Saturday, May 9, 2009

BSE / NSE Market Commentary 8th May 2009

Market Commentary 08 May 2009

Political uncertainty triggered profit taking after a sharp recent sharp surge in share prices. Nevertheless, the market cut losses in late trade as European stocks extended gains and as US index futures jumped. Auto stocks recovered. Index heavyweights Reliance Industries and Larsen & Toubro came off the day's lows.

The market was volatile. The BSE 30-share Sensex was down 240.51 points or 1.98%, up close to 110 points from the day's low and off close to 305 points from the day's high. The barometer index today, 8 May 2009, fell below the psychological 12,000 mark.

Domestic bourses slipped today, 8 May 2009, despite higher global markets. World stocks rose after the results of stress tests on US banks showed no nasty surprises. Banking, IT and metal stocks fell. The market breadth turned negative from strong breadth seen in early trade.

Volatility was high. After initial gains tracking higher US index futures, the market slipped into the red. It later moved between the positive and negative terrain in mid-morning trade. The market slipped to the day's low in early afternoon trade after the inflation data. The market extended losses in afternoon trade. After a steep slide at about 13:54 IST, the market cut losses in late trade.

Political uncertainty weighed on the bourses with polling underway for India's 15th Lok Sabha. The month-long a parliamentary elections that began on 16 April 2009 will conclude on 13 May 2009. Poll estimates point to a fractured mandate. Consumption and investment decisions will be significantly impacted by any signs that the new government is unstable. The counting of votes will take place on 16 May 2009. A party/alliance needs 272 seats in the 543-member parliament to claim power at the Centre.

Recovery in the Indian economy triggered a solid rally on the domestic bourses recently. The rally was also a part of a sharp surge in global equities triggered by hopes the worst of the global economic recession may be over. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex jumped 3,956.54 points or 48.48% to 12116.94 on 7 May 2009.

Meanwhile, the Federal Reserve stress result announced on Thursday determined that 10 US banks need to raise a total of $74.6 billion in capital, a finding that Chairman Ben S. Bernanke said should reassure investors about the soundness of the financial system.

The results showed that losses at the banks under more adverse economic conditions than most economists anticipate could total $599.2 billion over two years. Mortgage losses present the biggest part of the risk, at $185.5 billion. Trading accounts were the second-largest vulnerability, with potential losses of $99.3 billion. The conclusion of the unprecedented probe of the health of the largest 19 lenders opens an exit for some of the firms from a tense partnership between Wall Street and the government. Others will have six months to fill their capital shortfalls and may be forced to accept expanded federal ownership that could prompt changes in their management.

Bank of America Corp. was judged to need $33.9 billion in additional capital under regulators' criteria, the largest gap. Wells Fargo & Co.'s shortfall is $13.7 billion, while Citigroup Inc.'s gap is $5.5 billion. New York-based Citigroup has already announced plans to bolster its tangible common equity ratio by converting some of its preferred shares into common stock.

Fifth Third Bancorp's capital need is $1.1 billion, KeyCorp's is $1.8 billion, PNC Financial Services Group Inc.'s is $600 million, Regions Financial Corp.'s is $2.5 billion and SunTrust Banks Inc.'s is $2.2 billion. GMAC LLC needs $11.5 billion, while Morgan Stanley's assessment was $1.8 billion.

Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of New York Mellon Corp., MetLife Inc., American Express, State Street Corp., BB&T Corp., US Bancorp and Capital One Financial Corp. were deemed not to need additional funds, according to the results.

European shares extended gain on Friday, 8 May 2009, as financial stocks advanced after the results of stress tests on US banks showed no nasty surprises, while miners tracked higher metals prices. Key benchmark indices in France, Germany and UK were up by between 1.78% to 2.92%.

Asian shares rose after the US bank stress results provided no negative surprises. Key benchmark indices in Hong Kong, Japan, China, Taiwan, Singapore, South Korea were up by between 0.17% to 1.09%. Volatility was high in Asia.

