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Tuesday, February 18, 2014

Sensex drifts higher for the 3rd day in a row

Key benchmark indices edged higher for the second day in a row after Finance Minister P Chidambaram cut the fiscal deficit target to 4.1% of GDP for 2014-15 at the time of announcement of the Interim Budget for 2014-15 on Monday, 17 February 2014, and said that the government will contain fiscal deficit at 4.6% of GDP in 2013-14 and as the government announced lower-than-expected gross market borrowing of Rs 5.97 lakh crore for 2014-15. The market sentiment was boosted by data showing that foreign funds were net buyers of Indian stocks on Monday, 17 February 2014. The barometer index, the S&P BSE Sensex, was provisionally up 145.47 points or 0.71%, off close to 75 points from the day's high and up about 170 points from the day's low. The market breadth, indicating the overall health of the market, was positive.

Indian stocks gained for the third day in a row today, 18 February 2014.

Bank stocks were in demand. Shares of metal companies rose on value-buying as investors bet on higher global prices and a spurt in Chinese buying. ABB India surged after reporting strong Q4 results.

The Sensex edged lower amid initial volatility. The Sensex reversed initial losses in morning trade. The Sensex extended gains and hit fresh intraday high in mid-morning trade. The Sensex further extended gains and hit fresh intraday high in early afternoon trade. The Sensex and the 50-unit CNX Nifty, both, hit their highest level in almost three weeks. A bout of volatility was witnessed as key benchmark indices trimmed gains after hitting fresh intraday high in mid-afternoon trade. Intraday volatility continued in late trade.

The market sentiment was boosted by data showing that foreign funds were net buyers of Indian stocks on Monday, 17 February 2014. Foreign institutional investors (FIIs) bought shares worth a net Rs 522.82 crore on Monday, 17 February 2014, as per provisional data from the stock exchanges.

As per provisional figures, the S&P BSE Sensex was up 145.47 points or 0.71% to 20,609.53. The index jumped 220.96 points at the day's high of 20,685.02 in late trade, its highest level since 29 January 2014. The index fell 27.58 points at the day's low of 20,436.48 in early trade.

The CNX Nifty was up 46.05 points or 0.76% to 6,119.35, as per provisional figures. The index hit a high of 6,141.70 in intraday trade, its highest level since 29 January 2014. The index hit a low of 6,066.80 in intraday trade.

The BSE Mid-Cap index rose 42.23 points or 0.67% at 6,342.90 and underperformed the Sensex. The BSE Small-Cap index garnered 48.82 points or 0.78% at 6,329.42 and outperformed the Sensex.

The total turnover on BSE amounted to Rs 1929 crore, higher than Rs 1524.26 crore on Monday, 17 February 2014.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,419 shares rose and 1,218 shares fell. A total of 182 shares were unchanged.

Among the 30-share Sensex pack, 19 stocks rose and rest fell. HDFC (up 2.79%), Maruti Suzuki India (up 2.69%) and Tata Power Company (up 2.65%) edged higher from the Sensex pack.

Bank stocks edged higher on renewed buying. Among private bank stocks, AXIS Bank (up 4.36%), HDFC Bank (up 1.3%), Kotak Mahindra Bank (up 4.12%), Yes Bank (up 0.79%) and ICICI Bank (up 2.31%) gained.

Among PSU bank stocks, State Bank of India (up 1.32%), Canara Bank (up 2.37%), Union Bank of India (up 2.04%), Bank of India (up 1.22%), Bank of Baroda (up 0.43%) and Punjab National Bank (up 1.75%) gained.

Finance Minister P Chidambaram in his speech on Interim Budget for 2014-15 on Monday, 17 February 2014, said that the government has set aside Rs 11200 crore for capital infusion in public sector banks in 2014-15. The Finance Minister has extended interest subvention scheme on farm loans for one more year. There is a subvention of 2% and an incentive of 3% for prompt payment, thus reducing the effective rate of interest on farm loans to 4%. So far, Rs 23924 crore has been released under the scheme, the Finance Minister said.

Chidambaram said that banks are set to exceed the target of Rs 7 lakh crore of agricultural credit in 2013-14. The Finance Minister has set a target of agricultural credit of Rs 8 lakh crore for 2014-15.

