day in a row on Tuesday, 15 June 2010, buoyed by good initial batch of first quarter advance tax figures from frontline companies. The BSE 30-share Sensex was up 74.66 points or 0.43% to 17,412.83. The S&P CNX Nifty was up 24.65 points or 0.47% to 5,222.35.

The key benchmark indices extended gains for the sixth day in a row on Wednesday, 16 June 2010 to settle at one and half month highs as bulls continued to lap up stocks in anticipation of robust financial performance after frontline companies paid higher advance taxes for the first quarter ended June 2010. The BSE 30-share Sensex was up 50.04 points or 0.29% to 17,462.87. The S&P CNX Nifty was up 11 points or 0.21% to 5,233.55.

The key benchmark indices extended gains for the seventh day in a row on Thursday, 17 June 2010, to settle at one and a half month highs after a largely successful Spanish bond auction eased worries about the euro-zone crisis. The BSE 30-share Sensex jumped 153.82 points or 0.88% to 17,616.69. The S&P CNX Nifty was up 41.50 points or 0.79% to 5,274.85.

The key benchmark indices declined on Friday, 18 June 2010 as shares from Mukesh Ambani and Anil Ambani pack fell after Mukesh Ambani gave no details of reconciliation between the two brothers at Reliance Industries' (RIL) annual general meeting. The BSE 30-share Sensex fell 45.87 points or 0.26% to 17,570.82. The S&P CNX Nifty fell 12.25 points or 0.23% to 5,262.60.

From the 30 Sensex stocks, 26 rose, 3 fell and one was unchanged in the week.

Realtor DLF was the major Sensex gainer last week. The stock rose 7.64% to Rs 282.45. Some reports suggested that Malaysian sovereign wealth fund Khazanah is close to buying a controlling stake in Aman Resorts from DLF for about $300-$350 million. According to reports, the deal, if concluded, will help DLF cut large debt pile.

India's largest engineering and construction company by revenue Larsen & Toubro jumped 7.21% to Rs 1798.3. The company on Friday, 18 June 2010 said it secured orders aggregating Rs 1440 crore.

India's second largest listed telecom company by sales Reliance Communications climbed 6.89% to Rs 184.5. The company has decided to restructure the ownership of its telecom infrastructure subsidiary, Reliance Infratel.

Reliance Communications (RCom) said its board has approved a proposal to bring investors into its tower unit, Reliance Infratel to create an independent telecom infrastructure business. RCom is looking at options including a demerger and/or other suitable value-creating options, and would be paid in cash and stock. RCom, which had earlier planned to sell 10% of Reliance Infratel through an initial public offering, said it was in advanced stage talks with several international and local strategic and financial players for the tower unit stake and expected to announce a deal shortly.

Sterlite Industries (up 6.87%), Wipro (up 5.62%), Infosys Technologies (up 5.62%), Jindal Steel & Power (up 4.74%), ITC (up 4.73%), Jaiprakash Associates (up 4.60%), were other major Sensex gainers in that order.

Index heavyweight Reliance Industries rose 0.86% to Rs 1055.25. RIL chairman Mukesh Ambani said on Friday, 18 June 2010 at the company's AGM that RIL is ready for a big surge forward. He also said that RIL looks forward to harmonious, constructive relationship with the Anil Dhirubhai Ambani (ADAG) group, adding that RIL will supply gas to ADAG group.

He said RIL aims to build a significant position in the shale gas business and that RIL will commit capital to accelerate development of shale gas. He also said the end of non-compete agreement with ADAG group has opened up unbounded opportunities in the power sector, which would be a growth engine for Reliance Industries. The company has plans for mega investments in the power sector and aims to bring project initiative to the sector.

The RIL chairman said RIL will follow an "asset light" approach in telecom and collaborate with partners. RIL had recently announced its foray into the telecom sector by acquiring majority stake in Infotel Broadband Services, which emerged as the sole player to win a nationwide wireless broadband licence in an auction.

Reliance Retail, with 1,150 stores pan-India is equipped to be a national leader in the organized retail sector, he added.

India's largest listed telecom operator by sales Bharti Airtel was the major Sensex loser last week. It lost 3.53% to Rs 264.85. The company added 3 million mobile subscribers in May 2010, taking its total subscriber base to 133.6 million.

India's largest passenger car maker by sales Maruti Suzuki (India) fell 0.39% to Rs 1351.2. Cement maker ACC fell 0.03% to Rs 860.95.