Cement shares edge higher as Rail Budget keeps freight rate unchanged

The key benchmark indices edged lower in choppy trade, snapping last two days' gains after Rail Minister Mamata Banerjee announced a populist rail budget for 2010-2011. Weak global equities and lower US index futures also weighed on investor sentiment. Auto stocks declined on fears of hike in excise duty in Union Budget 2010-2011 later this week. However, Maruti Suzuki India reversed early losses on bargain hunting and was the top gainer form the Sensex pack.

Realty stocks edged higher. But consumer durables stocks fell. Index heavyweight Reliance Industries rose. The market breadth was weak. The BSE 30-share Sensex fell 30.35 points or 0.19%, off close to 75 points from the day's high and up close to 70 points from the day's low.

Mamata Banerjee presented the second Railway Budget of the United Progressive Alliance Government-II in Lok Sabha today, 24 February 2010 laying emphasis on the social responsibility and financial viability. The Rail Minister kept passenger fares as well as freight rates unchanged. The freight rate for food grains and kerosene was cut by Rs 100 per wagon. The Rail minister said the service charge on air-conditioned fares will be cut. Mamata's populist rail budget has many social welfare plans and job-generation schemes too.

Banerjee said that it is time for private partnership in Indian Railways, but said that the railways will not be privatised. She said that clearance to private investment will be provided in 100 days to speed up projects. Banerjee appealed to business houses to join hands for building partnership with Railways. Presenting the Railway Budget she said a special task force will be set up for early clearance of projects.

There is a target to implement 1,000 route kilometer (km) in one year and 25,000 km in the Vision 2020 document, she added. Indian railways plans to spend Rs 1124 crore on telecom and signalling in fiscal 2010/11. It will also spend Rs 5000 crore on laying new tracks during the fiscal. The rail minister said the need of the hour is to invite domestic investments through public private partnership.

As part its efforts to get more freight from highways and address shortage of wagons, Banerjee today proposed to introduce a modified wagon investment scheme for high-capacity general and special purpose wagons. A detailed scheme in this regard will be notified later.

Taking further the concept of mega-logistics hub announced in her last budget speech, Banerjee said the Railways has decided to set up automobile and ancillary hubs at 10 locations in the country. The first of such hubs was launched in Shalimar close to Kolkata last year

Coming back to equities, the market cut losses after an initial slide triggered by weak Asian stocks. The market pared gains after hitting fresh intraday high in morning trade. It moved between positive and negative terrain in mid-morning trade. The market moved in a narrow range later. The market drifted lower in afternoon trade after the presentation of the Rail budget in parliament. The market recovered from lower level in mid-afternoon trade.

India VIX, a volatility index based on the S&P CNX Nifty index option prices, declined for the second day in a row after a recent sharp surge. The index declined 1.9% to 30.40. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

The expiry of the near-term February 2010 derivatives contracts on Thursday, 25 February 2010 is likely to add to volatility on the bourses in the near term. Rollover in Nifty futures from February 2010 series to March 2010 series stood at about 35% at the end of Tuesday's trading. Rollover in Mini Nifty futures was about 32% and the market wide rollover was about 43%. Individual stocks where rollover is high are GTL, REC, India Cements, GTL Infrastructure and M&M. Stocks where rollover was low till Tuesday include Ambuja Cements, Tata Chemicals, Dish TV, Aditya Birla Nuvo and ACC.

The market sentiment remains cautious ahead of the Union Budget 2010-11 which will be tabled in the parliament on 26 February 2010. The Economic Survey will be tabled in the parliament on 25 February 2010.

As far the Union Budget 2010-2011 is concerned, the government may announce increase in excise duties as a first step towards a gradual winding down of fiscal stimulus measures. It may also raise the service tax rate to 12% from 10%. It may be recalled that the government had slashed the Central Value Added Tax (Cenvat) rate for excise duty from 14% to 8% in two rounds starting in December 2008. It had also cut service tax by 2 percentage points. These reductions were effected in order to provide a stimulus to domestic industry. Since the overall prospects for growth are much brighter today, the finance minister may withdraw a part of the stimulus in order to boost tax revenue.

The Finance Minster may project a lower fiscal deficit for 2010-11 based on higher revenue projections due to economic rebound. The government's revenue will also get a boosts from sale of 3G auction and divestment. It remains to be seen if there are structural reforms to reduce the subsidy burden such as decontrol of petrol and diesel prices as recommended by the Kirit Parikh committee recently.