The Finance Minister has announced a moratorium period for all education loans taken up to 31 March 2009 and which are outstanding on 31 December 2013. The government will take over the liability for outstanding interest as on 31 December 2013, but the borrower would have to pay interest for the period after 1 January 2014. Nearly 9 lakh student borrowers will benefit to the tune of approximately Rs 2600 crore, the Finance Minister said. Chidambaram said that a sum of Rs 2600 crore will be provided in the current financial year itself and this amount will be transferred to state-run Canara Bank. The Finance Minister said that the central scheme for interest subsidy was introduced in 2009-10 in respect of education loans disbursed after 1 April 2009. However, students who had borrowed before 31 March 2009 struggled to pay interest during the period of study and they deserved some relief, he said. Chidambaram said that ten years ago, only a few thousand students -- mostly the well-connected -- got education loans. At the end of December 2013, public sector banks had 25,70,254 student loan accounts and the amount outstanding was Rs 57700 crore.

Shares of metal companies rose on value-buying as investors bet on higher global prices and a spurt in Chinese buying.

Sesa Sterlite (up 0.45%), JSW Steel (up 2.74%), Hindalco Industries (up 0.71%), Tata Steel (up 1.47%), Jindal Steel & Power (up 6.93%), and Hindustan Copper (up 0.77%) gained. NMDC (down 0.33%), National Aluminum Company (down 0.15%), and Bhushan Steel (down 1.73%) declined.

China trade data points to an active January, a leading foreign brokerage firm said in a note, as Chinese steel exports rose 38% year-on-year while iron ore imports rose by 32%.

China is the world's largest consumer of copper and aluminum.

Steel Authority of India (Sail) rose 0.17%. The stock turned ex-dividend today, 18 February 2014, for interim dividend of Rs 2.02 per share for the year ending 31 March 2014.

Hindustan Zinc (HZL) fell 2.43% on reports that the government may not complete its sale of minority stakes in Hindustan Zinc (HZL) and Bharat Aluminium (Balco) this fiscal year. The government has proposed to sell all of its 29.5% stake in HZL and its 49% holding in Balco through open auction which are together expected to fetch about Rs 20000 crore. The companies are majority owned by Anil Agarwal's Vedanta Group.

Economic affairs secretary Arvind Mayaram was quoted by media as saying that the decision to disinvest in Hindustan Zinc and Balco stands, adding that the process requires time and may not be completed before 31 March 2014.

ABB India surged 12.8% after net profit surged 249.37% to Rs 58.59 crore on 5.72% increase in total income to Rs 2204.56 crore in Q4 December 2013 over Q4 December 2012. The result was announced during market hours today, 18 February 2014.

The company said it generated a healthy operating cash flow in the midst of a tight liquidity in the market.

The company received orders worth Rs 1666 crore in Q4 December 2013, which was higher than the order intake of Rs 1579 crore in the corresponding quarter of the previous year. The order intake for the full year 2013 stood at Rs 6717 crore. Base orders from a wider spectrum of customers helped offset dearth of large projects in the market, ABB India said in a statement. The company said its exports grew, annulling the effect of a contraction in the domestic market opportunities. The company continued to tap sectors like renewable energy, data center, railways, grid stability, mining, oil and gas that look increasingly promising, the company said in a statement.

The company said it is well positioned with an order backlog of Rs 7709 crore as on 31 December 2013, providing necessary visibility to future revenue.

ABB India, Managing Director, Bazmi Husain, said: "2013 witnessed a steady improvement in margins of the company. While market uncertainties continue, our intensified efforts to remain cost competitive and strengthen project management have borne visible results. Our capacities are ready to address the next phase of growth as the market improves. The new PASS, GIS factory reinforces our technology focus and commitment to the India growth story. Overall, we remain aligned to charting a course of profitable growth backed by business led collaboration and relentless execution".

Bond prices rose after the government's announcement of lower-than-expected gross market borrowing of Rs 5.97 lakh crore for 2014-15 at the time of announcement of the Interim Budget for 2014-15 on Monday, 17 February 2014. The yield on 10-year benchmark federal paper, 8.83% GS 2023, was hovering at 8.7753%, lower than its close of 8.8047% on Monday, 17 February 2014. Bond yield and bond prices move in opposition direction.

The estimated gross borrowing of Rs 5.97 lakh crore for 2014-15 is lower than gross borrowing of Rs 6.29 lakh crore for the current fiscal year in the budget presented a year ago.

In the foreign exchange market, the rupee edged lower against the dollar. The partially convertible rupee was hovering at 62.19, compared with its close of 61.84/85 on Monday, 17 February 2014.

