The market is about to correct the strong rally we have witnessed but not by much. The upside would be capped at a Sensex of 18,300
The domestic market started the week with a huge gain. The positive sentiment in the market continued throughout the week, taking cues from the positive global market. The Sensex and the Nifty both ended the week 3% gains.
The top Sensex gainers this week included DLF up 8%, Larsen & Toubro (L&T), Reliance Communications (RCom) and Sterlite Industries up 7% each and Wipro up 6%. Bharti Airtel ended up as the lone loser, down 4%, while Maruti Suzuki, ACC, Cipla and Tata Steel ended flat.
In the sectoral space, the IT index gained 5% and capital goods was up 4% while the healthcare index ended flat in the reporting week.
It is expected that India will be able to reduce the fiscal deficit to 4.5% of its gross domestic product (GDP) by March 2011 on revenue earnings from third-generation (3G) spectrum. The sale of 3G mobile phone licences and broadband access will bring in $23 billion, which will help the government reduce its Rs4.57 trillion borrowing for the fiscal year. India had projected a budget deficit of 5.5% for the fiscal year that ends in March 2011, down from a 16-year high of 6.9% of GDP in the last fiscal year.
The wholesale price index (WPI) rose an annual 10.16% in May, driven by higher food and fuel prices, government data showed on Monday. This has increased the possibility of the Reserve Bank of India (RBI) raising interest rates at its meeting in July.
The government has approved stake sale in Coal India Ltd (CIL) and Hindustan Copper Ltd (HCL) that could be worth up to $3.7 billion. In CIL, 10% stake will be sold and 20% stake in HCL will be offloaded. The stake sales are part of a broader divestment plan by the Indian government to offload minority holdings in 60 state firms in the coming years.
The RBI said that rates are not indicative of the high growth in the economy and should be curbed by controlling interest rates. Planning Commission deputy chairman Montek Singh Ahluwalia said that weekly movements in India's inflation will not have any impact on reforms to free fuel prices.
The government (after market hours) on Tuesday, 15th June, proposed the imposition of capital gains tax on all stock market transactions by Indians and overseas funds as part of the proposed changes in tax laws. As per the second draft of the Direct Tax Code (DTC), the securities transaction tax (STT) will stay and rates will be calibrated. In the first draft of the DTC unveiled last year, the government had proposed to scrap the STT. The DTC has proposed taxing gains from investments in the stock market and also equity-linked mutual fund units at the applicable rate of taxation. The DTC has also proposed some taxes on income of foreign funds, treating all incomes from their investments in the stock market in India as capital gains.
India's annual monsoon rains in the week to 16th June were 8% below normal, the Indian Meteorological Department (IMD) said. Rainfall was 32.5mm during the week against a normal 35.2mm, the Met office said.
C Rangarajan, chairman of the prime minister's Economic Advisory Council said that inflation has gone beyond the comfortable level and the Reserve Bank of India (RBI) should control it. Double-digit inflation cannot be only because of increased food prices, as the manufacturing sector is also contributing to the inflation.
Exports in May were up 35% over the year ago period, trade secretary Rahul Khullar said. Imports have been up 30% over the year ago period.
RBI governor D Subbarao said that the inflation is getting more generalised with the demand side pressure building up in the economy. The RBI will take a calibrated exit from the loose monetary policy.
In the US, a release by Department of Labor on Thursday showed number of Americans filing first- time claims for unemployment benefits rose 12,000 to 472,000 in the week ending 12 June 2010. The Federal Reserve Bank of Philadelphia said that its manufacturing index was down to 8 in June 2010 from 21.4 in the prior month.
"Deregulation of interest rates, including savings rates, is an important way forward for reforms. The base rate system that will come into affect from 1st July is also an important reform," RBI governor D Subbarao said
Reserve Bank of India (RBI) governor D Subbarao today said the central bank is in favour of deregulating interest rates on savings accounts as part of financial sector reforms, reports PTI.
"Deregulation of interest rates, including savings rates, is an important way forward for reforms. The base rate system that will come into affect from 1st July is also an important reform," he said in Hyderabad.
The concerns expressed by banks on the issue should be debated, he said.
Currently, the savings rate is fixed at 3.5% and is being calculated on daily basis from 1st April.
