Small-cap, mid-cap indices edge higher as exit polls show UPA has a slight edge over NDA

The key benchmark indices fell for the second straight day after the exit polls indicated a fractured mandate in the just concluded parliamentary election. Rating agency Fitch's warning that the government needs to cut fiscal deficit to avoid having its credit rating lowered also weighed on sentiment. Volatility in index heavyweight Reliance Industries
, banking and IT stocks caused volatility in the key benchmark indices. Capital goods stocks were weak.

The BSE 30-share Sensex lost 146.74 points or 1.22%, off close to 60 points from the day's high, and up close to 180 points from the day's low.

Even as some blue chips fell, select non-Sensex stocks surged after exit poll results showed the ruling Congress party-led coalition was marginally ahead in the race to form the new government. Both the BSE Small-cap index and the BSE Mid-cap index rose, outperforming the Sensex.

Inflation based on the wholesale price index rose 0.48% in the year through 2 May 2009, lower than previous week's annual rise of 0.7%, data released by the government at about 12:00 IST showed.

While current economic conditions are prompting many governments to undertake counter-cyclical stimulus measures, the recent deterioration in India's fiscal position accentuates underlying structural weaknesses in public finances that, if unaddressed, could undermine sovereign creditworthiness, Fitch said in a statement today, 14 May 2009. Fitch, currently has a BBB- rating on India, its lowest investment grade rating.

The stock market was volatile. A setback in global stocks and exit polls showing a fractured mandate in the parliamentary elections which were concluded on Wednesday, 13 May 2009, triggered a weak opening of Indian stocks. The market soon cut losses after the exit polls showed the ruling Congress party-led coalition viz. the UPA was marginally ahead in the race to form the new government. The exit polls indicated that both the UPA and NDA will need smaller allies to gain a parliamentary majority.

The recovery gathered steam in mid-morning trade. The recovery proved short-lived. After a steep slide, the market once again cut losses later.

Consumption and investment decisions will be significantly impacted by any signs that the new government is unstable.

Volatility on the bourses may remain high in the near futures ahead of the formation of the next government at the Centre. The counting of votes will take place on Saturday, 16 May 2009. A party/alliance needs 272 seats in the 543-member parliament to claim power at the Centre.

The exit polls commissioned by various news channels to get a sense of the shape of the next government at the centre predicted a badly fractured mandate, with the Congress-led UPA shown holding a slight edge over the BJP-led NDA. Neither the UPA nor NDA were shown anywhere close to the halfway mark, making it clear that they'll have to do business with parties bracketed with the Third Front and the Fourth Front.

Six television networks forecast UPA - the ruling alliance led by Congress may emerge just ahead of its chief rival headed by the Bharatiya Janata Party. CNN-IBN predicted Congress and its allies will get as many as 205 seats compared with a maximum 185 for the opposing coalition. Star News-Nielsen and News X gave the Congress-led bloc 199 seats to 191 for the BJP grouping.

According to reports, the Congress-led UPA may get the chance to have first go at forming the next government, which is always an advantage in a hung parliament. Regional parties including BSP, SP, AIADMK, TDP, PMK, MDMK, JD(S) and TRS, hold key to the formation of the next government, reports suggest. Regional parties like the AIADMK, TDP, PMK, MDMK, JD(S) and TRS, had come together with the Left to form the Third Front, but the cracks within that alliance are already evident and it may well be each party for itself once the numbers are known.

The Nitish Kumar-led JD (U)'s anticipated good showing in Bihar could place the Bihar chief minister in the position of having some options, though he would not like to part company with the BJP and jeopardize his state government unless the benefits of doing so are commensurate and there is a reasonable chance of his winning the next assembly elections in Bihar in the company of the Congress.

While states like Tamil Nadu, Andhra Pradesh, Bihar and Jharkhand are likely to deliver a serious setback to the Congress and the UPA, leaving their tally severely depleted compared to 2004, others like Kerala, West Bengal, Rajasthan, Punjab and Orissa could help repair most of this damage, and in fact help the Congress to gain a few seats.

For the NDA, Bihar and Jharkhand appear to be acting as a cushion against the shocks in Orissa, Punjab and Rajasthan. In Uttar Pradesh, both the Congress and NDA, it would appear, are poised to make modest gains, as is the BSP, all at the expense of the SP.

Communist Party of India-Marxist general secretary Prakash Karat has repeatedly said that the Third Front would not back either the Congress or the BJP.

Fears of a fractured mandate in the parliamentary election had pulled the market lower in what was a highly volatile trading session on Wednesday 13 May 2009. The BSE 30-share Sensex lost 138.38 points or 1.14% to 12,019.65 on that day.

Indian market has risen sharply in the past two months on 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 3,997.63 points or 48.98% to 12,158.03 on Tuesday, 12 May 2009, its highest closing in more than seven months.