The fate of three important fiscal bills, which had been stalled by the Left parties, will be closely watched. These are the Pension Fund Regulatory and Development Authority (PFRDA) Bill, Insurance Bill and Banking Regulation (Amendment) Bill.

Meanwhile, the recommendations of the 13th Finance Commission will be tabled in the parliament on 25 February 2010, just a day ahead of the budget. Analysts and economists expect the Finance Minister to provide a road map for the introduction of the key direct and indirect tax reforms viz. the direct tax code (DTC) and the Goods & Services Tax (GST) in the Budget.

As far as government expenditure is concerned, the thrust areas could be agriculture, water resources, power, roads & other infrastructure projects and social sector schemes.

The government should begin to lower its fiscal deficit in the budget set to be announced this week but should not cut capital spending on infrastructure, the prime minister's economic advisory council said in a report released on Friday 19 February 2010.

European shares reversed early gains Wednesday as investors awaited a congressional testimony by US Federal Reserve Chairman Ben Bernanke. The key benchmark indices in France and Germany fell by between 0.12% to 0.23%. But UK's FTSE 100 rose 0.18%.

Asian stocks declined for the first time in three days on Wednesday, led by materials companies and carmakers, after a drop in US consumer confidence to a 10-month low spurred concern that the economic recovery will slow. The key benchmark indices in Hong Kong, Japan, Indonesia, South Korea, Singapore and Taiwan fell by between 0.16% to 1.48%. However, China's Shanghai Composite index rose 1.33%.

Japan's exports climbed at the fastest pace in almost 30 years in January 2010, supporting the nation's economic recovery as falling wages damp demand at home. Shipments abroad advanced 40.9% from a year earlier, the biggest increase since February 1980, the Finance Ministry said today in Tokyo.

US index futures reversed early gains. Trading in US index futures indicated that the Dow could fall 6 points at the opening bell on Wednesday, 24 February 2010.

US markets, closed near session's low in their worst single-session percentage loss in more than two weeks on Tuesday on disappointing consumer confidence reading. The February consumer confidence index came in below expectations at a 10-month low of 46. The dollar's strength also weighed on sentiment. The data on Tuesday showed the number of mass layoffs by U.S. employers edged up in January as manufacturers stepped up staff cuts.

The Dow Jones Industrial Average lost 100.97 points or 0.97% to 10282.41. The Nasdaq Composite fell 28.59 points or 1.28% to 2213.44 and the S&P 500 index slipped 13.41 points or 1.21% to 1094.60.

The BSE 30-share Sensex fell 30.35 points or 0.19% to 16,255.97. The barometer index rose 42.12 points at the day's high of 16,328.44 in morning trade. The Sensex fell 98.88 points at the day's low of 16,187.44 in early trade.

The S&P CNX Nifty fell 11.45 points or 0.24% to 4858.60.

The market breadth, indicating the overall health of the market was weak. On BSE, 1847 shares declined as compared with 930 that rose. A total of 74 shares remained unchanged. From the 30 share Sensex pack, 19 fell while the rest rose.

The BSE Mid-Cap index fell 0.41% and the BSE Small-Cap index fell 0.61%. Both the indices underperformed the Sensex.

Sectoral indices on BSE were mixed. BSE Realty index (up 0.93%), BSE IT index (up 0.03%), BSE Oil & Gas index (up 0.01%), BSE Capital Goods index (up 0.01%), BSE Power index (down 0.08%), BSE Metal index (down 0.09%), BSE FMCG index (down 0.1%), BSE PSU index (down 0.13%), and Bankex (down 0.18%), outperformed the Sensex. BSE Consumer Durables index (down 1.31%), BSE Healthcare index (down 0.64%), and BSE Auto index (down 0.43%), underperformed the Sensex.

BSE clocked turnover of Rs 3416 crore, higher than Rs 3094 crore on Tuesday, 23 February 2010.

Rail-related stocks declined on unwinding of speculative positions. Kernex Microsystems, Stone India, Kalindee Rail Nirman, Texmaco, and Titagarh Wagons fell by between 4.69% to 6.66%.

Index heavyweight Reliance Industries (RIL) rose 0.24% after the Petroleum minister Murli Deora reportedly told Rajya Sabha on Tuesday that oil and natural gas producers, including RIL need not share the marketing margin they charge from their clients with the government.