On Thursday, RBI deputy governor K C Chakrabarty had said, "We are in favour of deregulating all interest rates including savings rate."
"We have initiated a debate in the last policy... The deduction is very clear, clear in favour of deregulating all interest rates, including savings banks. But the decision will be taken, when to do that, after having adequate debate on the issue," Mr Chakrabarty had said.
However, bankers felt that any such move would lead to wide variation in the market.
Mr Chakrabarty had said, "This is a highly competitive market. Prices do not vary much. But what will be the rate, what customers will get, will depend on market conditions."
On inflation, Mr Subbarao said the RBI will review the inflation targets at its next policy meeting on 27th July.
"Earlier, we expected the inflation rate to come down to 5.5% by March, 2011. We projected this number in our earlier meeting. We will revisit that number in the July policy meeting," Subbarao told reporters.
Food price inflation for week ended 5th June was at 16.12% compared to 16.74% in the previous week.
Inflation has been hovering at double digits for the past several weeks.
However, he said despite this fact, the growth numbers are quite encouraging and investment is picking up.
Concurrent India Infrastructure kept silent for more than a month after announcing a power deal with Sikkim Power, and issued a clarification only after the latter refuted any deal with it. The BSE is silent—which encourages such malpractices
Moneylife has reported on how the media is being used to spread positive news about a company to stop its share price from falling further. We have come across one such company, which itself is propagating false announcements of its project wins. The saving grace was that investors ignored this 'positive' news.
On 10th May, Mumbai-based Concurrent (India) Infrastructure Ltd, in a regulatory filing said, "Concurrent to Develop Hydro project in Sikkim through PPP Mode". According to the release, Concurrent was all set to enter into an agreement with Sikkim Power Development Corp Ltd (SPDC) through PPP model to develop a 40MW hydro-project, estimated to cost Rs111.2 crore, at Labdang in Sikkim.
The company said that it had already spent Rs30 crore on developing preparations of Detailed Project Report (DPR); procurement of land and statutory clearance; access road and bridge at the site; a 30-metre tunnel and other civil works.
The release also quoted Concurrent's director and chief executive officer K Sudhir Babu as saying, "With this (deal), Concurrent will have a foothold in Sikkim. As per estimates, in Sikkim, (the) hydro-potential is 9,000MW, out of which only 4,000MW has been allotted."
Since the announcement was made after trading hours, next day, on 11th May, the Concurrent share opened Rs0.65 higher at Rs33.00 from its previous closing price on the Bombay Stock Exchange (BSE). However, at close, the shares fell by Rs2.1 to Rs30.75. During 10th May and 16th June (the day when Concurrent clarified that it had not signed any deal in Sikkim), Concurrent shares moved in a band between Rs29.55 to Rs34.80.
On 14th June, SPDC clarified that it has not entered into any kind of understanding or agreement with Concurrent (India) Infrastructure Ltd for development of a 40MW hydropower project in the State. According to a press statement, SPDC manager Palchen D Chaktha refuted any such development with Concurrent. He also said that SPDC has neither entered into any kind of agreement with Concurrent nor is it considering allotment of any project to the company in the near future.
Following the denial from SPDC, on 16th June, Concurrent said that it has not entered into any agreement yet in this regard and is still under the process of negotiations through various channels for a possible proposition of an agreement, if the efforts for the same fructifies.
The company conveniently kept mum throughout the period between its first announcement and subsequent denial by SPDC. Passing on the blame to the media, Concurrent said, "(The) Company through its press release dated May 09, 2010, stated very clearly that the Company is all set to enter an agreement for the said purpose, however the same was interpreted by some websites as such that (the) Company has entered already into an agreement."
Interestingly, the heading for its earlier announcement was "Concurrent to Develop Hydro project in Sikkim through PPP Mode" and not "Concurrent may Develop Hydro project in Sikkim through PPP Mode", if at all it was still at the negotiation stage.
We asked BSE officials if they will initiate any action against the false filing by Concurrent. However, until writing the story, there was no response from the Exchange. By keeping mum, the stock exchanges, which are the first level in stock market regulation, encourages such practices. As Moneylife magazine reports in every issue, misinformation and price-rigging is rampant in the BSE which the authorities turn a blind eye to.