Metal shares lead rally as market scales 2-1/2 month high

Rally in Asian and European stocks boosted the domestic market after China said over the weekend that it will allow its currency more freedom to move against the US dollar, which should spur its economic growth. An end to the row over regulation of Unit Linked Insurance Products (Ulips), also aided the rally on the domestic bourses.



Buying was broad based with high-beta metal and realty stocks at the forefront of the rally. The 30-share BSE Sensex climbed 305.73 points or 1.74%, up 221.74 points from the day's low and off 43.07 points from the day's high. The Sensex and the Nifty attained their highest closing level nearly 2-1/2 months.

The market staged a strong rebound recently on a successful Spanish bond auction, heavy buying by foreign funds and robust advance tax figures reported by top corporates for Q1 June 2010. The Sensex has jumped 1,259.45 points or 7.5% in nine trading sessions from a recent low of 16,617.10 on 8 June 2010. The barometer index has risen 11.5% in less than a month from a low of 16,022.48 on 25 May 2010.

The Sensex has risen 2.35% in calendar 2010 so far after jumping 81% in 2009. The barometer index is off 0.52% from a recent peak of 17,970.02 on 7 April 2010.

Coming back to today's trade, NSE's volatility index, India VIX, which is a gauge of traders' perception of near-term risks in the market based on options prices, extended recent steep slide. The index declined 2.76% to 19.41. The index had lost 4.27% to 19.96 on Friday, 18 June 2010, a day after it had tumbled 8.03% on Thursday, 17 June 2010. India VIX is calculated based on the S&P CNX Nifty options prices. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

The market surged in opening trade on firm Asian stocks and following an end of a row over the regulation of unit linked insurance plans or Ulips. The Sensex and the Nifty hit their highest level in nearly 2 months since late April 2010. The market extended gains in morning trade, with the Sensex and the Nifty hitting their highest level in more than 2 months since mid-April 2010. The uptrend continued in mid-morning trade after the weather department said monsoon rains reached some regions of Gujarat.

The market was range bound in early afternoon trade. The key benchmark indices pared gains after hitting fresh intraday highs in mid-afternoon trade. The market pared gains in late trade as profit booking set in.

The onset of monsoon in soybean-producing Gujarat also improved sentiment. Monsoon rains have reached some regions of Gujarat, a leading producer of soybeans, the India Meteorological Department (IMD) said in its latest forecast. The annual July-September rains were passing through the central city of Indore, and western Rajkot and Ahmedabad among other places, the IMD added.

Between June 1-16, rains were 5% deficient due to super cyclone Phet over the Arabian sea. The cyclone slowed the initial progress of the monsoon which had hit the Kerala coast a day ahead of schedule on 31 May 2010. 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 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.

Meanwhile, in a major development, the government has ended the row over Ulip by promulgating an ordinance on Friday, 18 June 2010, stating that unit linked insurance policies with investment component are insurance products which will come under the regulatory jurisdiction of the Insurance Regulatory & Development Authority (Irda) and not the Securities & Exchange Board of India (Sebi). It amended four Acts to make it clear that Ulips are not securities and they did not form part of collective investment schemes or mutual funds.

These amendments nullify Sebi's April 9 ban on 14 insurance companies from issuing Ulips because they are made effective retrospectively from that date. While making it amply clear that Sebi has no regulatory jurisdiction over Ulips, the government has also ensured that Sebi or any other regulator will not step into the jurisdiction of other hybrid products.

Significantly, the ordinance has not only lifted the uncertainty that affected sale of Ulips but has also brought relief to thousands of unit holders who were worried about their investments ever since the turf war broke out between the regulators two months ago.

European shares rose for the ninth session after China allowed more flexibility in the yuan exchange rate, boosting confidence in the global economy. The key benchmark indices in UK, France and Germany were up 1.06% to 1.65%.

Asian stock markets powered higher Monday, 21 June 2010, after the People's Bank of China signaled over the weekend that it would end the yuan's de-facto peg to the US dollar. The Shanghai Composite index was up 2.90% and Hong Kong's Hang Seng was up 3.08%. The key benchmark indices in Japan, South Korea, Indonesia, Taiwan and Singapore were up by 0.42% to 2.43%.

Trading in US index futures indicated that the Dow jump 139 points at the opening bell on Monday, 21 June 2010.

Over the weekend, China's central bank announced plans to loosen the yuan's de-facto peg to the greenback. It also ruled out a one-time revaluation and said any strengthening of its currency would be gradual.

