Search Now

Recommendations

Friday, February 23, 2007

Pre-Budget, Sensex sheds 723 points


The market declined through the week amidst high volatility. Factors like the CRR-hike, rising inflation, concern over rising domestic interest rates, unwinding in derivatives ahead of the expiry of February 2007 contracts on 22 February 2007, and fear that short-term capital gains tax may be hiked in the Union Budget 2007-08 to be presented in Parliament on 28 February 2007 were the major triggers for the fall.

Caution was also partly due to worries of a possible interest rate hike by the Bank of Japan (BoJ), which raised benchmark lending rates in the country to 0.50% on 22 February 2007.

The BSE Sensex shed 723.02 points for the week ended 23 February 2007, to settle at 13,632.53 compared with the previous week’s closing of 14,355.55 on 15 February 2007. The S&P CNX Nifty lost 207.30 points, to settle at 3,938.90 compared with the previous week’s closing at 4,146.20.

The BSE Mid-Cap Index shed 288.12 points for the week ended 23 February 2007, to settle at 5,664.89 compared with the previous week’s closing of 5,953.01. The BSE Small-Cap Index shed 385.83 points, to 6,904.43 compared with previous week’s closing at 7,290.26.

On Monday (19 February), the BSE Sensex settled 47.35 points higher, at 14,402.90. It had opened firm, at 14,436.18, tracking the 346-point surge of Thursday (15 February 2007). After staying firm throughout the day, the market appeared to tire in the late-afternoon session. Profit-booking in index-pivotals capped gains. On that day, banks, which had sharply declined in the past few sessions following the CRR hike, were in demand.

On Tuesday (20 February), the Sensex lost 149.52 points (1%), to 14,253.38 in what was a broad-based correction. The undertone was cautious due to rising domestic interest rates, and also due to concerns that the short-term capital gains tax may be hiked in the Union Budget 2007-08, which will be tabled in Parliament on 28 February 2007. Caution was also partly due to worries of a possible interest rate hike by the Bank of Japan, whose board was to meet the next day.

The Sensex lost 64.89 points, at 14,188.49, on Wednesday (21 February 2007). The Sensex remained volatile throughout. Although trading was devoid of wild swings, the benchmark Sensex frequently moved in and out of the red. After opening weak, the Sensex had recovered but finally succumbed to pressure at higher levels in the late-afternoon.

Volatility continued on Thursday, (22 February) as well, when the February derivative contracts expired. A sudden sell-off gripped the market in late trading due to expiry of February 2007 derivative contracts. Much of the fall materialised in the last 50 minutes of trade. Cement, auto, banking shares and pharma pivotal weakened in late trading.

The Sensex closed at 14,021.31, a fall of 167.18 points. On that day, it came off the lower level after briefly falling below 14,000. But for a relatively firm trend in index heavyweight Reliance Industries (RIL), the fall in the BSE Sensex could have been much steeper.

Friday (23 February 2007) saw the BSE Sensex falling below the psychological level of 14,000 in the opening session itself, as selling continued unabated throughout the day. A host of stocks from the small-cap and mid-cap space were being heavily sold. The 30-shares BSE Sensex plunged 388.78 points (2.77%), to settle at 13,659.53. Market men are unwinding their long positions, choosing to watch from the sidelines, cautious, ahead of the Union Budget for 2007-08.

Ranbaxy was down 9.42% for the week to Rs 356.45. The stock came under pressure as market men continued to fret over possible equity dilution if Ranbaxy acquired Merck's generic drugs business. The stock has declined even as the company on Wednesday dismissed media reports that it was planning an issue of shares in the US, or dilution in stake by founders to fund the acquisition.

Reliance Industries (RIL) was up 0.42% to Rs 1412.80. RIL has a substantial 10.8% weightage in the Sensex. As per reports, global oil major, Chevron Corporation, may assist RIL in developing an exploration block in the oil-gas rich Krishna-Godavari (KG) basin. Chevron Chief David J O’Reilly is expected to meet RIL Chairman & Managing Director Mukesh Ambani during the Chevron chief's Mumbai visit.

Infosys Technologies lost 5.77% to Rs 2237.35, on reports of the company scouting for mid-sized BPO companies in Europe, with a value of over Rs 400 crore.

The week saw the banking sector come under selling pressure post CRR hike by the Reserve Bank of India. The BSE Bankex lost 183.74% to 6,998.97 compared to the previous week’s closing at 7,182.71. Oriental Bank of Commerce (down 10.19% to Rs 200), Kotak Mahindra Bank (down 8.81% to Rs 439.85), Federal Bank (down 5.02% to Rs 224.15), Canara Bank (down 3.03% to Rs 209.75), ICICI Bank (down 4.27% to Rs 907.95), and SBI (down 5.77% to Rs 1058.40) were major losers from the banking space.

