PSU oil shares lead rally

Trading for the week began on an upbeat note as the key benchmark indices surged today, 27 June 2011, extending their rally into the third straight day, as a slide in global crude oil prices outweighed concerns that an increase in domestic fuel prices will stoke inflation. The BSE Sensex jumped 171.73 points or 0.94%, off close to 82 points from the day's high and up close to 280 points from the day's low. The market breadth was positive. The Sensex attained its highest closing level in nearly three weeks. The 50-unit S&P CNX Nifty achieved its highest closing level in 2-1/2 weeks.

Shares of state-run oil marketing companies rallied as government after market hours on Friday, 24 June 2011, announced a hike in the prices of diesel and cooking fuel. Upstream oil companies ONGC and Oil India surged after the government removed the 5% customs duty on crude oil.



Banking and capital goods stocks also gained. Index heavyweight Reliance Industries (RIL) edged higher in volatile trade. Defensive FMCG shares fell on profit taking. Some consumer durable socks also declined. Auto stocks rose. Tyre and footwear makers also edged higher. Aviation shares rose as crude oil prices dropped.

The market slipped into the red once again after reversing initial losses weighed by weak Asian stocks. The market surged to 2-1/2-week high in morning trade. The Sensex trimmed gains later. The market moved in a tight range near the day's high in mid-morning trade. The market trimmed gains in early afternoon trade. Key benchmark indices surged in afternoon trade as European stocks came off initial lows. Volatility ruled the roost as the key benchmark indices regained strength in mid-afternoon trade soon after paring gains from a sharp surge. The market moved in a range in late trade.

The market may remain volatile in the near term as traders roll over positions in the derivatives segment from June 2011 series to July 2011 series. The near-month June 2011 derivatives contracts expire on Thursday, 30 June 2011.

The BSE Sensex rose 171.73 points or 0.94% to settle at 18,412.41, its highest closing since 7 June 2011. The Sensex jumped 253.43 points at the day's high of 18,494.11 in afternoon trade. The index fell 107.98 points at the day's low of 18,132.70 in early trade.

The S&P CNX Nifty rose 55.35 points or 1.01% to 5,526.60, its highest closing since 8 June 2011. The Nifty hit high of 5,552.65 in intraday trade.

The BSE Mid-Cap index was up 0.82% and the BSE Small-Cap index rose 0.80%. Both these indices underperformed the Sensex.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,636 shares advanced while 1,193 shares declined. A total of 116 shares remained unchanged.

BSE clocked turnover of Rs 2553 crore, lower than Rs 2830.49 crore on Friday, 24 June 2011.

Among the 30-member Sensex pack, 23 stocks rose while the rest of them fell.

Index heavyweight Reliance Industries (RIL) rose 0.13% to Rs 871.50. The stock was volatile. The stock hit high of Rs 880 and low of Rs 862. RIL's advance tax payment reportedly jumped 38.46% to Rs 900 crore in Q1 June 2011 over Q1 June 2010. Higher advance tax payment normally indicates higher profit for the period under review.

The RIL stock had witnessed a sell-off recently following reports a government watchdog has accused the Oil Ministry for favouring RIL by allowing it to double the development cost of its KG-D6 gas field. The stock had hit a 52-week low of Rs 829 in intraday trade on 20 June 2011. As per recent reports, a draft report of the Comptroller and Auditor General of India (CAG) has questioned the decision of the oil ministry and its technical arm, the Director General of Hydrocarbons (DGH), to allow RIL to raise the development cost of RIL's KG-D6 field.

RIL had clarified that it has fully complied with the requirements in its production sharing contract at all times in conducting petroleum operations.

PSU OMCs jumped after the government after market hours on Friday, 24 June 2011, announced a hike in the price of diesel by Rs 3 a litre, kerosene Rs 2 a litre and cooking gas by a steep Rs 50 a cylinder. BPCL, HPCL and Indian Oil Corporation rose by between 3.10% to 5.80%. The latest price hike in fuel prices will reduce under-recoveries of state-run oil marketing companies (PSU OMCs) on domestic sale of diesel and cooking gas at government controlled prices.

The government also slashed customs and excise duties on petroleum products, sacrificing Rs 49000 crore a year in revenue. The government removed the 5% customs duty on crude oil, brought down the import duty on petrol and diesel from 7.5% to 2.5% and reduced the excise duty on diesel by Rs 2.60 to Rs 2 per litre.

Upstream oil companies ONGC and Oil India surged 4.16% and 5.64%, respectively, after the government removed the 5% customs duty on crude oil.

India's largest engineering and construction firm by sales Larsen & Toubro gained 2.69%, extending Friday's 4.25% surge triggered by a new order win. The company during market hours on Friday said it has bagged orders worth Rs 1610 crore in metallurgical and material handling segment.

Among other capital goods stocks, Praj Industries, BGR Energy, Punj Lloyd, BEML, Suzlon Energy, Bhel, Areva T&D India, Reliance Industrial Infrastructure, Alstom Projects, Siemens, Thermax, Lakshmi Machine Works and Crompton Greaves rose by between 0.14% to 1.94%.

