MODERATE LOSSES

Indian frontline indices continued to trade on an unexciting note for yet another session, registering moderate losses as investors appeared reluctant to pile up positions in large cap stocks and instead, chose to square off positions at every rise. Spike in crude oil prices which climbed around a quarter percent by the close of trade continued to remain a cause of concern for the local markets as traders expected that RBI may further take measures to stem the mounting inflationary pressure by hiking interest rates if crude prices continue to remain at elevated levels. However, the downside risks remained capped as FII's continued to pour in funds on expectations that most of the headwinds have already been factored in by the markets and that the companies will report strong quarterly earnings for the fourth quarter. Meanwhile, broader markets staged yet another resilient performance as they outclassed their larger peers for the fourth straight day after investors showed huge buying interests in undervalued shares from the midcap and small cap space. The NSE's 50-share broadly followed index Nifty, settled with moderate losses just below the crucial 5,900 support level while Bombay Stock Exchange's Sensitive Index, or Sensex finished a tad above the psychological 19,600 mark. In the broader markets, the BSE's Midcap and Smallcap indices went home with gains of 0.47% and 0.78% respectively, outshining the large caps by quite a margin. On the sectoral front, the Realty pocket grabbed the top gainer's position after amassing 3.18% as majors like Unitech and HDIL which respectively garnered 6.35% and 8.33%, lending some support. The Consumer Durables counter too remained amid the thick of things and advanced 1.11% on the back of surge in stocks like Rajesh Exports and Whirlpool which zoomed 5.69% and 2.02%. The downside risks for the local markets also got capped because of 1.78% surge in NTPC as it reported provisional net profit growth of 24% to Rs 25.05 billion for the quarter ended March while provisional sales for last quarter of the fiscal year was Rs 144.9 billion, up 17.8% from a year earlier. But a decline of around 1% in BSE's Teck counter restricted the bourses from bouncing back into the green. Teck majors like Idea Cellular and Wipro plummeted 5.05% and 2.93% respectively. Index heavyweight Reliance Industries too failed to make its presence felt in the session as it slipped marginally below the neutral line by the end of trade.

On the global front, Asian equity indices finished the day's trade in the mixed terrain. The benchmarks in Shanghai soared over a percent as investors shrugged off the 25 bps hike in key bank reserve rates by China, which raised rates for the fourth time since October in a bid to curb inflationary pressure on the economy. The European markets began on a flat note with positive bias and the France's CAC, Germany's DAX and Britain's FTSE are currently trading with moderate gains. On the other hand, the screen trading for US index futures indicated that the Dow could open in the green zone.

Earlier on Dalal Street, the benchmark started the day on an absolutely flat note since leads from the Asian markets were mixed as investors remained cautious on the back of unenthusiastic closing in overnight Wall Street, where Fed officials raised concerns that higher energy prices could weaken the economy. The indices after trading above neutral line for around an hour drifted in to the red and soon got dragged to intraday low levels. Thereafter the indices managed to bounce back into the green terrain for a brief period in the early noon session as hefty buying was witnessed in Realty and Consumer Durable stocks. However, the bourses failed to keep their head above the water for a long time and immediately slipped back into the red only to keep gyrating in a narrow band through the end of trade. Eventually the frontline indices consolidated their positions for yet another day and settled around with moderate losses below psychological levels. Markets registered higher volumes of over Rs 1.22 lakh crore compared to Tuesday while the turnover for NSE F&O segment was at over Rs 1.03 lakh crore. Market breadth remained extremely positive as there were 1765 shares on the gaining side against 1165 shares on the losing side while 111 shares remained unchanged.

Finally, the BSE Sensex declined by 74.62 points or 0.38% to settle at 19,612.20 while the S&P CNX Nifty slips by 18.30 points or 0.31% to end at 5,891.75.

The BSE Sensex touched a high and a low of 19,811.14 and 19,550.55 respectively. The BSE Mid-cap and Small-cap indices gained by 0.47% and 0.78%, respectively. 

Hero Honda up 2.22%, NTPC up 1.78%, Reliance Infrastructure up 1.21%, Tata Motors up 1.19% and ONGC up 0.68% were the major gainers on the Sensex.

On the flip side, Wipro down 2.93%, Bharti Airtel down 1.86%, Hindalco Industries down 1.67%, Maruti Suzuki down 1.40% and TCS down 1.25% were the Major losers on the index.

Worried over rising cost of funding amidst continued tightening of monetary policy stance by the Reserve Bank of India (RBI) and its impact on credit off-take, bankers on Tuesday urged the central bank to take a pause in its tightening cycle. They also asked for a cut in reserve rations to improve the liquidity conditions in the system.

In the run up to annual monetary policy released for fiscal year 2011-12, top bankers met the Governor of the RBI D Subbaro on Tuesday. There was a near consensus among bankers that further substantial tightening in monetary policy stance will force them to pass on increase in cost of funding to borrowers in a significant way that could have a negative bearing on the overall credit demand.  They however did not seem averse to the idea of milder tightening of say 25 basis points over first half of FY12.

