Nifty has crossed the first resistance of 5,400; watch out for 5,470
The market traded above yesterday's close from the start, tracking a firming trend on the bourses across Asia. The Sensex and Nifty opened at 17,917 and 5,373 respectively. Good earnings by Tata Steel and Coal India that came in after the market closed yesterday also assisted early gains. Support also came from metals, oil & gas and banking sectors in the early session.
There was a small decline in the first hour of trade, which is when the indices registered the day's lows. But the market overcame this and resumed its upward movement. A 1.04 percentage point rise in the weekly food inflation numbers for mid-May contributed to nervousness around noon.
In the last hour, short-covering and news that the government may decide on Cairn Energy's stake sale to Vedanta Resources helped the Nifty to cross the first support level of 5,400 and close above that level.
The next resistance is at 5,470. The intra-day highs by the Sensex and Nifty were 18,073 and 5,422 respectively. The Sensex rose 197 points to close at 18,045 and the Nifty closed 63 points up at 5,412. The advance-decline ratio on the National Stock Exchange was 751:620.
The broader indices underperformed the Sensex today with the BSE Mid-cap index adding 0.14% to its pervious close and the BSE Small-cap index gaining 0.46%.
BSE Oil & Gas (up 2.90%), BSE Metal (up 1.50%), BSE Auto (up 1.49%), BSE PSU (up 1.32%) and BSE Realty (up 1.24%) were the top sectoral gainers. BSE Consumer Durables (down 0.78%), BSE IT (down 0.19%) and BSE TECk (down 0.12%) were the losers.
The key performers on the Sensex were ONGC (up 4.44%), Hero Honda (up 3.97%), Sterlite Industries (up 3.45%), DLF (up 2.95%) and Reliance Industries (up 2.92%). ITC (down 1.08%), Infosys (down 0.56%) and HDFC (down 0.26%) were the major losers on the index.
After the petrol price hike a fortnight ago, the prices of diesel, LPG and kerosene could be hiked next month when the ministerial panel headed by finance minister Pranab Mukherjee meets to decide on the issue.
On 14 May, state-owned oil firms hiked the price of petrol by a steep Rs5 per litre and it has been reported that the oil ministry is pushing for a Rs4 per litre increase in the price of diesel and about Rs20-Rs25 increase in the domestic cooking gas (LPG) price. A kerosene price hike is also being considered.
Food inflation, which had been declining over the previous three weeks, rose by 1.08 percentage points to 8.55% in the week ended 14th May, over the 7.47% recorded in the previous week.
Markets in Asia closed mostly higher, as higher crude and metal prices lifted commodity-related stocks in the region. On the other hand, the Chinese benchmark Shanghai Composite declined, erasing some of its previous gains.
The Hang Seng gained 0.67%, the Jakarta Composite surged 0.92%, the KLSE Composite rose 0.48%, the Nikkei 225 finished 1.48% higher, the Straits Times added 0.16%, the Seoul Composite jumped 2.75% and the Taiwan Weighted climbed 0.70%.But the Shanghai Composite fell by 0.24%.
Back home, foreign institutional investors were net sellers of stocks worth Rs370.79 crore on Wednesday. On the other hand, domestic institutional investors were net buyers of shares worth Rs179.41 crore.
ICICIdirect research says that with stock prices having fallen significantly over the past few months, several firms that have pledged their shares would have to top up the margin requirements, failing which lenders could sell the shares leading to a further drop in prices
The significant erosion in the value of shares in the market fall over the past few months, will require promoters who have pledged shares for loans to increase the quantum of pledged shares to maintain the margin requirement, according to a research report by ICICIdirect.com.
The Sensex has corrected by more than 10% over the past few months and the value of shares of most companies has fallen. The research report suggests that in the event that promoters default in fulfilling the margin requirements, this could result in the sale of pledged shares by the lenders and could cause a further decline in the share prices and promoters’ holdings. This in turn could pull the market further downward.
ICICIdirect estimates that on an average 8%-9% of the promoters’ shares has been pledged during the period March 2009 to March 2011.
