Market ekes out small gains after high intraday volatility

The key benchmark indices registered small gains in what was a choppy trading session. Volatility rose during the last one hour of trade after reports filtered in that the government has tabled the much-awaited Direct Taxes Code bill (DTC) in the Lok Sabha, which proposes to raise the exemption limit on income tax from the current Rs 1.6 lakh to Rs 2 lakh. IT, realty and FMCG stocks fell. But, metal stocks rose. Capital goods reversed initial gains. Index heavyweight Reliance Industries (RIL), too, turned negative from positive. The BSE 30-share Sensex rose 33.70 points or 0.19%, off about 185 points from the day's high and up close to 70 points from the day's low.



The Sensex settled above the psychological 18,000 mark, after alternatively moving above and below that level in intraday trade. The barometer index had fallen below the psychological 18,000 mark on Friday, 27 August 2010, in a broad-based decline in share prices. The market breadth was negative, in contrast with a strong breadth earlier in the day.

Intraday volatility was high. The market surged in early trade, tracking gains in Asian stocks. The market came off the day's high in morning trade as index heavyweight Reliance Industries (RIL) pared gains. The Sensex hit a fresh intraday low in morning trade. The market regained strength in mid-morning trade. The market held positive zone in early afternoon trade. The market came off the lower level in afternoon trade. The Sensex regained positive zone after turning negative for a brief period in mid-afternoon trade. Immense volatility was witnessed in the last one hour of trade as the Sensex alternatively swung between gains and losses.

Foreign funds today, 30 August 2010, bought shares worth a net Rs 184.41 crore, as per the provisional data from the stock exchanges. Domestic funds purchased shares worth a net Rs 68.71 crore.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, was down 6.47% at 18.36. The index had jumped 14.86% to 19.63 on Friday, 27 August 2010, a day after dropping 9.67% at 17.09, on Thursday, 26 August 2010. The index risen 11.36% to 18.92 on Wednesday, 25 August 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.

Finance Minister Pranab Mukherjee today, 30 August 2010, tabled the Direct Tax Code (DTC) Bill in parliament. As per reports, the DTC will be effective from 1 April 2012, instead of 1 April 2010, proposed earlier by the finance minister. The taxation for short-term capital gains will be in three slabs -- 5%, 10% and 15%, as per reports. Besides, the new DTC Bill will have dividend distribution tax of 5% for both equity mutual funds (MFs) and unit linked insurance policies (ULIPs), reports suggest.

The DTC bill seeks to widen income tax slabs to levy 10% tax on income between Rs 2 lakh to 5 lakh, 20% on between Rs 5-10 lakh and 30% above Rs 10 lakh. For senior citizens, tax exemption is sought to be raised to Rs 2.5 lakh from Rs 2.40 lakh. Currently, income between Rs 1.6-5 lakh attracts 10%; between Rs 5-8 lakh, 20% and beyond Rs 8 lakh, 30%.

The bill seeks to fix corporate tax at the current 30% but without surcharge and cess. With surcharge and cess, the current tax liability on corporates comes to over 33%. The legislation also proposes to increase the minimum alternate tax (MAT) from 18% to 20% of book profit of a company. It seeks to levy dividend distribution tax at 15%.

The special economic zones (SEZs) will be allowed profit linked tax deduction under DTC. Also SEZs notified as on 31 March 2012 will get tax break and that started by March 2014 will also get tax subsidy, reports suggest.

On the macro front, the government will unveil data on GDP growth for Q1 June 2010 on Tuesday, 31 August 2010. The economy expanded an annual 8.6% in Q4 March 2010.

European shares turned negative in thin trading on Monday, 30 August 2010, tracking declines in US stock futures, with persistent concerns about the sustainability of the global economic recovery weighing on investor sentiment. The key benchmark indices in France and Germany fell by between 0.32% to 0.44%. UK markets were closed for the summer bank holiday.

European confidence in the economic outlook improved to the highest in more than two years in August after surging exports helped the economy expand at the fastest pace in four years in the second quarter. An index of executive and consumer sentiment in the 16 euro nations rose to 101.8 from a revised 101.1 in July, the European Commission in Brussels said.

Japanese shares pared their early gains on Monday, 30 August 2010, as the yen strengthened from morning levels after the Bank of Japan's (BoJ) emergency policy meeting resulted in additional easing steps that fell well within market expectations. The Nikkei 225 stock average ended 1.76% higher, after closing the morning session with a 3.1% gain, amid doubts on whether the steps that emerged from the emergency BoJ meeting would have a sustainable affect on yen strength.