Meanwhile, RIL may reportedly raise its offer for bankrupt petrochemicals maker LyondellBasell to about $14.5 billion. RIL had previously offered a deal that valued Lyondell at $13.5 billion. The rise in offer comes after Lyondell recently settled a dispute with creditors that paved the way for its exit from bankruptcy.

Industry watchers opine that the finance minister may give infrastructure status to the oil & gas sector to promote investments with tax sops in the upcoming budget. There may be tax benefits for city gas distribution and extension in tax holiday for new refineries. He may also announce declared goods status to the natural gas. The finance minister may abolish service tax on exploration and production activities.

Consumer durable stocks fell on profit taking. Blue Star, Titan Industries, Videocon Industries and Lloyd Industries, Rajesh Exports fell by between 0.71% to 2.28%.

Rate sensitive realty shares rose on bargain hunting. Indiabulls Real Estate, Housing Development & Infrastructure, Unitech, Ansal Properties and Infrastructure rose by between 0.66% to 4.3%.

Unitech and DLF would be the chief beneficiaries if the government providers thrust to affordable housing projects in the Union Budget 2010-11 next week.

Industry watchers expect that in the coming budget finance minister may increase priority sector housing loans to Rs 30 lakh from existing Rs 20 lakh. There may be a greater thrust on public private partnership (PPP) projects in housing. There may be an increase in allotment to the Rajiv Gandhi Awas Yojana (slum rehabilitation programme). Increase in tax breaks provided to housing finance and infrastructure lending companies is also expected. There may be a re-introduction of tax holiday for housing projects under Sec 80 IB (10). The increase in income tax deduction under Sec 80 C on home loan principal re-payment from Rs 1 lakh to Rs 2- 3 lakh is also expected.

Rate sensitive banking shares rose as the central bank said recently it will introduce from 1 April 2010 a new base rate to price credit more transparently, replacing the existing benchmark prime lending rate (BPLR).

India's largest bank by net profit and branch network State Bank of India rose 0.48%. State Bank of India (SBI), on Monday said banks' lending rates are expected to remain stable in the next 5-6 months because of the slow credit offtake despite RBI hiking the cash reserve ratio by 75 basis points.

India's largest private sector bank by operating income HDFC Bank rose 0.15%. The bank has increased fixed deposit (FD) rates across nine maturities by 25-150 basis points. The rate hike comes three weeks after the third-quarter monetary policy review of the Reserve Bank of India (RBI), when the central bank increased the cash Reserve ratio by 75 basis points. In a rising rate scenario, where the credit growth is expected to improve in the coming quarters, the bank has decided to align its deposit rates with the market. HDFC Bank ADR fell 1.21% on Tuesday.

But, India's largest private sector bank by net profit ICICI Bank fell 0.41%. Its ADR was flat on Tuesday.

The Reserve Bank of India said the base rate will be the new reference rate for determining lending rates. According to draft guidelines, the RBI has proposed that the actual lending rate charged to borrowers would be the base rate plus borrower-specific charges including product-specific operating cost, credit-risk premium and tenure premium said.

For the banking sector, industry watchers expect relaxation in the lock-in period for fixed deposits - from five to three years - to qualify for tax benefits under Sec.80C. There might be an increase in the ceiling on foreign direct investment in the insurance sector from 26% to 49%. Expectations are also that the finance minister will allow banks to raise tax-free infrastructure funds.

Rate sensitive auto shares fell as the government is widely expected to raise excise duties on automobiles in Union Budget 2010-2011 this week. India's biggest tractor maker by sales Mahindra & Mahindra (M&M) fell 2.43%, extending losses for the third straight day.

India's largest commercial vehicle maker by sales Tata Motors fell 1.71%, falling for the second straight day. Tata Motors said recently it will hike commercial vehicle prices by up to 2% on account of new emission norms. The company also announced plans of bidding for a Rs 350-crore defense contract to supply light bullet-proof vehicles.

The company said recently its global vehicle sales for January nearly doubled to 85,714 units from a year earlier. The sales include UK-based luxury brands Jaguar and Land Rover, whose sales nearly trebled in the month to 16,269 units from a year ago, the company said in a statement. It had earlier said domestic sales, including trucks, buses and cars, jumped an annual 77 % in January.

But, India's largest car maker by sales Maruti Suzuki India rose 2.38% on bargain hunting after Tuesday's sharp fall. The stock fell 3.24% on Tuesday after the company said it is recalling 100,000 of its A-Star hatchbacks to fix a possible fuel leak. The recall of Maruti's popular model, which is exported to Europe, began in November 2009 and is about half complete. It will cost less than Rs 10 crore ($2.2 million), the company said. Maruti said it had not received any customer complaints.

