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Publication : Capital Market News
Provider : Capital Market Publishers Pvt. India Ltd.
July 14, 2004

Market extends losses on monsoon worries; Sensex sheds 51 points

Sustained selling pressure in stocks dragged the market lower once again on Wednesday as concerns about the monsoon and the proposed turnover tax outweighed strong quarterly earnings from some of the blue chips. Barring select tech and steel shares, stocks declined almost across the board. Moving in an intra-day range of nearly 100 points, the 30-share BSE Sensitive index (Sensex) ended with a loss of 50.69 points at 4,848.30. The benchmark index had shed 46 points on Tuesday on monsoon worries. The NSE S & P CNX Nifty index shed 16.55 points to end at 1,522.75.

After early gains, the market turned bearish amid the concerns over the patchy monsoon. According to the Indian Meteorological Department reports, while the monsoons have been below average as yet, their distribution has also been uneven, affecting crops in various regions. A normal monsoon is crucial for the economy to grow over 7% targeted rate. In the event of a deficient monsoon, the government's growth target may go haywire.

The market - already worried over the 0.15% transaction tax - received another jolt today with fresh worries that agricultural production and rural income could be impacted due to deficient rains. The monsoon, so far, has been patchy. Things could get bad if the monsoon does not improve.

Besides, uncertainty over the proposed 0.15% tax on exchange-based transaction of securities also kept the players sit on the fence. Players are keenly awaiting the outcome of the meeting of the representatives of the broking comminity with Finance Minister P Chidambaram on Tuesday evening to discuss on the issue. Players expect the tax on debt and all trading that does not involve delivery of shares to go. They want the tax to be restricted to FIIs and NRIs. Players feel that the domestic investors should be given a choice of paying either the transaction tax or the short-term capital gains tax.

The proposal, announced in the Union Budget last Thursday, has sparked strong opposition from brokers and driven down the volumes on the bourses. Interestingly, volumes improved on the bourses with day traders and jobbers deciding to get back to work after the last three sessions' protest. Turnover on BSE improved to Rs 1,748.81 crore from Rs 1,042.76 crore on Tuesday. Number of shares traded on BSE also rose from 11.45 crore to 6.29 crore. On the NSE, 23.95 crore (16.19 crore) shares worth Rs 3,913.59 crore (Rs 2,924.24 crore) were traded. In the derivatives segment of NSE, 202,302 (164,592) contracts worth Rs 6,452.97 crore (Rs 4,694.28 crore) were traded.

Cigarette major ITC (down 3.38% to Rs 1,010) lost further ground on sustained selling pressure amid worries over the progress of monsoon. From a recent high of Rs 1,072 touched on 9 July, the ITC stock has lost nearly 6%. Earlier, the ITC stock had risen 29.31% to Rs 1,072 on 9 July from a recent low of Rs 23 June.

PSU oil and gas exploration major ONGC (down 2.05% to Rs 652.35) ended lower after the company said that several new taxes imposed in the budget will hit the company's FY-05 profit by Rs 300 crore. In the budget presented last Thursday, the finance minister imposed a 2% education cess on all taxes and also introduced a 10% service tax on surveys conducted by oil exploration companies. Over 5.38 lakh ONGC shares were traded on BSE.

Other heavyweights Reliance Industries (down 2.90% to Rs 417.95), ICICI Bank (down 0.89% to Rs 234.65) and Hindustan Lever (down 1.01% to Rs 122.45) also contributed to the fall of the Sensex.

Two-wheeler majors Hero Honda Motor (down 3.65% to Rs 450.55) and Bajaj Auto (down 3.05% to Rs 863.15) lost ground on sustained selling pressure amid worries that a deficient monsoon may affect agriculture growth and rural incomes, which are key for the growth of auto sector.

Cement pivotals Grasim (down 2.30% to Rs 937.10) and ACC (down 0.93% to Rs 228.95) traded lower on sustained selling pressure amid worries that a deficient monsoon may mean poor offtake of cement.

Bhel (down 3.03% to Rs 528) ended sharply lower - coming off its day's high of Rs 555 - on selling at higher levels after early gains. The stock of the PSU power equipment major rose nearly 2% earlier in the day after the company said it bagged an order worth Rs 410 crore to set up a 800-MW Koldam Hydro electric project in Himachal Pradesh.

HDFC (down 1.83% to Rs 550.25) lost ground as selling continued amid worries that the hike in the interest rates might be around the corner. Higher interest rates is likely to result in the shrinking business for the housing finance companies, who have seen their business expanding in the last couple of years with declining interest rates.

