VOLATILE GREEN

The Railway Budget 2011 turned out to be a low key affair for the equity markets as it failed to give any kind of a direction and markets snapped the day's trade with moderate gains, given the fact that in previous session the benchmarks registered gargantuan three percent laceration on highest ever volumes recorded in the history of Indian stock markets. Meanwhile the economic survey outlined various positives for the Indian economy which led to some buying in the frontline stocks while sanguine Asian and European counterparts too supported local sentiments to a large extent, however the lingering geopolitical tensions in the Middle East and North African nations continued to undermine sentiments as concerns of possible crude supply disruptions loomed on the global front. The benchmarks which got dragged for three straight sessions on the back of weakness in global markets and geo-political tensions managed to ignore the mounting deficit of the railway and instead focused on economic survey forecasting a strong growth of the economy by fiscal 2012. The NSE's 50-share broadly followed index, Nifty climbed three fourth of a percent and managed to hold on to the crucial 5,300 level while the Bombay Stock Exchange's Sensitive Index Sensex could manage only less than half a percent gains and settled at the psychological 17,700 mark. The broader markets continued their run of underperformance against their larger peers as the BSE's midcap and smallcap indices took moderate cuts of around a quarter percent each. The FMCG counter on the BSE sectoral space settled as the top gainer with 2.20% gains after majors like ITC and United Spirits rallied 3% and 6.16% respectively. While the rate sensitive Bankex pocket which remained under tremendous selling pressure and got hammered in previous session, saw some bottom fishing in today's trade as heavyweights like ICICI and SBI garnered 3.55% and 2.09% respectively. On the other hand the Information technology pack remained the top laggard in the space and went home with 0.72% losses as shares of Mphasis took a gigantic 28.43% laceration following a fall in the first quarter net profit which was way below market expectations. While IT bellwether Infosys shelved 0.57% on reports that the Income Tax Department slapped a tax demand of over Rs 450 crore on software giant for wrongfully claiming tax exemption on onshore services by declaring them as software exports. The capital goods index too declined in today's trade by 0.49% as BEML and Reliance Indl Infra respectively shaved off 2.90% and 2.85%.

On the global front, Asian benchmarks snapped the day mostly in the positive terrain as investors resorted to hefty buying in undervalued stocks after oil prices retreated. Hong Kong's benchmarks, Hang Seng remained the top gainer in the space as it went home after surging by around two percent. The sanguine mood reflected in the European markets as they too bounced back with the CAC 40 soaring over a percentage  point. On the other hand, the screen trading for US index futures indicated that the Dow could open with around half a percent gains.

Earlier on the Dalal Street, the benchmark began the first day of a new F&O series with a gap up as investors showed buying interests in railway related stocks in early trade. It remained a fairly volatile session of trade as the frontline indices see-sawed in a range of about 500 points as investors stayed nervous to open long positions at higher levels. The bourses went for some short rallies but they remained short lived as profit booking in some key heavyweight stocks dragged the indices back. The late short covering rally which came after the benchmarks drifted into the red for a brief period helped them to eventually end the session on a positive note ahead of the Union Budget due on Monday. Market is largely banking on the Union Budget 2011 to lift the deteriorating Indian sentiment and marketmen are expecting that macro concerns along with fiscal deficit are addressed on February 28, 2011. The markets registered volumes of over Rs 1.24 lakh crore while the turnover for NSE F&O segment remained at over Rs 1.07 lakh crore on the initial day of a new F&O series. The market breadth on the BSE was abysmal as there were 1273 shares on the gaining side against 1589 shares on the losing side while 100 shares remained unchanged.

On Charts: If the S&P CNX Nifty managed to hold above 5340 and if it sustains above 5401 then only there will be possibility of pullback. Otherwise its downward journey may continue. The support for the Nifty will be around 5262.80, 5,230 and 5,171 marks while resistance will be around 5340 and 5401 level.

Finally, the BSE Sensex advanced 68.50 points or 0.39% to settle at 17,700.91 while the S&P CNX Nifty rose 40.85 points or 0.78% to end at 5303.55.

The BSE Sensex touched a high and a low of 17,812.44 and 17,469.97, respectively.

The top gainers on the Sensex were Tata Motors up 4.43%, ICICI Bank up 3.55%, ITC up 3%, SBI up 2.09% and Jindal Steel up 1.87%.

On the flip side, RCom down 5.40%, Rel Infra down 4.58%, M&M down 3.38%, Hindalco Inds down 2.48% and Sterlite Inds down 2.23% were the major losers on the index.

The BSE Mid-cap and Small-cap indices lost 0.22% and 0.31%, respectively.

Meanwhile, the Indian government on Friday released the Economic Survey 2010-11 saying that the infrastructure structure performance was a mixed bag and more needs to be done to achieve the kind expansion in the core sector that would be required for sustaining a growth of 8-10% for next couple of decades.

The Survey stated that while some of the sectors like telecommunications did exceedingly well in the preceding fiscal, in some others there has been less than targeted achievement. During 2007-08 to 2009-10, capacity addition is lower than the target in power, roads and highways, and in Railways as well.

The Survey estimated that the investment in infrastructure has reached 7.18% of GDP in 2008-09 and is expected to increase to 8.37% in the final year of the 11th Plan. Out of the total 559 monitored Central sector projects costing Rs 150 crore and above, as on October, 2010 14 were ahead of schedule, 117 were on schedule and 293 were delayed. Of the balanced projects, no dates have been fixed for commissioning. Compared with trend however there has been a steady decline in the time and cost over runs of central sector projects costing Rs 150 crore and above; which the Survey says, can be attributed to closer monitoring and system improvements by the Ministries concerned.

