Cement, tech stocks take the body blow

STOCK REPORT

Indian stocks had their biggest drop in eight months after Finance Minister Palaniappan Chidambaram included a tax increase on dividends in his budget proposals on Wednesday. Reliance Industries and ICICI Bank led declines.

"Markets are not happy with the increase in the dividend distribution tax,'' said Amandeep Chopra, who helps manage about $8.6 billion of assets at UTI Asset Management in Mumbai.

"The proposal to tax information technology companies and higher excise for cement companies has further dampened sentiment for technology and cement stocks.''

The benchmark Bombay Stock Exchange Sensex, slid 540.74, or 4 per cent, to 12,938.09, its biggest drop since June 13. All but one of the 30 stocks in the index fell. Wednesday's drop wiped about $28 billion off the nation's equities.

Stocks also declined on concerns overseas investors will sell shares after a global rout that started in China and triggered a slump in the US, which was compounded by signs the world's largest economy is slowing.

In the US, the Dow Jones Industrial Average dropped as much as 546 points, the most since the first trading day after the September 11 terrorist attacks. The Chinese stocks yesterday fell the most since 1997 after the government took measures to crack down on speculation that had driven share prices to records.

The S&P/CNX Nifty Index on the National Stock Exchange slid 148.60, or 3.8 per cent, to 3745.30. The government has proposed raising the tax companies must pay on their dividends to 15 per cent from 12.5 per cent in the fiscal year starting April 1.

Reliance, the country's largest non-state company, fell Rs 50.35, or 3.6 per cent, to Rs 1,354.6. ICICI, the nation's second-largest lender, declined Rs 43.75, or 5 per cent, to Rs 831.9. The two stocks account for about a fifth of the Sensex's weight.

Overseas investors sold a net Rs 582 crore ($131.3 million) worth of stocks on February 26, according to the latest information on the Securities & Exchange Board of India's Web site.

Grasim Industries led cement makers lower after the government proposed increasing excise duties on building material. The government will impose an excise tax of Rs 600 a tonne on cement sold at more than Rs 190 a 50 kg bag, Chidambaram said.

Grasim, India's third-largest cement maker, dropped Rs 119.6, or 5.1 per cent, to Rs 2,212.6. ACC, the country's largest cement maker, fell Rs 61, or 6.4 per cent, to Rs 900.05. Gujarat Ambuja Cements, India's fourth-biggest, plunged Rs 9.75, or 7.8 per cent, to 115.95.

Infosys Technologies led software developers lower after the government said it will extend a minimum alternate tax on software companies that enjoyed tax exemptions.

Infosys, the country's second-largest software developer, fell Rs 109.5, or 5 per cent, to Rs 2,078.35. Satyam Computer, the nation's fourth-largest software services exporter, declined Rs 37.95, or 8.4 per cent, to Rs 412.5.

Abbott India gained Rs 9.4, or 1.7 per cent, to Rs 551.15. The local unit of US-based Abbott Laboratories will buy back 807,360 shares at Rs 650 apiece starting March 7. The buyback will close on March 22.

Hindustan Motors climbed Rs 2.1, or 5.5 per cent, to Rs 40.6. The automaker, which is a partner of Mitsubishi Motors Corp, will develop a software township and an auto-parts complex on surplus land around its factory in West Bengal.

Hindustan Motors agreed with Bangalore-based Shriram Properties to set up a company to develop 314 acres (126 hectares) around its Uttarpara factory, the automaker said in a statement to the Bombay Stock Exchange.

ITC rose Rs 6.65, or 4 per cent, to Rs 171.85. The government will increase the excise tax it levies on cigarettes by 5 per cent.

"The increase is a moderate one and won't have any impact on sales of cigarettes,'' said Abhijeet Kundu, an analyst at Prabhudas Lilladher Securities in Mumbai.Sesa Goa dropped Rs 164.5, or 8.5 per cent, to Rs 1,783.35.