Market Commentary 10 July 2009
A sell-off in index heavyweight Reliance Industries (RIL) triggered a sharp fall on the bourses in the last one hour of trade today. Power, realty and capital goods stocks dropped. However, IT stocks held firm after IT bellwether Infosys Technologies raised the lower end of its annual forecast in dollar terms. The BSE 30-share Sensex fell 253.24 points or 1.84%, off close to 390 points from the day's high and up 90 points from the day's low. The S&P CNX Nifty regained 4,000 mark after falling below that level in late trade. The market breadth turned weak in contrast to a positive breadth earlier in the day. Weak global markets and lower US index futures dented sentiment.
The BSE Sensex posted its biggest weekly fall in more than eight months. The benchmark index lost 9.4% in the week ended Friday, 10 July 2009.
The market was volatile. The market pared gains after a firm opening triggered by better-than-expected Q1 results from Infosys before trading hours. The Sensex slipped into the red after moving between the positive and negative terrain in mid-morning trade. A bout of volatility was witnessed in early afternoon trade. The market surged in mid-afternoon after Planning Commission deputy chairman Montek Singh Ahluwalia said the rise in industrial production in May 2009 is not a surprise and the worst is over for industrial output. A total reversal of trend was witnessed later as the market slumped in late trade.
India's industrial output rose 2.7% in May 2009 compared to a revised growth of 1.2% in April 2009 government announced at 12:00 IST today showed. April's annual growth rate was revised down to 1.2% from 1.4% previously. Manufacturing production rose 2.5% in May 2009 from a year earlier.
Finance Secretary Ashok Chawla today said industrial output is showing further improvement and he expects the positive trend in output to continue.
Road transport minister Kamal Nath today said the government expects to build 12,000 kilometres of roads this year, with a preference to use a toll model for new roads as far as possible.
Meanwhile, Farm Minister Sharad Pawar said today poor monsoon rains in North India is a serious problem. He, however, said the government is ready with plans to deal with the weak rainfall. The rains were 8% below normal in early July, reviving after the driest June in 83 years, but water in the main reservoirs has more than halved, putting at risk even winter-sown oilseeds and wheat.
Junior finance minister Namo Narain Meena said today there are no plans to revise interest rates on small savings. Meena said the government will to initiate institutional reforms which will encompass subsidies, taxs and disinvestment to bring fiscal deficit under control.
Rating agency Moody's today said India's Union Budget 2009-2010 is in line with its stable sovereign outlook on the country. Finance Minister (FM) Pranab Mukherjee in the Union budget had set a sharply higher fiscal deficit target to 6.8% for the financial year ending March 2010 after he increased spending on roads, power and aid to the poor. The higher fiscal deficit has raised fears of a downgrade of India's sovereign rating by the global credit rating agencies.
European shares fell on Friday, with oil producers leading the losers after US oil firm Chevron Corp late on Thursday warned that second-quarter earnings would be hit by a sharp decline in US refining margins. Key benchmark indices in France, Germay and UK fell by between 0.67% to 0.73%.
Asian stocks were mostly in the red. Key benchmark indices in China, Hong Kong, Japan, Singapore and South Korea fell by between 0.04% to 0.46%. The key benchmark indices in Singapore and Taiwan rose by between 0.02% to 0.32%.
Trading in the US index futures indicated Dow could fall 62 points at the opening bell today, 10 July 2009.
Wall Street ended a choppy Thursday trade largely flat. The Dow Jones Industrial Average was up 4.76 points, or 0.1%, to 8,183.17. The S&P 500 index rose 3.12 points, or 0.4%, to 882.68, while the Nasdaq Composite Index gained 5.38 points, or 0.3%, to 1,752.55.
On the economic front, the latest initial weekly jobless claims fell more than expected to 565,000. It was the first time since January 2009 that initial claims came in below 600,000. However, June retail sales report disappointed as consumers eased spending amid higher gasoline prices and rising unemployment.
The BSE 30-share Sensex fell 253.24 points or 1.84% to 13,504.22. The Sensex rose 139.73 points at the day's high of 13,897.19 in mid-afternoon trade. At the day's low of 13,418.39, Sensex fell 339.07 points in late trade.
The S&P CNX Nifty was down 77.05 points or 1.89% to 4,003.90. Nifty July 2009 futures were at 3971.90, at a huge discount of 32 points over the spot closing of 4003.90. Turnover in NSE's futures & options (F&O) segment rose to Rs 57,891.12 crore from Rs 53,047.24 crore on Thursday, 9 July 2009.
BSE clocked a turnover of Rs 4,586 crore, lower than Rs 4,894.55 crore on Thursday, 9 July 2009.
The market breadth turned weak in late trade in contrast to a positive breadth earlier in the day. On BSE, 770 shares rose as compared with 1,781 that fell. A total of 80 shares remained unchanged.
From the 30 shares Sensex pack, 24 fell and the rest rose.
Indian stocks have risen sharply this year boosted by strong inflow of foreign funds. The BSE Sensex is up 3,856.91 points or 39.97% in calendar year 2009, as on 10 July 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 5,343.82 points or 65.48% as on 9 July 2009.
