DECLINE IN FOOD INFLATION

Domestic benchmarks snapped yet another day with powerful gains of over a percent on Thursday as second consecutive sharp decline in India's food inflation numbers indicated that supply side scenario was improving. The food price index plunged 2.14% on a week-on-week basis amid expectations that the government may announce fresh measures to boost productivity for key staples in the upcoming budget. The markets welcomed the inflation data as they shifted gears and gradually accelerated to higher levels despite rather tepid cues from the Asian and European counterparts. The frontline indices have managed to extend the winning momentum for the fifth successive day of trade as local investors traded with conviction six working days ahead of the Budget 2011. With the earnings season almost coming to an end, the investors are now eagerly awaiting the Union Budget for further direction; although people at large remain apprehensive that the Budget may not be a market moving event. The NSE's 50-share broadly followed index, Nifty climbed over a percentage point to settle a tad below the crucial 5,550 level while the Bombay Stock Exchange's Sensitive Index, or Sensex hit a double century to end a touch above the psychological 18,500 mark. The broader markets succeeded in tandem with their larger peers as the BSE's midcap index surged 0.91% and smallcap index jumped 0.94%. The capital goods counter on the BSE sectoral space was the top gainer with 1.93% of gains as twelve out of the  thirteen sectoral indices advanced with majors like Suzlon Energy soaring 4.34% followed by L&T which  amassed 2.69%. The rate-sensitive Bankex pocket too kept buzzing through the day's trade as it gathered 1.50% after heavyweights like HDFC Bank and Axis Bank witnessed huge buying interests and went home with 4.15% and 1.62% gains respectively. Besides, index bellwether Reliance Industries made its participation felt today after surging 1.01%. Mahindra Satyam shares settled with 1.52% gains after swelling around 3% in intraday trade after the company agreed to pay to the Class members as consideration, $125 million, subject to the approval of the Reserve Bank of India (RBI). However, the high beta Realty pack remained the only laggard in the BSE sectoral space as it shaved off 0.89% after stocks like Unitech and Ackruti City plummeted 3.80% and 4.66% respectively.

On the global front, most Asian equity indices made a positive close as good earnings announcement across the globe boosted the sentiments of the regional markets. The Hong Kong and the Chinese markets ended in green as the traders welcomed the US Federal Reserve's decision to raise its growth forecast for the world's biggest economy. The European counterparts though appeared in sluggish mood and traded in the negative zone with marginal cuts. On the other hand, the screen trading for US index futures too indicated that the Dow could open on a pessimistic note.

Earlier on the Dalal Street, the index got off to a shaky start tracking mixed cues from the Asian markets which shrugged off the sanguine close of overnight US markets that climbed on the back of some good earnings announcement and few deal making news while economic news too were positive to help the markets move higher. The frontline indices see-sawed around the neutral line in a very tight band in the initial hours as investors remained a bit cautious, however hefty buying at several counters got triggered on the back of the drop in food inflation numbers to a two-month low level. The frontline indices treaded on a northbound journey thereafter as investors gradually started building up positions which helped the benchmarks to snap Thursday's session around high point of the day to eventually settle in the green for five straight sessions. Volumes for markets were higher than Wednesday at over Rs 1.38 lakh crore while the turnover for NSE F&O segment too remained higher at over Rs 1.23 lakh crore on Thursday. The market breadth on the BSE was optimistic as there were 1681 shares on the gaining side against 1126 shares on the losing side while 179 shares remained unchanged.

Finally, the BSE Sensex zoomed 205.92 points or 1.13% to settle at 18,506.82 while the S&P CNX Nifty surged 64.75 points or 1.18% to end at 5546.45.

The BSE Sensex touched a high and a low of 18,532.61 and 18,233.79, respectively.

The top gainers on the Sensex were HDFC Bank up 4.15%, HDFC up 3.15%, Bharti Airtel up 3.14%, L&T up 2.69% and Tata Steel up 2.16%.

Wipro down 1.34%, ONGC down 0.61%, Jindal Steel down 0.57%, HUL down 0.56% and NTPC down 0.44% were the top losers on the index.

The BSE Mid-cap and Small-cap indices soared 0.91% and 0.94%, respectively.

Meanwhile, food inflation in the country eased significantly over the week-ended Feb 5, maintaining its sharp downward trajectory for second consecutive week. Overall trend in the food inflation however continues to remain volatile though the strong Rabi harvest expected this year should help the pace of rising prices in this space to come down in coming weeks.

