Indian Share / Stock Markets Report 9 July 2009

Market commentary 9 July 2009

The key benchmark indices closed flat after moving between positive and negative terrain throughout the day in what was a volatile trading session. The BSE 30-share Sensex was down 11.69 points or 0.08%, up close to 115 points from the day's low and off close to 120 points from the day's high. The 50-unit S&P CNX Nifty closed slightly higher. Index heavyweight Reliance Industries rose. The market breadth was weak.

The market was volatile. Stocks edged higher in early volatile trade after the International Monetary Fund revised upwards India's growth projection by 0.9% for 2009 and 2010. But the market slipped into the red in mid-morning trade on concerns over progress of India's annual monsoon and worries over a possible downgrade of the country's sovereign rating by rating agencies due to high fiscal deficit.

The market cut entire losses in early afternoon trade soon after government data showed headline inflation hovering the negative zone for a fourth consecutive week. The market once again slipped into the red in early afternoon trade before regaining positive zone. The Sensex moved between the positive and negative terrain in late trade.

Inflation based on the wholesale price index (WPI) fell 1.55% in the 12 months to 27 June 2009, compared with the previous week's annual decline of 1.3% government data showed at 12:00 IST today. However, the government revised upwards WPI for week ended 2 May 2009 to 1.48% from 0.48%.

Analysts say that last week's increase in petrol and diesel prices may rekindle inflation pressures in coming months. Consumer price inflation also remains high.

On the flip side, the International Monetary Fund (IMF)'s latest World Economic Outlook said the global economy is likely to decline 1.4%, slightly steeper than the 1.3% contraction it saw in April 2009 in calendar 2009. However it foresaw a stronger recovery next year. Economic growth could hit 2.5 % in 2010, a more optimistic figure than the 1.9% the IMF reported in April.

For India, the IMF has revised upwards because of positive impact from fiscal and monetary stimulus packages. The multilateral financial institution now expects Asia's third largest economy to grow at 5.4% in calendar 2009, compared with 4.5% projected in April this year. In 2010, the Indian economy is expected to grow at a much faster rate of 6.5%. Early this, the Indian government forecast a 6.7% growth in GDP for the year ending March 2010.

Recent data has confirmed a recovery in India's economy. India's car sales rose an annual 7.8 % in June 2009 over June 2008, climbing for a fifth straight month and reinforcing the country was one of the few markets where demand has been picking up. The government will release industrial output data for the month of May 2009 on Friday, 10 July 2009.

Weak monsoon, however, is a cause for concern. India's huge farm economy may be hit by a bad drought if its annual monsoon rains remain weak with the window for planting crops closing by mid-July, a report from a US Agricultural Department attache said. India's monsoon rains have now covered all of the country, but the country's Meteorological Department said last week that as of 1 July 2009, the rains were 29% below normal.

Meanwhile, global rating agency Standard & Poor's Ratings Services on Wednesday 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.

A reduction in credit rating would make it difficult for Indian firms to borrow overseas, adding pressure to the domestic credit system, which threatens to be swamped by higher government borrowing.

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.

The next major trigger for the market is earnings of India Inc. for the quarter ended June 2009. India's second largest IT major by sales Infosys kickstarts the result season on Friday, 10 July 2009.

European stocks rose on Thursday as a rebound in oil prices boosted shares of energy companies such as Total. The key benchmark indices in France, Germany and UK were up by between 0.67% to 1.21%.

Most Asian shares rose on Thursday, with some markets off their lows as investors took note of an after-hours rise in US aluminium major Alcoa, though recent weakness in oil and commodity prices kept the mood gloomy on the prospects for a quick economic recovery. The key benchmark indices in Hong Kong, China, Singapore and Taiwan rose by between 0.39% to 2.12%. The key benchmark indices in South Korea, and Japan were down by between 0.01% to 1.38%.

China's passenger-vehicle sales rose 48% in June 2009 over June 2008, the biggest jump since February 2006, as tax cuts and government subsidies helped the nation extend its lead over the US as the world's largest auto market this year.

Alcoa swung to a second-quarter loss, due to falling aluminum prices and volume, which led to a big drop in revenue. However, the company recorded some sequential improvement and beat Street expectations.