As many expected, the BoJ said it would expand its current 20 trillion yen ($233 billion) quantitative-easing program to a six-month program from its current three-month time frame. It also increased the amount of funds available by 10 trillion yen. The decision to extend the easing was by an 8-1 vote, with policy board member Miyako Suda dissenting. The BoJ held its key overnight call rate steady at 0.1%.

In other Asian stocks, the key benchmark indices, China, Hong Kong, Singapore, South Korea and Taiwan were up by between 0.24% to 1.77%. However, Indonesia's Jakarta Composite fell 0.17%.

US index futures reversed initial gains. Trading in US index futures indicated that the Dow could fall 23 points at the opening bell on Monday, 30 August 2010.

US stocks rebounded to post their best gains in nearly four weeks on Friday, 27 August 2010, overcoming initial skittishness brought on by a revenue warning from Intel and dour comments from Federal Reserve Chairman Ben Bernanke. The Dow Jones Industrial Average gained 164.84 points, or 1.65% to 10,150.65. The Standard & Poor's 500 Index jumped 17.37 points, or 1.66% to 1,064.59. The Nasdaq Composite Index climbed 34.94 points, or 1.65% to 2,153.63.

The stock market started on a positive note after US economic growth was revised down in the second quarter, but still the reading was better than expected. Strong buying interest at a key technical level and short-covering sparked the market's comeback, and the tone improved as investors took a more positive view of Bernanke's comments about the economy and the Fed's readiness to act.

Bernanke told central bankers at a conference in Jackson Hole, Wyoming the recovery has weakened more than expected but the US central bank was ready to take further steps if needed to spur the recovery. The Fed chairman downplayed concerns that the economy might slip back into recession, reassuring investors spooked by his recent comments the US economy faced "unusual uncertainty."

Closer home, the infrastructure output grew 3.9% in July, marginally higher than annual growth of 3.6% in June, as crude oil and refinery output grew in double-digits, government data showed on Friday. In July, the electricity sector grew 3.8%, the same as the year-ago period, but cement contracted by 0.2% from 13.8% growth and finished steel shrank by 0.9% from 4% growth a year ago. Growth in coal slowed to 4.5% in July compared with 10.5% a year ago. Cement and finished steel output contracted because of heavy rains in mining areas and a slowdown in construction during the monsoon. The infrastructure sector accounts for 26.7% of industrial output. The industrial output rose 7.1% in June from a year earlier, its slowest pace in 13 months.

The food inflation declined further in the middle of this month even as prices of fuels remained steady, the latest data showed. Inflation in the Food Articles group stood at 10.05% for the week ended 14 August 2010, versus 10.35% in the previous week, the Commerce & Industry Ministry said. Inflation in the Primary Articles group stood at 14.75% in the week under review as against 14.85% in the week ended 7 August 2010. Inflation in the Fuel & Power group was unchanged at 12.57%. But, inflation in the Non-food Articles group rose to 22.20% from 21.70% in the preceding week.

The economic growth is getting more broad-based and inflationary pressures are easing and the central bank will calibrate policy action to the evolving growth-inflation dynamics, the Reserve Bank of India (RBI) governor D Subbarao said on Friday, 27 August 2010. Going forward, the Reserve Bank will calibrate policy action to the evolving growth-inflation dynamics, Subbarao said in a speech at a conference in Bangalore. Given the uncertainty in the world and the lags in monetary transmission, it is not possible to offer more precise guidance, he added.

The RBI is expected to raise key rates by 25 basis points at its 16 September 2010 policy review, after raising its lending rate by 100 basis points since March 2010.

The yield on the benchmark 10-year 2020 bond was hovering at 7.99%, higher than Friday's (27 August 2010) close of 7.97%. The yield on the second most traded, 8.13% 2022 bond was hovering at 7.97%, lower than Friday's (27 August 2010) close of 7.98%

The good news is that the kharif sowing has been remarkably good this year. As per reports, nearly 95 million hectares, constituting over 90% of the normal kharif area, has been brought under crop cover by 26 August 2010. This is nearly eight million hectares more than last year's coverage. Almost all crops have gained in area, compared to last year, with paddy, coarse cereals and pulses accounting for two million hectares of additional acreage, each, reports suggest. The crop condition is generally satisfactory, as per reports. Diseases and pests have remained largely below the threshold mark in most places.

Surge in rainfall in late August 2010 has resulted in rapid rise in total water stock of 81 major reservoirs. It stood at 82.793 billion cubic metres on 26 August 2010, which is 31% above the last year's corresponding level and just two per cent below the long-period average. However, there is still some worry about water storage in 36 dams which have hydel power units attached to them. The water level in 23 of these is still below normal.

