Bank, IT stocks lead 1% Sensex surge

The key benchmark indices surged as a hike in 2010 global growth forecast from the International Monetary Fund, firm global stocks and stock market regulator Securities & Exchange Board of India (Sebi)'s decision to reduce exposure margins for stock derivatives, boosted investor sentiments. Expectations of strong Q1 June 2010 corporate earnings also contributed to the rally.



The indices, however, were off intraday highs on profit booking. The BSE 30-share Sensex rose 180.70 points or 1.03%, off close to 76.64 points from the day's high. The market breadth was strong. All the sectoral indices on BSE were in green.

NSE's volatility index India VIX, which is a gauge of traders' perception of near-term risks in the market based on options prices, declined 4.48% to 21.12. The index had jumped 5.79% to 22.11 on Wednesday, 7 July 2010. The index had lost 4.96% to 20.90 on Tuesday, 6 July 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 opened on a firm note tracking higher Asian stocks. The market extended gains in morning trade. The market held firm in mid-morning trade. The Sensex hit a fresh intraday high in early afternoon trade. The market held firm at higher level in afternoon trade. The market came off highs in mid-afternoon trade. It further pared gains in late trade.

Sebi on Wednesday relaxed the exposure margin requirement for stock derivatives, based on the feedback received from market participants. After trading hours on Wednesday, 7 July 2010, Sebi issued a circular saying that the exposure margin would be higher of 5% or 1.5 times the standard deviation of the notional value of the gross open position in single stock futures and gross short open position in stock options in a particular underlying.

The revised exposure margin requirement would be effective from 15 July 2010. The exposure margin requirement was similar prior October 2008, after which Sebi increased the exposure margin requirement to higher of 10%, or 1.5 times the standard deviation, to promote market safety and safeguard investor interest.

On the macro front, the latest data showed the food price index rose 12.63% in the year to 26 June 2010, while the fuel price index climbed 18.02%. The pace of increase in food prices slowed from the previous week's annual rise of 12.92% while fuel price inflation accelerated from last week's 12.90%. The primary articles index was up at 16.08% compared with the previous week's reading of 14.75%.

The International Monetary Fund (IMF) on Thursday raised its world output forecast for 2010, citing solid growth in the first half, especially in Asia, but warned of significant downside risks flowing from Europe. The IMF revised its 2010 world gross domestic product forecast to 4.6%, up from a previous forecast in April of 4.2%. The 2011 GDP forecast was unchanged at 4.3%.

The IMF raised India's growth forecast for 2010 to 9.5%, stating that favourable financing conditions and robust corporate profits will accelerate economic expansion. The IMF expects India's economy to grow 8.5% in 2011.

European stocks rallied for a second day on Thursday, lifted by a combination of corporate profit hopes, emerging details of stress tests and a broker upgrade for the banking sector. The key benchmark indices in UK, France and Germany were up by 0.45% to 1.29%.

The European Central Bank is set to leave its benchmark interest rate at a record low of 1% for the 14th straight month as it meets Thursday amid lingering concerns over the health of the continent's banking sector. The Bank of England (BoE) also meets on Thursday. BoE is also widely expected to leave its base interest rate at a record low of 0.5% for the 17th consecutive month.

Germany's exports surged by more than 9% in May as the country's industry-led recovery gained momentum.

Asian stocks surged on Thursday as US retail sales grew at the fastest pace in four years and as investors speculated European banks will pass stress tests. The key benchmark indices in Hong Kong, Indonesia, Taiwan, Singapore, Japan and South Korea rose by between 0.48% to 2.76%. However, China's Shanghai Composite was down 0.25%.

Taiwan's exports surged 34% to $23 billion in June amid the global economic recovery, the Finance Ministry said Thursday. Imports for the month rose 40% from a year earlier to $21.3 billion, the ministry said.

Trading in US index futures indicated that the Dow could fall 9 points at the opening bell on Thursday, 8 July 2010.

US stocks logged their best one-day gain in about six weeks on Wednesday, 7 July 2010 after a bullish forecast from financial company State Street Corp fueled optimism about the coming earnings season and helped the S&P 500 break above a major resistance level. The Dow Jones Industrial Average rose 274.66 points, or 2.82% to 10,018.28. The Standard & Poor's 500 Index gained 32.21 points, or 3.13% to 1,060.27. The Nasdaq Composite Index advanced 65.59 points or 3.13% to 2,159.47.

A retail trade group said sales were growing at the fastest pace since 2006, easing concern that a slump in consumer confidence will scuttle the economic recovery.

Closer home, the next major trigger for the market is Q1 June 2010 results of India Inc, which will start trickling in from the second week of July 2010. Advance tax collections for the first quarter of the current financial year point to a strong growth in corporate sector profits. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year. Corporate advance tax for the first quarter stood at Rs 26,876 crore, against Rs 20,456 crore in the year-ago period, a rise of 31.4%, the fastest since 2005.

