SPIRITED PERFORMANCE

Exuberant Indian markets finished the enthralling first day of a new week with a spirited performance, extending Friday's pullback rally on the back of bottom fishing in fundamentally strong shares gathering greater force. Sentiments remained buoyant across the board as the frontline indices registered strong back-to-back gains in last two trading sessions scaling beyond psychological levels. The local investors resorted for positions build up despite the government releasing India's wholesale price index (WPI) numbers for the month of January which dipped marginally to 8.23% from 8.43% in the previous month. The departure of Egypt's Hosni Mubarak after about 30 years from president's role rejoiced the global markets as it to some extent cooled apprehensions over a potential oil supply disruptions along the Suez Canal. The NSE's 50-share broadly followed index, Nifty jumped around three percentage points to settle above the crucial 5,450 level while the Bombay Stock Exchange's Sensitive Index, or Sensex garnered around five hundred points to scale over the psychological 18,200 mark. The broader markets continued to fire on all cylinders as they once again outperformed their larger peers by quite a margin. The BSE's midcap and smallcap indices skyrocketed 3.52% and 3.94% respectively. The Capital Goods counter on the BSE sectoral space was the biggest gainer with 5.26% gains as majors like Havells India and L&T buttressed the index after surging 6.93% and 6.70% respectively. The rate sensitive Auto pocket accelerated 3.79% after witnessing hefty buying interests in shares of companies like Apollo Tyres and Tata Motors, which were up by 9.03% and 5.60% respectively. The index bellwether Reliance Industries too went home in the green but it underperformed the Sensex as it could manage only 0.57% gains. While there remained no sectoral laggard on the BSE sectoral space, DLF remained the only stock which settled in the red with losses of 0.38% on the Sensex.

On the global front, cues largely remained optimistic as markets in Asia made an all green close with some indices gaining about 1-2 percent for the day. World over  equity indices surged on hopes that global economic recovery will strengthen as oil prices retreated after the political tensions subside with the resignation of Egyptian President Hosni Mubarak. The European counterparts too are trading in the positive territory though with marginal gains with DAX being the top gainer in the space. On the other hand, the screen trading for US index futures indicated that the Dow could open in the negative terrain at the opening.

Earlier on the Dalal Street, the index extended its Friday's pullback rally and got a gap-up start tracking the Asian markets, sentiments got underpinned with sanguine US markets which registered strong gains on Friday on the back of Egyptian President Hosni Mubarak's relinquishing power. Some impressive results, especially from Tata Motors and Mahindra Satyam, too contributed to the buoyant mood of the markets in the mid morning session. The indices appeared to be on a northbound journey as they gained from strength to strength and re-conquered crucial levels to eventually settle around the high point of the day. Volumes for markets remained at over Rs 1.59 lakh crore while the turnover for NSE F&O segment was at over Rs 1.28 lakh crore. The market breadth on the BSE was extremely optimistic as there were 2397 shares on the gaining side against 483 shares on the losing side while 123 shares remained unchanged.

Finally, the BSE Sensex sky-rocketed 473.59 points or 2.67% to settle at 18,202.20 while the S&P CNX Nifty spanged 146 points or 2.75% to end at 5456.

The BSE Sensex touched a high and a low of 18,227.62 and 17,857.12, respectively.

Jaiprakash Associates up 6.79%, L&T up 6.70%, Tata Motors up 5.60%, BHEL up 4.56% and Jindal Steel up 4.44% were the major gainers on the Sensex, while DLF down 0.38% was the lone loser on the index.

The BSE Mid-cap and Small-cap indices rose 3.52% and 3.94%, respectively.

Meanwhile, with just couple of weeks left before the Union Finance Minister Pranab Mukherjee unveils the General Budget for fiscal year 2011-12, speculation is high on what the Budget will hold for India Inc. Most experts however feel that given that the direct tax code (DTC) will be implemented in the fiscal 2012-13, it leaves little space for any major changes in forthcoming budget.

For instance, the DTC kicks off with a corporate tax rate of 30% and that is what exists at present. As such, not much could be expected on this front despite the government accepting the need to rationalize the tax structure. Only thing that is likely here is there may be some relief in the form of surcharges being done away. This is because the DTC has explicitly put the corporate tax rate at 30% without any surcharges. Hence for a smooth transition, finance ministry may scrap some of them in coming budget itself.