The India Meteorological Department (IMD), in its monsoon forecast update issued on 27 August 2010, has predicted 15% above-normal rainfall in September 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 weather office expects this year's monsoon rains to be at 102% of the long-period average. If the southwest monsoon for the June-September monsoon season turns out good and if it is well distributed, it will help raise farm output, boost rural incomes and lower food inflation.

The BSE 30-share Sensex was up 33.70 points or 0.19% to 18,032.11. The Sensex rose 218.09 points at the day's high of 18,216.50 in early trade. The index fell 38.18 points at the day's low of 17960.23 in late trade.

The S&P CNX Nifty was up 6.75 points or 0.12% to 5,415.45.

The BSE Mid-Cap index rose 0.08%. The BSE Small-Cap index fell 0.05%. Both the indices underperformed the Sensex.

Sectoral indices on BSE were mixed. The BSE Metal index (up 1.46%), Consumer Durables index (up 0.54%), Auto index (up 0.36%), Realty index (up 0.29%), Oil & Gas index (up 0.26%), Healthcare index (up 0.24%), and PSU index (up 0.23%), outperformed the Sensex. The banking sector index Bankex (up 0.07%), Power index (down 0.01%), Capital Good index (down 0.62%), IT index (down 0.64%), and FMCG index (down 0.67%), underperformed the Sensex.

The market breadth, indicating the health of the market, was negative, in contrast with a strong breadth earlier in the day. On BSE, 1616 shares declined while 1361 shares advanced. A total of 86 shares remained unchanged.

From the 30-share Sensex pack, 17 stocks advanced while the rest of them declined.

BSE clocked turnover of Rs 4415 crore, lower than Rs 5302.60 crore on Friday, 27 August 2010.

Index heavyweight Reliance Industries (RIL) fell 0.21% to Rs 947.75, with the stock falling for the sixth straight day. The stock came off the day's high of Rs 962. The government's proposal to raise the minimum alternate tax (MAT) on book profits to 20% from current 18% will affect the profitability of RIL, which pay taxes under MAT.

Mukesh Ambani, chairman and promoter of Reliance Industries (RIL), recently restructured his shareholding in the company by transferring his 34% stake to a set of investment firms, which include a large number of limited liability partnerships (LLPs). The company or its promoters did not disclose the reason behind the rejig in shareholding of the promoter group. Reports suggested the move is aimed at streamlining the holding of various promoter groups in a tax-friendly manner.

Meanwhile, Reliance Industries (RIL) is reportedly close to inking a deal with global hedge fund DE Shaw to launch a $700-$800 million infrastructure fund.

RIL announced after market hours today, 30 August 2010, that through its wholly owned subsidiary -- Reliance Industries Investment & Holding, it has acquired shares in EIH from Oberoi Hotels and certain other promoters of EIH, representing 14.12% of EIH, for a total consideration of Rs 1021 crore.

Shares of EIH jumped 12% to Rs 151.50. A number of other hotel shares rose on expectations room occupancy may rise as monsoon season nears end and ahead of the Commonwealth games in October 2010. Hotel Leelaventure, Indian Hotels, EIH Associated Hotels and Royal Orchid Hotels, rose by between 2.46% to 16%.

In an attempt to cash in on the peak winter season and the improved economic scenario, hoteliers are reportedly planning to increase the average room rates (ARRs) by 10-15% from September 2010 as they expect tourist traffic to improve. Reflecting a sign of improvement over last two seasons, the hotel industry is inching closer to the benchmark 2008-09 levels in terms of booking volumes, reports suggest. Although, demand in the leisure travel segment may take longer time to revive, the demand from the business segment, besides local tourists, is likely to push up occupancy rates.

Most realty stocks fell in volatile trade. HDIL, Anant Raj Industries, Phoenix Mills, DLF, Orbit Corporation fell by between 0.08% to 2.76%.

Banking stocks fell on profit taking. India's largest bank by net profit and branch network State Bank of India fell 0.06%. The government may reportedly cut the size of a rights issue sought by the nation's biggest lender to raise Rs 20,000 crore ($4.26 billion).

Punjab National Bank, Bank of India and Bank of Baroda fell by between 0.38% to 0.93%.

India's second largest private sector bank by net profit HDFC Bank fell 0.43%, with the stock falling for the fourth straight day. But, India's largest private sector bank by net profit ICICI Bank rose 1.05%.

