POSITIVE CONSOLIDATION

High-spirited Indian equity indices settled the season on a positive note as they extended the two day pullback rally on Tuesday after investors showed huge buying interests in the undervalued index heavyweights. It turned out to be a rather volatile day of trade as the indices rebounded after drifting to lower levels in the morning session as sustained position build up was witnessed across the board. The NSE's 50-share broadly followed index, Nifty jumped around half a percentage point to settle just below the crucial 5,500 level while the Bombay Stock Exchange's Sensitive Index or Sensex garnered one third of a percent to end under the psychological 18,300 mark. The broader markets could not succeed to continue their run of outperformance against their larger peers as the BSE's midcap registered a marginal decline of 0.07% however smallcap index advanced 0.59%. The Oil & Gas counter on the BSE sectoral space was the biggest gainer with 1.81% gains as index bellwether Reliance Industries made its participation felt today followed by ONGC as they buttressed the index after surging 2.90% and 1.13% respectively. The rate sensitive Bankex pocket too soared 1.47% after witnessing hefty buying in shares like ICICI Bank and Kotak Mahindra Bank which gathered 2.02% and 3.35% respectively. ADAG pack too remained the crowd puller in today's trade and made smart pullback as all the shares under the banner went home with large gains including Reliance Infra which skyrocketed 17.28%. On the other hand, Capital Goods counter, yesterday's top gainer on BSE, failed to extend its rally and languished at the bottom of the table today with 1.83% followed by the Realty pack which shaved off 1.33%.

On the global front, markets in Asia made a mixed finish as investors remained watchful after China released its inflation numbers which advanced less than expected while the affirmation from Bank of Japan that the nation's production and exports are improving supported sentiments in the region. The European counterparts though traded with some conviction in the positive terrain as the CAC 40 led the space with around half a percent gain. On the other hand, the screen trading for US index futures indicated that the Dow could open on a flat to positive note.

Earlier on the Dalal Street, the index commenced on a cautious note tracking global cues with the Asian markets exhibiting mixed trend as investors there looked forward to China's January inflation numbers while overnight US markets too closed on a soft note after US President Barack Obama released $3.73 trillion budget proposal for the next fiscal year. However the indices failed to capitalize on the initial momentum in the morning session as the frontline indices could not sustain the high levels and succumbed to profit booking. But hefty short covering in the afternoon session underpinned sentiments which led the indices to bounce back into the green zone from the low point of the day. Sustained buying across the board helped the indices climb above psychological resistance levels to eventually making it a hat-trick of positive close. Volumes for markets were higher than Monday at over Rs 1.66 lakh crore while the turnover for NSE F&O segment too remained higher at over Rs 1.34 lakh crore on Friday. The market breadth on the BSE was positive as there were 1551 shares on the gaining side against 1276 shares on the losing side while 157 shares remained unchanged.

Finally, the BSE Sensex advanced 71.60 points or 0.39% to settle at 18,273.80 while the S&P CNX Nifty rose 25 points or 0.46% to end at 5481.

The BSE Sensex touched a high and a low of 18,361.66 and 18,050.48, respectively.

RCom up 4.16%, RIL up 2.90%, Tata Motors up 2.41%, Bajaj Auto up 2.16% and Tata Power up 2.14% were the major gainers on the Sensex.

On the flip side, JP Associates down 3.04%, Hindalco Inds down 2.96%, DLF down 2.80%, BHEL down 2.45% and L&T down 2.16% were the main losers on the index.

The BSE Mid-cap index lost 0.07%, while BSE Small-cap index gained 0.59%.

Meanwhile, Indian aviation industry has seen a strong recovery over the last 3-4 quarters riding on strong recovery in domestic demand and improved outlook of Indian economy. The industry faced a difficult period for two consecutive years in FY08 and FY09, but things started to improve slowly as the industry entered into in FY10 and the improvement has continued since then.

However, the industry is still far from reaching close to consistent profitability and with crude prices having rallied again after the slump seen following the global economic downturn. In fact, the Brent crude breached the $100 a barrel mark at the start of the February as the Egypt unrest threatened to disrupt supplies. The industry in this wake has a lot of expectations from the forthcoming General Budget to be unveiled on February 28 by the Union Finance minister Pranab Mukherjee.

The most crucial demand of the industry is regarding 'declared good' status for the aviation turbine fuel (ATF). The industry contends that ATF prices in India were one of the highest in the world and was therefore hampering the competitiveness of Indian carriers in international segment and harming the development of domestic operations. Main reason for high ATF prices is the high sales tax charged by various states. The tax is not uniform and ranges between 12% to 30% in different states. The industry therefore has asked the government to give ATF a declared good status which would result in fuel attracting only 4% uniform duty across the states. The proposal had been mooted earlier but was not implemented on account of opposition from states.

