Sensex Rebounds 1.7%, IT Stocks Rally

Ivaylo
01 Mar, 2007
New York City

The market staged a smart recovery Thursday after two days of declines on the back of large-cap rally and short-covering in the derivative segment. Software companies spurted after investors were reassured that new taxes, imposed by the government in the budget, would not impact earnings. Infosys and Satyam led the advancers, together with HDFC Bank and Reliance Comms. Bajaj Auto and ACC led the decliners. India exports increased 5.5% in January, while imports grew 23%.

[R]8:00AM NY-7:00PM Mumbai Sensex recovers Thursday after two-day slide.[/R]
The Sensex finished 221.46 points, or 1.71%, lower at 13,159.55. The market-breadth was initially weak but strengthened throughout the session. As 1,146 stocks advanced, 1,403 declined and only 71 were unchanged. Of the 30 stocks in the Sensex, 20 advanced, while the rest declined. The turnover on BSE was Rs 4,397.01 crore, lower than Rs 5,825.82 crore on Wednesday, while on NSE, the turnover was Rs 10,061.04 crore, lower than Rs 12,686.73 crore on Wednesday.

Economic news

The government yesterday announced software companies will also be taxed The move to tax them will not impact earnings, though, as the tax can be offset against future profits. Companies claiming tax exemption under some provisions of the Income Tax Act will have to pay an effective minimum alternate tax of 11.2%, but Indian software exporters were exempt from paying income tax for 10 years from the time they received their license, or until 2009. The proposal to levy the tax will not impact earnings as companies can take a deferred tax credit.

India exports registered a 5.5% growth to $9.65 billion in January while imports advanced by 23.24%, leaving a deficit of over $50.58 billion between April 2006 and January 2007. The trade deficit during the year-ago period was $35.13 billion, according to the Commerce Ministry.

Cement prices in some parts of India have been hiked by between 10 and 12 rupees per 50 kilogram bag from March 1, on a revision in excise duty announced in the Union Budget.

Trading highlights

New issue Indian Bank was the most-active stock with a turnover of Rs 287.50 crore followed by Reliance Industries and IFCI.

Advancers

Infosys, the second-biggest software exporter in India, gained Rs 75.1, or 3.6%, to Rs 2,153.5. Satyam Computer Services Ltd, the fourth-biggest software company, advanced 5.5%, to Rs 435.1. Tata Consultancy Services Ltd, the largest computer-services provider in India, rose Rs 67.15, or 5.7%, to Rs 1,255.6. Moreover, Satyam Computer Services BPO subsidiary, Nipuna Services, set up its fourth facility at Hyderabad. The Hyderabad facility will offer integrated service delivery across industries and processes, and will accommodate three shifts.

Reliance Communications surged 5.1% to Rs 428.20, on expectations of a reduction in annual license fees for wireless services in the coming months. Bharti Airtel added 1.1% to Rs 726.90, on similar hopes.

L&T surged 3.5% to Rs 1,541. The company stock had plunged on Wednesday on a broad drop in construction shares after the removal of tax benefit under section 80 IA to companies engaged in civil construction work. However, L&T pays corporate tax at the regular rate for its construction business, the company is not likely to suffer from this withdrawal of tax exemption for civil construction firms.

Other gainers included HDFC Bank, up 5.2% to Rs 981.1. ICICI Bank gained nearly 3% to Rs 855. Tata Steel advanced 2% to Rs 452. Ranbaxy and NTPC ended up over 1.5% each to Rs 343 and Rs 142, respectively.

Index heavy Reliance Industries saw great volatility today but managed to end in positive territory. It settled 0.87% higher, at Rs 1,366.35, on a volume of 15.09 lakh shares.

Decliners

Cement companies led the decliners today. ACC Ltd plunged after Merrill Lynch reduced its rating on the stock on the government proposal to raise taxes on the building material. The government hiked the excise tax by 50% to Rs 600 a ton on cement sold at more than Rs 190 a 50- kilogram bag. ACC, the largest cement producer in India, fell 2.6%, to Rs 876.55, while Gujarat Ambuja Cements, lost 3.6%, to Rs 111.75.

Auto stocks also underperformed today. Bajaj Auto fell 3.9%, to Rs 2,514.1. The second-biggest motorcycle maker in India reported a 1.7% decrease in sales of motorcycles in February. Maruti Udyog plunged sharply from its high of Rs 870 for the day, and ended 0.32% lower at Rs 837.