Back home, most Indian firms including Reliance Industries, L&T, Tata Steel and Tata Motors, have paid higher advance tax in Q1 June 2010 over Q1 June 2009. Higher advance tax payment normally indicates higher profits for the period under review. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year.

Coming back to stocks, foreign funds have made heavy purchases of Indian stocks over the past few days. Foreign funds bought equities worth a net Rs 4029.36 crore in seven trading sessions from 10 June 2010 to 18 June 2010, as per data from the stock exchanges. The net inflow totaled Rs 2940.67 crore in June 2010 so far (till 18 June 2010) compared to a massive outflow of Rs 12071.13 crore in May 2010.

Domestic funds, which had absorbed some of the heavy selling from foreign funds last month, offloaded stocks worth a net Rs 1451.67 crore this month so far. Domestic funds had mopped up equities worth a net Rs 6361.17 crore in May 2010.

Emerging-market equity funds received the second-largest net inflows this year in the week to 16 June 2010, according to the latest data from global fund tracker EPFR Global. Emerging equities funds got $2.5 billion, while emerging bond funds received $659 million in the week ended 16 June 2010.

Global rating agency Fitch recently raised India's local currency rating outlook to stable from negative as the rating agency 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 BSE 30-share Sensex rose 305.73 points or 1.74% at 17,876.55, its highest closing level since 9 April 2010. The Sensex rose 348.80 points at the day's high of 17,919.62 in mid-afternoon trade. The Sensex rose 83.99 points at the day's low of 17,654.81 in early trade.

The S&P CNX Nifty was up 90.70 points or 1.72% to 5,353.30, its highest closing since 9 April 2010. Nifty hit a high of 5,366.75 in mid-afternoon trade.

The BSE Mid-Cap index was up 1.29% and the BSE Small-Cap index was up 1.22%. Both the indices underperformed the Sensex.

The market breadth, indicating the overall health of the market, was strong. On BSE, 1828 shares advanced as compared with 1020 that declined. A total of 138 shares remained unchanged.

BSE clocked a turnover of Rs 4092 crore, lower than Rs 4467.68 on Friday, 18 June 2010.

The BSE Metal index (up 5.16%), Realty index (up 2.66%), Bankex (up 2.04%), Capital Goods index (up 1.77%), outperformed the Sensex.

Auto index (up 1.50%), Power index (up 1.39%), FMCG index (up 1.39%), Consumer Durables index (up 1.25%), Healthcare index (up 0.97%), Oil & Gas index (up 0.88%), IT index (up 0.66%) and PSU index (up 0.57%), underperformed the Sensex.

From the 30-share Sensex, 28 stocks rose and 2 declined.

India's largest listed telecom operator by sales Bharti Airtel fell 0.06%.

Metal stocks jumped as China's pledge to make its currency more flexible lifted prices of copper and other base metals in Shanghai on hopes the latest move will spur China's economic growth and increase its demand for commodities. China is already the world's largest consumer of copper and aluminum. Sesa Goa, Sterlite Industries, Tata Steel and Hindalco Industries rose by 5.61% to 9.54%.

High-beta realty stocks edged higher in a firm market. Mahindra Lifespace Developers, Unitech, Housing Development & Infrastructure (HDIL) Indisbulls Real Estate and DLF rose by 2.76% to 8.36%.

India's largest engineering and construction company by revenue Larsen & Toubro rose 2.12%. The stock today hit a 52-week high of Rs 1,843.75. Larsen & Toubro's construction division recently secured orders aggregating to Rs 1440 crore for the construction of residential towers, township and factory buildings.

Among other capital goods shares, Elecon Engineering Company, Thermax, Havells India, Punj Lloyd and Bharat Heavy Electricals were up 1.76% to 6.38%.

Auto shares climbed on renewed buying following robust sales growth reported by auto makers in May 2010. Mahindra & Mahindra, Maruti Suzuki India, Bajaj Auto, Tata Motors, Ashok Leyland and Hero Honda Motors rose 0.04% to 2.87%.

According to a monthly report released by auto industry body the Society of Indian Automobile Manufacturers (Siam) on 9 June 2010, car sales in India rose 30.4% to 1.48 lakh units in May 2010 over May 2009. Auto sales rose despite recent price increases and a partial withdrawal of government stimulus measures in February 2010. The auto industry expects consumer demand to sustain following the overall economic expansion.