Pharma pivotals Dr Reddy's Labs (down 2.07% to Rs 741.65), Cipla (down 1.83% to Rs 230.45) and Ranbaxy Labs (down 0.73% to Rs 970.90) also failed to attract defensive buying.

Zee Telefilms (down 2.46% to Rs 125.15), Bharti Tele-Ventures (down 1.32% to Rs 149.70), HPCL (down 1.24% to Rs 282.65) and Tata Power (down 0.64% to Rs 248.90) also ended lower.

HDFC Bank (down 0.15% to Rs 364.65) ended marginally lower - coming off its day's high of Rs 372 - even after the company announced impressive Q1 results today. For quarter ended 30 June 2004 , the banking major posted a 30.47% rise in the net profit to Rs 139.97 crore (Rs 107.28 crore) on total income of Rs 810.59 crore (Rs 709.26 crore).

Tech pivotals Wipro (up 3.21% to Rs 511.85), Infosys Tech (up 1.29% to Rs 1,420.60) and Satyam Computer (up 0.75% to Rs 322.70) ended higher - yet off their day's highs - on sustained buying interest on the back of strong quarterly performance of the tech bellwether Infosys Technologies.

Tata Steel (up 1.98% to Rs 313.65) gained ground on fresh buying interest after the government revoked the Duty Entitlement Pass Book (DEPB) benefit for steel exporters effected in March 2004. Steel majors will now get the DEPB benefit with retrospective effect, with adjustments in rates as per the import duty cuts on steel announced in March 2004. Over 38 lakh Tata Steel shares were traded on BSE.

State Bank of India (up 0.37% to Rs 430.50) ended marginally higher - recovering from the day's low of Rs 426.10 - on selective buying after the bank announced that it has agreed to sell 37% of its stake in SBI Mutual Fund to SocGen AMC. Over 20 lakh SBI shares were traded.

Other pivotals Gujarat Ambuja Cements (up 0.74% to Rs 266.90) and Reliance Energy (up 0.70% to Rs 579.80) also ended higher.

Non-Sensex tech stocks were in the limelight. The BSE IT Sector index ended 28.12 points, or 1.54%, higher at 1,856.64.

iGate Global Solutions (up 4.97% to Rs 250.10) firmed up after the company announced quarterly results. For the quarter ended 30 June 2004 , the company posted a loss of Rs 3.54 crore (NP Rs 6.34 crore) on total income of Rs 103.12 crore (Rs 93.96 crore). On consolidated basis, for the quarter ended 30 June 2004 , the company posted a net profit of Rs 0.11 crore (Rs 7.71 crore) on total income of Rs 143.76 crore (Rs 143.85 crore).

The company announced that it has purchased Symphoni Interactive, an iGate Corp business entity in an all share deal. iGate said that the proposed acquisition would include the assets of Global Financial Services of Nevada.

Other non-Sensex tech stocks Geometric Software (up 4.69% to Rs 22.40), Hughes Software 2.22% to Rs 501.90), Subex Systems (up 4.25% to Rs 257) and VisualSoft (up 5.69% to Rs 133.70) also ended higher ended higher - yet off their day's highs - on sustained buying interest on the back of strong quarterly results and encouraging futures guidance issued by Infosys.

The guidance from the IT bellwether is seen as a precursor of things to come for the whole IT sector and, therefore, the strong revenue and earnings growth guidance from the software major triggered buying in the whole gamut of IT stocks today.

While a recovery in the US economy has helped the tech sector, players said that the sector would also be benefited following the recent fall in the value of the rupee against the US dollar.

Mastek (up 0.47% to Rs 275.10) ended flat - coming off its day's high of Rs 293.80 - on selective buying after the company posted improved Q4 results. On consolidated basis, for quarter ended 30 June 2004 , the Mastek group posted a net profit of Rs 12.42 crore (Rs 2.76 crore) on total income of Rs 118.54 crore (Rs 135.81 crore). For the year ended 30 June 2004 , the Mastek group posted a net profit of Rs 29.57 crore (Rs 50.31 crore) on total income of Rs 410.71 crore (Rs 379.39 crore). Over 18.12 lakh Mastek shares were traded on BSE today.

Action was seen in the steel stocks, too.

Steel Authority of India (up 3.45% to Rs 30) rose on reports that the company notched up the highest ever sales of finished steel during the first quarter of the year, riding on strong demand in the domestic steel market.
Between April and June 2004, the company registered a sale of 1.7 million tonnes of finished steel, a growth of 9% over the corresponding period last year. Over 1.12 crore SAIL shares were traded on BSE today.

