Market snaps 4-day losing streak as Govt mulls cutting STT

Media reports that the finance ministry is considering some tax cuts on equities to lower transaction costs and broaden participation in the market helped the market snap 4-day losing streak. A rally in world stocks triggered by reports that European policy makers are considering new plans to support European countries struggling with debt, further aided the surge on the domestic bourses today, 27 September 2011. The BSE Sensex jumped 472.93 points or 2.95%, up close to 240 points from the day's low and off close to 30 points from the day's high. The Sensex and the 50-unit S&P CNX Nifty attained their highest closing level in nearly one week.



The market had tumbled recently as fears of weak Q2 September 2011 results and data showing heavy selling by foreign funds adversely hit market sentiment. From a recent high of 17,099.28 on 20 September 2011, the Sensex had slumped 1,048.18 points or 6.12% in four trading sessions to settle at 16,051.10 on Monday, 26 September 2011.

The Sensex has fallen 152.72 points or 0.91% in this month so far. The index has slumped 3,985.06 points or 19.43% in calendar 2011. From a 52-week high of 21,108.64 on 5 November 2010, the Sensex has lost 4,584.61 points or 21.71%. From a 52-week low of 15,765.53 on 26 August 2011, the Sensex has risen 758.50 points or 4.81%.

Coming back to today's trade, all the 13 sectoral indices on the BSE edged higher. Index heavyweights Reliance Industries (RIL) surged. Engineering and construction major L&T, aluminium major Hindalco Industries and non-ferrous metals maker Sterlite Industries (India) advanced on bargain hunting after sliding to 52-week lows on Monday, 26 September 2011. Infrastructure and auto stocks were in demand on bargain hunting after steep recent slide. IT stocks rose on hopes European leaders will be able to contain the region's debt crisis, with sector bellwether Infosys jumping nearly 4%.

Metal stocks rebounded on bargain hunting after a steep recent slide triggered by weak economic data in China, the world's largest consumer of aluminum and copper. Interest rate sensitive banking stocks rose on bargain hunting after a recent downtrend triggered by fears that elevated interest rates would hurt borrowers' ability to repay loans and increase delinquencies.

The market pared gains soon after a firm start. The market soon regained strength on firm Asian shares. The market held firm in morning trade. The market extended gains in mid-morning trade. A bout of volatility was witnessed as key benchmark indices hit fresh intraday highs in early afternoon trade. The market hit a fresh intraday high in afternoon trade as European stocks opened on a firm note. The marked pared gains after hitting fresh intraday high in mid-afternoon trade. The market extended intraday rally in late trade.

The market may remain volatile in the near future as traders roll over positions in the futures & options (F&O) segment from the near-month September 2011 series to October 2011 series. The September 2011 derivatives contracts expire on Thursday, 29 September 2011.

The finance ministry is reportedly considering some tax cuts on equities and foreign exchange trading to lower transaction costs and broaden participation in a market hurt by weak global sentiment. The ministry may cut stamp duty on forwards and options trading in equities to 0.003% and that on foreign exchange derivatives trading to 0.0001%, news reports on Monday, 26 September 2011, said quoting an unnamed finance ministry official.

The ministry may cut stamp duty on forwards and options trading in equities to 0.003% and that on foreign exchange derivatives trading to 0.0001%. The departments of revenue and economic affairs are debating the size of stamp duty cuts in the cash segment, the official said. While the stamp duty is levied by provincial governments and varies from state to state, the finance ministry is proposing it be made uniform, the official said. The final decision on stamp duty cuts will be taken by the federal cabinet, which will then need to be accepted and executed by the state governments, the official added.

The near-term major trigger for the market is Q2 September 2011 results. The advance tax payment by top 100 companies rose a modest 9.9% in Q2 September 2011 from a year ago against 19% growth in Q1 June 2011, suggesting corporate profit growth is likely to be muted in the second quarter. Among the big companies that have paid lower advance tax, indicating a drop in profits, include State Bank of India (SBI), Maruti Suzuki and state-run Neyveli Lignite Corporation. SBI's advance tax payment declined 14.2% to Rs 1650 crore in Q2 September 2011. Maruti's tax payment fell 55.8% to Rs 120 crore. Neyveli Lignite tax payment plunged 50.1% to Rs 66 crore. But, Reliance Industries' (RIL) advance tax payment jumped 37.6% to Rs 1800 crore, hinting at good Q2 results from the diversified firm.

