Sensex snaps three-week rise on weak global stocks

The key benchmark indices edged lower in the week ended Friday, 27 August 2010, halting a three-week rising trend, on weak global cues. Markets across the globe were gripped under selling pressure on worries about the pace of the economic recovery in the US, the world's biggest economy. The Sensex declined in three out of the five trading days of the week. The BSE Sensex fell below the psychological 18,000 mark while the S&P CNX Nifty retraced from 31-month high. Shares of Prakash Steelage made a strong debut on Wednesday, 25 August 2010.



Volatility was high during the week as traders rolled positions in the derivatives segment from the August 2010 series to September 2010 series. The August 2010 derivatives contracts expired on Thursday, 26 August 2010.

The Union Cabinet on 26 August 2010 approved a new set of direct tax rules that propose to raise income tax exemption limit from 1.6 lakh to 2 lakh, leaving more money in the hands of individuals, and a lower tax rate for companies. The much-awaited Direct Taxes Code, or DTC, Bill, which seeks to replace the nearly 50-year-old income tax law, is likely to be introduced in Parliament on Monday, 30 August 2010, and may then be referred to a select committee of members of both houses of Parliament.

The basic exemption limit is proposed to be raised to 2 lakh from the current 1.6 lakh and corporate tax rate for both domestic and foreign companies is proposed at 30%, finance minister Pranab Mukherjee said after the meeting of the Union Cabinet. Senior citizens and women will enjoy a higher exemption of up to 2.5 lakh. There will be no surcharge or cess on companies, thereby bringing the corporate tax rate to 30% from present 34%. The new changes in the tax rates, expected to come into effect from 1 April 2011, could lead to some loss in revenue and raise the government's deficit.

The new code proposes three income tax slabs -- income of up to 2-5 lakh will face 10%, 5-10 lakh will attract 20% and income over 10 lakh will face tax at the rate of 30%. The housing loan exemption of 1.5 lakh would also be available to individual taxpayers on the interest component.

However, the government proposes to raise the minimum alternate tax (MAT) on book profits to 20% from current 18%. The move will be a big blow for Reliance Industries (RIL) and a host of IT and infrastructure companies that pay MAT.

The lower house of parliament on 25 August 2010 approved a landmark bill to open up the country's $150 billion nuclear power market, after the government agreed to tougher provisions that an industry group said would hamper the sector's growth. The bill was initially opposed by the opposition Bharatiya Janata Party as inadequate in terms of accident compensation and too soft on private firms. But, the party came around after the Congress party-led coalition agreed to several amendments.

Food inflation declined further in the middle of this month even as prices of fuels remained steady, government data showed on 26 August 2010. 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 cumulative rainfall during the period from 1 June 2010 to 25 August 2010 was 2% below normal. Rainfall over the country as a whole for the second half (August to September) of the 2010 southwest monsoon season is likely to be normal, according to the India Meteorological Department (IMD). Quantitatively, rainfall for the country as a whole during the period August-September 2010 is likely to be 107% of long period average (LPA) with a model error of plus/minus 7%, according to the weather office.

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 Indian government on 23 August 2010 announced a bagful of stimulus measures in the latest review of the Foreign Trade Policy. To spur exports, Commerce and Industry Minister Anand Sharma announced a six-month extension of the Duty Entitlement Pass Book scheme (DEPB). The DEPB, which neutralises the incidence of duties, was supposed to expire on 31 December 2010. It will now expire on 30 June 2011. The additional export incentives will cost the government over Rs 1000 crore, Sharma said.

The Reserve Bank of India (RBI) said in its annual report for 2009-2010 released on 24 August 2010, that the relative price variability has declined since November 2009 despite inflation remaining high, which indicates that the inflation has become increasingly generalised, and hence, requiring appropriate monetary policy actions to anchor inflation expectations. Persistent large fiscal deficit has several adverse macroeconomic risks, ranging from higher inflation to lower savings, crowding-out pressures on private investment, decline in potential output, and worsening of external imbalances, the RBI said in the report.

Trade Secretary Rahul Khullar on 24 August 2010 said India's trade deficit for the current fiscal year that ends in March 2011 is expected to be at least $120 billion. Any deficit of the order of $120 billion is serious, but as long as it does not go over the top it can be financed, Khullar said. The trade deficit for July 2010 is seen at $12.93 billion.

The latest data from global fund tracker EPFR Global showed investors have become cautious about emerging market equities, an asset class that has been a standout for the past year. Global emerging market equity funds had net inflows of $322 million in the week ended 25 August 2010, the lowest total since a streak of inflows began 13 weeks ago. Asia-Pacific equity funds were relatively hard hit, posting outflows of $289 million for the week, on fears a US slowdown would hurt the region's exporters.

