BSE Sensex rises 1 pct; Reliance, autos gain

The BSE Sensex (^BSESN) rose 1 percent on Wednesday after data reinforced signs of an economic recovery, but trading was choppy as investors took profits ahead of an updated budget next week.

Gains were led by Reliance Industries (RELIANCE.NS) after the energy giant said it could not sign a deal to sell gas at below state-set prices to a former group firm without the government's approval.

Auto shares climbed after top car maker Maruti Suzuki, leading utility vehicles producer Mahindra & Mahindra and motorcycle maker Hero Honda Motors all reported double-digit sales growth in June.

Hindalco Industries (HINDALC0.NS) fell 3.5 percent to 83.40 rupees after the top aluminium producer posted a 78 percent slump in 2008/09 consolidated profit.

Manufacturing activity expanded for a third straight month in June, albeit at a slightly slower pace, reflecting strong local demand, data showed on Wednesday.

Still, investors only took trading positions as they awaited policy direction from the budget on Monday, traders said.

"There has already been a good run-up in the market, and people are going for safe positions so they can deal with any unexpected negativity," said Tejas Doshi, head of research at Sushil Finance.

The 30-share BSE index rose 1.05 percent, or 151.63 points, to 14,645.47 points, with 25 components closing higher. It slipped nearly 1 percent in the afternoon before pulling back.

The benchmark had rallied by almost half during April-June in their best quarterly gain in 17 years, but investors are wary their expectations on the budget may be too high.

"The volumes are strong, but people are taking more daily positions. Future direction should only be known after the budget measures," said K.K. Mital, chief executive for portfolio management services at Globe Capital Market.

Finance Minister Pranab Mukherjee is likely to announce plans to sell shares in some state run firms to help fund rural and social programmes, but the cash-strapped government could expand the budget deficit and its market borrowing.

Reliance Industries, which has the heaviest weight in the main index, rose 1.7 percent to 2,057.35 rupees after its statement late on Tuesday on the gas deal eased concerns its profits could be affected.

Financial stocks rose in anticipation of budget moves to help attract more investments in the sector.

Top lender State Bank of India (SBIN.NS) firmed 2.2 percent to 1,779.80 rupees, ICICI Bank (ICICIBANK.NS) gained 1 percent to 729.25 rupees and HDFC Bank added 0.7 percent to 1,502 rupees.

Mahindra & Mahindra rallied 3.2 percent to 714.35 rupees after its June sales rose 19 percent, while Maruti gained 0.4 percent to 1,070.15 rupees as its sales climbed 23 percent.

Top vehicles maker Tata Motors (TATAMOTORS.BO), expected to report monthly numbers later Wednesday, was up 2.8 percent at 299.30 rupees.

Consumer goods maker Hindustan Unilever closed up 2.1 percent at 272.70 rupees, after hitting a 52-week high of 275.20 as investors bet strong local demand would boost revenues.

In the broader market, losers outpaced gainers in the ratio of 1.06:1, on above-average volume of 373.5 million shares.

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Investors seek fiscal prudence, low on budget expectations

With markets having factored in the positives already, investor expectation from the Budget is low. However, they believe that fiscal prudence from the government could spring a positive surprise.

A survey of clients by ICICI (ICICIBANK.NS) Securities, the brokerage subsidiary of ICICI Bank, revealed that while investors do not expect Budget outcome to dampen markets, exemption on minimum-alternate-tax (MAT) for infrastructure would be a positive.

At the same time, lack of increased incentives for housing, withdrawal of excise stimulus for FMCG, lack of tax-exemption extensions for IT (small-caps) and under-provisioning of fertiliser subsidies could cause market hiccups.

Almost all investors believe that increase in FDI limits is imperative for stock markets but almost half of the surveyed did not expect to see any change. A high percentage expected government to take populist measures and sceptical of fiscal prudence. Investor expectation is high on divestment front and infrastructure spending.

Despite low downside possibility, 55 per cent investors expect markets to move up, between 10 per cent and 30 per cent. Around 33 per cent expect markets to be range bound between +10 and -10 per cent. Surprisingly, the issue of securities transaction tax (STT) does not feature high on the investors list. Seventy per cent of investors surveyed by ICICI Security said that they do not expect the Budget to address the issue.Expectation on government to focus on infrastructure spending for the power is high. The contrary could prove negative for stocks. Ninety-five per cent do not expect government to negatively impact PSU banks by waive loans. The survey said that despite low Budget expectation, a strong government can push-through major policy changes which, coupled with earnings improvement, and could boost markets.

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Indian Market Firm In Early Trade

Thursday, the Indian market is trading firm on the last day of the June F&O series settlement, shrugging off concerns about a below normal monsoon for the first time in four years.

Helped by favorable global cues, the BSE Sensex opened higher at 14,476 and rose to a high of 14,578 in early trading. Since then, the index has pared some of its gains and is now trading at 14,507, up 98 points or 0.68%, while the S&P CNX Nifty is trading at 4,305, up a modest 0.27%.

On the BSE, the small-cap and the mid-cap indexes are trading up over 1% each and the market breadth is positive, with 1245 advancers compared to 379 stocks that are declining.

Among the top gainers, Jaiprakash Associates is rising 3.05%, DLF, ICICI Bank, Sterlite, TCS and RCOM are up over 2% each, Grasim and Hindalco are up around 1.80% each and Bharti Airtel is up 1.40%. Tata Power, HDFC, Larsen & Toubro, Ranbaxy, HDFC Bank and Infosys are the other prominent gainers.

On the other hand, Tata Steel, ONGC, NTPC, Hindustan Unilever, Mahindra & Mahindra, Tata Motors, Maruti Suzuki and SBI are trading in the red. Sector-wise, realty, IT and capital good stocks are leading the gainers, while defensive FMCG and oil/gas stocks are trading modestly lower.

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