The key benchmark indices soared as proposed a surge in industrial production in June 2009 reinforced expectations that the economy is recovering. A draft direct tax code which proposes to reduce tax rates on individuals and corporates and scrapping of the Securities Transaction Tax (STT), also boosted sentiment. The rally on the domestic bourses was also a part of rally across global stocks triggered by signs of a revival in the global economy and the US Federal Reserve's decision on Wednesday, to keep interest rates low for a prolonged period.
Interest rate sensitive, banking, realty, and auto stocks galloped as headline inflation remained in the negative zone for the ninth week in a row. Metal stocks valued on firm global metal prices. Oil & gas stocks rose as crude advanced. The BSE 30-share Sensex jumped 498.33 points or 3.32%.
The market breadth, indicating the overall health of the market, was strong. All the 30 stocks from Sensex pack were in green. All the sectoral indices on BSE were in the positive zone.
A bout of intraday volatility was witnessed. The Sensex opened with an upward gap after the US Federal Reserve on Wednesday said US interest rates will remain low even as the US central bank was more optimistic about the economic outlook. The market extended gains in early afernoon trade. The market pared gains before hitting a fresh intraday high in afternoon trade. Profit taking pulled the market off the higher level later. The market surged sharply in mid-afternoon trade after a consolidation in afternoon trade. It extended gains in late trade.
Inflation based on the wholesale price index declined 1.74% in the year through 1 August 2009, after falling 1.58% in the previous week, data released by the government in early afternoon today showed. However, the decline in headline inflation is only due to a statistical effect caused by sharply higher prices a year earlier and consumer price inflation remains high. The government revised upwards inflation for the week ended 6 June 2009 to a fall of 1.01% from earlier 1.61% decline.
Bulls, nonetheless, took heart from the robust industrial production data. In sharp contrast to the gloom in the farm sector, India's industrial output expanded 7.8% in June 2009, at the fastest pace in 16 months, beating forecasts by a wide margin, data released by the government during trading hours on Wednesday, showed. Stocks had witnessed a strong intraday rebound that. The strong growth in industrial production may help offset the impact of deficient rains.
Global rating agency Standard & Poor's (S&P) during trading hours today, said India's economy will continue to grow despite global downturn on the back of strong domestic demand. S&P said the potential threats to growth include revival of inflation, high interest rates and persistent global sluggishness.
India's monsoon rainfall deficit has widened further, increasing the risk of crop damage. Monsoon was 56% below normal in week to 12 August 2009 and was 72% below normal in soya bean growing central region in past one week, India Meteorological Department said on Thursday. Monsoon rains were 29% below normal during the period from 1 June 2009 to 12 August 2009. India relies on rain for 60% of its irrigation and on agriculture for 17% of its economy. The weather office chief Ajit Tyagi today told a television channel that the situation was grim and low rainfall would hurt winter-sown crops as well.
Further, foreign trade data continues to show a gloomy picture. India's imports declined by 37% in July 2009 to $18.31 billion compared to $29 billion in July 2008 while exports dropped by 26.6% to $12.53 billion compared to $17 billion in July 2008.
Meanwhile, the draft direct tax code released by the government after trading hours on Wednesday, has proposed a reduction in corporate tax rate to 25% from 30% now. It also proposes to phase out profit-linked exemptions for companies and replace them with investment-linked incentives. Business losses will be allowed to be carried forward indefinitely, while rules for capital gains and mergers and acquisitions will be rationalised, according to the draft plan.
The code proposes abolition of STT, which is now levied on purchase of shares and bonds. However, investors will have to pay a capital gains tax on profits earned by them on investments irrespective of the tenure of investments. In other words, there is no distinction between short term and long term capital gains, though gains realised after one year will be eligible for indexation benefits. Currently, short-term capital gains on sale of shares are taxed at 15% and there is no long-term capital gains tax on sale of shares sold after one year. The government is hoping to implement the new code from 2011.
The S&P CNX Nifty was up 147.50 points or 3.31% to 4,605. Nifty August 2009 futures were at 4621.05 at a premium of 16.05 points as compared to the spot closing of 4605. Turnover in NSE's futures & options (F&O) segment was Rs 65,552.20 crore, lower than Rs 73,347.15 crore on Wednesday, 12 August 2009.
Reliance Industries August 2009 futures were at premium at 2028 compared to the spot closing of 2024.30.
Tata Steel August 2009 futures were at premium at 471 compared to the spot closing of 470.25.
Tata Motors August 2009 futures were at discount at 470.80 compared to the spot closing of 473.05.
BSE clocked a turnover of Rs 6077 crore, higher than Rs 5917.26 crore on Wednesday, 12 August 2009.
The market breadth, indicating the overall health of the market, was very strong. On BSE, 2211 shares advanced as compared with 515 that declined. 61 shares remained unchanged.
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