Most promoters pledge shares to raise working capital or to bring in new investors. This is a method of taking a loan against shares, where the value of the promoters shares pledged is two to three times of the loan amount sought.
As for the lenders, if the company’s share price goes below a certain level, the company will have to make immediate payment in cash or pledge more shares. If the company cannot do this, the lenders will sell the shares to recover the money.
This may appear beneficial to both promoters and lenders, as the promoters have an easy way to raise capital and the lenders have the right to sell the shares, whose value is about twice the loan amount if the promoter defaults or if the value of the pledged shares fall.
Though promoters pledge shares on a regular basis, this may not be a very good sign. This implies that the company’s financials are weak as it is cash-strapped for even working capital and the only way it can raise money is through pledging its shares. Consequently, the share price of a company usually falls after the announcement of shares being pledged.
An example is Malwa Cotton which has increased the quantum of shares pledged by 44% from the December 2010 quarter to the March 2011 quarter, while the company’s share price has dropped by 27% from Rs51.85 on 31 December 2010 to Rs38 on 24 May 2011.
Royale Manor is another company that has increased the number of shares pledged by 39% in the last quarter-on-quarter period, while the company’s share price has lost 25% in five months. (See table, 'Shares Stumble'.)
Employees subscribing to provident fund have not been able to exploit the entire benefit due to cumbersome procedure and a general lack of awareness of the rules. Now, through the efforts of experts and the organisation, much could change
Provident fund in India is a well-known concept for income security. But despite it being in existence since a long time, there is a lack of transparency. Many of us have little knowledge about our provident fund (PF) account. Experts are demanding a change in the PF policy, to make it more employee-friendly.
The Employees' Provident Fund Organisation (EPFO), India, is the largest governing body of provident funds. Contributing to the employees' provident fund (EPF) account is easy, but the withdrawal process is harrowing.
Let alone clueless employees, even the human resources departments of many private organisations are quite unaware of the EPF rules and regulations. For instance, they don't know that an employee could contribute more than the standard provident fund amount deduction, although the employer will not increase his share of the contribution.
Industry experts are also demanding one standard EPF account number for each employee throughout his/her career. Currently, when an employee shifts an organisation, he/she is given a fresh account. A standard provident fund number would ensure that the contributions are not spread over different EPFOs and would at the same time earn good compounded returns, with the interest rate at a high 9.5%.
Speaking to Moneylife YS Kataria, director (media and communication), Ministry of Labour and Employment, said, "We are working on a process where all the account holders will be provided with a unique EPF number, like the unique identification number. This process will be worked out in the next six months."
At the time of withdrawal, an employee needs to go to his previous employer. And the local provident fund office directs the employee to the EPFO where the establishment is registered. Experts say, "The PF should be accessible through the local provident fund office and the employee should not have to go through the human resources department of the previous organisation."
This issue could be resolved shortly, as the EPFO announced recently that subscribers of EPFO would soon be able to monitor their accounts online. "The employee would not have to go back to his previous employer once the EPF subscriber can see his account details online," Mr Kataria explained.
Many people are generally uninformed about their EPF contribution. This results in the premature closure of the account as they don't want to go to their previous employer and they are also unaware of the procedures. Even the EPFO has decided to stop interest payment on the employee PF accounts where there is no activity seen over a prolonged period. In this matter, industry analysts believe that premature withdrawal of funds should be charged a penal interest and employees should be made aware of the importance of continuing the account to avail of better returns later on.
The most common complaint against the EPFO is that account holders do not get any answer to their queries. But consumer activists point out that the problem can be overcome by the account holder invoking the Right to Information (RTI) Act to get details of the EPF account, without having to go to the EPFO office.
Experts also point out that sending periodic statement details of the PF account to contributors, even if the account is in another city, would ensure better transparency.
Other initiatives, like educating people through vernacular advertisements about the rules and regulations of EPF and providing a smart-card option, would also help people to understand better about the PF policy.
"We have initiated a lot of awareness to discourage premature withdrawals. Also with all the details being made available online, such problems will be reduced," Mr Kataria said.