Stock markets in India carried forward this week's trend of closing in the negative territory after every positive close as they settled in the red after taking cuts of around a percent a day after garnering about a percentage points. Although RBI's eighth hike in benchmark interest rates since March 2010 by 25 basis points was in line with market expectations, sentiments however went awry as marketmen feared that escalating domestic inflation would eat in to the overall growth of Indian economy. The RBI also hiked the forecast of inflation for the current fiscal year to around 8% from its previous estimate of 7% as it expected that economic growth will be impacted from surging global commodity prices, especially crude oil prices. While weakness in the Asian markets amid concerns of aggravating nuclear crisis in Japan too undermined local sentiments. The jump of around one and half a percent in crude oil prices also took sheen off the local bourses as traders shrugged the optimistic cues from the European counterparts. Meanwhile, marginal decline in food inflation to a three-and-a-half-month low of 9.42% for the week ended March 5 failed to enthuse the investor sentiment. The NSE's 50-share broadly followed index Nifty, managed to hold on to the crucial 5,450 support level while Bombay Stock Exchange's Sensitive Index, or Sensex closed with a two hundred point cut around the psychological 18,150 mark. The broader markets traded with some resilience today and finished with moderate losses thereby outperforming their larger peers by quite a margin. The BSE's midcap index went home with losses of 0.29% while the smallcap index shed 0.38% points. On the BSE sectoral front, the FMCG counter remained the top laggard in the space as it plunged by 1.54% on the back of losses in majors like Nestle India and Marico which plummeted 3.26% and 2.45% respectively. While the IT pack too saw hefty selling pressure as it shaved off 1.50% as shares of heavyweights like Infosys and TCS respectively slithered 1.79% and 1.43%. Investors also squared off positions in the rate sensitive counters like Bankex, Auto and Realty as the RBI listed a host of global and macro concerns ahead, while hiking benchmark rates by 25 basis points. On the other hand sectors like Power and Consumer Durables saw some buying and settled with marginal gains of 0.22% and 0.08% respectively. While in the broader market Henkel India shares settled up 4.96%, locked in upper circuit, after Jyothy Labs acquired about 14.90% of the equity share capital of the company, from Tamilnadu Petroproducts for an aggregate consideration of Rs 60.73 crore, representing Rs 35 per equity share.
On the global front, majority of Asian equity indices finished the day in the negative terrain led by Hong Kong's benchmark which shrank about two percent as the intensifying Japanese nuclear crisis casted a shadow over trade in the region. But the European markets shrugged the pessimistic Asian cues as France's CAC, Germany's DAX and Britain's FTSE traded in the green zone since the start of session. On the other hand, the screen trading for US index futures also indicated that the Dow could open with gains of around half a percent point.
Earlier on Dalal Street, the benchmark got off to a gap down start as investors squared off positions tracking discouraging leads from the overnight US markets coupled with renewed fears that a partial meltdown may have occurred at a nuclear plant in Japan which undermined sentiments significantly. The markets gained some traction from thereon till the reports of marginal fall in inflation and hike in key policy rates hit the street. Thereafter, investors opted to take profits off the table from rate sensitive sectors like Banks, Auto and Realty as RBI's raising of March-end inflation estimate to 8% from 7% projected earlier, had an adverse impact on the domestic sentiments. The bourses after touching intraday lows in the dying hours pared some portion of decline to eventually settle with losses of over a percent. The markets registered volumes of over Rs 1.31 lakh crore while the turnover for NSE F&O segment remained on the higher side compared to Wednesday at over Rs 1.17 lakh crore. Market breadth remained negative as there were 1203 shares on the gaining side against 1638 shares on the losing side while 126 shares remained unchanged.
On Chart: S&P CNX Nifty is likely to take support around 5398 and 5352 level while it may face resistance around 5,530 and 5,580. However, for that the index should not close below 5440 level.
Finally, the BSE Sensex plunged by 208.82 points or 1.14% to settle at 18149.87 while the S&P CNX Nifty fell by 64.50 points or 1.17% to end at 5,446.65.
The BSE Sensex touched a high and a low of 18,354.27 and 18,104.02, respectively. The BSE Mid-cap and Small-cap indices declined 0.29% and 0.38%, respectively.
Reliance Communication up 3.50%, BHEL up 1.98%, Reliance Infrastructure up 1.16%, Cipla up 0.98% and Jaiprakash Associates up 0.79% were the major gainers on the Sensex.
On the flip side, Maruti Suzuki down 4.44%, HDFC down 3.68%, Hindalco Industries down 2.49%, DLF down 2.12% and Infosys down 1.79% were the major losers on the index.
The Indian cabinet on Wednesday approved the Constitutional Amendment Bill to roll out the much awaited Goods and Services Tax (GST). The union finance ministry is hoping that by taking the battle from empowered group of state finance ministers to the Parliament by tabling the bill, a consensus can be generated on the hotly debated issue.
The purpose of the GST is to integrate all the indirect taxes on goods and services at the state and central levels including the value-added tax (VAT), excise and service taxes etc. Since the GST will bring all these taxes under one head, it will be easy to pay and collect taxes resulting in reduced cost of collection and greater compliance.
However, states continue to remain divided on the matter and many of them, mainly the opposition ruled ones, have been calling for a phased approach for amending the change. On the other hand, the Congress ruled states, the party which is also the major constituent of the coalition centre government, want to make all the changes in a single move.
Some of the states have raised concerns that the GST as being envisaged by the central government will erode the financial autonomy of state level governments. The first three drafts of the constitutional amendment bill which will be required before the GST can be implemented have been rejected by the states. The centre has now prepared a fourth draft. Building on the second and third versions, the fourth draft has proposed that the GST council, the main decision-making body, will be formed through a presidential order.