Global credit rating agency Moody's Investors Service today, 18 February 2014, said that India's fiscal position remains weak and a cut in spending to meet the budget gap estimate this year will probably hurt economic growth. "While demonstrating a commitment to meeting its deficit targets, the Indian government's spending cuts are also likely to constrain GDP growth in the current year," Atsi Sheth, lead India analyst for sovereign ratings, said in a statement. The government that takes power after elections will determine budget outcomes and long-term fiscal trends, she said. The government's ability to meet the deficit target for the year starting 1 April 2014 will depend on pace of growth, global commodity prices and the rupee's movements, Moody's said. Dividends from state enterprises and fees from a spectrum auction helped make up a shortfall in tax revenue, it said.

Moody's has a stable outlook on India's Baa3 sovereign-credit rating, the lowest investment grade rating.

Finance minister P. Chidambaram today, 18 February 2014, said that the monetary authority must abide by the government's policy, adding, in a developing country like India there must be a balance between price stability and growth. "Sometimes, not enough attention has been paid to that balance," Chidambaram said in an interview with a television news channel. His comments follow a report from a panel set up by the central bank last month, which suggested the Reserve Bank of India should pursue managing inflation as its main policy objective.

Commenting on the interim budget, Mr. Rana Kapoor, President, The Associated Chambers of Commerce and Industry of India (ASSOCHAM), on Monday, 17 February 2014, said: "Despite being low on expectations in an election year, Finance Minister P Chidambaram's Interim Budget has given a pleasant surprise at least partly to the manufacturing sector which has been bleeding. The excise duty cut on automobiles and capital goods will provide a much-needed relief to these sectors". However, the industry would expect a much larger package from the new government to revive the manufacturing sector when a regular budget is presented some times in July, the ASSOCHAM chief said. More importantly, the Finance Minister deserves to be complimented since he is leaving behind the government treasury in a sound shape with the result that the overall macro picture of the Indian economy today looks far better than it was about eight months back, the ASSOCHAM chief said.

The external sector today is far more stable with exports picking up and the current account deficit capped at USD 45 billion, a little less than half the worrisome level of USD 88 billion in 2012-13. The fiscal deficit has also been contained at 4.6 per cent, though it has been achieved by a big cut in the Plan expenditure, ASSOCHAM said. But, here the Finance Minister did not have many choices either, ASSOCHAM said. The ASSOCHAM feels that there is an imperative need to cap the non-plan expenditure of the Central Government. The Non-Plan expenditure of over Rs 12 lakh crore gives an impression of a fat government which needs to reduce its size so that more resources are left for development, the ASSOCHAM said in a statement.

The Finance Minister also needs a pat for not yielding to pressures of populism, which is generally evident in an election year, ASSOCHAM said. However, a ballooning subsidy budget of Rs 2.46 crore remains a big burden on the exchequer and needs to be pruned to a sustainable level by better targeting the subsidies in food, fuel and fertilizer, it said.

Despite being a vote on account, the initiatives on skill development, and the MSME innovation are laudable, ASSOCHAM said. "While the industry too is disappointed for the country not being able to usher in the major tax reforms in the form of GST, we look forward to the new government to complete the task. The ASSOCHAM would like to see a government which is stable and decisive so that India reverts back to 8-9 per cent growth sooner than later. For us, there are no choices than to grow at a rapid pace whichever political combination is voted to power," the ASSOCHAM said.

Commenting on the Vote on Account, Mr. Sidharth Birla, President, Federation of Indian Chambers of Commerce and Industry (FICCI), on Monday, 17 February 2014, said: "The statement made by the Finance Minister was balanced and largely on expected lines. While industry expectations were limited from an interim budget formality, the emphasis laid on turning around the growth trajectory and reviving the manufacturing sector in particular are well received." The maximum focus this time was on the fiscal deficit number, a figure being closely watched by all investors. "The Finance Minister has stuck to what he had promised with fiscal deficit being kept at 4.6% of GDP in fiscal 2014 and lower than the budget estimate of 4.8%. The future direction being given with regard to central government finances is also good. While this was the last budget of the government, yet the Finance Minister refrained from announcing any large populist measures", added Mr. Birla.

Industry has welcomed the initiative of a ten point charter outlining the vision for future of the Indian economy, FICCI said in a press release issued on Monday, 17 February 2014. Many of the points mentioned such as need for fiscal consolidation, importance of foreign investments for financing CAD, creating a balance between price stability and growth, deepening the financial sector reforms, intensifying efforts on infrastructure development, boosting manufacturing growth with zero taxing of exports and minimum tariff protection to encourage domestic value addition, containing subsidies, having planned urbanisation and pushing skill development have been highlighted by FICCI even in its most recently launched 'Economic Agenda for Growth', FICCI said. "While many of these points are aspirational, these are all achievable through concerted effort and a coordinated approach between the centre and the states", said Mr. Birla.