Investors will closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook. IT bellwether Infosys kickstarts the Q2 September 2011 earnings season on 12 October 2011. Housing finance major HDFC unveils Q2 results on 17 October 2011.

The BSE Sensex jumped 472.93 points or 2.95% to settle at 16,524.03, its highest closing level since 21 September 2011. The index jumped 500.55 points at the day's high of 16,551.65 in late trade. The index rose 231.64 points at the day's low of 16,282.74 in early trade.

The S&P CNX Nifty surged 135.85 points or 2.81% to settle at 4,971.25, its highest closing level since 21 September 2011. The Nifty hit a high of 4,982.95 in intraday trade.

The BSE Mid-Cap index rose 1.6% and the BSE Small-Cap index gained 1.36%. Both these indices underperformed the Sensex.

The market breadth, indicating the overall health of the market, was strong. On BSE, 1,877 shares rose and 953 shares fell. A total of 106 shares remained unchanged.

Among the 30-member Sensex pack, 29 logged gains while only one declined.

The total turnover on BSE amounted to Rs 2365 crore, lower than Monday's (26 September 2011) Rs 2923 crore.

Index heavyweight Reliance Industries (RIL) jumped 5.09% to Rs 797.85 on reports the upstream regulator, the Directorate General of Hydrocarbons (DGH), has given a go ahead to RIL to drill eight wells at an estimated capex of $1.5 billion. RIL's advance tax payment rose 37.6% to Rs 1800 crore in Q2 September 2011 over Q2 September 2010, hinting at good Q2 results from the diversified firm.

RIL had recently denied inflating costs on its D6 gas field in the Krishna-Godavari (KG) basin. RIL made the clarification after CAG said in its final report submitted to the parliament on Thursday, 8 September 2011, that RIL initially estimated capital expenditure of D-1 and D-3 gas discovery at $2.4 billion, which it later revised to $8.8 billion.

RIL, owner of the world's biggest refining complex, last week, said it is planning to take Maintenance and Inspection (M&I) shutdown of Light Cycle Oil hydrocracker (LCOHC) and Vacuum Gas Oil hydtrotreating unit (VGOHT) of SEZ refinery at Jamnagar refinery complex from 19 to 23 September 2011 respectively. These maintenance shutdowns will be for a period of approximately 4 weeks, RIL said. The routine shutdown of these units is being planned for the first time since commissioning. Both the refineries at Jamnagar complex are planned to operate at maximum crude processing capacity i.e. 1.3 million barrels per day during this period. All other major processing units at the complex are also planned to operate at normal capacity, RIL said.

India's largest coal miner Coal India (CIL) spiraled 3.45% on bargain hunting. The stock had lost over 5% on Monday on reports the company's workers' unions have called country-wide shutdown on 10 October 2011 over their demands for bonus and ex-gratia. CIL chairman N.C. Jha had asserted that it is not possible to give higher bonus this year as there was no growth in production, report said.

Interest rate sensitive realty stocks edged higher on bargain hunting after recent losses. HDIL, Indiabulls Real Estate, Phoenix Mills and Unitech rose by between 0.69% to 4.51%.

India's largest real estate developer DLF galloped 8.46% on reports the company has sold 10.8 acres in Gurgaon to a Dubai-based Indian investor for Rs 280 crore, as part of efforts to reduce its debt burden by a third this fiscal. DLF is also in talks with other non-resident Indian investors to sell another 20 acres in Gurgaon, which is expected to fetch around Rs 400 crore. It was the top gainer from the Sensex pack.

India's largest engineering and construction firm by order book L&T rose 1.22% to Rs 1446.15 on bargain hunting. The stock had dropped to a 52-week low of Rs 1430.10 in intraday trade on Monday, 26 September 2011.