ABB was down 2.47% to Rs 3707.15, down from a high of Rs 4000. The company announced a 42.6% growth in net profit in the December 2006 quarter along with a 5-for-1 stock-split. Income from operations surged 44.6% to Rs 1426.31 crore (Rs 985.72 crore).

ABB India plans to invest Rs 250 crore over the next two years to set up new factories, augment existing capacities and foray into new areas. The company will set up factories in Delhi, Baroda, Nasik, Mumbai and parts of Karnataka.

Biocon surged 5.40% to Rs 462.40, on news that the firm plans to invest Rs 1000 crore in setting up a bio-pharma plant in Andhra. The bio-pharma plant will come up at the special economic zone (SEZ) near the port city of Visakhapatnam. Andhra Pradesh Chief Minister, Y S Rajasekhara Reddy, on Friday (16 February 2007), handed over the land needed for the plant to Biocon Chairman, Kiran Mazumdar Shaw.

IFCI topped the volume chart on BSE all in most of the trading sessions of the week. The scrip price lost 4.63%, to close at Rs 27.80.

Manugraph India gained 2.53% to Rs 190.60, after the company said on Tuesday that Reliance Mutual Fund had acquired a further 3.7% in the company, taking its stake to 5.96%. On 15 February 2007, Reliance Mutual Fund purchased shares of 11.25 lakh shares of Manugraph (3.7% stake) at Rs 185 through the open market purchases on BSE – of which 9.08 lakh shares were obtained from foreign fund Citigroup Global Markets.

Two stocks got listed on the BSE for the week ended 23 February 2007. First was BPO firm, Firstsource Solutions, which debuted at Rs 75.10 on Thursday (22 February) compared to the IPO price of Rs 64. It settled at Rs 79.60 on the day of its debut.

The second was Power Finance Corporation that got listed on 23 February 2007. The stock debuted at Rs 104 compared to the IPO price of Rs 85. It settled at Rs 111.55. Volumes in the stock were high at 4.06 crore shares on the first day.

Maruti Udyog (MUL) was down 3.23% to Rs 863.30. Moving ahead with its plan to exit the carmaker, the Central Government on Thursday invited expressions of interest (EoIs) from public sector financial institutions, banks and mutual funds for selling its remaining 10.27% stake in the company.

The process is likely to fetch the government at least Rs 2,555 crore, based on Friday's closing of Rs 863.30 on the BSE. The government had said last year it will completely exit MUL, in which Japan's Suzuki owns a controlling 54.2% stake, by selling its residual 2.96 crore shares (Rs 5 face value). The money raised from the sale will go to the government, and not the National Investment Fund (NIF), as MUL is no longer a public sector enterprise.

India's wholesale price index rose 6.63% in the 12 months to 10 February 2007, lower than previous week's annual increase of 6.73% due to a fall in some food and textile prices, data showed on Friday (23 February 2007). Analysts had forecast the figure at 6.70%. The annual inflation rate was 3.81% during the corresponding week of the previous year.

Meanwhile, the Union Cabinet approved bringing out necessary changes in the law in the forthcoming Budget session to phase out central sales tax (CST), on Thursday. CST is collected by the Central Government and is distributed among the states.

The CST rate will be cut from 4% to 3% from 1 April. The phase-out is expected to be completed by 2010-11. This reduction in CST is likely to result in a loss of Rs 6,250 crore to the states’ exchequer in 2007-08. The Centre will introduce a legislation to allow states to tax certain identified services, and impose additional duties on excise goods like tobacco to compensate states for the loss of revenue due to the phase-out. Besides, the Union Government is understood to have assured states of budgetary support to cover any shortfalls.

The Bank of Japan (BoJ) raised its key short-term interest rate from 0.25% to 0.5% - the first hike since July 2006. The hike is in line with analysts' expectations. The move came after the country's economy was confirmed to have recorded stronger-than-expected growth during October-December 2006.

Finance Minister P Chidambaram said on Thursday he expects the inflation rate to moderate as supply shortages ease in the coming days.

The Central Board of Direct Taxes (CBDT) on Thursday shot down reports of nationwide raids on stock brokers. TV channels had reported that such raids were being conducted from Thursday morning.

FIIs were net buyers to the tune of Rs 653.90 crore during the first three days of the week, to 23 February 2007. For February 2007, till 23 February 2007, FIIs purchased shares worth Rs 4175.40 crore. The strong inflow was triggered by an upgrade in India's sovereign rating to investment grade by global ratings agency, Standard & Poor's, on 30 January 2007.

Even mutual funds (MFs) were net buyers of equities worth Rs 152.28 crore in the first four days of the week.

The market is expected to remain subdued in the run up to the Union Budget 2007-08, which will be presented in Parliament next Wednesday (28 February 2007)