According to the data released by the ministry of commerce and industry on Thursday, food price index rose 11.05% on annual basis during week-ended Feb 5, significantly slower compared with 13.07% recorded in the previous week. On a sequential or week-on-week basis, the index for food goods decreased by 2.14% to 182.9 from 186.9 for the previous week, mainly due to lower prices of fruits & vegetables (8%) and pulses (1%). This was second consecutive sharp decline in food prices index, indicating that supply side scenario was improving.

The index for 'Non-Food Articles' group too declined by 1.2% to 181.3 compared with 183.5 in the previous week. As a result, the broader 'Primary Articles' index, which has a weight of 20.12% in the overall wholesale price index (WPI), decreased by 1.7% to 188.5 compared with 191.8  for the previous week. The annual rate of inflation, calculated on point to point basis, for this group also decreased to 14.59% from 16.24% for the previous week.

The index for 'Fuel & Power' with a weight of 14.91% in overall WPI on the other hand increased by 0.1% to 152.1 compared with 151.9 in the previous week due to higher prices of aviation turbine fuel (5%) and furnace oil (1%). The annual rate of inflation for this group too inched up marginally to 11.92% compared with 11.61% in the previous week.

The sharp decline seen in food prices, particularly the index itself, over the last two weeks will provide the much needed comfort to the Reserve Bank of India (RBI) which has been accused to be 'behind the curve' in fighting inflation and has seen a lot of pressure to take more bolder steps than the 25 basis points hike in short term lending rates it has been implementing since the start of the current fiscal. If the declining trend in food prices continue, it will ease the pressure on central bank to impermanent another hike of at least 25 bps in forthcoming policy mid-quarterly review in March.

In BSE sectoral space Capital Goods (CG) up 1.93%, Bankex up 1.50%, Auto up 1%, Fast Moving Consumer Goods (FMCG) up 0.80% and TECk up 0.74% were the major gainers; while Realty down 0.89% was the lone loser on the BSE sectoral space.

The Indian government on Wednesday signed its most ambitious free trade agreement (FTA) yet with Japan, a pact being dubbed as one with potential to change economic landscape of Asia in coming years. The FTA is expected to come into force from April this year after being ratified by the Japanese Parliament.

Indian Commerce and Industry Minister Anand Sharma and Japan's Foreign Minister Seiji Maehara signed the pact, which will abolish tariffs on 90% of Japanese exports to India such as auto parts and machinery items and 97% of Indian exports to Japan including farm and fisheries products in terms of trade value over 10 years.

The commerce ministry has dubbed the pact as historical and has estimated that trade between two of the three largest economies in Asia will more than double in just three years to touch $25 billion from currently little over $11 billion a year. While the pact will help Japan get deeper into India's fast growing market and help revive its slowing economy, for India, it opens doors to Japan's vast pharmaceutical market and trade in technology intensive items.

The two countries have been negotiating the FTA since 2007. Following the signing ceremony, the Japanese government will now submit the pact to parliament for ratification. Further, under the pact, the two countries will continue talks over the issue of whether to allow Indian nationals to work in Japan as health workers and care givers, with the aim of reaching a conclusion within two years after the deal takes effect.

With negotiations on the multilateral trade deal under the Doha round of world trade organization (WTO) looking to get extended into 2012 or even beyond, India has been focusing more on bilateral trade agreements and has already entered into trade agreement with the 10 member group ASEAN while negotiations are at advance stages with the European Union. Feasibility studies for FTA with Australia and Canada are on their way.

The S&P CNX Nifty touched a high and a low of 5553 and 5463.40, respectively.

The top gainers of the Nifty were IDFC up 5.55%, HDFC Bank up 4.64%, Suzlon Energy up 4.55%, HDFC up 4.04% and Bharti Airtel up 3.35%.

The top losers of the index were GAIL down 1.21%, HCL Tech down 1.19%, Wipro down 0.95%, RPower down 0.86% and DLF down 0.76%.

European markets were trading flat with negative bias on Thursday. France's CAC 40 lost 0.01%, Britain's FTSE 100 shed 0.09% and Germany's DAX slid 0.03%.

Most of the Asian markets closed the session on a positive note, however the start was sluggish and some indices remained in negative terrain throughout the day but others managed a good closing with Japan's Nikkei stock average rising for a fourth straight session on Thursday to around ten month high. Good earnings announcement across the globe has boosted the sentiments of the regional markets too. The Hong Kong and the Chinese markets ended in green as the traders welcomed the US Federal Reserve's decision to raise its growth forecast for the world's biggest economy. However the property stocks in China came in somber mood after the Beijing city government unveiled new limits on home purchases in the capital.