Further, there was a lot of mention in the last budget about the tax rate being carefully chosen. Similarly the government has been saying that final draft of the DTC had little scope of any further tax relief immediately. As the growth has been robust and there is a lot of pressure on government to bring down the deficit and continue with fiscal consolidation, it is very difficult that any major changes in corporate tax structure are implemented. 

The government has been clearly mentioning that the objective of direct tax reforms was to rationalize tax structure and not necessarily bringing taxes down so much, which is also not practical either. Over the last 1-2 years the talk has focused on simplifying the tax structure by scrapping most of the tax incentives or tax breaks and at the same time bringing down the surcharges and levies. The government has been eying an effective rate of tax collection of around 21% of the corporate profits. This will require a nominal tax rate of 21% for now and only when the buoyancy increases, the government could be in position to bring down the tax rate further. As such, what we may see in the forthcoming budget is that surcharges are brought down and some incentives are scrapped, in line with the DTC.

In the BSE sectoral space, Capital Goods (CG) up 5.26%, Auto up 3.79%, Metal up 3.53%, Consumer Durables (CD) up 3.40% and Bankex up 3.37% were the major gainers, while there were no losers on the index.

The S&P CNX Nifty touched a high and a low of 5463.80 and 5340.25, respectively.

L&T up 7.28%, Jaiprakash Associates up 6.96%, Suzlon Energy up 6.67%, Tata Motors up 5.83% and Jindal Steel up 5.11% were the major gainers on the Nifty, while DLF down 0.50%, Siemens down 0.37% and RCom down 0.21% were the main losers on the index.

The Indian government may take a decision soon on lifting the ban on exports of food grains, including rice and wheat and some other items in wake of the surge in production in Kharif (summer sown) crop and potential increase in the Rabi (winter sown) crop. Export of food grains and many other farm items was banned following the failed monsoon of 2009.

An empowered group of ministers (EGoM) on export related aspects of food items is likely to meet within next week and will take a call on the matter. The (EGoM), headed by Union Finance Minister Paranab Mukherjee, is likely to discuss the cases of wheat, non-basmati rice and vegetables. Farmers have been demanding that given the rise in domestic production, exports should be allowed to ensure reasonably strong prices at home.

The Indian government is expecting a bumper production of foodgrains and pulses this year in wake of a very good monsoon in 2010 that boosted the Kharif crop coupled with some late rains that have resulted in good soil moisture for the Rabi crop. Overall, farm production is set to reach close to record high levels according to the latest estimates prepared by the farm ministry.

Production of wheat is estimated to reach an all-time high of 81.47 million tonne. In case of pulses, output will for the first time cross the 16 million tonne mark, and will reach 16.51 million tonne. In case of cash crops too there will be significant increase. Cotton will see an unprecedented output of 339.27 lakh bales, which may also allow the government to hike the export quota for the commodity which is currently pegged at 5.5 million bales.

However, the road ahead of the GoM will not be very easy given the high domestic inflation, particularly in the primary goods space. Food inflation in the country currently stands at 15.65%. While the government was hoping that a good harvest will help bring down prices of food commodities', it has not turned out to be the case. As such, any exports which will further boost domestic inflation can become very difficult to be justified, particularly in a politically charged atmosphere that persists in the country currently.

European markets were trading mixed on Monday. France's CAC 40 dipped 0.26% and Britain's FTSE 100 lost 0.10%, while Germany's DAX jumped 0.28%.

The Asian markets were in rally mood since beginning and made an all green close with some indices gaining about 1-2 percent for the day. World over  equity indices surged on hopes that global economic recovery will strengthen as oil prices retreated after the political tensions subside with the resignation of Egyptian President Hosni Mubarak. The Japanese market moved higher as the gross domestic product fell less than estimated in the fourth quarter. The annualized 1.1 percent drop in GDP in the three months through December was driven by a slowing in exports and fading of government stimulus programs. The Chinese Shanghai Composite was in jubilant mood with the news that China's $5.88 trillion GDP surpassed Japan's $5.47 trillion in 2010.