Heavy buying by foreign funds aided the strong surge. Foreign funds are aggressively buying Indian stocks. Foreign institutional investors (FIIs) bought shares worth a net Rs 4085.20 crore on Wednesday, 13 May 2009. FII inflow in May 2009 totaled Rs 9616.10 crore (till 13 May 2009) while their inflow in calendar year 2009 totaled Rs 9972.70 crore.

European stocks were weak. Key benchmark indices in France and Germany were down by between 0.55% to 0.57%. But UK's FTSE was up 0.06%.

Asian stocks fell today as an unexpected drop in US retail sales and a decline in commodity prices dimmed the earnings outlook for electronics and metals producers. Key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan, fell by between 0.9% to 3.04%.

Trading in US index futures showed the Dow could fall 43 points at the opening bell on Thursday 14 May 2009. The futures swung between gains and losses.

US markets finished at their session lows on Wednesday, 13 May 2009 dragged down by financials. HSBC, Bank Of America and JP Morgan Chase were among the key losers. The Dow lost 184.22 points, or 2.2%, to 8,284.89. The S&P 500 index fell 24.43 points, or 2.7%, to 883.92, while the Nasdaq Composite index declined 51.73 points, or 3%, to 1,664.19.

US retail sales fell for the second straight month, down 0.4%, in April 2009 amid weak gasoline and electronics sales. In other data, business inventories declined 1% in March 2009, compared with a 1.4% drop in February 2009.

The BSE 30-share Sensex was down 146.74 points or 1.22% to 11,872.91. The Sensex fell 83.79 points at the day's high of 11,935.86 in mid-morning trade. At the day's low of 11,695.52, the Sensex fell 324.13 points in early trade.

BSE clocked as turnover of Rs 4547 crore, lower than Rs 9,678 crore on Wednesday 13 May 2009.

The S&P CNX Nifty fell 41.80 points or 1.15% to 3,593.45. Nifty May 2009 futures were at 3608.25, at a premium of 14.80 points over the spot closing of 3593.45. Turnover in NSE's futures & options (F&O) segment tumbled to Rs 50988.41 crore from Rs 64035.11 crore on Wednesday, 13 May 2009.

The BSE Mid-Cap index rose 0.41% to 3,756.93 and the BSE Small-Cap index rose 0.57% to 4244.15. Both these indices outperformed the Sensex.

Small-cap and mid-cap indices have risen sharply in the past two months. From a low of 2553.49 on 9 March 2009, the BSE Mid-Cap index has risen 1203.44 points or 47.12%. From a low of 2,866.68 on 9 March 2009, the BSE Small-Cap index has galloped 1377.47 points or 32.45%.

The BSE Sensex has risen 2,225.60 points or 23.06% in calendar year 2009.

Coming back to today's trade, the BSE Realty index (up 2.58%), the BSE Auto index (up 0.62%), the BSE Consumer Durables index (up 0.59%), the BSE PSU index (up 0.23%), the BSE FMCG index (up 0.03%), the BSE Healthcare index (down 0.06%), the BSE Power index (down 0.12%), the BSE IT index (down 0.38%), the BSE Bankex (down 0.66%), the BSE Metal index (down 0.98%), outperformed the Sensex.

The BSE Oil & Gas index (down 1.54%), the BSE TECk index (down 1.32%), the BSE Capital Goods index (down 1.14%) underperfomed the Sensex.

The market breadth, indicating the overall health of the market, was positive in contrast to a weak breadth earlier in the day. On BSE, 1,263 shares rose as compared with 1,213 that fell. A total of 78 shares remained unchanged.

From the 30 share Sensex pack, 23 stocks fell and the rest gained.

India's largest private sector firm by market capitalisation and oil refiner Reliance Industries (RIL) was down 1.51% to Rs 1,908.55 on profit taking after a recent surge. The stock was volatile. The stock hit a high of Rs 1,928.50 and a low of Rs 1,884. 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.

Late last week, Ratnagiri Gas & Power, which supplies electricity to the western Indian state of Maharashtra, agreed to buy natural gas from an offshore field operated by Reliance Industries.

Shares of India's biggest state-run oil exploration firm by revenue Oil & Natural Gas Corporation (ONGC) fell 2.43% after crude oil prices fell on the New York Mercantile Exchange on Wednesday, even as the US Energy Information Administration reported fall in inventories. Crude oil fell 72 cents to $57.97 per barrel. The fall in crude oil prices would result in lower realizations from crude sales for oil exploration firms.

The International Energy Agency today, 14 May 2009, cut its world energy demand outlook for 2009.

But PSU OMCs rose on fall in crude oil prices. BPCL and Indian Oil Corporation, rose by between 0.44% to 2.46%. But HPCL fell 0.08%. Lower oil prices will reduce underrecoveries at the state-run oil firms on domestic sale of petrol, diesel, LPG and kerosene at a controlled price.