Trading in the US index futures indicated Dow could rise 42 points at the opening bell today, 9 July 2009.

US markets ended flat yesterday, 8 July 2009 after a seesaw session as investors rotated into defensive stocks. The Dow Jones industrials rose 14.81 points, or 0.2%, to 8,178.41. The S&P 500 index fell 1.47 points, or 0.2%, to 879.56 and the Nasdaq Composite Index rose 1 points, or 0.1%, to 1,747.17.

On the economic front, some positive news came out of the housing sector. Demand for US mortgages rose 11% last week as mortgage rates again receded.

Closer home, foreign funds bought shares worth Rs 4,356.70 crore in the fist few days of July 2009 (till Wednesday, 8 July 2009). The strong inflows reflected subscription by foreign funds in qualified institutional placement by Indian firms. On a cumulative basis, foreign funds bought shares worth Rs 28,889 crore shares in calendar 2009, till 8 July 2009.

The BSE 30-share Sensex was down 11.69 points or 0.08% to 13,757.46. The Sensex rose 110.03 points at the day's high of 13,879.18 in early trade. At the day's low of 13,643.97, Sensex fell 125.18 points in mid-morning trade.

The S&P CNX Nifty was up 2.05 points or 0.05% to 4,080.95. Nifty July 2009 futures were at 4075.20, at a discount of 5.75 points as compared to the spot closing of 4080.95. Turnover in NSE's futures & options (F&O) segment was Rs 53,047.24 crore, sharply lower than Rs 66,588.76 crore on Wednesday, 8 July 2009.

BSE clocked a turnover of Rs 4,877 crore, lower than Rs 5,400.03 crore on Wednesday, 8 July 2009.

Indian stocks have risen sharply this year boosted by strong inflow of foreign funds. The BSE Sensex is up 4,110.15 points or 42.6% in calendar year 2009, as on 9 July 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has risen 5,597.06 points or 68.58% as on 9 July 2009.

Coming back to today's trade, the market breadth was weak. On BSE, 1070 shares rose as compared with 1,463 that fell. A total of 98 shares remained unchanged.

From the 30 shares Sensex pack, 14 rose and rest fell.

The BSE Mid-Cap index was up 0.54% and outperformed the Sensex. The BSE Small-Cap index was down 0.14% and underperformed the Sensex.

The BSE Metal index (up 1.53%), the BSE Healthcare index (up 1.05%), the BSE FMCG index (up 1.02%), the BSE Oil & Gas index (up 0.91%), the BSE PSU index (up 0.18%), the BSE Auto index (up 0.06%), the BSE Power index (up 0.05%), the BSE TECk index (down 0.01%), outperformed the Sensex.

The BSE Consumer Durables index (down 1.43%), the BSE Capital Goods index (down 1.07%), the BSE IT index (down 0.63%), the BSE Bankex (down 0.36%), the BSE Realty index (down 0.2%), underperformed the Sensex.

India's largest private sector firm by market capitalisation Reliance Industries (RIL) rose 1.26% to 1,852.35 on bargain hunting after a recent fall. But the stock was volatile. It moved between a low Rs 1,832 and a high of Rs 1873.70. 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 after an overnight sharp slide in crude oil prices. India's largest state-run oil exploration firm by revenue ONGC fell 1.01%. But Cairn India rose 1.43% as oil recovered on Thursday after Wednesday's steep slide. Light, sweet crude futures for delivery in August 2009 contract dropped $2.79 or 4.43% to $60.14 per barrel on New York Mercantile Exchange on Wednesday, 8 July 2009 as US government data showed a larger-than-expected rise in distillate and gasoline inventories last week. The fall in crude oil prices would result in lower realizations from crude sales for oil exploration firms.

Crude oil rebounded today from a seven-week low as traders took the view that the decline in prices during the longest losing streak this year was overdone. Crude oil for August delivery gained as much as 72 cents, or 1.2%, to $60.86 a barrel on the New York Mercantile Exchange today.

The overnight sharp fall in oil prices boosted shares of PSU OMCs. BPCL, HPCL and Indian Oil Corporation rose by between 0.58% to 2.23%. 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. The government, last week, hiked petrol prices by Rs 4 per liter and diesel prices by Rs 2 per liter.