The industry also has been seeking the core status that will help Indian carriers to compete with their international peers on cost basis. Airlines contend that the sustainability of air transport would be severely eroded if it was not recognized as a core industry. The industry also expects that, as airlines connect to more and more Tier II and III cities, government should give concessions in the form of reduced airport fees and other charges. Such a policy will not only help airlines industry but also improve connectivity in the country.

Lastly, the industry is expecting liberalization in foreign direct investment (FDI) policies in aviation space. While foreigners are allowed to buy stake in Indian airlines, the foreign carriers are not allowed the same. Some players in Indian aviation space have been looking to partner with global airlines and have been asking the government to liberate the FDI regime for the same. With the direct overseas investment having declined significantly in current fiscal so far, the industry feels that forthcoming budget will be a good opportunity to relax aviation FDI norms. 

The top gaining sectoral indices on the BSE were Oil & Gas up 1.85%, Bankex up 1.53%, PSU up 1.10%, Auto up 0.71% and Power up 0.14%.

On the other hand, Capital Goods (CG) down 1.75%, Realty down 1.33%, Information Technology (IT) down 0.40%, Healthcare (HC) down 0.39% and Metal down 0.36% were the major losers in the BSE sectoral indices.

In a move aimed at lowering the prices of fuels, or at least preventing them from rising further, without hitting the health of oil marketing companies (OMCs), the government is likely to tweak with the taxation structure for the oil sector in the forthcoming Union Budget to be unveiled on Feb 28.

After the global Brent crude oil prices breach $100 a barrel mark, the government is looking at options to save the common man from excessive burden even as the financial health of OMCs has to be protected for long term energy security of the country. Already it has allowed increase in petrol prices to help bring them in line with rising global crude oil prices. But it is difficult to allow a similar hike in diesel and cooking gas due to high inflation that the country is presently facing.

One way out of the trouble could be cutting the excise duty on diesel and cooking gas which will reduce the under-recoveries that the OMCs are facing without raising the prices. This will however impact the budget math of the government as excess revenue from petroleum products make a significant chunk of government's incomes. The plan earlier was that a review of the oil sector duty regime immediately, however, the finance ministry decided against it and would now be bringing any such changes in the forthcoming budget only.

The OMCs are currently selling diesel and cooking gas at a loss over Rs 7 a litre and more than Rs 275 a gas cylinder respectively. Total under-recoveries in the current financial year are not expected to surge beyond Rs 75,000 crore. So far the government has only provided compensation of Rs 21,000 crore and even after accounting for the discounts from upstream companies, the OMCs are facing substantial losses. This can seriously impede the growth plans of OMCs and impact their financial health. Not only will this put the country's long term energy security into jeopardy but also hit government's plan to selling its stake in oil sector companies.

While this year the government can afford to provide bigger sum to the tune of RS 20,00 crore or so in the final settlement for the fiscal as it has comfortable fiscal position due to onetime revenue from telecom spectrum auctions, the same liberty will not be there in next time. In this wake, the finance ministry is planning to bring down the taxes on oil products which will keep market prices down even if crude remains high.

Another possibility is having a flexible taxing regime that would cut the tax on fuels when crude prices rise to cushion the increase in retail prices. Since it can impact the budget math, the government will also have to find other avenues where taxation can be increased to compensate for lower revenue from fuel sales. This will however ensure that the government does not lead to basic analysis of the monetary policy that can impact the given, by the government to the monetary authority in regard to its independence. 

The S&P CNX Nifty touched a high and a low of 5506.50 and 5408.35, respectively.

The top gainers on the Nifty were Rel Capital up 8.22%, RCom up 3.85%, PNB up 3.46%, Kotak Bank up 3.23% and RIL up 2.97%.

The top losers on the index were JP Associates down 3.31%, DLF down 3.20%, Hindalco Inds down 3.03%, BHEL down 2.78% and L&T down 2.36%.

European markets were trading in the green on Tuesday. France's CAC 40 gained 0.40%, Germany's DAX jumped 0.22% and Britain's FTSE 100 advanced 0.06%.

Asian markets ended mixed on Tuesday, with Japanese and Taiwanese stocks settling higher, supported by tamed China's CPI, while Hong Kong shares retreated amid worries that price pressures on the mainland will remain at elevated levels. Japan's Nikkei stock average edged up to register a 10-month closing high after Chinese inflation data helped ease concerns that the country will have to tighten monetary policy more aggressively as Chinese inflation was lower than expected at 4.9 percent in the year to January.