Rally enters sixth day on earnings optimism

The key benchmark indices extended gains for the sixth day in a row 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. Global cues were positive with rally in US stocks overnight helping Asian and European markets log on gains. The barometer index BSE Sensex was up 50.04 points or 0.29%, up 55.57 points from the day's low and off 67.51 points from the day's high. Market breadth, though positive, was not as strong as it was in opening trade.



NSE's volatility index, India VIX, edged higher after a recent steep slide. The index, which is a gauge of traders' perception of near-term risks in the market based on options prices, rose 3.14% to 22.67. 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 has staged a strong rebound since late May 2010. The Sensex has jumped 1,440.39 points or 8.98% from a low of 16,022.48 on 25 May 2010. Despite the strong rebound, stocks are off recent highs. The Sensex has lost 507.15 points or 2.82% from a peak of 17,970.02 on 7 April 2010.

Foreign funds today, 16 June 2010, bought stocks worth a net Rs 783.92 crore, as per the provisional data from the stock exchanges. Domestic funds sold shares worth a net Rs 170.76 crore.

Foreign funds have bought equities worth a net Rs 2787.45 crore in five trading sessions from 10 June 2010 to 16 June 2010, as per data from the stock exchanges. The net inflow totaled Rs 1698.75 crore in June 2010 so far (till 16 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, have offloaded stocks worth a net Rs 588.28 crore this month so far. Domestic funds had mopped up equities worth a net Rs 6361.17 crore in May 2010.

Coming back to today's trade, IT stocks rose on higher advance tax payment by IT giants Infosys and TCS. Auto stocks gained as Q1 June 2010 advance tax payments from frontline auto companies surged. Tractor major Mahindra & Mahindra struck record high. State-run oil marketing companies reversed early losses on reports an Empowered Group of Ministers may meet next week to consider fuel price deregulation.

But, metal stocks pared gains in late trade and ended on a mixed note. Private sector banking stocks rose mirroring strong ADR gains on Tuesday. Cement shares declined on fears sales will slow down during the ongoing monsoon season. FMCG, realty and capital goods pivotals slipped on profit booking. Housing finance major HDFC and engineering & construction major Larsen & Toubro hit 52-week highs.

Stocks were volatile. The market opened on a firm note on higher advance tax payment by most Indian firms and on strong global cues. The BSE Sensex and the S&P CNX Nifty struck 6-week highs at the onset of the trading session. The market came off the higher level in morning trade. The market regained strength later in volatile trade. The market gave up most of the gains in afternoon trade as lower US index futures encouraged profit taking. The market bounced back after briefly slipping into the red in afternoon trade. The market once again pared gains in late trade.

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) released on Tuesday, 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.

Meanwhile, many Indian firms have reportedly paid higher advance tax in Q1 June 2010. Higher advance tax payment normally indicates higher profits for the period under review. Reliance Industries (RIL) has paid Rs 653 crore, an increase of 108%, while HPCL paid Rs 61 crore, a 307% increase. Bajaj Auto paid Rs 110 crore against Rs 50 crore last year.

Infosys Technologies, the country's second-largest software company, reported an advance tax payment of Rs 275 crore, compared to Rs 230 crore in the previous year. TCS paid Rs 128 crore in advance taxes in Q1 June 2010, up 142% from Rs 53 crore it paid in the April-June period last fiscal.

The country's top consumer goods company Hindustan Unilever paid Rs 75 crore, the same as last the last fiscal year. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year

The country's top pharmaceutical companies have also paid higher taxes, with GlaxoSmithkline Pharma paying Rs 42 crore against Rs 39 crore in the year-earlier period and Ranbaxy's payments rising to Rs 17.5 crore from Rs 15 crore.

The banking sector was a mixed bag during the quarter. The country's largest bank State Bank of India (SBI) paid Rs 860 crore against the Rs 1170 crore it paid a year before. Union Bank of India's advance tax payments rose to Rs 168 crore from Rs 104 crore, while ICICI Bank paid Rs 350 crore, the same as it paid in the last fiscal.

Housing finance major HDFC has paid advance tax of Rs 215 crore in Q1 June 2010 verses Rs 175 crore in Q1 June 2009. Private sector lender HDFC Bank has paid advance tax of Rs 315 crore in Q1 June 2010 versus Rs 250 crore in Q1 June 2009.

Mahindra and Mahindra paid Rs 63 crore, up 270.5%, and Tata Motors paid Rs 65 crore, more than double last year's outgo. Steel Authority of India (SAIL) paid Rs 362 crore against Rs 344 crore a year before, while Gas Authority of India paid Rs 280 crore against Rs 250 crore. Ambuja Cement's advance tax payment dipped marginally to Rs 65 crore from Rs 70 crore

European market extended gain for the six day on Wednesday, tracking overnight rally on Wall Street. The key benchmark indices in UK, France and Germany rose by 0.12% to 0.27%.