India's largest power equipment maker by sales Bhel rose 3.62% ahead of the 4 October 2011 record date for a 5-for-1 stock split.

Metal stocks rebounded on bargain hunting after a steep recent slide caused by weak economic data in China, the world's largest consumer of aluminum and copper. Nalco, Hindustan Zinc, Tata Steel, Sail and Jindal Steel & Power gained by between 0.91% to 4.72%.

India's largest private sector aluminium maker by sales Hindalco Industries surged 4.26% to Rs 134.55 on bargain hunting. The stock had slipped to a 52-week low of Rs 125 in intraday trade on Monday, 26 September 2011.

India's largest non-ferrous metals producer Sterlite Industries (India) shot up 3.96% to Rs 121.95. The stock had declined to a 52-week low of Rs 115.05 on Monday, 26 September 2011.

Interest rate sensitive banking stocks rose on bargain hunting after recent downtrend triggered by fears that elevated interest rates would hurt borrowers' ability to repay loans and increase delinquencies. India's second largest private sector bank by net profit HDFC Bank gained 1.82%. India's largest private sector bank by net profit ICICI Bank vaulted 3.61%. India's largest bank by branch network and net profit State Bank of India (SBI) advanced 2.31%.

IT stocks rose on hopes European leaders will be able to contain the region's debt crisis. Europe is the second biggest outsourcing market for Indian IT firms. India's largest software services exporter TCS surged 3.98%. India's second largest software services exporter Infosys gained 3.86% and India's third largest software services exporter Wipro advanced 2.38%.

The rupee gained on Tuesday, supported by positive local shares and strong regional peers, as appetite for riskier assets returned. The rupee had witnessed a steep fall recently on strong demand for dollar. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

Cement stocks gained on expectations of a pick-up in demand as monsoon withdraws. ACC, Ambuja Cements, India Cements and Jaiprakash Associates gained by between 0.75% to 5.93%. Cement firms will start unveiling monthly sales data from 1 October 2011.

Oil exploration stocks rose along with crude oil prices. Crude for November 2011 delivery rose 39 cents or 0.5% to $80.24 a barrel on the New York Mercantile Exchange on Monday, 26 September 2011, on optimism that European officials would find ways to help Greece ease its debt burdens and ease the euro zone's debt crisis. Cairn India, ONGC and Oil India rose by between 1.1% to 3.88%. Higher crude oil prices will result in higher realizations from crude sales for oil exploration firms. Oil extended gains in Asian electronic trade today, 27 September 2011. It was up $1.81 a barrel or 2.21% to $82.05 a barrel.

State-run oil marketing companies (PSU OMCs) fell as crude prices rose. HPCL and BPCL fell by between 0.05% to 0.65%. Indian Oil Corporation rose 1.54%. Higher crude oil prices could increase under-recoveries of state-run oil marketing companies (PSU OMCs) on domestic sale of diesel, LPG and kerosene at government controlled prices. The government has already freed pricing of petrol.

Offshore oil services providers rose as crude oil prices edged higher. Great Offshore, SEAMEC, Aban Offshore, Dolphin Offshore, and Jindal Drilling & Industries gained by between 0.53% to 7.4%.

Gold Jewellery makers jumped as gold prices recovered after recent steep fall. Rajesh Exports and Titan Industries rose 7.07% and 2.7%, respectively.

Auto stocks gained on fresh buying after recent fall triggered by worries that higher interest rates and a recent petrol price hike may adversely impact sales of cars and two-wheelers during the festive season. The timing of the latest petrol price hike has been bad for auto firms. The festive season started early this month and it will last until Diwali, the festival of lights, at the end of October 2011. Sales normally pick up during the festive season every year.

India's largest tractor maker by sales M&M advanced 3.12%, halting three-day fall.