Auto firms are seen reporting strong Q1 results on the back of healthy volume growth. However, margins could be under pressure due to higher input costs. Improved lending growth will spur bottom line growth of banks whereas healthy order book will drive earnings of capital goods and engineering giants L&T and Bharat Heavy Electricals (Bhel). Higher sales realisation would boost boom line of metal firms.

As far as the IT sector is concerned, the focus is on whether the IT bellwether Infosys revises its annual guidance when it announces the first quarter results on 13 July 2010. The IT bellwether will issue guidance for the second quarter ending September 2010 at the time of announcing the first quarter results.

Investors are also closely watching the progress of the monsoon rains. Rains have revived after weak monsoon last month. Crop planting suffered last month as rainfall was 16% below normal, but rainfall deficit for the country as a whole has narrowed down to 11% for the period 1 June -6 July after heavy rains.

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 expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

The Reserve Bank of India (RBI) on 2 July 2010, hiked the repo rate by 25 basis points to 5.5% from 5.25%, with immediate effect. It also hiked the reverse repo rate, at which it absorbs excess cash from the banking system, by an equal 25 basis points to 4% from 3.75%. The central bank said the latest rate hike is a part of the calibrated exit from the expansionary monetary policy.

Two-thirds of WPI inflation in May 2010 was contributed by non-food items, suggesting that inflation is now very much generalised and that demand-side pressures are evident, the central bank said in a statement. WPI inflation increased to 10.2% in May 2010, up from 9.6% in April 2010.

In its April 2010 policy review, the Reserve Bank projected real GDP growth for 2010-11 at 8% with an upside bias. More recent data suggest that the upside bias has largely materialized, thecentral bank said. The growth projection will be reviewed in the first quarter review on 27 July 2010, RBI said.

Analysts expect another 25 basis points rate hike by the central bank at its quarterly review on 27 July 2010.

The government on Tuesday, 6 July 2010, took the first step towards opening up foreign direct investment (FDI) in multi-brand retail. Advocating that FDI in retail would bolster farmers' income, tame inflation and bring technical knowhow, the government has kicked off a discussion to formulate the rules of the game, including imposition of FDI cap and riders for local sourcing and rural job creation. While foreign investment in multi-brand retail is prohibited now, the Government allows 51% FDI in single brand retail and 100% in wholesale cash-and-carry trade.

Meanwhile, government officials are reportedly in the process of finalising the constitutional amendments required for the rollout of the goods and services tax from 1 April 2011. The new tax, it is proposed, will replace excise duty and service tax at the Centre and VAT and local taxes at the states' level.

The BSE 30-share Sensex rose 180.70 points or 1.03% at 17,651.73. The Sensex jumped 257.34 points at the day's high of 17,728.37 in early afternoon trade. The index rose 65.45 points at the day's low of 17,536.48 in early trade.

The S&P CNX Nifty rose 55.75 points or 1.06% at 5,296.85.

The BSE Mid-Cap index was up 0.88%. The BSE Small-Cap index was up 0.64%. Both the indices underperformed the Sensex.

The market breadth, indicating the strength of the broader market, was strong. On BSE, 1,757 shares advanced while 1,163 shares declined. A total of 104 shares remained unchanged.

From the 30 share Sensex pack, 24 stocks rose and rest fell.

BSE clocked turnover of Rs 3889 crore, higher than Rs 3774.14 crore on Wednesday, 7 July 2010.

The BSE Consumer Durables index (up 1.97%), Realty index (up 1.61%), IT index (up 1.46%), Metal index (up 1.36%), Bankex (up 1.30%), Capital Goods index (up 1.16%), Oil & Gas index (up 1.06%), outperformed the Sensex.

The BSE Auto index (up 0.96%), PSU index (up 0.71%), FMCG index (up 0.32%), Healthcare index (up 0.30%) and Power index (up 0.06%), underperformed the Sensex.

Index heavyweight Reliance Industries (RIL) rose 0.34% to Rs 1056.50. The stock came off the day's high of Rs 1070. RIL and Reliance Natural Resources (RNRL) on 25 June 2010, entered into a new gas supply agreement, as directed by the Supreme Court. The Supreme Court had ordered the two companies to renegotiate the Gas Supply Master Agreement, which was signed between the Ambani brothers as part of the business demerger in 2005.

RIL also recently announced its seventh oil discovery in Cambay basin in Gujarat.