Coming back to today's trade, the BSE Mid-Cap index was down 1.92% and underperformed the Sensex. The BSE Small-Cap index was down 1.72%. It outperformed the Sensex.
The BSE IT index (up 2.17%), the BSE TECk index (down 0.09%), the BSE FMCG index (down 0.77%), the BSE Auto index (down 1.29%), the BSE Metal index (down 1.35%), the BSE Consumer Durables index (down 1.71%), the BSE Healthcare index (down 1.77%), outperformed the Sensex.
The BSE Oil & Gas index (down 3.28%), the BSE Power index (down 2.54%), the BSE Capital Goods index (down 2.28%), the BSE Realty index (down 2.1%), the BSE PSU index (down 2.03%), the BSE Bankex (down 1.86%), underperformed the Sensex.
India's largest private sector firm by market capitalisation Reliance Industries (RIL) was down 3.99% to Rs 1,778.40. The Supreme Court on Tuesday declined to stay the Bombay High Court's verdict in a dispute over the sale of natural gas by Reliance Industries (RIL) to Reliance Natural Resources (RNRL).
The Supreme Court didn't grant RIL' plea to stay the order of the Bombay High Court until the resolution of the case and issued notices to the companies and the Centre. Both companies have to reply to appeals filed by each other by 20 July 2009, when the matter is scheduled to be heard. The government must also respond by then, the court said.
RIL, late last week, moved the Supreme court, challenging the Bombay High Court judgment asking it to supply gas to the former at a price that is 44% lower than fixed by the government. In its appeal filed in the Supreme Court on Saturday 4 July 2009, Reliance Industries contended that the high court had erred in deciding the three terms - quantity, tenure and price of gas supply to power plants of Reliance Natural Resources (RNRL) affiliates.
Oil stocks were mixed as crude oil fell today as the dollar gained against the euro and the yen, reducing the appeal of commodities to investors as a hedge against inflation. India's largest state-run oil exploration firm by revenue ONGC fell 1.26%. But Cairn India rose 1.63%. Crude oil for August delivery fell 16 cents to $60.25 a barrel on the New York Mercantile Exchange. The fall in crude oil prices would result in lower realizations from crude sales for oil exploration firms.
PSU OMCs fell after oil minister Murli Deora on Thursday said that the government will roll back the Rs 4 a litre hike in petrol prices and the Rs 2 a litre increase in diesel rates if international crude oil prices stabilize between $50 and 60 a barrel. HPCL, BPCL and Indian Oil Corporation fell by between 3.49% to 4.19%. The Government had, last week, raised petrol and diesel prices citing spike in international crude oil prices to $70 a barrel.
A recent sharp slide in crude oil prices augurs well for PSU OMCs. Lower crude oil prices will reduce under-recoveries at the state-run oil firms on domestic sale of petrol, diesel, LPG and kerosene at a controlled price.
Contrary to market expectations, the Union Budget 2009-2010 did not include a roadmap for decontrol of fuel prices in the country even as the finance minister said an expert panel will be set up to look into the matter of fuel pricing.
India's second largest IT exporter by sales Infosys rose 2.97% after the company raised the lower end of its annual forecast in dollar terms at the time of announcing Q1 June 2009 results before trading hours today. The management comments that global information technology spending may recover in 2010 on a possible revival of the global economy, also boosted the counter.
Infosys said consolidated revenues in dollar terms are expected to fall 3.1% to 4.6% at $4.45 billion to $4.52 billion in the year ending March 2010 (FY 2010). In April 2009 at the time of announcing Q1 June 2009 results, Infosys has forecast a revenue of between $4.35 to $4.52.
Infosys said consolidated earnings per American Depositary Share is expected to fall between 11.1% to 12.4% at between $1.97 and $2.00 in FY 2010. The company had forecast earnings per American Depositary Share of between $1.91 to $2 in April 2009.
However, the IT major Infosys has revised downwards its earnings and revenue guidance in rupee terms for the year ending March 2010 (FY 2010). Infosys' consolidated net profit as Indian GAAP declined 5.3% to Rs 1527 crore on a 2.89% fall in revenue to Rs 5472 crore in Q1 June 2009 over Q4 March 2009. The results were better-than-market expectations.
Infosys expects prices in the fiscal year to March 2010 to drop by 5% as its overseas clients battle slowing economy, senior officials said at the time of announcing the Q1 results.
Other IT stocks rose after better-than-expected Q1 June 2009 results from Infosys. India's largest IT exporter by sales TCS rose 1.56%. India's third largest IT exporter by sales Wipro rose 3.37% as its American depository receipt (ADR) rose 3.39% on Thursday, 9 July 2009.
Realty stocks fell after the Finance Minister made no major announcement to boost the debt ridden sector reeling under slump in demand for new homes in the Budget. DLF, Unitech, Indiabulls Real Estate, Housing Development & Infrastructure, Omaxe, Akruti City fell by between 0.04% to 4.98%.