India's largest small car maker by sales Maruti Suzuki India rose 2.51% after the company resumed manufacturing the SX4 sedan at its factory at Manesar, Haryana. Maruti added 120 technicians at the facility, increasing the total workforce to 1,500. Maruti halted operations at Manesar on 29 August 2011 after it asked 950 workers to sign a "good conduct bond" before they could enter the factory. The move came after the company said it discovered "serious and deliberate" quality problems in cars made at the plant. It also suspended or dismissed 21 employees. Some workers have yet to sign the bond, leading the auto maker to hire new workers.

Maruti has so far focused on producing only the Swift hatchback at Manesar to reduce the waiting period for the car. The company currently has about 1,08,000 orders for the car.

India's largest commercial vehicle maker by sales Tata Motors rose 5.92% on bargain hunting after sliding 11.49% in the prior four trading days. Tata Motors has reportedly cut production of most of its car models, including the Nano minicar, this month due to sluggish demand. India's largest auto maker by sales will likely make about 12,000 cars this month. The September 2011 production figure will be 33% lower than the 17,821 cars it produced a year earlier, reports suggest.

Among two wheeler makers, Hero MotoCorp was up 0.85% and Bajaj Auto rose 2.1%.

Reliance Capital rose 1.32% after chairman Anil Ambani said at the company's annual general meeting today, 27 September 2011, that the company is planning to sell stakes in its asset management and general insurance businesses. In a press release issued during trading hours, Reliance Capital said the company will focus on unlocking value across all its major businesses. The company will also evaluate opportunities to enter the high-growth banking sector.

The company said after trading hours that at the company's 25th Annual General Meeting today, a large number of shareholders made requests for a bonus issue and special dividend to be announced and they also inquired about the unlocking of value in other ventures. In response to these comments, it was stated on behalf of the company that these suggestions had been noted, and the same would be considered by its board of directors shortly, Reliance Capital said.

NTPC rose 1.07%. The company announced at the fag end of the trading session today said that a 50:50 joint venture company between NTPC and Ceylone Electricity Board, Sri Lanka has been incorporated in the name of "Trincomalee power Company " on 26 September 2011 in Sri Lanka. The joint venture company will set up a 2x250 megawatt (MW) coal-based power project in Trincomalee region in Sri Lanka.

Cals Refineries clocked highest volume of 2.36 crore shares on BSE. PG Electroplast (73.95 lakh shares), Futura Polyester (44.88 lakh shares), Sujana Towers (36.03 lakh shares) and Jaiprakash Associates (33.59 lakh shares) were the other volume toppers in that order.

PG Electroplast clocked highest turnover of Rs 365.29 crore on BSE. Reliance Capital (Rs 111.27 crore), SBI (Rs 87.80 crore), RIL (Rs 73.71 crore) and JSW Steel (Rs 56.94 crore) were the other turnover toppers in that order.

Market regulator Securities and Exchange Board of India (Sebi) on Friday, 23 September 2011, notified the new takeover code which makes it mandatory for entities buying more than 25% stake in a listed firm to buy an additional 26% from the public. The new code will come into effect from 23 October 2011. Under existing norms, the trigger for making an open offer is 15% while the offer size has to be 20%. In July, Sebi board had approved the recommendations of the takeover panel with some changes. The new norm exempts inter se transfers of shares among promoters from making an open offer. The new norms also does away with the non-compete fee.

A news agency on Monday, 26 September 2011, quoted principal economic adviser to the ministry of finance Dipak Dasgupta as saying that the government has no plans to tax or impose restrictions on capital outflows. He said the government will instead focus on liberalising fund inflows into the economy, particularly via overseas borrowing.

Finance Minister Pranab Mukherjee recently said central banks in emerging economies have been forced to raise interest rates repeatedly as they battle high inflation, exposing them to volatile capital flows. "An issue of immediate concern for emerging economies is managing large capital flows," he said. "Large and volatile capital flows to emerging markets can be destabilizing as they lead to high exchange rate volatility and in some cases make it incumbent to maintain high levels of foreign exchange reserves as an insurance against sudden and large-scale flight of international capital."