Capital goods stocks reversed initial gains. Bharat Heavy Electricals, Thermax, SKF India, Larsen & Toubro, Siemens fell by between 0.05% to 2.23%.

Metal stocks rose as LMEX a gauge of six metals traded on the London Metal Exchange, rose 2.13% on Friday, 27 August 2010. Sterlite Industries, Hindalco Industries, Steel Authority of India, Sesa Goa, Jindal Saw, JSW Steel rose by between 0.09% to 2.22%.

Jindal Steel & Power rose 1.53%. The environment ministry has reportedly approved Jindal Power's Rs 13000 crore power project in Chhattisgarh. Jindal Power is a unit of Jindal Steel & Power.

India's largest steel maker by sales Tata Steel rose 3.49%, after Sahaviriya Steel Industries Public Co. (SSI), Thailand's largest steel producer, said it plans to buy Tata Steel's Cast Products unit in the UK for about $500 million as it seeks to turn around the unprofitable business. The stock was the top gainer from the Sensex pack. Tata Steel's UK unit Corus signed a memorandum of understanding with SSI and aims to complete the terms of a transaction as soon as possible, Corus said in a statement. The proposed sale includes coke ovens, power generation facilities and the Redcar Blast Furnace.

Shares of software exporters extended recent losses as the government's proposal to raise the minimum alternate tax (MAT) on book profits to 20% from current 18% will affect the profitability of most IT firms, which pay taxes under MAT. India's second largest software services exporter by sales Infosys was down 0.47%, with stock falling for the third straight day. India's largest software services exporter by sales TCS fell 1.06%, with the stock falling for the second straight day. But, India's third largest software services exporter Wipro rose 0.49%, with the stock snapping a four-day slide.

Shares of state-run utility NTPC were flat. NTPC has signed a preliminary agreement with Bangladesh Power Development Board (BPDB) for developing the power sector in the neighbouring country. NTPC may consider setting up a 1,320 megawatts coal-based power plant in Bangladesh in a joint venture with BPDB, subject to techno-economic viability, NTPC said in a statement.

India's largest oil & gas exploration firm by sales ONGC rose 2.03% extending Friday (27 August 2010)'s 2.87% gains on reports the Centre is likely to slash ONGC's royalty obligation to the Rajasthan state government on the blocks owned by Cairn India, which will result in $350 million in saving on annual royalty outgo for ONGC. The stock today hit a 52-week high of Rs 1,360. ONGC has 30% interest in the block. The Centre will compensate the Rajasthan government for the remaining amount though the modalities of the compensation have not yet been finalised, reports suggest.

The reduction in royalty is likely to result in ONGC dropping its objections to the Vedanta-Cairn deal, reports suggest. Under a planned takeover, London-listed Vedanta on 16 August 2010 announced buying 40% to 51% in Cairn India from Cairn Energy Plc and up to 20% from the open market. The value of the deal is $9.6 billion (Rs 45120 crore).

Auto stocks rose ahead of the vehicle sales figures for the month of August due this week. Maruti Suzuki, India's top car maker by sales rose 1.41%. Maruti's marketing and sales chief Mayank Pareek, last week, said the company is witnessing good sales this month.

India's top truck maker by sales Tata Motors rose 0.08% after the company's American depository receipt, or ADR rose 2.32% to $22.08 on the New York Stock Exchange on Friday, 27 August 2010.. The company said that one of its $2,500 Nano models caught fire on 27 August 2010 in New Delhi, at least the third reported case in India this year involving the world's cheapest car.

India's largest bike maker by sales Hero Honda Motors rose 0.39%. The stock today turned ex-dividend for final dividend of Rs 30 per share for the year ended March 2010. India's second largest bike maker by sales Bajaj Auto rose 0.4%.

But, India's top tractor maker by sales Mahindra & Mahindra fell 0.25%, reversing initial gains. The company recently signed a memorandum of understanding to buy a majority stake in troubled South Korean automaker Ssangyong.

Prakash Steelage clocked the highest volume of 2.17 crore shares on BSE. Cals Refineries (2.06 crore shares), Piramal Healthcare (1.02 crore shares), Ispat Industries (95.45 lakh shares) and Gilshan Chemfill (80.43 lakh shares) were the other volume toppers in that order.

Piramal Healthcare clocked the highest turnover of Rs 501.69 crore on BSE. Prakash Steelage (Rs 483.07 crore), Tata Steel (Rs 105.13 crore), Aqua Logistics (Rs 86.25 crore) and Reliance Industries (Rs 77.81 crore) were the other turnover toppers in that order.