DLF rose 7.18% after Macquarie Group raised the rating on the stock to 'neutral' from 'underperform', saying a large bulk deal by the founders has eased liquidity concerns. Founders of DLF raised Rs 3,860 crore by selling a 9.9% stake in realty major DLF to institutional investors yesterday, 13 May 2009, morning.

Other realty stocks, Indiabuuls Real Estate , Housing Development & Infrastructure, Akruti City rose by between 0.51% to 2.48%.

Outsourcing focussed IT stocks fell 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 was down 0.49% to Rs 1,566.15. The stock hit a high of Rs 1569.90 and a low of Rs 1533.60. Its American depository receipt (ADR) fell 4.68% on Wednesday 13 May 2009.

India's largest software services exporter by sales TCS was down 0.36% to Rs 620.20. The stock hit a high of Rs 628 and a low of Rs 606. TCS said on Wednesday 13 May 2009 it has been selected for a five-year IT services contract for auto maker Volkswagen group's operations in the United Kingdom.

India's third largest software services exporter by sales Wipro was down 2.78% to Rs 364.35. The stock hit a high of Rs 371.90 and a low of Rs 358.30. Its ADR fell 3.99% on Wednesday.

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. On 4 May 2009, US president Barack Obama 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 dis-incentivise 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.

Bank stocks recovered after initial slide as inflation eased. India's largest private sector bank by net profit ICICI Bank was down 2.36% to Rs 536.70, off the day's low of Rs 519.95. Its ADR fell 6.71% on Wednesday.

India's second largest private sector bank by operating income HDFC Bank was up 0.13% to Rs 1164.85, off the day's low of Rs 1,125. Its ADR fell 6.23% on Wednesday.

India's biggest bank in terms of branch network State Bank of India rose 0.45% to Rs 1267.85, off the day's low of Rs 1,225. State Bank of India has cut interest rates on deposits by upto 50 basis points effective Monday, 18 May 2009. Bank interest rates are falling in India after the central bank began slashing interest rates last October to lift a slowing economy.

India's biggest dedicated housing finance firm by operating income HDFC was down 1.75% to Rs 1,863.90, off the day's low of Rs 1,825.

Capital goods stocks fell on profit taking after a recently strong rally. India's biggest engineering & construction firm by revenue Larsen & Toubro (L&T), last month, lost 2.55%. L&T on 16 April 2009 said the company expects its order inflow to grow by 25-35% in the year ending March 2010 (FY 2010).

ABB, Bharat Heavy Electricals, Praj Industries fell by between 0.35% to 1.2%.

Cement stocks fell on recent report 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. ACC, Grasim Industries, Ambuja Cements, India Cements and Ultratech Cements, fell by between 0.07% to 0.59%.

Auto stocks fell on profit taking after a recent surge. India's largest commercial vehicle maker by sales Tata Motors lost 3.04% after its American depository receipt fell 8.55% to $7.17 on Wednesday, 13 May 2009 on the New York Stock Exchange.

India's largest tractor maker by sales Mahindra & Mahindra fell 0.39% even after the company said an industrial court has declared the 10-day old tool down strike at its automotive plant in Nashik Maharashtra as illegal. The court has ordered workers to report to their shifts. Workers at the Nashik plant had gone on a tool down strike on 4 May 2009 following the suspension of their Union President Madhav Dhatrak.

India's largest car maker by sales Maruti Suzuki India fell 0.45%. Maruti Suzuki will be launching its premium compact car Ritz on 15 May 2009 in Delhi.

Some healthcare stocks fell on profit taking after they rose recently as most of the healthcare firms reported better than expected Q4 March 2009 result. Dr Reddy's Laboratories, Piramal HealthCare, Biocon, Glenmark Pharmaceuticals fell by between 0.39% to 3.64%.

Lupin fell 4.35% on profit taking after a pre-result rally. Lupin reported a better-than-expected 15.3% rise in net profit to Rs 88.37 crore in Q4 March 2009 over Q4 March 2008 due to a robust growth in the US and domestic markets.

Metal stocks fell as commodity prices slipped on the London Metal Exchange after a weak US retail sales report fanned concern falling consumer spending will curb demand for resources. Tata Steel, Sterlite Industries, Hindustan Zinc, Hindalco Industries fell by between 0.3% to 5.52%.

Cals Refineries clocked the highest volume of 2.96 crore shares on BSE. Unitech (1.7 crore shares), Suzlon Energy (1.36 crore shares), Reliance Natural Resources (1.02 crore shares) and Housing Development & Infrastructure (1 crore shares) were the other volume toppers in that order.

Reliance Industries clocked the highest turnover of Rs 241.28 crore on BSE. DLF (Rs 222.49 crore), Reliance Capital (Rs 187.58 crore), Housing Development & Infrastructure (Rs 180.71 crore) and Reliance Infrastructure (Rs 171.07 crore) were the other turnover toppers in that order.