Bank stocks rose for the second day in a row. India's largest commercial bank by branch network State Bank of India (SBI) rose 1.60%, extending Friday's near 6% surge. The bank's advance tax reportedly rose 29.41% to Rs 1100 crore in Q1 June 2011 over Q1 June 2010.

India's largest private sector bank by net profit ICICI Bank gained 1.22%, with the stock gaining for the fourth straight day. The bank aims to grow its loan book by 18%-20% in the current financial year, its chief financial officer N.S. Kannan, said in an interview.

India's second largest private sector bank by net profit HDFC Bank added 1.46%, with the stock gaining for the third straight day. The bank's advance tax reportedly rose 26.98% to Rs 400 crore in Q1 June 2011 over Q1 June 2010.

Among other banks, Yes Bank, Federal Bank, Union Bank of India, Axis Bank, Canara Bank, Bank of Baroda, IDBI Bank, Kotak Mahindra Bank, Bank of India, IndusInd Bank and Punjab National Bank rose by between 0.17% to 4.99%.

FMCG stocks fell on profit taking. Nestle India, ITC, Hindustan Unilever and Godrej Consumer Products fell by between 0.23% to 1.38%.

Auto stocks rose as the hike in diesel price of Rs 3 per litre was lower than market expectations of a hike of Rs 4 per litre. The government after market hours on Friday, 24 June 2011, announced a hike in the price of diesel by Rs 3 a litre, kerosene Rs 2 a litre and cooking gas by a steep Rs 50 a cylinder.

Tractor and utility vehicles maker Mahindra & Mahindra (M&M) rose 3.09%, extending Friday's 3.18% jump. The company's advance tax reportedly rose 42.85% to Rs 90 crore in Q1 June 2011 over Q1 June 2010.

India's largest truck and buses maker, Tata Motors rose 1.31%. The stock had declined recently on reports of lower advance tax payment by the auto major. Tata Motors' advance tax reportedly fell 4.61% to Rs 62 crore in Q1 June 2011 over Q1 June 2010. Tata Motors' global vehicle sales rose 11% to 88,251 units in May 2011 over May 2010. Jaguar and Land Rover sales rose 17% to 22,296 units, driven by a 30% rise in Land Rover sales. The company announced the sales data last week.

India's top small car maker by sales Maruti Suzuki India jumped 2.86% to Rs 1,153.35. The stock had hit 52-week low of Rs 1,087.15 in intraday trade on Friday. The stock had been under selling pressure recently on concerns arising from intense competition in the small-car segment.

India's second largest bike maker by sales Bajaj Auto was gave up intraday gains and fell 0.12%. The stock had jumped 3.22% on Friday. The company's advance tax reportedly rose 13.63% to Rs 125 crore in Q1 June 2011 over Q1 June 2010.

Hero Honda Motors fell 0.76% on profit taking. The stock had surged 6.07% on Friday, 24 June 2011, after the company said its promoter group firm Hero Investments revoked 3.46 crore pledged shares. Hero Honda Motors said Hero Investments revoked 3.46 crore pledged shares in three tranches on 7, 8 and 10 June 2011. The promoter group firm revoked 1.19 crore shares each from IL&FS Trust Company and IDBI Trusteeship Services and 1.07 crore shares from Axis Trustee Services. Post the revocation, only about 6% of Hero Investments' stake in Hero Honda, which is 52 lakh shares, remain pledged. This works out to 2.6% of Hero Honda's equity.

Tyre makers also gained. Dunlop India, JK Tyre & Industries, Apollo Tyres, CEAT and MRF rose by between 0.40% to 4.55%.

Footwear makers rose in a firm market. Bata India, Liberty Shoes and Relaxo Footwear gained by between 1.97% to 5.94%.

Shares of airlines rose on hopes that state-run oil marketing companies may cut aviation turbine fuel prices as crude oil prices dropped. Jet Airways (India) and SpiceJet were up 3.01% and 4.14%, respectively. However, Kingfisher Airlines gave up intraday gains and was flat at Rs 38.80, off day's high of Rs 39.55. Jet fuel constitutes more than 50% of operating cost for airliners. Prices of jet fuel are directly linked to crude oil prices.

Oil fell in New York on concern economic expansion in the US and China is slowing and as the International Energy Agency said it's prepared to release further crude from stockpiles. US crude futures were down 65 cents or 0.71% at $90.51 per barrel.

State Bank of India clocked the highest turnover of Rs 122.55 crore on BSE. Timbor Home (Rs 95.77 crore), Oil and Natural Gas Corporation (Rs 90.39 crore), Lovable Lingerie (Rs 67.77 crore) and Lanco Infratech (Rs 62.87 crore), were the other turnover toppers on BSE in that order.

Cals Refineries reported a highest volume of 2.70 crore shares on BSE. Lanco Infratech (2.68 crore shares), Timbor Home (1.09 crore shares), Birla Power Solutions (72.76 lakh shares) and SpiceJet (67.12 lakh shares), were the other volume toppers on BSE in that order.