The government recently raised the limit of overseas borrowing for companies to $750 million from $500 million. Indian companies can also now raise loans up to $1 billion in Chinese yuan. The relaxation of overseas borrowing rules will help Indian companies tap cheaper cash abroad amid rising credit costs in the local market. US and European countries have near-zero interest rates in a bid to support weak economic growth.

The government recently cleared the ambitious $90-billion Delhi-Mumbai industrial corridor. The Delhi-Mumbai industrial corridor project will set up nine mega industrial zones of about 200-250 square kilometre (km) along with a 1,500 km high speed freight line connecting the two cities. It will include three ports and six airports, as well as a six-lane intersection-free expressway connecting the two cities and a 4,000 megawatts (MW) power plant and also set up seven new cities.

The public private partnership (PPP) approval committee recently approved projects worth Rs 18000 crore that include a housing project for para-military forces and a road project among others.

A memorandum of understanding (MoU) was signed recently between India Infrastructure Finance Company (IIFCL), LIC and IDFC with respect to the Takeout Finance Scheme (TFS). Under the MoU, the project lender(s) will offer eligible infrastructure projects to IIFCL for availing takeout financing. Finance Minister Pranab Mukherjee said he expects this mechanism will help financing to the tune of Rs 30000 crore, adding this will facilitate banks to take more exposure in new projects, which in turn will help in bridging the gap in infrastructure financing.

Given the lackluster initial FII response to the government's sharply raising the ceiling of FII investment in long-term corporate bonds issued by the companies in the infrastructure sector in March 2011, the government on 12 September 2011, further relaxed the norms on FII investment in such bonds. The Finance Ministry said in a statement that FIIs can now invest in long-term infra bonds, subject a ceiling of $5 billion limit, which have an initial maturity of five years or more at the time of issue and residual maturity of one year at the time of first purchase by FIIs. These investments are subject to a lock-in period of one year. FIIs can trade amongst themselves in these bonds but cannot sell to domestic investors during the lock-in period of one year.

FIIs can also now invest, subject to a ceiling of $17 billion, in long-term infra bonds which have an initial maturity of five years or more at the time of issue and residual maturity of three years at the time of first purchase by FIIs. These investments are subject to a lock-in period of three years. During the three-year lock-in period, FIIs can trade amongst themselves but cannot sell to domestic investors. The Securities & Exchange Board of India (Sebi) is expected to issue notifications incorporating these changes in the scheme by 15 October 2011.

Sebi had in early August 2011 allowed Qualified Foreign Investors (QFIs) to subscribe to Mutual Fund Debt Schemes which invest in the infrastructure sector subject to a total overall ceiling of $3 billion within the total ceiling of $25 billion.

Planning Commission deputy chairman Montek Singh Ahluwalia on 12 September 2011, said at a conference that private funding has to make up half of the infrastructure investment of $1 trillion planned for in the five years during 2012-2017. Prime Minister Manmohan Singh also said at that conference that to overcome the fund crunch for infrastructure projects, the government has proposed to set up a $11 billion fund to help finance infrastructure projects. "We have also constituted a high-level committee to suggest measures necessary for financing our ambitious program in infrastructure development," Mr. Singh said.

Food prices edged higher in the week ended 10 September 2011 as protein-rich foods kept becoming more expensive, offsetting a decline in vegetable and fruit prices and putting paid to hopes that inflationary pressures will ease anytime soon. The Reserve Bank of India (RBI) said at a monetary policy review on 16 September 2011 that it is imperative to persist with the current anti-inflationary stance because a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. The RBI raised repo rate by 25 basis points on 16 September 2011.

For India, a weak rupee will offset the benefit of the recent steep fall in global commodity prices triggered by global growth worries. Most commodities imported by India, particularly oil, are denominated in dollars making these expensive for India. The rupee shed 4.4% of its value last week, its biggest fall since the week ended 12 July 1996.

Going forward, the stance of the monetary will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments, RBI said in its 16 September 2011 policy statement. The overall tone of the RBI's latest policy was softer than the previous policy announcement which was extremely hawkish.

