DOWNTREND EXTENDED

Indian benchmarks witnessed yet another volatile day of trade as investors largely remained on the sidelines ahead of the February series F&O expiry scheduled on Thursday and Union Budget 2011 to be announced on last day of the month. Today's session largely remained characterized by choppiness as the aimless indices moved only sideways in a tight band lacking triggers for most part of the day. The frontline indices seemed reluctant to die down to the selling pressure but the cautiousness eventually got translated into position squaring in the dying hours which dragged the indices by over a percentage point from the high point of the day. By the end of trade, the domestic bourses caught up with the weakness that was prevailing across the globe with European markets struggling to find a bottom as ongoing civil upheaval in Middle East and a big jump in oil prices due to it, weighed on the investors' minds. The NSE's 50-share broadly followed index, Nifty sank over half a percent to settle below the crucial 5,450 support level while the Bombay Stock Exchange's Sensitive Index--Sensex-- shaved off over a hundred points to end below the psychological 18,200 mark. The broader markets on the other hand continued their downtrend as the BSE's midcap index drifted in tandem with the larger peers by 0.67% while the smallcap index, which was holding firm in the face of listless action, shed 0.31% in Wednesday's session. BSE's rate sensitive Bankex pocket remained under tremendous selling pressure on the sectoral front and got pounded by 1.75% as stocks like SBI remained under seller's radar and drifted 3.84%, the most in five weeks after the RBI indicated that a member of an advisory panel on monetary policy recommended last month to hike the repurchase rate by half a percentage point instead of one quarter, to slow inflation. Besides, airline stocks continued their weak run and got clobbered to a large extent in last four days on the back of rising crude oil prices. However, the Oil and Gas counter once again managed to snap the session as the top gainer on the BSE sectoral space gaining 0.53%, since yesterday's star performer Reliance Industries which underperformed Sensex by 32% in last 3 years, along with Gail India amassed 1.15% and 0.23% respectively. The auto pack, after three straight days of hammering, heaved some respite today and got back to its winning ways after bottom fishing in stocks like Hero Honda and Maruti Suzuki which garnered 5.45% and 0.85% respectively was witnessed. Shares of Anil Dhirubhai Ambani Group firms also helped in capping the downside for the local bourses as Reliance Infra skyrocketed 12.24% on the Bombay Stock Exchange after Anil Ambani met Maharashtra Chief Minister Prithviraj Chavan in relation to the MSRDC's plan to construct a coastal road to connect prime South Mumbai locations.

On the global front, Asian benchmarks got pummeled for yet another day led by a selloff in airlines' stocks as crude trades near a two-year high amid concern that crude supplies will be disrupted as turmoil spread in the Middle East and North Africa. Taiwanese benchmarks, Taiwan Weighted bear the maximum brunt in the space as it went home with over one and half a percent cut. The European counterparts too could not stand the global weakness and succumbed to the weakness with the FTSE 100 slipping over half a percent. On the other hand, the screen trading for US index futures though indicated that the Dow could open on an optimistic note.

Earlier on the Dalal Street, the benchmark began the day on a weak note as most investors remained on the sidelines in early trade tracking discouraging leads from Wall Street which witnessed a huge selloff on Tuesday after a long weekend. The indices saw a fairly steady day as they gyrated in a tight range for most part of the day as most traders remained uncomfortable to open fresh positions ahead of the Union Budget due on Monday. But the dying hours saw the frontline indices being dragged to lower than levels on profit booking. The indices eventually went home with over half a percent cut on volumes of over Rs 1.84 lakh crore while the turnover for NSE F&O segment too remained at elevated levels at over Rs 1.69 lakh crore on Wednesday. The market breadth on the BSE was abysmal as there were 1209 shares on the gaining side against 1637 shares on the losing side while 122 shares remained unchanged.

Finally, the BSE Sensex dropped 117.83 points or 0.64% to settle at 18,178.33 while the S&P CNX Nifty dipped 31.85 points or 0.58% to end at 5437.35.

The BSE Sensex touched a high and a low of 18,377.48 and 18,150.01, respectively.

Reliance Infra up 12.24%, Hero Honda up 5.45%, RCom up 1.47%, RIL up 1.15% and HDFC up 0.94% were the major gainers on the Sensex.

On the flip side, SBI down 3.84%, DLF down 3.29%, Tata Power down 2.78%, JP Associates down 2.04% and Infosys down 1.94% were the main losers on the index.