In the third draft, the finance ministry had proposed vesting to Parliament the power to set up the council. However, to take on board the opposition ruled states, the council now will be brought into life through a Presidential order. This would mean that it would not be possible to change the rules of the council by just passing a bill in Parliament, something that states had been opposing. With fourth draft in hand, the government is now looking to table the same in Parliament within current session, in fact as early as next week.
Power up 0.22% and Consumer Durables (CD) up 0.08% were the only gainers in the BSE sectoral space. On the other hand FMCG down 1.54%, IT down 1.50%, Auto down 1.27%, Metal down 1.18% and TECk down 1.15% were the major losers in the BSE sectoral space.
Government's decision of not to hike prices of diesel despite the surge in global crude prices has while saved the common man already burdened under high inflation from another round of prices rises, it has also resulted in mounting losses of the government controlled oil marketing companies (OMCs).
According to the ministry of petroleum, the under-recovery being incurred by the fuel retailers on diesel has increased to a record high level of Rs 15.79 a litre. Overall under-recoveries of the OMCs in all the regulated fuels are likely to be close to Rs 80,000 crore for the current financial year. At present the three state controlled fuel retailers are together losing about Rs 285 crore in revenue everyday on the sale of diesel below the cost.
There was a hope that the finance ministry will cut customs and excise duty on fuels to contain the impact of a spurt in global crude oil prices, which are still ruling relatively high despite some recent correction seen following the Japan earthquake. By cutting the duties, the government could have kept prices from rising while at the same time cutting down losses of OMCs. However, that would have resulted in heavy losses to the exchequer, and therefore the finance ministry dropped the proposal.
The publically controlled OMCs sell diesel and cooking fuels at prices that are generally lower than the cost. These are generally compensated by upstream companies and the government but such compensation is often not complete and OMCs have to absorb some loses. While the government has historically born 33% of the oil subsidy, the oil ministry has been asking the government to hike its share given the surge in under-recoveries.
The oil ministry has made it clear that upstream companies, which provide discounts on crude oil supplies to downstream companies as their share of under-recovery, will not bear more than 33% of the losses of retailers. This leaves the rest to be divided between the government and downstream companies. Since the OMCs does not have the financial muscle to absorb anything more than say 10-15% of the under-recovery, the government will have to hike its share to over 50% to ensure that financial health of fuel retailers is not impacted.
The S&P CNX Nifty touched a high and a low of 5,510.05 and 5,435.30 respectively.
The top gainers on the Nifty were RCOM up 3.20%, BHEL up 2.16%, Ambuja Cement up 1.73%, Cairn up 1.55% and Reliance Capital up 1.36%.
The top losers on the index were Maruti down 4.29%, HDFC down 3.10%, Hindalco down 2.49%, DLF down 2.19% and Axis Bank down 1.93%.
In an expected move, the Reserve Bank of India hiked its benchmark policy rates for eights time in the current fiscal on Thursday. It hiked both the repo rate, the rate at which it lends to banks, and reverse repo rate or the rate at which it allows banks to park their surplus liquidity with it, by 25 basis points (bps) each.
The move was largely expected but the analyst community, particularly after the unexpected increase seen in the headline inflation for the month of February. The wholesale price index (WPI) based inflation in the country had inched up in February to 8.31% compared with market expectations of around 7.8%. The increase was largely contributed by a pickup in core inflation, thus putting pressure on the central bank all the more to further tighten the monetary stance.
In the policy review released today, the central bank also accepted the increasingly sticky nature of inflation. It noted that following the slight moderation in January, headline WPI inflation had reversed in February 2011 accompanied by a sharp increase in non-food manufactured products inflation, or the core inflation.
This has also led the central bank to raise its fiscal-end inflation projection. In its third quarter review, the central bank had projected year-on-year WPI inflation for March 2011 at 7%. However, further upside risks have stemmed from high international crude prices, their impact on freely priced petroleum products, and the increase in administered coal prices and pick-up in non-food manufactured product prices. As a result, the RBI has now pegged the March-end 2011 inflation at around 8%.
The central bank however sounded confident on growth despite the weaker industrial growth numbers. It noted that even though the index of industrial production (IIP) continues to be volatile, other indicators, such as the latest Purchasing Managers' Index (PMI), direct and indirect tax collections, merchandise exports and bank credit, suggested that the growth momentum remained strong. Lead indicators of services sector activity also remain robust while the increase in area under the Rabi crop on annual basis argued well for the farm sector as well. It did however accept that global scenario was getting a bit more uncertain and even as growth seemed to be improving in developed countries as well, the surging commodity prices were a cause of worry.
The central bank concluded that the underlying inflationary pressures had accentuated, even as some risks to growth were emerging, particularly the surging global commodity prices. As domestic fuel prices are yet to adjust fully to global prices, risks to inflation remain clearly on the upside, reinforced by the persistence of demand-side pressures as reflected in non-food manufacturing inflation. Overall, the tone of the policy was not as hawkish as some analysts expected and it did had space for some growth related worries as well even as the inflation concerns remained in top.
European markets were trading mixed on Thursday. France's CAC 40 gained 0.76%, Germany's DAX increased 0.53% and Britain's FTSE 100 was up by by 0.64%.
Asian markets resumed blood bath after Wednesday's rally and all the Asian equity indices barring Seoul Composite finished the day's trade in the negative terrain on last trading day of the week as investors booked their profit. Japanese Nikkei dropped about one and a half percent as country's nuclear crisis cast a shadow over trade. However the index was well off earlier lows that had seen it sink more than four per cent after Tokyo Electric Power Co. said that more than 300 workers planned to connect a power line to start damaged cooling systems at the Fukushima Dai-Ichi power station, north of Tokyo.
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