Asian stocks extended recent gains as a report showing growth in New York manufacturing boosted confidence that a recovery in world's biggest economy will increase corporate earnings. The key benchmark indices in Indonesia, Japan, South Korea, and Singapore were up by between 0.74% to 1.81%. Markets in China, Hong Kong and Taiwan were closed for the Dragon Boat Festival holiday.

US markets stocks rallied on Tuesday as the euro gained against the dollar after a number of successful European debt auctions eased investor concerns about the euro zone's solvency crisis. The Dow Jones Industrial Average advanced 213.88 points or 2.15% at 10404.77. Standard & Poor's 500 rose 25.6 points or 2.35% at 1115.23 and the Nasdaq Composite gained 61.92 points or 2.76% at 2305.88.

In economic news, the New York Federal Reserve's Empire State Index climbed to 19.6 in June 2010 from 19.1 in May 2010.

Trading in US index futures indicated the Dow could fall 46 points at the opening bell Wednesday, 16 June 2010. Dow futures reversed early gains.

Back home, the collection of indirect taxes, which include customs, central excise and service tax, jumped 49% to around Rs 35,000 crore during April-May 2010 from a year ago period on the back of industrial buoyancy. The government proposes to raise the collection of indirect taxes by 29% this fiscal ending March 2011.

Global rating agency Fitch, early this week, 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 Reserve Bank of India (RBI) is likely to raise interest rates further after 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%.

Industrial output rose much faster than expected at 17.6% in April 2010 from a year earlier on strong consumer demand and government spending. March's annual growth rate was revised upwards to 13.9% from 13.5%. Manufacturing output rose 19.4% in April 2010. The industrial output rose 10.4% in the 2009/10 fiscal year (April-March), faster than the 2.6% clocked in the previous fiscal year.

Investors will also keep a close eye on the progress of the monsoon rains. The June-September monsoon is crucial for the country as it irrigates 60% of farms in India. 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 BSE 30-share Sensex was up 50.04 points or 0.29% to 17,462.87, its highest closing since 30 April 2010. The index advanced 117.55 points at the day's high of 17,530.38 at the onset of the trading session. The Sensex lost 5.53 points at the day's low of 17,407.30 in afternoon trade.

The S&P CNX Nifty was up 11 points or 0.21% to 5,233.55, its highest closing since 30 April 2010. Nifty struck a day's high of 5,255.65 in early trade.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1520 shares advanced as compared with 1388 that declined. A total of 100 shares remained unchanged. The breadth was much stronger earlier in the day.

The BSE Mid-Cap index gained 0.13% and the BSE Small-Cap index rose 0.17%. Both these indices underperformed the Sensex.

The total turnover on BSE amounted to Rs 4802 crore, lower than Rs 5052 crore on Tuesday, 15 June 2010.

Sectoral indices on BSE displayed mixed trend. The BSE Auto index surged the most, by 1.29% while the BSE PSU index declined the most, by 0.64%.

From the 30-Sensex stocks, 16 declined while the rest gained. Reliance Infrastructure (down 0.89%), Cipla (down 1.44%), and NTPC (down 1.19%), edged lower from the Sensex pack.

Auto stocks gained as Q1 June 2010 advance tax payments from frontline auto companies surged. India's largest tractor maker by sales Mahindra & Mahindra (M&M) jumped 4.37% to Rs 634.40, after striking an all-time high of Rs 636.25. The stock rose today on fresh buying, after advancing 7.31% in four trading sessions to 14 June 2010. It was the top gainer from the Sensex pack

India's largest small car maker by sales Maruti Suzuki India rose 1.72% on reports car makers are preparing to raise prices to offset rising input costs.

India's top truck maker by sales Tata Motors surged 2.10%. The company's global vehicle sales rose 50% to 79,819 units in May 2010 over May 2009. These included 19,053 vehicles sold by Jaguar Land Rover in the month, 72% higher from a year ago.

Index heavyweight Reliance Industries (RIL) declined 0.84% to Rs 1056.55, off day's high of Rs 1078.70, on profit booking. Recent reports indicated RIL is likely to sign gas supply deal next week with Anil Ambani controlled Reliance Natural Resources (RNRL). RNRL advanced 1.12%, extending recent solid gains.

State-run oil marketing companies reversed early losses on reports an Empowered Group of Ministers may meet next week to consider raising petrol and diesel prices by Rs 2-4 per litre and domestic LPG rates by up to Rs 25 per cylinder. BPCL (up 0.66% to Rs 534.15, off day's low of Rs 515.25), HPCL (up 1.51% to Rs 343.60, off day's low of Rs 333.10) and Indian Oil Corporation (up 1.20% to Rs 334.20, off day's low of Rs 325), bounced back. As per reports, the ministerial panel may meet on 24 or 25 June 2010.

The Empowered Group of Ministers (EgoM) may consider freeing petrol price from government control and possibly giving limited autonomy to state oil firms to price diesel closer to market rates, reports added.