However, the performance of core sector over April-November 2010 was a mixed bundle. Crude oil production increased by 11.5% and natural gas production by 19.8%. The civil aviation sector has also performed comparatively better than the previous year. However, the power and cement sectors have grown at comparatively lower rates. Coal-sector growth too has been very low at 0.6 % as compared to the previous year's 8%.

In order to boost the growth, the Survey maintained that a rapid reduction of the infrastructure deficit was a must. Financing infrastructure would be a big challenge in the coming years and to meet the challenge, innovative ideas and new models of financing would be required. Channeling domestic and foreign financial savings of this scale into infrastructure requires a judicious mix of policy interventions which balances the growth and stability objectives.

The Survey found a number of problems that have been delaying the core sector projects including (i) tending of unviable projects; (ii) bad quality of engineering and planning at DPR stage;(iii) lack of standardized and sub-optimal contracts;(iv) land acquisition delays and slow approval processes especially environmental and forest clearances:(v) insufficient optimization of procurement costs (of PSUs) (vi) weak performance management in nodal agencies and PSUs and (vii) inadequate availability of skilled and semi-skilled manpower. In order to speed up the implementation of infrastructure projects, all these issues need to be addressed.

There is also an urgent need to streamline land acquisition and environmental clearance for infrastructure projects. There is a strong case for bringing in parity between the compensation package admissible under the Land Acquisition Act 1894 and that applicable to land acquisition under the National Highways Act 1956 to enable faster acquisition. The Survey observed that it was important that 80% minimum norm for physical acquisition of land before tendering should be strictly enforced through suitable disincentives. In case of road expansion projects, there may also be a case for excluding the land which is part of the original lanes from being counted as part of the acquired land. It also advocated for national forest land bank, with clear paperwork and titles, which would significantly reduce the approval time for forest clearances.

In the BSE sectoral space Fast Moving Consumer Goods (FMCG) up 2.20%, Bankex up 1.86%, Auto up 0.75%, Consumer Durables (CD) up 0.52% and Public Sector Undertakings (PSU) up 0.14% were the major gainers.

On the other hand, Information Technology (IT) down 0.72%, Capital Goods (CG) down 0.49%, TECk down 0.49%, Power down 0.49% and Oil & Gas down 0.12% were the major losers in the BSE sectoral space.

India's FMCG industry has been on a fast growth track mapping a quick recovery in Indian economy, rising disposable incomes and surging middle class. However, the industry is also facing a lot of pressure from high inflation and rising cost of production. The industry therefore has a whole lot of expectations from the forthcoming Budget and is hoping that the finance ministry will provide it the next major trigger.

The foremost demand of the industry is control on inflation. Headline inflation in India has remained at highly elevated levels over the last year or so. Even worse is the situation in the primary commodities where prices have increased by 30-35% in the past two years. There has also been substantial hike in freight rates and packaging costs.

Not only the high inflation impacts the cost of production for the industry and pressurizes its margins but also squeezes the disposable income of people and hence impacts demand side for the industry as well. Citing the example of contraction seen in non-durable goods over recent months in the index of industrial production, the industry has urged the government to take some effective steps to check inflation as it can keep eroding real disposable income even in a fast growing economy and impact the demand for FMCG products. 

The industry is also strongly against any further hike in excise duty. The government had cut the excise duty by 4% following the global economic slowdown and rolled it back by 2% in the budget for current fiscal. Given the strong growth outlook and the need for pursuing fiscal consolidation, it is apprehended that the finance ministry will further hike the excise duty by 2%. The FMCG industry however feels that any further hike, particularly in wake of high inflation, will severely hit both the cost side and demand side of the industry.

Over the last few years, rural India has been becoming an important destination for FMCG products. As the farm incomes have risen over the last decade riding on consistent increase in government support prices of crops and spending on various rural schemes, FMCG products have increasingly found a destination there. However, the potential in rural markets is still far from exhausted. In fact, the industry has just started to realize the potential in rural areas. In this wake, the FMCG companies want the government to substantially increase allocation to rural spending schemes like that National Rural Employment Guarantee Scheme etc. This will boost the disposable income in rural India and further push the demand for FMCG products.

Finally, the FMCG industry has been a strong supporter of goods and services tax (GST) and, in fact, is likely to be one of the biggest beneficiary of the major reform. The application of a uniform indirect tax will help bring down the cost of FMCG products and hence prices. This will provide a major trigger for the demand side of industry. FMCG players therefore want the finance ministry to come out with a compromise formula in the forthcoming Budget that can be acceptable to all the states and would lead to an early implementation of the GST.

The S&P CNX Nifty touched a high and a low of 5338.20 and 5232.75, respectively.

The top gainers on the Nifty were IDFC up 6.13%, Tata Motors up 4.79%, Axis Bank up 4.22%, ICICI Bank up 4.06% and ITC up 3.55%.

On the flip side, RCom down 5.31%, Rel Infra down 3.65%, M&M down 2.65%, Sterlite Inds down 2.33% and Hindalco Inds down 2.22% were the major losers on the index.

European markets were trading in the green on Friday. France's CAC 40 gained 1.16%, Germany's DAX jumped 0.41% and Britain's FTSE 100 advanced 0.35%.

Asian equity indices finished mostly in the positive terrain on last trading day of the week as investors went for beaten down stocks after oil prices eased. Oil prices hovered near $98 a barrel in Asia after reaching $103 the previous day. The investors' sentiments also got boost as Wall Street stabilized after two days of sharp losses amid a political revolt threatening to topple the government of OPEC-member Libya. Hong Kong stocks ended higher with a gain of about two percent for the first session in last four days on Friday, with investors scouting for bargains after the index slumped to a five-month closing low on Thursday.