Meanwhile, a hike in excise duty in the Budget will raise the cost of owning new vehicles. Coupled with the recent price hikes across segments, and the price increases likely in April 2010 on account of the change in emission norms, these potential price increases on excise duty increase may dampen demand.

On the flip side, bus makers Ashok Leyland and Tata Motors may benefit in case of further allocation of government expenditure towards the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in the Union Budget 2010-11. Bus demand has been boosted this year by an order for 15,000 buses under JNNURM

Software majors fell on weak economic data in the US. US is the largest export market for Indian IT firms. India's third largest IT exporter by sales Wipro fell 0.61%, reversing early gains. Its ADR fell 1.335 on Tuesday. India's largest IT exporter by sales Infosys Technologies was flat. Its ADR fell 0.72% on Tuesday.

India's second largest IT exporter by sales TCS rose 0.53%, gaining for the third straight day. Tata Consultancy Services, India's, is seeing strong demand from clients in sectors such as financial services, utilities and pharmaceuticals, its chief executive N. Chandrasekaran said. However, sluggish demand from manufacturing sector continues to be a concern, he added.

The IT sector is looking for an extension of the tax holiday for the Software Technology Park of India (STPI) scheme in Union Budget 2010-2011. The government provides tax benefits under Section 10 (A) of Income Tax Act for units set up in the Software Technology Parks of India (STPIs), which is due to expire on 31 March 2011 (FY 2011). If the scheme is extended by one more year till 31 March 2012 (FY 2012), it will boost projected FY 2012 earnings of IT firms

Commodity stocks recovered from early lows after the Railway Minister kept freight rates unchanged in the railway budget 2010-11. Among cement stocks ACC, Ambuja Cements and Ultratech Cement rose by between 0.15% to 0.53%.

From the steel pack, Steel Authority of India, JSW Steel and Jindal Steel & Power rose by between 0.14% to 2.52%.

Cement and steel companies transport bulk of their materials through the railways and therefore no hike in freight rates augurs well for these industries

Telecom stocks slipped on selling pressure. As per reports, the government will hold bandwidth auctions for third generation, or 3G, mobile phone services on 9 April 2010.

India's largest cellular services provider by sales Bharti Airtel fell 1.38%. India's second largest cellular services provider by sales Reliance Communications slipped 1.96%.

The government will invite applications from prospective bidders from 25 February 2010 and the last day for submitting bids is 19 March 2010.

India's largest engineering and construction firm by sales Larsen & Toubro rose 0.8%. Larsen & Toubro (L&T) will finalise plans to unlock value in its financial services arm in the next 12 months, the engineering to software conglomerate's whole-time director and chief financial officer (CFO) said on Monday. Among other capital goods stocks, Crompton Greaves, Siemens and ABB rose by between 0.08% to 0.71%.

But, India's largest power equipment maker by sale Bharat Heavy Electricals (Bhel) fell 0.98%.

The government may levy customs duty on import of equipment for power projects in Union Budget 2010-11, which may give a fillip to domestic manufacturers of boilers, turbines and generators. The levy of import duty on equipment for power projects will benefit companies such as Bhel and L&T.

Emmbi Polyarns settled at Rs 28.65 on BSE, at a discount of 36.33% to the initial public offer price of Rs 45. The stock listed at Rs 45.50 on the BSE, a premium of 1.11% over the issue price of Rs 45.

DB Realty settled at Rs 455.40 on BSE, at a discount of 2.69% to the initial public offer price of Rs 468. DB Realty listed at Rs 430 on the BSE, at a discount of 8.11% over the issue price of Rs 468

Emmbi Polyarns clocked the highest volume of 5.71 crore shares on BSE. D B Realty (2.09 crore shares), Cals Refineries (2.03 crore shares), Shree Ashtavinayak (1.53 crore shares) and GVK Power & Infrastructure (0.88 crore shares) were the other volume toppers in that order.

D B Realty clocked the highest turnover of Rs 952.72 crore on BSE. Titagarh Wagons (Rs 214.93 crore),Bajaj Auto (Rs 189.05 crore), Emmbi Polyarns (Rs 163.80 crore) and Aqua Logistics (Rs 147.33 crore) were the other turnover toppers in that order.