Chinese State Council Vice Premier Wang Qishan wrote in an editorial Friday, 8 May 2009, that the global financial crisis and economic slump are getting worse, in contrast to more optimistic recent comments from US officials. The world economy is going to get worse before it gets better, and the situation remains serious, Wang said in a commentary published in the Financial Times. Wang called for greater cooperation between the UK and China in order to foster recovery, and repeated earlier comments by other Chinese officials calling for more international regulation to prevent future crises.

Trading in US index futures showed the Dow could rise 115 points at the opening bell on Friday, 8 May 2009. US stocks fell on Thursday 7 May 2009 before the results of the stress tests. The Dow slipped 102.43 points, or 1.2%, to 8,409.85. The S&P 500 index was down 12.14 points, or 1.3%, to 907.39, and the Nasdaq composite index fell 42.86 points, or 2.4%, to 1,716.24. The results of the stress test were announced after trading hours in the US on Thursday.

In economic news in US, initial jobless claims fell more than expected to the lowest level since January 2009. The numbers for the week ending 2 May 2009 totaled 601,000, which was less than expected and down from the preceding week. Continuing claims climbed to a new record of 6.35 million, which was in-line with expectations.

Closer home, foreign institutional investors (FIIs) are in an aggressive buying mode after they made heavy sales in the first two months of calendar 2009. Foreign institutional investors (FIIs) bought shares worth a net Rs 395.20 crore on Thursday, 7 May 2009. FII inflow in May 2009 totaled Rs 3,269.60 crore (till 7 May 2009). FII inflow in calendar year 2009 totaled Rs 3,982.40 crore (till 7 May 2009).

Asia ex-Japan equity funds took in $1.62 billion in the week though 6 May 2009, up from $1.1 billion the previous week, according to the latest data from EPFR Global which tracks global funds with assets totaling some $10 trillion. Two-thirds of the inflows in Asia ex-Japan equity funds was targeted at the Greater China region. Emerging-market stock funds worldwide took in $3.6 billion during the period, while those focused on the US and Europe posted outflows.

A pattern that started in late March 2009, with cash coming off the sidelines and bypassing funds geared to developed markets in favor of emerging markets equity, high-yield bond and some sector funds carried into the first week of May 2009, EPFR Global said.

Activity in Indian factories expanded for the first time in five months in April 2009 as a swelling orders pipeline pointed to a tentative recovery, a survey showed on Monday, 4 May 2009. The ABN AMRO Bank purchasing managers' index (PMI) based on a survey of 500 companies, rose to 53.3 in April 2009 from 49.5 in March 2009, climbing above the threshold of 50 that separates expansion from contraction. The latest reading is the highest in seven months and it has steadily risen after hitting a trough of 44.4 in December 2008.

Manufacturing makes up about 16% of India's gross domestic product. The boost in manufacturing index came from a surge in new orders. The new orders index rose to 54.9 in April 2009 from 49.5 in March 2009. Several research notes in the past few days have pointed to improvement in economic activity in the months ahead.

Inflation based on the wholesale price index rose 0.7% in the year though 25 April 2009, higher than previous week's annual rise of 0.57%, data released by the government during trading hours today, 8 May 2009, showed.

The BSE 30-share Sensex was down 240.51 points or 1.98% to 11,876.43. The Sensex rose 63.13 points at the day's high of 12,180.07 in early trade. At the day's low of 11,765.06 Sensex fell 351.88 points in mid-afternoon trade.

The S&P CNX Nifty was down 63.20 points or 1.72% to 3,620.70. Nifty May 2009 futures were at 3627.65, at a premium of 6.95 points as compared to the spot closing of 3,620.70. Turnover in NSE's futures & options (F&O) segment surged to Rs 56,236.37 crore from Rs 48,471.10 crore on Thursday, 7 May 2009.