The financial markets also received well deserved attention in the Vote on Account statement with announcements pertaining to revamping of the ADR/GDR Scheme, liberalising the rupee denominated corporate debt market, deepening and strengthening the currency derivatives market, creating one record for all financial assets of individuals, enabling smoother clearing and settlement for international investors for investing in Indian bonds, the FICCI said. "These measures will help in further broadening of the Indian financial market and efficient availability and utilisation of risk capital", said Mr. Birla. "On the excise duty reduction that was affected in select sectors, FICCI feels that the Finance Minister has chosen the areas carefully based on the recent performance of the industrial sector. While the period of relief is small, this move could provide some reprieve to the identified industries," added Mr. Birla.

The Finance Minister's statement that the government remains fully committed to 'Aadhaar', which is a key tool for empowerment, is re-assuring. FICCI also welcomes the Finance Minister's allocation of Rs 100 crore to the India Inclusive Innovation Fund for promoting innovation amongst the MSMEs which form the backbone of India's industrial economy, FICCI said.

Welcoming the Interim Budget presented by the outgoing government, Mr. Kris Gopalakrishnan, President, Confederation of Indian Industry (CII), on Monday 17 February 2014, said that the vision presented in the Budget is very much in line with what CII believes in. The Finance Minister has highlighted the importance of the manufacturing sector, which is key to reviving the economy, Mr. Gopalakrishnan said. The performance of the manufacturing sector over the last one year has been consistently poor and is in need of intervention by the government. "On behalf of CII, I must thank the Finance Minister for recognising this need and reducing excise in some of the most affected subsectors of manufacturing. The reduction in excise duty on sectors such as automobiles, capital goods and consumer electronics is indeed welcome, as this will help revive demand in these sectors," Mr. Gopalakrishnan said.

Since the Finance Minister made a special mention of the forward looking policy to promote electronics sector, CII hopes that the association's recommendation of abolition of SAD and reduction in CST for electronics sector will be taken up in the regular budget, Mr. Gopalakrishnan said. This is important as electronics is a zero duty sector on account of ITA I. The restructuring of excise duty on handsets to include 1% excise duty without CENVAT credit on inputs is welcome as this will encourage handset manufacturing in India, the CII said in a press release.

The CII President also welcomed the fiscal figures outlined by the Finance Minister in the Interim Budget speech. "It is clear that the government has stayed on the fiscal discipline roadmap and achieving a 4.6% fiscal deficit is no small feat. The fact that deficit has been targeted at 4.1% for the next fiscal sends a strong signal and should help confidence in the economy. While the Interim Budget maintained overall expenditure on a tight leash, the Finance Minister manages to make some important allocations. Given the stressed assets in the banking sector, the Finance Minister's allocation of Rs 11300 crore for strengthening the capital base of public sector banks is welcome," said Mr Gopalakrishnan.

In the 10-point vision laid out by the Finance Minister, besides mentioning reduction in the twin deficits, emphasis was also given to a balanced monetary policy, implementation of infrastructure projects and development of cities. CII hopes that the new government will further strengthen the support given to industry and extend the support to other sectors. The implementation of GST should also be a priority for the coming government, the CII release said.

Bharatiya Janata Party (BJP) National Treasurer and Member of Parliament from Rajya Sabha Mr. Piyush Goyal on Monday, 17 February 2014, said that creation of over 200 million jobs over the next 10 years is going to be the priority of the BJP. Addressing the National Council meeting of the Confederation of Indian Industry (CII), Mr. Goyal said affordable housing alone could provide the kind of spur to manufacturing which the country needed. If the country took up the agenda of creating 100 million affordable homes then 15 million jobs could easily be created every year, he said. Ruing the fact that the National Skill Development Council (NSDC) had not been able to get the funds that it had been promised after all these years, Mr. Goyal said it was regrettable that only 3 lakh people had been imparted skills against a target of several millions. He suggested dovetailing of skill development of 200 million people with the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) so that people could actually be provided with funds to gain skills. Four areas where skills could be built, he said, were tourism, manufacturing, housing and infrastructure.

