Market Report 8 July 2009
The key benchmark indices slumped in late trade after the global rating agency Standard & Poor's today, 8 July 2009, said there is risk that its sovereign credit ratings on India may be lowered. Weak global stocks also dampened investor sentiment Banking, capital goods and realty stocks led the fall. Index heavyweight Reliance Industries dropped in volatile trade. The market breadth was weak.
Intraday volatility was high. The market tumbled soon after a weak opening triggered by lower Asian stocks and overnight setback in US stocks. The market cut losses in mid-morning trade on media reports that the government will have a disinvestment road map in place in about three months to bridge the high fiscal deficit. Intraday recovery gathered further steam in afternoon trade after Planning Commission deputy chairman Montek Singh Ahluwalia said the government's 2009/10 budget was pro-growth and addressed the stimulus needs of the economy. But the recovery proved short-lived. The market slumped in late trade.
Global rating agency Standard & Poor's Ratings Services today said it maintains its view that India's high fiscal deficits are not sustainable in the medium term and if fiscal consolidation is delayed, there is a risk that the sovereign credit ratings on India may be lowered. S&P ranks India's long-term local-currency rating at BBB-, their lowest investment grade.
Finance Minister (FM) Pranab Mukherjee 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. Mukherjee said on Tuesday government spending has to fill a gap left by lower private investment, a day after he sharply raised government spending on some social sector programme and infrastructure in the Union Budget 2009-2010 on Monday, 6 July 2009. Higher government spending on infrastructure sector and rural economy may help facilitate recovery in the economy.
Trade minister Anand Sharma today said steps already taken by the government will help revive industrial output. He said cement and steel output rose 13% each in June 2009 over June 2008. Sharma also said output of gems and jewellery sector was still a concern.
Meanwhile, steel minister Virbhadra Singh said Indian steel consumption could rise 6 to 8 % in 2009/10.
Indian government is reportedly planning to sell about 10-20% stake in listed blue chip companies. Among those likely to be targeted are ONGC, Indian Oil Corporation (IOC), NTPC, Bharat Heavy Electrical (Bhel) and Steel Authority of India (Sail). Considering that these companies are profitable, selling stakes at the opportune time could fetch the government a neat revenue that could help bridge the fiscal deficit.
The government set an very small target of Rs 1120 crore from divestment for the financial year ending March 2010 in the Union Budget 2009-2010 which it unveiled on Monday, 6 July 2009.
Foreign funds pressed sales of Indian stocks after the Budget. As per the provisional figures, foreign funds sold shares worth Rs 921.39 crore on Tuesday, 7 July 2009. Foreign institutional investors (FIIs) sold shares worth a net Rs 351.40 crore on Monday, 6 July 2009, the day when the Finance Minister presented the Budget.
European shares fell on Wednesday, mirroring big losses on Wall Street on Tuesday and losing ground for the fifth straight session, as investors braced for the start of the corporate earnings season. Key benchmark indices in France and Germany were down by between 0.09% to 0.42%. But USK's FTSE 100 was up 0.11%.
Though still in the red, Asian stocks were off early lows. Key benchmark indices in China, Hong Kong, South Korea, Singapore and Taiwan were down by between 0.28% to 0.79%.
Japan's Nikkei fell 2.35% after the latest data showed Japanese core machinery orders fell 3% from a month earlier in May 2009.
US index futures was volatile. Trading in the US index futures indicated Dow could fall 5 points at the opening bell today, 8 July 2009.
US markets closed deep in the red yesterday, 7 July 2009 as stocks fell to their lowest level in 10 weeks amid growing doubts about an economic recovery. The Dow slipped 161.27 points, or 1.9%, to 8,163.60. The S&P 500 index fell 17.69 points, or 2%, to 881.03. The Nasdaq Composite Index lost 41.23 points, or 2.3%, to 1,746.17.
As per the provisional figures, the BSE 30-share Sensex was down 417.62 points or 2.95% to 13,752.83. At the day's low of 13,701.76, Sensex fell 468.70 points in morning trade. The Sensex fell 130.87 points at the day's high of 14,039.58 in early trade.
The S&P CNX Nifty was down 127.05 points or 3.02% to 4,075.10 as per the provisional figures. BSE clocked a turnover of Rs 5,384 crore slightly higher than Rs 5,3304.88 crore on Tuesday, 7 July 2009.
The market breadth, indicating the overall health of the market, was extremely weak. On BSE, 539 shares rose as compared with 1,971 that fell. A total of 57 shares remained unchanged.
From the 30 shares Sensex pack, 24 fell and one rose.
The BSE Mid-Cap index was down 3.69% and the BSE Small-Cap index was down 3.81%.
India's largest private sector firm by market capitalisation Reliance Industries (RIL) shed 1.38% to Rs 1,829.80. The stock was volatile. It hit a high of Rs 1,890.10 and a low of Rs 1,800. 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.
Meanwhile, RIL's tax liability would rise after Finance Minister Pranab Mukherjee increased the rate of minimum alternate tax (MAT) to 15% from 10% of book profit. RIL pays taxes under MAT. RIL's total tax liability stood at Rs 3028 crore in the year ended March 2009 (FY 2009), which included deferred taxes of Rs 900 crore and fringe benefit tax of Rs 54 crore. While higher MAT may result in increase in tax outgo, the scrapping of the fringe benefit tax (FBT) may help mitigate the impact to some extent. The government has scrapped FBT in the Union Budget 2009-2010.
Oil stocks fell as crude oil hit six-week low on Tuesday on speculation that a US government report will show an increase in weekly US crude inventories as the recession cut demand. India's largest state-run oil exploration firm by revenue ONGC fell 4.57%. Cairn India fell 6.48%. The fall in crude oil prices would result in lower realizations from crude sales for oil exploration firms. Crude oil for August delivery fell $1.12, or 1.7%, to $62.93 a barrel on the New York Mercantile Exchange on Tuesday, the lowest settlement since 26 May 2009.
Realty stocks extended last two day's losses as finance minister made no major announcement to boost the debt ridden sector reeling under slump in demand for new homes in the Budget. DLF, Omaxe, Unitech, Indiabulls Real Estate, Housing Development & Infrastructure, Akruti City fell by between 8.29% to 11.73%.
Capital goods stocks fell even as the Budget laid a major emphasis on infrastructure development. Siemens, Praj Industries, Siemens, ABB, Larsen & Toubro, Bharat Heavy Electricals fell by between 3.13% to 7.17%. 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.
To ensure that infrastructure projects do not face financing difficulties arising from the current downturn, the government has decided that India Infrastructure Finance Company (IIFCL) will refinance 60% of commercial bank loans for Public Private Partnership (PPP) projects in critical sectors over the next fifteen to eighteen months.
Bank stocks fell as 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 2.22%. India's largest private sector bank by net profit ICICI Bank fell 5.85%. Its American depository receipt (ADR) fell 0.21% on Tuesday, 7 July 2009. India's second largest private sector bank by net profit HDFC Bank fell 4.27% as its ADR fell 1.08% overnight.
But IndusInd Bank jumped 7.72% after net profit galloped 352.88% to Rs 86.5 crore in Q1 June 2009 over Q1 June 2008.
India's biggest dedicated housing finance firm by operating income Housing Development Finance Corporation fell 2.6% as the finance minister did not announce a hike in tax sops for housing loans in the Budget contrary to market expectations.
Godrej Consumer Products fell 4.04% to Rs 162.80 after a block deal of 3.44 lakh shares was executed on NSE at Rs 164.50 per share.