Expectations for Q1 June 2011 results will start building as the first quarter draws towards a close. Housing finance major HDFC kicks off the results season on 8 July 2011. IT bellwether Infosys Technologies will unveil Q1 results on 12 July 2011.

A hike in transportation costs will add to cost pressure of India Inc. As per reports, freight rates have gone up by 8% to 9% with immediate effect on all routes across India following the latest hike in diesel prices.

The latest hike in diesel and LPG prices will also add to inflationary pressure in the economy. The food price index rose 9.13% and the fuel price index climbed 12.84% in the year to 11 June 2011, data released by the government on Thursday 23 June 2011 showed. In the previous week, annual food and fuel inflation stood at 8.96% and 12.84% respectively. The primary articles price index was up 12.62% compared with an annual rise of 12.86% a week earlier.

Crucial monsoon rains have advanced to the remaining regions of cane-growing Uttar Pradesh and some parts of pulses-growing Rajasthan ahead of schedule, the India Meteorological Department (IMD) on Monday, 27 June 2011. The monsoon has also reached remaining parts of wheat-growing Punjab and Haryana, the weather office said.

The IMD recently revised downwards the forecast for the vital monsoon rains this year to slightly below normal from the normal forecast given in April 2011. On the flip side, crop output may not be adversely affected significantly due to the onset of the monsoon rains on time this year and expectations that the rains will be well distributed.

Rainfall in July is considered crucial. Sowing of a number of crops starts in June and good July rains determine the soil moisture and ensure proper development of the crops planted in June.

Finance Minister Pranab Mukherjee and US Treasury Secretary Timothy Geithner will attend the second round of Economic and Financial Partnership talks between India and the United States in Washington on Monday, 27 June 2011 and Tuesday, 28 June 2011.

New Zealand on Monday said it expects to conclude the negotiations for a Free Trade Agreement (FTA) with India by March next year with the target of trebling bilateral commerce to $3 billion by 2015. New Zealand Prime Minister John Key, who is on a three-day visit to India, said both the sides have already completed about five rounds of negotiations.

India and Pakistan ended two days of peace talks on Friday, 24 June 2011, with a promise to push ahead with efforts to normalize relations between the neighbors. The two countries have agreed to appoint experts to discuss ways of reducing concerns about each others' growing nuclear arsenals and conventional weapon stockpiles. A joint statement said the foreign secretaries of India and Pakistan talked about the disputed region of Kashmir and agreed to a meeting in July 2011 to help work out how to improve the movement of people and goods between Pakistan and Indian-held portions of the Himalayan territory.

The statement added that the two sides aimed to finalize a visa agreement to make it easier to travel between India and Pakistan. And it said they pledged the "cessation of hostile propaganda against each other."

European stocks nudged higher in choppy trade on Monday, 27 June 2011, as miners and car makers posted some of the strongest gains. The key benchmark indices in France and UK were up by 0.26% and 0.29%, respectively. Germany's DAX fell 0.10%.

The Greek parliament will conduct a vote on Wednesday, 29 June 2011, and Thursday, 30 June 2011, on austerity measures and investors are watching the outcome as a key next stage in resolving euro-zone debt issues. Greece is required to slash spending in order to receive its next round of assistance funds.

Asian stocks fell on Monday, 27 June 2011, after regulators raised capital adequacy requirements for the world's biggest lenders and amid concern the US economy is faltering. The key benchmark indices in Hong Kong, Indonesia, Singapore, South Korea, Japan, and Singapore were down by between 0.38% to 1.04%. China's Shanghai Composite rose 0.44%.

China's Premier Wen Jiabao said on Monday that it will be hard to keep China's inflation under 4% this year, but capping it below 5% is achievable, adding that Beijing's top priority is price stability. Wen also expressed optimism on China's economic outlook.

Meanwhile, the world's top central bankers meeting over the weekend said Saturday that larger, systemically important banks should carry an extra capital buffer. The world's largest banks that can pose the biggest risks to the global financial system will have to hold up to an additional 2.5% of capital on their balance sheets to protect them in event of another crisis. The consultative document, agreed to by the group of governors and heads of supervision, will be presented to the Financial Stability Board, which is expected to issue the final rules next month.

The agreement calls for banks that can pose risks to the global financial system to face a rising scale for the requirement. Depending on their importance, the banks required capital buffer will be between 1% and 2.5% in Tier 1 common equity, the strictest definition of capital. That buffer would come on top of the 7% Tier 1 common equity that the Basel III committee already determined all financial institutions should hold.

The committee's statement also said "to provide a disincentive for banks facing the highest charge to increase materially their global systemic importance in the future, an additional 1% surcharge would be applied in such circumstances. " The assessment methodology would be based size, interconnectedness, lack of substitutability, global activity and complexity of the banks. The banks would have until 2019 to hit the higher levels of capital.

Trading in US index futures indicated that the Dow could gain 25 points at the opening bell on Monday, 27 June 2011. The US Federal Reserve has decided to end its $600 billion bond-buying program at the end of this month, as per schedule.