Bankers also wanted the Reserve Bank to cut either the cash reserve ratio (CRR) or the statutory liquidity ratio (SLR) that can help bring more liquidity into the system. "Bankers have made a very clear representation that CRR, SLR must come down. We requested RBI to slash the CRR as well as the SLR or at least one of these even though we admit that inflation is a big concern. We see inflation at 7% by the end of the financial year," said K Ramakrishnan, chief executive of Indian Banks Association (IBA).

The RBI has in last financial year ending March 31, 2011 hiked its key policy rates including the repo rate or the rate at which it lends to banks and reverse repo, the rate at which it allows banks to park their surplus liquidity with it eight times. However, since the liquidity has been tight in the system, the CRR was left unchanged for most part of the fiscal while SLR was temporarily cut to ease liquidity.

Nonetheless, with the liquidity situation easing and expected to ease further as government spending picks up, the central bank is unlikely to cut the CRR or SLR. If anything, the RBI might hike CRR going deep into FY12 in case liquidity turns too much positive. On the issue of tightening in policy rates as well the central bank is expected to raise repo and reverse repo rates by 50-75 bps at least during the calendar year 2011 as inflation remains at elevated levels.

Bankers also requested the RBI to give them more time for restructure loans given to microfinance institutions (MFIs). The central bank had earlier given time till March 31, 2011 to banks to restructure such loans but banks have now asked for an extension of one quarter that is likely to be granted. The restructuring of MFI loans became a major issue following the Andhra government's ordinance that restricted the business of MFIs and impacted the loan repayment capability temporarily. The central bank on the other hand raised concerns about sharp increase in banks' lending to the real estate sector that it contends can lead to an asset bubble in the economy.

Realty up 3.18%, Consumer Durables (CD) up 1.11%, Power up 0.73%, PSU up 0.56%, and Auto up 0.26% were the major gainers in the BSE sectoral space.TECk down 0.84%, IT down 0.69%, Bankex down 0.43% and Metal down 0.41% and Capital Goods (CG) down 0.11were the major losers in the BSE sectoral space.

The S&P CNX Nifty touched a high and a low of 5,944.45and 5,868.80 respectively.

The top gainers on the Nifty were Sesa Goa up 3.27%, GAIL up 2.64%, Hero Honda up 2.36%, NTPC up 1.75% and RPower up 1.68%.

The top losers on the index were Cairn down 4.45%, Wipro down 3.34%, TCS down 2.07%, SAIL down 1.99% and Bharti Airtel down 1.49%.

India's power sector has seen an addition of a record 15,795 megawatt of generation capacity in the financial year 2010-11, the highest in any one year so far. The country though still continues to face significant shortage in supply-demand of power bridging the same and would require further pick up in pace of capacity addition.

Union Power Minister Sushil Kumar Shinde said on Tuesday that while 12,160 MW of the capacity added in FY11 had already been commissioned, the remainder would start producing power in the next two to six weeks. Expressing satisfaction over performance in terms of capacity addition he added that capacity will have to be added at a faster pace in future. In the fiscal 2009-10, only 9,585 MW of capacity was added.

In the current financial year, the power ministry plans to add more than 28,000 MW of electricity generation capacity. "Over 28,000 MW of power projects are under construction and would be commissioned by March, 2012," Shinde said, adding that the capacity addition would be from all sources of energy - coal, hydro, gas, etc. The highest contribution of 75% would come from coal fired projects while hydro and gas based projects would together contribute the remaining 25%.

In the ongoing Five Year Plan ending March 2012, the power ministry has so far been able to add 34,462 MW. The target for the capacity addition during the Plan was initially set at 78,000 MW but was later lowered by the Planning Commission to 62,000 MW in view of slow speed of commissioning of projects. However, even to achieve the downwardly revised target, the country will need to add at least 28,000 MW in 2011-12, nearly double the record capacity addition seen in last fiscal.

India faces a demand-supply gap of close to 14% in power and has repeatedly missed power generation capacity addition targets in various five year plans. While the pace has improved somewhat with the private sector participation in recent years, coal linkage has now emerged as one of the most crucial reason for delays in implementation of power projects. Another issue causing delay is lesser supply of capital equipment for power plants. The power ministry will have to solve the problems on a priority basis if it hopes to reach anywhere close to the 28,000 MW capacity additions it is talking about.

European markets were trading in green on Wednesday. France's CAC 40 gained 0.21%, Germany's DAX was up by 0.71% and Britain's FTSE 100 increased by 0.56%.

Most of the Asian equity indices finished the day's trade in the positive terrain on Wednesday, led by Chinese Shanghai Composite, which surged more than one percent in the trade today and breached its crucial 3,000 point mark as investors shrugged off fourth interest rate hike since October. The People's Bank of China on Tuesday raised interest rates by 25 basis points. However Japanese Nikkei edged lower on Wednesday on increasing worries over mounting production losses for quake-hit manufacturers and Seoul shares too declined in today's trade, led by falls in technology and banking stocks, which include Samsung Electronics Company.