The BSE clocked a turnover of Rs 6612 crore, higher than Rs 4704.45 crore on Thursday 7 May 2009.

The BSE Consumer Durables index (up 1.89%), the BSE FMCG index (down 0.48%), the BSE PSU index (down 0.66%), the BSE Oil & Gas index (down 0.76%), the BSE Capital Goods index (down 0.78%), the BSE Auto index (down 0.78%), the BSE Healthcare index (down 1.02%), the BSE Realty index (down 1.13%), the BSE Power index (down 1.72%), the BSE TECk index (down 1.93%), outperformed the Sensex.

The BSE Bankex (down 3.21%), the BSE Metal index (down 2.52%), the BSE IT index (down 2.15%) underperfomed the Sensex.

The market breadth, indicating the overall health of the market, was even. It had turned negative in mid-afternoon trade from a strong breadth earlier in the day. On BSE, 1,277 shares rose as compared with 1,287 that fell. A total of 53 shares remained unchanged.

The BSE Mid-Cap index fell 0.17%. The BSE Small-Cap index gained 0.32%. Both these indices outperformed the Sensex

From the 30 share Sensex pack, 26 stocks fell while rest gained.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) fell 0.89% to Rs 1,897. Nevertheless, the stock came off the day's low of Rs 1,875. Analysts expect strong growth in bottom line in coming quarters from sale of gas which it started pumping last month from its deep-sea field off the east coast.

India's biggest engineering & construction firm by revenue Larsen & Toubro (L&T) rose 0.54% to Rs 992, off the day's low of Rs 961.85. L&T on 16 April 2009 said the company expects its order inflow to grow by 25-35% in FY 2010. Other capital goods stocks BEML, Praj Industries, Crompton Greaves and Thermax rose by between 0.25% to 2.21%.

PSU OMCs fell on rise in oil prices. Indian Oil Corporation BPCL and HPCL fell by between 0.14% to 2.55%. Crude oil futures rose Friday in Asia on relative dollar weakness, staying near six-month highs. On the New York Mercantile Exchange, light sweet crude futures for delivery in June traded at $57.84 a barrel up $1.13 or 2% in the Globex electronic session. State-run oil marketing firms suffer revenue loss on domestic sale of petrol, diesel, LPG and kerosene at a controlled price.

Auto stocks cut losses on higher sales in the month just gone by. India's largest commercial vehicle maker by sales Tata Motors was down 1.36% to Rs 268.40, off the day's low of Rs 262. India's largest car maker by sales Maruti Suzuki India was down 1.1% to Rs 830.05, off the day's low of Rs 817.25. India's largest tractor maker by sales Mahindra & Mahindra was down 4.28% to Rs 494.25, off the day's low of Rs 486.75.

Metal stocks fell as copper futures for July 2009 delivery declined 1% yesterday, 7 May 2009, retreating from a three-week high on the London Metal Exchange. Aluminum slid 0.4% at $1,561 a tonne.

India's largest steel maker by sales Tata Steel fell 4.08% even after the company said its sales volume surged by 31% to 4.52 lakh tonnes in April 2009 over April 2008 led by robust demand from auto and construction sectors. Steel Authority of India, Sterlite Industries, National Aluminum Company, Hindustan Zinc and Hindalco Industries, fell by between 0.1% to 4.98%.

Rate sensitive banking stocks fell on profit taking after a sharp surge in the past few days. India's second largest private sector bank by operating income HDFC Bank fell 2.83% to Rs 1,143.50. Three block deals were executed in the HDFC stock on BSE. Two deals of 38.82 lakh shares each were executed at Rs 1140 per share while another deal of 38.82 lakh shares was executed at Rs 1175 per share.

DBS Group, Southeast Asia's biggest bank, sold its entire 2.7% stake in HDFC Bank through the block deals on BSE today, 8 May 2009.