PSU OMCs extended recent gains after the government, late last month, decided to decontrol petrol prices and hiked diesel, cooking fuel and cooking gas prices. Indian Oil Corporation, HPCL and BPCL rose by between 2.21% to 5.61%. The price hike will reduce under-recoveries of PSU OMCs on domestic sale of petrol, diesel, kerosene and LPG at controlled prices.

India's largest cement maker by sales ACC fell 0.99% and was the top loser from the Sensex pack.

FMCG major Hindustan Unilever fell 0.51% after the stock turned ex-dividend today. The company had announced dividend of Rs 3.5 per share for the financial year 2010.

Consumer durables stocks rose. Gitanjali Gems, Rajesh Exports, Blue Star and Titan Industries were up by between 0.61% to 4.67%.

Bank stocks rose on a pick up in credit offtake. India's largest private sector bank by market capitalisation ICICI Bank rose 1.89%. The bank, last week, set its base rate for loans at 7.5% effective 1 July 2010 as part of a new rule to set minimum lending rates.

India's second largest private sector bank by operating income HDFC Bank rose 0.34%. HDFC Bank announced during market hours today that the bank has issued on a private placement basis unsecured, redeemable, non-convertible, subordinated bonds in the nature of debentures towards Tier-II Capital for an amount aggregating Rs 1105 crore. HDFC Bank, last week, set its base rate at 7.25%.

India's biggest commercial bank in terms of branch network, State Bank of India, rose 2.29%. SBI announced last week it has fixed the base rate at 7.5% per annum with effect from 1 July 2010.

The Reserve Bank of India introduced the new lending rate system with effect from 1 July 2010 to ensure that larger borrowers do not bargain for cheaper rates from banks, distorting their asset liability management.

India's largest dedicated housing finance firm by revenue HDFC rose 1%. HDFC recently launched "Dual Rate Product - 3", a special home loan product at a fixed rate of 8.25% per annum up to 31 March 2011, 9.25% for the period between 1 April 2011 and 31 March 2012 and the applicable floating rate for the balance term. This special offer is applicable to all new home loan customers who apply before 31 August 2010 and take at least part disbursement before 30 September 2010, HDFC said.

Metal and mining stocks rose after LMEX, a gauge of six metals traded on the London Metal Exchange rose 0.45% on Wednesday, 7 July 2010. Sterlite Industries, Hindalco Industries, Jindal Saw, Sesa Goa, Steel Authority of India JSW Steel and Hindustan Zinc rose by between 0.73% to 3.55%.

Tata Steel, the world's eighth-largest steelmaker, rose 1.96%. Sales from its Indian operations stood at 1.4 million tonnes in the April-June 2010 quarter, nearly flat compared with the same period last year. Sales in the quarter were hurt by weak market sentiment in the flat products segment and excessive imports of hot rolled coil from China, Tata Steel said.

Sales of long products, primarily used in construction, rose 8% Tata Steel said. It did not disclose growth for flat products, but said within this segment, demand from the auto sector rose 20%. The Indian operations account for about a quarter of the group's total annual global capacity of 30 million tonnes, which includes unit Corus, Europe's second-largest steelmaker. The company's crude steel production in India rose 8.3% to 1.63 million tonnes for the quarter.

Interest rate sensitive realty stocks rose on bargain hunting after a recent slide triggered by rate hike worries. Mahindra Lifespace Developers, Sobha Developers, Unitech, Indiabulls Real Estate, Omaxe, Orbit Corporation, DLF, Peninsula Land and HDIL rose by between 0.74% to 3.83%.

IT stocks rose on positive economic data in the US, which is the biggest market for Indian IT firms. India's largest IT exporter by sales TCS rose 1.70%, with the stock gaining for the third straight day. India's second largest IT exporter by sales Infosys rose 1.61%. India's third largest IT exporter by sales Wipro rose 0.63%.

Bajaj Holdings & Investment lost 5.05%, after the stock turned ex-dividend today, 8 July 2010, for a dividend of Rs 30 per share for the year ended March 2010.

Mukand fell 1.30%, after the stock turned ex-dividend today, 8 July 2010, for dividend of Rs 1 per share for the year ended March 2010.

Zenotech Laboratories plunged 12.16% after the Supreme Court upheld Daiichi Sankyo's plea against the Securities Appellate Tribunal order.

State Bank of India reported a highest turnover of Rs 106.83 crore on BSE. HPCL (Rs 103.91 crore), BPCL (Rs 101.12 crore), Everonn Systems India (Rs 85.81 crore) and Voltamp Transformers (Rs 71.04 crore), were the other turnover toppers on BSE.

Cals Refineries clocked a highest volume of 8.12 crore shares on BSE. Shree Ashtavinayak Cine Vision (2.22 crore shares), Karuturi Global (1.42 crore shares), FCS Software Solutions (1.16 crore shares) and IFCI (83 lakh shares), were the other volume toppers on BSE.