But, contrary to market expectations, the Union Budget 2009-2010 did not include a roadmap for decontrol of fuel prices in the country but the finance minister said it will set up a expert panel to look into the matter of fuel pricing.

Metal stocks rose after US metals giant Alcoa reported better-than-expected results after trading hours in the US on Wednesday and after metal stocks climbed in Europe on Thursday. Steel Authority of India, Tata Steel, Sterlite Industries, Hindustan Zinc rose by between 0.46% to 4.53%.

India's second largest IT firm by sales Infosys fell 1.7% ahead of its Q1 June 2009 result tomorrow, 10 July 2009. The company's revenue as well as profits are seen falling sequentially due to a firm rupee. Investors would closely watch the managements comments for signs of recovery in the business environment. Its ADR fell 2.75% overnight.

A total of four brokerages expect a between 8% to 16.1% fall in Infosys' consolidated net profit at between Rs 1353.30 crore to Rs 1483.80 crore in Q1 June 2009 over Q4 March 2009. Their estimates peg a between 3% to 6.5% fall in Infosys' sales at between Rs 5269.10 crore to Rs 5466 crore in Q1 June 2009 over Q4 March 2009

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, ITC, United Spirits, Dabur india rose by between 1.14 % to 4.97%.

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.

Capital goods stocks fell on profit taking even as the Budget laid a major emphasis on infrastructure development. Crompton Greaves, Punj Lloyd, Praj Industries, Siemens, Bharat Heavy Electricals fell by between 1.24% to 3.42%.

India's largest engineering & construction firm by sales Larsen & Toubro fell 1.68% after company's Chairman and Managing Director A M Naik sold 39,185 shares or 0.01% stake in the company worth Rs 6.42 crore. Naik sold the shares on 30 June 2009, L&T said in a filing to the stock exchanges.

Among construction shares, Hindustan Construction Company, IVRCL Infrastructure & Projects and Nagarjuna Construction Company, rose by between 1.12% to 3.21%. 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 due to the Budget's thrust on the infrastructure sector. ACC, Birla Corporation of India and Grasim Industries, fell by between 0.45% to 1.29%.

Realty stocks reversed recent steep losses on bargain hunting. DLF, Unitech, Housing Development & Infrastructure, Indiabulls Real Estate, Akruti City rose by between 0.54% to 2.57%. Realty shares declined sharply this week 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.

Some drug makers rose after the Finance Minister Pranab Mukherjee reduced customs duty on life saving drugs in the Budget. Pfizer, Cipla, Dr Reddy's Laboratories, Wockhardt, Biocon, Sun Pharmaceutical Industries rose by between 0.4% to 6.42%.

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 power stocks rose on bargain hunting after a post Budget slide triggered by lack of any major sops in the Budget to the sector. Reliance Infrastructure, PowerGrid Corporation of India, Tata Power Company, rose by between 0.44% to 2.45%.

Bank stocks recovered after initial losses as inflation remained in the negative zone. India's biggest bank in terms of branch network State Bank of India (SBI) rose 0.94%. India's second largest private sector bank by net profit HDFC Bank rose 1.69% even as its American depository receipt (ADR) fell 2.75% on Wednesday, 8 July 2009. But, India's largest private sector bank by net profit ICICI Bank fell 2.77% as its ADR fell 6.67% overnight.

India's biggest dedicated housing finance firm by operating income Housing Development Finance Corporation fell 0.58%.

Bank stocks declined sharply this week 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.

Unitech clocked the highest volume of 5.71 crore shares on BSE. Suzlon Energy (2.04 crore shares), Cals Refineries (1.57 crore shares), Mahindra Satyam (1.15 crore shares) and Ispat Industries (0.86 crore shares) were the other volume toppers in that order.

Unitech clocked the highest turnover of Rs 398.88 crore on BSE. Educomp Solutions (Rs 345.54 crore), Reliance Capital (Rs 199.49 crore), DLF (Rs 178.32 crore) and Reliance Industries (Rs 177.93 crore) were the other turnover toppers in that order.