Other steel and steel-related stocks Essar Steel (up 13.04% to Rs 19.50), Jindal Vijaynagar Steel (up 4.95% to Rs 9.33), Ispat Industries (up 4.32% to Rs 7.25), Sesa Goa (up 4.11% to Rs 404.45) also gained ground.

After hiking the excise duty on steel from 8% to 12% in the Union Budget, the government revoked the Duty Entitlement Pass Book (DEPB) benefit for steel exporters effected in March 2004. Steel majors will now get the DEPB benefit with retrospective effect, with adjustments in rates as per the import duty cuts on steel announced in March 2004.

Pharmacia Healthcare (Rs 102.85) was frozen at the 10% lower limit of circuit breaker as investors sold, disappointed by the share swap ratio ahead of its merger with Pfizer. The board of Pfizer today approved the
merger of Pharmacia Healthcare with it. The swap ratio for the merger has been set at one share of Pfizer for every five shares of Pharmacia Healthcare.

Textiles shares Nahar Spinning (up 11.21% to Rs 150.80), Arvind Mills (up 4.44% to Rs 75.25), Alok Industries (up 3.93% to Rs 58.25) firmed up in the second half of the session on renewed buying interest on favourable the budget proposals.

The finance minister in his budget last week, freed textile companies from the excise chain without any outgo of funds from the exchequer. The finance minister has put the small and composite mills on a level playing field by
giving both a choice to either pay excise tax and get Cenvat credit, or not pay tax at all. Thus, all companies in the cotton segment - yarn to garment - they can either pay an optional duty of 4%, or no duty at all. Since
cotton yarn does not attract Cenvat credit, no player would opt to pay the 4% tax.

Spinning companies in the organised sector would benefit as the cut in the excise duty will remove undue cost advantage to the unorganized sector.

The budget is favourable to the readymade garment makers as the effective excise duty for the garment makers would come down. There will now be no mandatory excise duty on pure cotton, wool and silk across value chain - from fibre, yarn, fabric to garment. These products would be subject to an optional excise duty of 4% as against the currently mandatory duty of 8-10%. Manmade (polyester, viscose, acrylic and nylon) and blended textiles will be subject to an optional excise duty of 8%.

Textiles / readymade garment makers are seen benefiting from the post-quota regime since 2005. Due to the high cost structure of locally manufactured products, major retailers in the US and Canada prefer to outsource products from cost-effective manufacturers overseas. However, due to prevailing quota restrictions, outsourcing is fragmented. Once the restrictions on exports from developing countries are lifted, in 2005, outsourcing will increase.

Kochi Refineries (down 3.36% to Rs 153.80) ended lower after the company announced quarterly results. For quarter ended 30 June 2004 , the refining PSU posted a 9.50% fall in the net profit to Rs 153.10 crore (Rs 169.30 crore) on total income of Rs 2,958.30 crore (Rs 2,263.20 crore).

Praj Industries (Rs 137.90) was frozen at the 5% upper limit of circuit breaker after the company announced quarterly results on Monday. For quarter ended 30 June 2004 , the company posted a net profit of Rs 3.62 crore (Rs 1.30 crore) on total income of Rs 26.17 crore (Rs 21.79 crore).

UTI Bank (up 3.95% to Rs 126.30) ended higher - yet off its day's high of Rs 131 - on selective buying interest. The UTI Bank stock topped volumes on BSE with over 1.23 crore shares traded on the counter.

The private equity fund Actis sold its remaining 4.9% stake in the bank in a deal worth about Rs 160 crore. Over 1.20 crore shares were traded in three block deals on BSE for about Rs 129 each. HSBC Holdings Plc holds a 14.7% stake in UTI Bank. It had purchased the stake in UTI Bank from Actis.

The company also announced Q1 results today. For quarter ended 30 June 2004 , the private bank posted a 35.43% rise in the net profit to Rs 70.67 crore (Rs 52.18 crore) on total income of Rs 535.49 crore (Rs 544.20 crore).

Biocon (up 1.34% to Rs 560.60) ended steady - yet off its day's high of Rs 585 - on selective buying after India's largest biotech company said that its net profit in the quarter ended 30 June 2004, more than doubled to Rs 48.60 crore from a year earlier. Total revenue for the quarter rose to Rs 180 crore from Rs 110 crore a year earlier.

Exide Industries (up 3.33% to Rs 127.10) ended higher after the company announced improved quarterly results in the afternoon. For quarter ended 30 June 2004 , the company posted a 32.75% rise in the net profit to Rs 18.40 crore (Rs 13.86 crore) on total income of Rs 276.52 crore (Rs 232.71 crore).