Bank stocks declined after the government did not announce financial sector reforms in the Budget. Market expectations on financial sector reforms were high. The government's annual economic survey released ahead of the Budget had called for a phased increase in the foreign direct investment limit in banks. Voting rights in banks should be aligned with equity holdings, the Survey had said.
India's biggest bank in terms of branch network State Bank of India (SBI) fell 3.64%. India's second largest private sector bank by net profit HDFC Bank fell 2.2% even as its American depository receipt (ADR) rose 1.88% on Thursday, 9 July 2009. India's largest private sector bank by net profit ICICI Bank fell 1.18% even as its ADR rose 1% overnight.
India's biggest dedicated housing finance firm by operating income Housing Development Finance Corporation fell 1.3% as the finance minister did not announce a hike in tax sops for housing loans in the Budget contrary to market expectations.
Capital goods stocks fell on profit taking after recent gains triggered by a thrust on infrastructure development in the Union Budget 2009-2010. BEML, Crompton Greaves, Punj Lloyd, Siemens, Larsen & Toubro, Praj Industries, Bharat Heavy Electricals fell by between 0.64% to 8.13%.
Among construction shares, Punj Lloyd, Era Infra Engineering, IVRCL Infrastructure & Projects and Nagarjuna Construction Company, fell by between 0.4% to 5.24%. Finance Minister Pranab Mukherjee on 6 July 2009, provided a thrust on various infrastructure projects in the Budget which will benefit construction firms in the form of increased orders. The government announced more spending for urban, water and road projects. The allocation to National Highway development program allocation was increased 23% to Rs 15948 crore.
Cement stocks fell on profit taking after a sharp surge this week triggered by the Budget's thrust on the infrastructure sector. ACC, Birla Corporation of India and Ambuja Cements, Ultratech Cements, fell by between 0.44% to 6.8%.
Power stocks fell on lack of any major sops in the Budget for the power sector. NTPC, Reliance Infrastructure, Tata Power Company, Relianc Power fell by between 0.46% to 6.5%.
Metal stocks fell as metal prices were subdued on the London Metal Exchange. Steel Authority of India, Hindalco Industries, Tata Steel, Sterlite Industries, National Aluminum Company fell by between 2.97% to 6.75%.
India's largest drug maker by sales Ranbaxy Laboratories fell 3.65% after company said it has voluntarily recalled a single batch of skin infection drugs, Sotret Isotretinoin capsules in 40 miligram strength, from the US market. The company said that the move to withdraw this lot of medicines fell under the US FDA Class III recall. Such a recall implies that the use of or exposure to the product is not likely to cause adverse health consequences.
Finance minister on 6 July 2009, reduced basic customs duty on influenza vaccine and nine other specified life-saving drugs used for treating breast cancer, hepatitis-B, rheumatic arthritis, etc.
The government has also reduced basic customs duty for two bulk drugs used in manufacturing these medicines from 10% to 5%. Bulk drugs are processed raw materials used in manufacturing the final doses of medicines.
Some FMCG stocks rose as the Finance Minister reiterated the government's thrust on the agriculture sector in Union Budget 2009-2010. FMCG firms derives a substantial revenue from rural sector. REI Agro, Jain Irrigation, Tata Tea, Nestle India, Hindutan Unilever, Dabur india rose by between 0.16% to 2.45%.
Finance Minister Pranab Mukherjee, while presenting the Union Budget for 2009-10, said the government will ensure that agriculture grows by at least 4% per year.
The government has announced additional interest rate subvention of 1% to farmers who pay short-term farm loans on schedule. The government has also decided to extend agriculture debt waiver by six months and to provide additional Rs 1000 crore over interim budget for irrigation.
Auto stocks fell even on retention of lower excise duties in the Budget. Ashok Leyland, Hero Honda Motors and Mahindra & Mahindra fell by between 2.01% to 8.66%.
There was no across-the-board increase in excise duties after a sharp reduction in excise duties in two stages since December 2008 which was announced as a part of the government's stimulus package for the economy. A section of the market was fearing rollback of excise duties in the Budget due to signs of a recovery in the Indian economy.
India's largest commercial vehicle maker by sales Tata Motors fell 0.88% even as company's Vice Chairman Ravi Kant said its British luxury auto brands Jaguar and Land Rover (JLR), which have posted over Rs 1,700 crore annual losses, will turn profitable in two years. He further said the acquisition of the two marques was not over-priced.
Unitech clocked the highest volume of 2.32 crore shares on BSE. Cals Refineries (2.27 crore shares), Suzlon Energy (2.1 crore shares), Mahindra Satyam (2 crore shares) and Reliance Natural Resources (1.01 crore shares) were the other volume toppers in that order.
Educomp Solutions clocked the highest turnover of Rs 253.78 crore on BSE. Reliance Industries (Rs 200.85 crore), Reliance Capital (Rs 193.25 crore), Suzlon Energy (Rs 175.54 crore) and Unitech (Rs 157.14 crore) were the other turnover toppers in that order.