Reserve Bank of India Deputy Governor Subir Gokarn on Sunday, 25 September 2011, said the decline in the rupee in "so short a time" is a concern that reflects volatility in global financial markets. Sharp movements in the currency can be disruptive and tend to trigger panic, he said in a speech in Washington. India has not intervened with an exchange-rate target in mind for a long time and there are no plans to change the policy, he said.

Inflation in India remains high and will probably remain in a range of 9% to 10% until November 2011, Gokarn said. RBI said on 16 September 2011 that corporate margins moderated across several sectors in Q1 June 2011 compared to levels in Q4 March 2011. However, barring a few sectors, significant pass-through of rising input costs is still visible, RBI said.

RBI governor D Subbarao on Monday, 26 September 2011, said inflation rate remains above the level the central bank deems acceptable. Inflation has been fairly stubborn, Subbarao said in New York. "Above a threshold, you can't accept high inflation to have higher growth," he said, adding that the price-rise limit is as much as 6% for the nation. A rate of 4% to 6% is the short-term comfort range for inflation, Subbarao said. He said the central expects inflation to slow by March 2012, but more slowly than initially expected. Intervention in forex markets brings unexpected consequences, Subbarao said.

Finance Minister Pranab Mukherjee said at a conference in the US on 21 September 2011, that India's vibrant services sector, which makes up nearly 58% of GDP, could hold the economy from further slippage.

A late surge in rainfall has pushed this season's rains 4% above the 50-year average. India is aiming for record foodgrain output of more than 245 million metric tonnes this crop year that began on July 1, as well as bumper cotton, sugarcane and other crops. A good monsoon season can typically boost rural farm incomes and have an impact on the wider economy through increased spending on consumer goods as well as reduced prices of food items.

European stocks surged on Tuesday, 27 September 2011, on reports European policy makers are considering new plans to support European countries struggling with debt. The key benchmark indices in France, Germany and UK gained by between 2.73% to 3.95%.

Speculation grew in the European and US trading sessions on Monday, 26 September 2011, that the European Central Bank will cut its key cash rate when it meets next week, and that a plan may be introduced to help shore up the finances of struggling members of the monetary bloc. That plan would reportedly include a massive increase in the funds available for lending via the European Financial Stability Fund. Selected banks may be recapitalized as well.

Greece's ruling Socialist government faces a key vote in parliament today, 27 September 2011, on a property-tax law. The law is one that Greece has promised its international creditors as it scrambles to secure fresh aid and avoid default.

The Slovenian parliament will vote on Tuesday, 27 September 2011, on the European Financial Stability Facility's (EFSF) expanded powers after the government of Prime Minister Borut Pahor was toppled last week by parliament.

The German parliament is set to vote on Thursday, 29 September 2011, on expanding the 440 billion euro ($596 billion) European Financial Stability Facility's powers to recapitalize banks and lend to troubled countries.

Finland's parliament also votes this week to approve the expanded powers of the European Financial Stability Fund.

Asian stocks surged on Tuesday, 27 September 2011, on reports European policy makers are considering new plans to support European countries struggling with debt. Key benchmark indices in China, Indonesia, Japan, Hong Kong, Taiwan, Singapore and South Korea were up by between 0.91% to 5.02%.

China won't change its monetary and fiscal policy, while its monetary policy must have leeway for adjustment in the event of a more serious crisis in the global economy, the country's central bank chief was cited as saying on Monday, 26 September 2011. In an interview with the China Business News, People's Bank of China Gov. Zhou Xiaochuan said China will not adopt policies that may prompt a "hard landing" of its macro economy. Instead, the government will pursue policies to achieve a "soft landing" of its economy, and seek to maintain stable and sustainable development.

Data last week showed HSBC's preliminary China Manufacturing Purchasing Managers' index, or flash PMI, fell to a two-month low of 49.4 in September, easing from 49.9 in August.

Trading in US index futures indicated that the Dow could jump 272.38 points at the opening bell on Tuesday, 27 September 2011.

The Federal Reserve said at the end of a two-day policy meeting on 21 September 2011 that there are significant downside risks to the US economic outlook and also noted strain in global financial markets.