The BSE Sensex lost 403.41 points or 2.19% to 17,998.41, in the week ended 27 August 2010. The 50-unit S&P CNX Nifty fell 121.95 points or 2.20% to settle at 5408.70.

The BSE Mid-Cap index declined 186.49 points or 2.38% to 7,634.71 and the BSE Small-Cap index slipped 234.81 points or 2.38% to 9,640.95 in the week. Both these indices underperformed the Sensex.

Trading for the week started on a lackluster note with the key benchmark indices posting tiny gains on Monday, 23 August 2010. The BSE 30-share Sensex rose 7.53 points or 0.04% to 18,409.35. The S&P CNX Nifty rose 12.85 points or 0.23% to 5,543.50, its highest closing since 18 January 2008.

Fears of a slowdown in global growth spooked equity and commodity markets across the globe including Indian stocks on Tuesday, 24 August 2010. The BSE 30-share Sensex was down 97.76 points or 0.53% to 18,311.59 and the S&P CNX Nifty was down 38.40 points or 0.69% to 5,505.10.

The key benchmark indices edged lower on weak global cues in what was a choppy trading session on Wednesday, 25 August 2010. The BSE 30-share Sensex lost 131.95 points or 0.72% to 18,179.64 and the S&P CNX Nifty was down 42.75 points or 0.78% to 5,462.35.

Market eked out small gains amid high volatility on Thursday, 26 August 2010, on bargain hunting after a two day slide. The BSE 30-share Sensex rose 46.71 points or 0.26% to 18,226.35 and the S&P CNX Nifty was up 15.55 points or 0.28% to 5,477.90.

The key benchmark indices slumped on Friday, 27 August 2010, as investors fretted over the pace of the economic recovery in the US, the world's biggest economy. The BSE 30-share Sensex lost 227.94 points or 1.25% to 17,998.41 and the S&P CNX Nifty was down 69.20 points or 1.26% to 5,408.70.

From the 30-share Sensex pack, 23 stocks declined while the rest of them gained.

High beta infrastructure stocks were hard hit in the week ended 27 August 2010 on selling pressure as the market underwent correction.

India's largest dam builder by sales Jaiprakash Associates lost 9.21% to Rs 111.90 and was the top loser from the Sensex pack. India's largest private sector utility firm by sales Reliance Infrastructure dropped 8.19% to Rs 982 and was the second biggest loser from the Sensex pack.

India's largest private sector aluminium maker by sales Hindalco Industries declined 8.09% to Rs 163.55 and was the top third biggest loser from the Sensex pack. The stock turned ex-dividend on 24 August 2010, for a dividend of Rs 1.35 per share for the year ended March 2010

Other major losers from Sensex pack were DLF (down 7.54%), Hero Honda Motors (down 6.86%), and Sterlite Industries (down 4.91%).

Index heavyweight Reliance Industries (RIL) slipped 3.89% to Rs 949.75. Reportedly the stock market regulator Securities & Exchange Board of India has rejected a second attempt by RIL to settle charges of insider trading out of court. Sebi will continue its investigation into trades carried out by entities allegedly linked to RIL, in November 2007.

India's largest oil exploration firm by sales Oil & Natural Gas Corporation (ONGC) gained 4.73% to Rs 1317.65.

India's largest cellular services provider by sales Bharti Airtel rose 1.95% to Rs 316.20 and was the second biggest gainer from the Sensex pack. The company has won the rights to sponsor all cricket series played in India until 2013 and will pay $700,000 per match.

India's largest power generation firm by capacity NTPC advanced 1.40% to Rs 195.95 after India's power minister said the company will be duly compensated for the cancellation of its 600 megawatt hydro-power project at Uttarakhand. It was the third biggest gainer from the Sensex pack.

India's largest bank by net profit and branch network State Bank of India (SBI) rose 0.70% to Rs 2803.10. SBI said on Saturday, 21 August 2010 it will issue a total of 1,14,606 shares to shareholders of State Bank of Indore, which will be merged with SBI. The minority shareholders of State Bank of Indore will get 34 SBI shares for every 100 State Bank of Indore shares held.

Shares of associate banks of SBI surged on reports of a possible merger with the parent bank State Bank of India. State Bank of Bikaner & Jaipur (up 30.35%), State Bank of Mysore (up 26.70%), and State Bank of Travancore (up 17%), surged.

ACC (up 0.17%), Jindal Steel & Power (up 0.11%), and Bhel (up 0.03%), were the other gainers from the Sensex pack.

Shares of Prakash Steelage, manufacturer of seamless & welded stainless steel pipes and tubes, settled at Rs 187.95 on BSE, on 25 August 2010, at a premium of 70.8% over the initial public offer (IPO) price of Rs 110. The stock debuted at Rs 118.55, a 7.7% premium over the initial public offer price.