Answering a question on the issue of goods and services tax (GST), Mr. Goyal said BJP is not against GST provided certain issues are addressed. These included issues such as the needs of states in situations of natural calamities. "If these contentious points are addressed then BJP stands committed to the approval of GST," said Mr Goyal. On the issue of land acquisition he said the government should have increased compensation and simplified the procedures but "it had ended up making the law so draconian that had not Mr Arun Jaitley, leader of the Opposition in the Rajya Sabha, insisted on keeping four-five sectors out of its purview, the entire business would have come to a standstill".

Maintaining the party's opposition to multi-brand FDI in retail, Mr Goyal said that unless the country's manufacturing base was strengthened, it was not going to allow foreign brands to enter India as they were not going to work on strengthening the backend systems and supply chains.

In his first public interaction with CII at its National Council Meeting in New Delhi on Moday, 17 February 2014, Mr. Arvind Kejriwal, leader of the Aam Aadmi Party and former Chief Minister of Delhi said that the key issue today is "governance". The need of the hour, he said, is "honest and efficient governance" which has been lacking all these years, and due to which even though India was led by the best economists in the recent past, the country's growth has faltered. Addressing industry leaders from diverse sectors, Mr. Kejriwal emphasized that he supported business and was not against capitalism, but against crony capitalism adding that "a small section of people are looting the country". He praised industry for driving economic and inclusive growth and said that it was business that is best suited to address needs such as "inclusive growth" through the creation of jobs. The government, he said, cannot create jobs; it can only create an eco-system that supports the creation of jobs. Elaborating on the role of the government, Mr. Kejriwal said that the government must provide "security, justice and corruption-free governance" for growth and development to take place.

Sharing his views on improving governance and therefore the eco-system within the country, Mr. Kejriwal said that "we want to end inspector and license raj and corruption". He spoke of measures such as creating a strong deterrence to corruption, revisiting the existing systems, using technology efficiently, and decentralizing power that would help them achieve their goal. "We need to simplify laws, the judicial system and have a stable tax regime, among other measures that will all work together to boost India's growth, and would like industry's views on how it can be done", he said.

The Reserve Bank of India next undertakes monetary policy review on 1 April 2014. Citing price pressures, the Reserve Bank of India raised its key lending rates by 25 basis points after Third Quarter Review of Monetary Policy for 2013-14 on 28 January 2014.

European stocks declined on Tuesday, 18 February 2014, as Chinese policy makers drained funds from the financial system. Key benchmark indices in France, Germany and UK were off 0.06% to 0.35%.

A report from the German ZEW Center for European Economic Research is due today, 18 February 2014.

UK inflation unexpectedly cooled in December, slowing to below the Bank of England's 2% target for the first time since November 2009. Consumer prices rose an annual 1.9%, down from 2% in December, the Office for National Statistics said today in London.

Asian stocks edged higher on Tuesday, 18 February 2014, after the Bank of Japan maintained unprecedented asset purchases and boosted lending programs. Key benchmark indices in South Korea and Taiwan were up 0.03% to 0.43%. Key benchmark indices in Hong Kong, Indonesia and Singapore were off 0.02% to 0.43%.

Japan's Nikkei Average jumped 3.13%. At the end of a monetary policy review, Japan's central bank today, 18 February 2014, pledged to maintain plans to expand the monetary base by 60 trillion yen to 70 trillion yen ($686 billion) per year. It also doubled a funding facility to 7 trillion yen and said individual banks could borrow twice as much low-interest money as previously under a second lending facility.

China's Shanghai Composite fell 0.77%. The People's Bank of China sold repurchase contracts for the first time since June after money-market rates slid and the country reported record lending figures in January. The PBOC conducted 48 billion yuan ($7.9 billion) of 14-day repurchase contracts at a yield of 3.8%, according to a statement on the bank's website.

China's foreign direct investment climbed 16.1% to $10.76 billion in January from a year earlier, according to a government report released today, 18 February 2014.

Trading in US index futures indicated that the Dow could advance 15 points at the opening bell on Tuesday, 18 February 2014. US stock markets were closed on Monday, 17 February 2014 for a holiday.

Federal Reserve Chairwoman Janet Yellen said last week that US growth has strengthened and that only a "notable change in the outlook" for the economy would prompt policy makers to slow the pace of cuts to the monthly bond-buying program.

The Federal Open Market Committee (FOMC) next undertakes monetary policy review on 18-19 March 2014. After a monetary policy review, the FOMC on 29 January 2014 announced it will reduce monthly bond purchases by another $10 billion to $65 billion. The Fed also signaled that it is likely to keep reducing bond purchases in the coming months, citing a pickup in US economic activity and improvement in the US labor market.