NORTH BOUND JOURNEY

Indian frontline indices vivaciously rallied over two and a quarter percentage points on the last trading day of the week as they conquered a lot of psychological levels on their northbound journey and quadrupled the joy of closing in the green trajectory. Bullishness seemed to be returning to the markets as investors aggressively piled up positions in key heavyweight stocks ahead of the result season as they speculated a lot of headwinds have already been factored in. The spurt in benchmarks not only was due to sanguine leads from the global markets but encouraging local cues, like the overall growth in the farm sector being pegged at 5.4% along with finance minister's statement of 9% growth in the next fiscal in the upper house of Parliament stoked investor sentiments. While skeptics doubted the recent strong run of Indian markets as they believed obstacles like towering inflation numbers, political uncertainties, spiraling oil prices due to lingering turbulences in the middle-east and euro-zone worries are going to make it difficult for an emerging market like India to log higher than expected growth, regardless of scoring higher on the GDP scale. The NSE's 50-share broadly followed index Nifty, reclaimed the 5650 mark, an important psychological level, after slamming a century while Bombay Stock Exchange's Sensitive Index, Sensex that skyrocketed by close to five hundred points and conquered the crucial 18,800 level. The broader markets too traded on healthy note but failed to perform in tandem with their larger peers nevertheless the BSE's midcap index went home with gains of 1% while the smallcap index surged 1.02% points. On the sectoral front, IT counter topped of the table after rising a massive 4.02% led by heavyweights like Infosys and Wipro which surged 5.23% and 3.68% respectively after IT lobby Nasscom requested the Centre to extend the Software Technology Parks of India (STPI) scheme for one year. STPI benefits are coming to an end this month. Encouraging earnings from technology companies in US too boosted Indian information technology (IT) stocks. Also, hefty position build up was witnessed in the rate sensitive Bankex index which jumped 2.72% after Axis Bank and ICICI Bank zoomed 3.74% and 3.61% respectively. DLF was the top gainer on the Sensex, rising 6.17% followed by Infosys up 5.23% and NTPC up 3.82%.

On the global front, majority of Asian equity indices finished in the positive terrain led by Japanese stocks which rose more than a percent supported by bargain hunting amid reports that few of Japan's biggest companies are closer to resuming production after the March 11 earthquake and tsunami. The European markets also moved higher in line with peers as France's CAC, Germany's DAX and Britain's FTSE traded in the green zone though with moderate gains of around a quarter percent. On the other hand, the screen trading for US index futures also indicated that the Dow could open on a positive note.

Earlier on Dalal Street, the benchmark got off to a gap up start as investors piled up positions tracking buoyant leads from Wall Street overnight which went for a smart rally on the back of confident corporate earnings and signs of a stronger job market. Thereafter, the frontline indices traded in a narrow band through the first half of trade and IT and capital goods stocks were among the prominent gainers. However, buying gathered greater momentum in software and banking companies along with other blue chip stocks in the second half of trade and the indices sailed beyond a lot psychological levels on the upside as they eventually snapped fourth straight session in the positive territory around the high point of the day. The markets registered strong volumes of over Rs 1.85 lakh crore while the turnover for NSE F&O segment too remained on the higher side compared to Thursday at over Rs 1.70 lakh crore. Market breadth remained positive as there were 1727 shares on the gaining side against 1199 shares on the losing side while 114 shares remained unchanged.

Finally, the BSE Sensex zoomed by 464.90 points or 2.53% to settle at 18815.64 while the S&P CNX Nifty shoots up 131.85 points or 2.39% to end at 5,654.25.

The BSE Sensex touched a high and a low of 18,858.30 and 18,480.69 respectively. The BSE Mid-cap and Small-cap indices increased by 1.00% and 1.02%, respectively.

DLF up 6.17%, Infosys up 5.23%, NTPC up 3.82%, Wipro up 3.68% and Tata Power up 3.67% were the major gainers on the Sensex. There were no losers on the index.

The ongoing crisis in the Middle East and resulting surge in crude oil prices has got the government worried. International crude oil prices continue to remain above the $110 a barrel mark causing substantial under-recoveries for the government controlled fuel retailers in the country.

However, indications from the government so far suggests that it is not going to exercise any of the two options that can help cut oil marketing companies' revenue loss and its subsidy outgo. That is, neither is it willing to hike retail prices of fuels in line with the surging global crude oil prices, nor is it in any mood to restructure the duty on oil products. Bringing down duty can cut the difference between cost and revenue for OMCs hence cutting their losses. But it will also have a significant impact on government's revenue.

Finance Minister Pranab Mukherjee voiced a strong concern on the rise in crude oil prices and the uncertainty it could create for the Indian economy, particularly for managing country's fiscal deficit.  ''The oil is on a slippery slope. The fluctuation in prices is very high. I don't know what will happen,'' the finance minister said in upper house of Indian Parliament on Thursday. He however assured the house that all necessary and possible precautions were being taken by the government to ensure undisrupted oil supplies. He however ruled out any immediate step to align domestic retail prices with global prices.