Index heavyweight Reliance Industries (RIL) rose 0.95% to Rs 1065.25. 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 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. RIL will bid for ultra-mega power projects as part of its planned power foray.

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.

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.

Among other constituents of the BSE Oil & Gas index, Aban Offshore, Essar Oil, Cairn India and ONGC rose by 0.90% to 1.94%

Banking stocks rose on hopes credit offtake will rise in a rapidly expanding economy. Besides banks, financial services companies also rose as the government said life insurers can sell unit-linked insurance plans without seeking approval from the Securities and Exchange Board of India, ending a spat between regulators over the product. The news came as relief to banks and financial services firms, with stake in insurance companies.

HDFC owns a controlling stake in HDFC Standard Life Insurance. ICICI Bank holds 74% in the ICICI Prudential Life Insurance Company. State Bank of India holds 74% in the SBI Life Insurance Company. Aditya Birla Nuvo holds 74% in Birla Sun Life Insurance Company. Reliance Capital holds 100% in Reliance Life Insurance. Bajaj Finserv holds 74% in Bajaj Allianz General Insurance.

India's largest private sector bank by market capitalisation ICICI Bank spurted 3.89%. Among other banks, Axis Bank, Indian Overseas Bank, Kotak Mahindra Bank, IndusInd Bank, Bank of Baroda, Bank of India, IDBI Bank, Federal Bank, Union Bank of India and State Bank of India rose by 0.60% to 3.44%. However, HDFC Bank fell 0.32%.

Financial services provider Reliance Capital rose 4.46%. India's largest mortgage lender by market capitalisation HDFC rose 2.88%.

IT pivotals underperformed the Sensex as the rupee strengthened to its highest level in more than a month against the dollar. Wipro, Infosys, TCS and HCL Technologies rose by 0.30% to 1.12%. A firm rupee adversely affects operating profit margin of IT firms as the sector derives a lion's share of revenue from exports.

Maytas Infra fell 3.17% at Rs 204.50. The Saudi BinLaden Group (SBG) said it will buy a 20% stake in Maytas Infrastructure for around Rs 300 crore. SBG will buy Maytas shares for Rs 195.30 each, lower than current market price. The investment will be through preferential allotment of shares by Maytas.

Maytas was controlled by the family of Ramalinga Raju -- ex-promoter of Satyam Computer Services who resigned after accepting to have inflated its profits for years. Maytas saw a change in control when IL&FS Group acquired a controlling stake in it. IL&FS Group holds about 37% in the firm (as on March 2010).

Infrastructure Development Finance Company (IDFC) rose 2.40% on reports the company plans to take a global fund manager as a strategic partner in its asset management unit.

Schrader Duncan rose 6.51% on reports Schrader Bridgeport International Inc. is in talks with industrialist J P Goenka to buy his 24% stake in the joint venture company.

Edelweiss Capital spurted 19.24% after the company said its board will meet on 24 June 2010, to consider bonus issue and stock split.

Uflex rose 1.87% ahead of a meeting of a committee of directors today, 21 June 2010 to evaluate various options available for raising up to Rs 750 crore.

Cadila Healthcare jumped 0.79% after the company said it received permission from the Drug Controller General of India (DCGI) for phase-I clinical trial of its oral anti-diabetic molecule, Zyogi.

Reliance Broadcast Networks (earlier known as Reliance Media World) jumped 4.01% after the company said it proposes to enter into a joint venture with US based CBS Studies International, a unit of CBS Corporation for television broadcasting.

GVK Power was up 1.73%. The company said its unit has awarded a Rs 3200 crore construction contract for its 800 megawatt gas-based power project to a consortium of South Korea's Hyundai Engineering and Larsen & Toubro.

Car maker Hindustan Motors soared 20% on reports three foreign automakers were in talks to buy a stake.

Sesa Goa clocked a highest turnover of Rs 187.61 crore on BSE. Tata Steel (Rs 165.68 crore), Reliance Natural Resources (RNRL) (Rs 92.15 crore), ICICI Bank (Rs 90.29 crore) and Reliance Capital (Rs 82.41 crore), were the other turnover toppers on BSE.

Cals Refineries reported a highest turnover of 1.80 crore shares. Reliance Natural Resources (RNRL) (1.45 crore shares), Sanra Software (66.51 lakh shares), Unitech (61.29 lakh) and Karuturi Global (60.86 lakh shares), were the other volume toppers on BSE.