India's largest private sector bank by net profit ICICI Bank fell 5.19% as its ADR fell 5.79% on Thursday.

India's largest bank in terms of assets and branch network State Bank of India (SBI) fell 3.06%. SBI announces Q4 March 2009 results on Saturday, 9 May 2009. A total 13 brokerages expect a between 15% fall to a 39% rise in SBI's net profit at between Rs 1601.20 crore to Rs 2626.60 crore in Q4 March 2009 over Q4 March 2008.

India's biggest dedicated housing finance firm by operating income HDFC fell 4.19%.

Outsourcing focussed IT stocks fell for the third straight day on US government plans to scrap tax incentives that encourage American firms to ship jobs overseas. India's second largest software services exporter by sales Infosys fell 2.4% as its American depository receipt (ADR) slipped 1.4% on Thursday 7 May 2009.

India's third largest software services exporter by sales Wipro fell 6.59% as its ADR fell 3.49% on Thursday. India's largest software services exporter by sales TCS fell 0.29% to Rs 630.25 off the day's low of Rs 610.

Analysts, however, feel that US government's plan to scrap tax incentives that encourages American firms to ship jobs overseas is unlikely to dent business for Indian outsourcers. US president Barack Obama on Monday, 4 May 2009, announced plans to reduce tax breaks for US-based multinationals shipping jobs to places like India. Instead, the tax incentives would now go to those creating jobs inside the US, in places like the Buffalo city, New York.

Currently, US businesses that invest overseas can take an immediate tax deduction for expenses supporting their overseas investments. They can also defer the payment of US taxes on the profits they make from such investments. But, now the Obama Administration wants to ensure that companies do not receive deductions for expenses supporting their offshore investments until they pay tax on their offshore profits. This is intended to disincentivise US companies from retaining profits abroad.

Infosys said the proposal, if implemented, was unlikely to reverse the outsourcing of a gamut of services by US firms to Indian companies. "The current proposal, as we understand, is to close corporate tax loopholes on US multinational corporations and crack down on their overseas tax havens," the company said in a statement. "We do not believe that it has anything to do with IT outsourcing done by US corporations.", Infosys said.

Rate sensitive realty stocks fell on profit taking after recent surge in prices. Unitech, Phoenix Mills, Anant Raj Industries, fell by between 0.93% to 2.04%.

DLF fell 1.84% on reports the promoters are close to finalising a deal worth around Rs 3000 crore with some foreign and domestic institutional investors to offload a little over 7% stake.

Some healthcare stocks fell on profit taking after they rose as most of the healthcare firms reported better than expected Q4 March 2009 result. Piramal Healthcare, Sun Pharmaceuticals Industries, Pfier, Biocon, Cipla, Dr Reddy's Laboratories fell by between 0.22% to 3.69%.

India's largest FMCG maker by sales Hindustan Unilever rose 0.98% to Rs 232.90 after a block deal of 3.33 lakh shares was executed on NSE at Rs 233.25 per share.

United Spirits fell 6.7% after reports Diageos talks to buy a stake in the alcohol maker have hit a roadblock.

Cement stocks fell on recent reports cement prices could fall by up to 10% in the coming months, pushed lower by new supply and slower construction activity during the monsoon season. Ultratech Cements, India Cements, ACC and Ambuja Cements, fell by between 0.43% to 4.73%.

Cals Refineries clocked the highest volume of 6.62 crore shares on BSE. Ispat Industries (3.07 crore shares), Reliance Natural Resources (1.43 crore shares), Suzlon Energy (1.36 crore shares), HDFC Bank (1.36 crore shares) were the other volume toppers in that order.

HDFC Bank clocked the highest turnover of Rs 1,524.22 crore on BSE. Reliance Industries (Rs 203.51 crore), ICICI Bank (Rs 186.57 crore), Tata Steel (Rs 177.99 crore) and Housing Development & Infrastructure (Rs 166.25 crore) were the other turnover toppers in that order.