The issues of under recoveries of the three state-owned oil marketing companies (OMCs) Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp has taken a lot of importance after the commodity price shock of 2008. Since the OMCs are asked to sell fuels at subsidized prices, these need to be compensated. This is done partially by upstream companies like ONGC and partially by the finance ministry.

However, as the under recoveries have been on the rise in recent years with increase in average international crude prices far exceeding the increase in domestic retail fuel prices, the burden of compensation has been increasing for the government. In case the crude oil prices remain at elevated levels for another couple of quarters, it will beat all estimates for the fiscal deficit out of shape as subsidy burden then could be much higher than what the government is hoping for now.

IT up 4.02%, TECk up 3.49%, Bankex up 2.72%, Realty up 2.72%, and Capital goods up 2.23% were the major gainers in the BSE sectoral space, while, there were no losers in the BSE sectoral space.

Deputy Governor of the Reserve Bank of India (RBI) said on Thursday that the sudden reversal in non-food manufacturing inflation in the month of February was a key concern for the Indian central bank which so far has only been worried about the elevated levels of food and primary goods' inflation.

In an interview given to a business news channel, Gokarn said that the RBI has been trying to do a balancing act between growth and inflation and has so far been successful in not disrupting growth prospects while tightening the monetary stance. However, he added that there is a need to be watchful the emerging inflationary trends, particularly the unexpected jump in manufacturing inflation is quite concerning.

In the month of February, WPI inflation in the primary articles declined from 17.28% to 14.79% while the same in the food commodities also came down from nearly 15% to about 10%. However, in case of manufacturing commodities, inflation went up from 3.75% to 4.94%. This indicates that while improved supply of food and other primary commodities in wake of a strong Kharif harvest has eased prices, the strong domestic demand scenario in case of manufactured products is causing supply bottlenecks.

Further, manufacturing inflation sans manufactured food items, generally called as core inflation, showed even sharper increase in February. The core inflation increased from around 4% to 6%, clearly indicating that capacities were coming under pressure. What is worse is that as the central bank continues to tighten its monetary policy to fight inflation, it will have a dampening impact on investment and capital formation. This will in turn slow down the adjustment in capacities to surging demand and thereby growth in the economy.

Gokarn added that there had been a concern regarding possible slowdown in capital formation and growth and that is why the central bank has been looking to calibrate its policy tightening. All the rate hikes by the RBI in current monetary tightening cycle have been in the quantum of 25 basis points only. The Deputy Governor pointed out that a very aggressive action against inflation by raising rates much higher than what central bank did could have had negative fallout. However, he did accept that even calibrate tightening will have some impact on demand, but added that that was the motive when the target variable was inflation. 

The S&P CNX Nifty touched a high and a low of 5,667.10 and 5,560.95 respectively.

The top gainers on the Nifty were DLF up 5.72%, Infosys Technology up 4.97%, Wipro up 3.86%, NTPC up 3.84% and Axis Bank up 3.53%.

The only losers on the index were Ranbaxy down 0.81%, GAIL down 0.32%, and Siemens down 0.13%.

The Indian government will be borrowing Rs 2.5 lakh crore in the first half of the next financial year beginning April 1. The information was shared with media persons by the Economic Affairs Secretary in the Ministry of Finance R. Gopalan on Friday.

The borrowing target for the first half is slightly on the lower side as compared with the market expectations. At Rs 2.5 lakh crore, it represents around 60% of the full fiscal borrowing target of Rs 4.17 lakh crore. Markets on the other hand have been expecting first half borrowing of around Rs 2.70 lakh crore, or around 65% of the full fiscal target.

In the last couple of years the government has been frontloading the borrowings as it expected the private sector credit demand to pick up with passage of time. Also, frontloading leaves some months at the end of the year when state governments can complete their borrowing plans without crowding the market too much. In the last fiscal, first half borrowing target was close to 67% of the full fiscal target of government.

European markets were trading in green on Friday. France's CAC 40 gained 0.16%, Germany's DAX increased 0.40% and Britain's FTSE 100 surged by 0.42%.

All the Asian equity indices, barring Jakarta Composite, finished the trade in positive terrain on last trading day of the week tracking positive cues from smart rally on Wall Street overnight on the back of confident corporate earnings and signs of a stronger job market. Japanese Nikkei rose more than a percent in today's trade supported by bargain hunting witnessed in some key stocks amid signs that few of Japan's biggest companies are closer to resuming production after the March 11 earthquake and tsunami. Moreover, Seoul shares surged about one percent led by technology stocks including Samsung Electronics and Woori Finance Holdings.