Cairn India rose 0.97% after its joint venture with ONGC commenced crude delivery to private refiners from its oil pipeline in the Rajasthan block.

IT stocks rose on higher advance tax payment by IT giants Infosys and TCS. India's second largest software services exporter by sales Infosys rose 0.88% after its ADR rose 2.45% on Tuesday. India's third largest software services exporter by sales Wipro gained 0.11% after its ADR advanced 4.33% on Tuesday. India's largest software services exporter by sales TCS advanced 1.01% after it signed a multi-year outsourcing contract with Telenor.

Private sector banking stocks rose mirroring strong ADR gains on Tuesday. India's largest private sector bank by sales ICICI Bank rose 2.65% after its ADR gained 3.53% on Tuesday. India's second largest private sector bank by sales HDFC Bank rose 0.37% after its ADR gained 3.59% on Tuesday.

India's largest bank by net profit and branch network State Bank of India declined 0.46%.

India's largest mortgage lender Housing Development Finance Corporation rose 1.81% to Rs 2911 on reports the company has paid an advance tax of Rs 215 crore for the June-quarter, up from Rs 175 crore a year ago. The stock struck a 52-week high of Rs 2923.30 in intra-day trade today.

Metal stocks pared gains in late trade and ended on a mixed note. Tata Steel (down 1.28%), Steel Authority of India (down 1.91%), Jindal Saw (down 1.37%), and JSW Steel (down 1.11%), slipped.

However, Hindustan Zinc (up 1.92%), Sesa Goa (up 0.30%), National Aluminium Company (up 3.33%), edged higher.

India's largest non-ferrous metal producer by sales Sterlite Industries (India) gained 2.17%. The stock extended two-day 6.34% surge after the company fixed 22 June 2010 as the record date for a 2-for-1 stock split and a liberal 1:1 bonus issue. The company announced the record date after market hours on 11 June 2010.

LMEX, a gauge of six metals traded on the London Metal Exchange, gained 0.7% on Tuesday, 15 June 2010.

India's second largest listed cellular services provider by sales Reliance Communications (RCom) shed 0.62% on fears the company's new pan to offer unlimited internet access to subscribers through mobile phones at Rs 99 per month, will crimp margins.

MTNL soared 9.87% to Rs 61.25 on reports the company has launched a new fully unlimited broadband plan for its Mumbai customers.

FMCG stocks declined on profit booking. India's largest FMCG firm by sales Hindustan Unilever dropped 1.88% to Rs 255.05 and was the top loser from the Sensex pack.

ITC (down 0.45%), Dabur India (down 0.89%), Godrej Consumer Products (down 1.65%), and Marico (down 1.46%), slipped.

Capital goods pivotals slipped on profit booking after Tuesday's gains. India's largest engineering & construction firm by sales Larsen & Toubro fell 0.49% to Rs 1717 after striking a 52-week high of Rs 1737.

India's largest power equipment maker by sales Bharat Heavy Electricals (Bhel) shed 0.83%. Bhel has reportedly paid Rs 400 crore in advance tax in Q1 June 2010 versus Rs 320 crore in Q1 June 2009.

Gammon Infrastructure Projects surged 7.82% after the company said it recently entered into an agreement to acquire a 250 megawatt coal based thermal power plant in Western India. The company made this announcement after market hours on Tuesday, 15 June 2010.

Realty stocks declined on profit booking, snapping Tuesday's gains. Unitech (down 0.92%), Omaxe (down 0.78%), Indiabulls Real Estate (down 1.16%), Orbit Corporation (down 1.84%), Godrej Properties (down 1.18%), and HDIL (down 1.03%), declined.

But, India's largest real estate developer by sales DLF rose 1.21%, extending Tuesday's gains.

Cement shares declined on fears sales will slow down during the ongoing monsoon season. ACC (down 1.79%), India Cement (down 0.75%), UltraTech Cement (down 0.53%), Dalmia Cement (down 1.52%), Shree Cement (down 0.68%), and JK Cement (down 0.54%), declined.

Jay Shree Tea & Industries fell 2.73% on turning ex-dividend for a dividend of Rs 6 per share. Binani Cement lost 7.56% on turning ex-dividend for a dividend of Rs 3.50 per share.

Reliance Natural Resources clocked the highest volume of 3.50 crore shares on BSE. Cals Refineries (2.768 crore shares), Karuturi Global (2.762 crore shares), Sanraa Media (1.10 crore shares) and Reliance Communications (90.85 lakh shares) were the other volume toppers in that order.

Reliance Natural Resources clocked the highest turnover of Rs 240.34 crore on BSE. Reliance Industrial Infrastrucutre (Rs 189 crore), Reliance Capital (Rs 176.34 crore) and Reliance Communications (Rs 171.32 crore), and Tata Steel (Rs 101.46 crore) were the other turnover toppers in that order.