The BSE Mid-cap and Small-cap indices lost 0.67% and 0.31%, respectively.

Meanwhile, given the high inflation that has been witnessed by Indian economy over last one year or so, the government may increase the tax exempted income limit in the forthcoming General Budget to be released on Feb 28, said the financial services conglomerate Goldman Sachs.

'Income tax relief can be provided to lower income brackets to compensate for inflation. This could take the form of raising the tax exemption limit from the current Rs 1.6 lakh,' it said in a report. Currently, income of Rs 1,60,000 is exempted from tax for individuals. However, the limit is higher at Rs 1,90,000 crore for women and Rs 2,40,000 for senior citizens.

In the direct tax code (DTC) to be applicable in next fiscal year according to the finance ministry, the tax exempted income ceiling has been pegged at Rs 2 lakh. However, inflation has been surging over last one year which has eroded the real income of individuals, particularly those at the lower end of the income pyramid. This has led to suggestions that tax exemption limit should be hiked for the coming fiscal itself which will help counter the impact of inflation by raising disposable income. 

However, the finance ministry also faces some serious constraints on how much relief it affords to give to the public. First, as per the revised fiscal consolidation path envisaged in the fiscal responsibility and budget management act, the government has to cut the fiscal deficit to 4.8% in 2011-12 as against 5.5% budgeted in the current year. Further, its spending on flagship social sector schemes like the Mahatma Gandhi National Rural Employment Guarantee Act etc will increase. This obviously necessitates raising the level of revenue and hence limits how much tax relief can be provided. The finance ministry therefore will have to draw a very fine balance between tuning taxation in line with inflation and ensuring buoyancy in revenue. 

In the BSE sectoral space Bankex down 1.75%, Information Technology (IT) down 1.50%, Realty down 1.27%, TECk down 1.27% and Consumer Durables (CD) down 1.25% were the major losers; while Oil & Gas down 0.53% and Auto down 0.47% were the only gainers in the BSE sectoral space.

Rising input costs and cheap Chinese bicycles seem to have taken toll over the margins of cycle manufacturers in Ludhiana, which accounts for over 90% of country's bicycle and bicycle parts output and houses prominent bicycle brands such as Hero Cycles, Avon Cycles, Hi-Bird, etc.

The industry which is grappling with the problem of rising steel prices has demanded that significant steps should be taken in this Union Budget to set up a regulator to monitor steel prices. The industry argues that while ingot (raw material for steel products) rates increased by just 15%, rates of finished items like HR coils, CRC sheet have surged by over 35% in just a few months. Hence, there is urgent need to constitute a regulatory commission to keep a tab on steel making companies for not unnecessarily raising prices.

The industry is saying that there is a need to form a fund by teh government to hhelp upgrade technology to compete better in export markets since cheap Chinese bicycles are eating away the domestic industry's market. Hence, creation of a new fund will help in bridging the technology gap.

India is the second largest bicycle manufacturer in the world, next only to China, but it continues to make old heavy bicycle weighing 18-20 kg while in overseas market bicycles weighing 5-6 kg are available. Industry here has still not been able to develop new products like cycles incorporating aluminium, fiber and carbon made accessories and parts.

The S&P CNX Nifty touched a high and a low of 5495.20 and 5427.55, respectively.

The top gainers on the Nifty were Reliance Infra up 11.97%, Hero Honda up 7.94%, Reliance Capital up 2.41%, Dr Reddy's up 2.02% and RCom up 1.53%.

The top losers on the index were Ranbaxy down 6.70%, SBI down 3.75%, DLF down 3.63%, Tata Power 2.59% and IDFC down 2.48%.

European markets were trading in the green on Wednesday. France's CAC 40 shed 0.14%, Germany's DAX lost 0.35% and Britain's FTSE 100 dipped 0.59%.

Most of the Asian equity indices finished the day's trade in the negative terrain on Wednesday led by a selloff in airlines' stocks as crude trades near a two-year high amid concern that crude supplies will be disrupted as turmoil spread in the Middle East and North Africa. The sentiments in the region also weighed as US markets suffered sharp selloff on Tuesday influenced by the Libyan unrest and all the major indices were down by an average one and half a percent. The turmoil in Libya, which drives nearly two per cent of world oil output, sent London Brent crude prices above $108 a barrel to a two and a half year high.