MARKETS BECOME CAUTIOUS

The early enthusiasm witnessed at Dalal Street seems to have fizzled out a tad as select group of trader's turning cautious, pocketed gains ahead of the release of January's month Index of industrial production (IIP) data. Indian equity markets tracing global cheer had spurted in the morning. However, even the Friday's surprise CRR cut by 75 basis points, was a factor that played a part of the early glory.

Gush of gains on the 30 share barometer index on BSE-Sensex-were mainly accountable to the spurt of Capital Goods stocks, which gathered momentum on the expectation of positive growth in production of capital goods for the month of January. Worryingly, the production of capital goods, an indicator of investment in the economy, shrank for the fourth straight month in December, contracting 16.5 per cent from a year earlier while mining fell 3.7 per cent in the same period. However, even the gains of Consumer Durable and rate sensitive like Realty and Bankex counters helped sustain in the rally. But, stocks from Information Technology space emerged to be a mood dampener as the index pivotal was down with a cut of over 0.25%.

The matured reaction of Wall Street on Friday was also one of the reasons for the optimistic start of bourses on Dalal Street along with Asian pacific market. U.S. stocks advanced on Friday as investors brushed off the technical default by Greece and focused instead on another strong monthly jobs report, such as that of good jobs data.

However, the dwindling optimism of Indian equity benchmarks could also be blamed to regional counterparts, which edged lower after China's trade figures underlined a slowdown in the world's No. 2 economy. Lackluster trade figures from China, suggesting that demand for Chinese goods was being hit by Europe's debt crisis, were felt on stock markets in Tokyo, Hong Kong, Shanghai and elsewhere. On Saturday, China reported its biggest monthly trade deficit in at least a decade in February as imports rebounded after a Lunar New Year holiday slowdown in January. But the combined figures for both months showed growth in imports and exports decelerating markedly.

Back on the home turf, Indian industrial output (IIP growth rate) rose by a much faster-than-expected 6.8 percent in January compared with a year earlier. The street on an average had expected a rise of 2.1 percent. The January figure compares with December's provisional increase of 1.8 percent.

Barometer index of BSE-Sensex- after cooling off from intra-day's high, was flirting with the 17600 psychological level, with a profit of 100 points. Similarly, the barometer index of NSE-Nifty- was seen oscillating above the 5350 crucial mark, with a gain of over 25 points. The broader indices, however, were outperforming the frontline indices as they were up with gains of over 0.75% each. The overall market breadth on BSE was in the favour of advances which piped declines in the ratio of 1357:643, while 75 shares remained unchanged.

The BSE Sensex is currently trading at 17,597.50, up by 94.26 points or 0.54%. The index has touched a high and a low of 17772.10 and 17,569.46 respectively.  There were 21 stocks advancing against 9 declines on the index.

The broader indices were outperforming frontline indices; the BSE Mid cap and Small cap indices spurted by 0.98% and 0.91% respectively.

The top gaining sectoral indices on the BSE were, CG up by 1.88%, CD up by 1.77%, Realty up by 1.38%, Bankex up by 1.27% and PSU up by 0.85%. While, Information Technology down by 0.30% remained the lone loser on the index.

The top gainers on the Sensex were SBI up by 3.32%, L&T up by 2.67%, ICICI Bank up by 1.74%, Wipro up by 1.65% and Bajaj Auto up by 1.21%.

On the flip side, Cipla down by 1.72%, TCS down by 1.19%, NTPC down by 0.75%, Maruti Suzuki down by 0.74% and ONGC down by 0.55% remained the top losers on the Sensex.

Meanwhile, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) is not in favour of the proposed hike in excise duty and service tax. In fact it wants the taxes to remain at the current level so that they incentivize growth. Also it is suggested that the central sales tax should be brought down from the current 2% to 1%. In a pre- budget expectations survey conducted by the industry body, about half of the 1,000 CEOs who participated are of the view that the government should focus more on extending the service tax net to other items for increased revenue generation. Also selective increase in customs duty on import of items other than input materials and capital goods, besides, stake sale in PSUs is another feasible option to bridge the fiscal deficit.

It has been estimated that the reduction in CST will push the country's economic growth by 1.4% to 1.6% and might add Rs.1.50-lakh crore annually to the government's kitty. The government has also been urged to restore the CENVAT (Central Value Added Tax) credit of input taxes paid on setting up new manufacturing units, service establishments, on materials and services used in civil construction for installing machinery with a view to encourage fresh investments.

They have also stressed that the government should provide tax sops to sectors with a high employment generation potential like civil construction, IT, ports, roads, telecom and textiles. Natural gas, a significant input in industries like fertilizer, power, must also be included in the list of 'Goods of Special Importance' under Section 14 of the Central Sales Tax Act so that it is uniformly taxed at a lower rate across all states on the lines of commodities like crude oil, coal and steel.

Apart from this the government should also do away with indirect taxes on inputs and services used in setting up infrastructure projects during investment phase to attract investment. It has also been suggested that the surcharge and education cess should be removed as this will generate more surpluses in the hands of companies with consequential impact on investments and growth. 

Personal Tax rates should also be imposed as per the proposed DTC. Exemption limit of reimbursement of medical expenses for employee and his/her family should be enhanced to Rs 50,000 per annum from the present ceiling of Rs 15,000 per annum in view of the rising cost of healthcare in India. Exemption limits in respect of house rent allowance, transport allowance, kids' education allowance and rent free accommodation should be enhanced considerably as expenses incurred in respect of above have increased significantly due to rising cost of living in light of the high rate of inflation.

Majority of respondents have advocated introducing a weighted deduction of 150% of the expenditure incurred on Corporate Social Responsibility (CSR) activities specifically covering critical areas like education, health, animal husbandry, water management, waste management, women empowerment, poverty eradication, rural development and even companies with a dedicated CSR trust or foundation.

Over 300 CEOs have demanded that the exemption limit for payment of leave encashment as notified by the Central Board of Direct Taxes (CBDT) in accordance with powers given under section 10 (10AA) of Rs three lakhs (since 1988) should be raised to Rs 10 lakhs with immediate effect. The overall limit of Rs one lakh under The Finance Act, 2006 must be increased to at least Rs 2.5 lakhs to accommodate for the expanded list, this would also act as a fillip to boost investments especially, as standard deduction has been removed.

Private sector must be encouraged to build storage infrastructure for agri-produce and imported commodities including petro products by providing fiscal incentive as this will help moderate inflation and spur economic growth. Besides, interest rates should also be moderated since the inflation has started abating.

The S&P CNX Nifty is currently trading at 5,360.75, higher by 27.20 points or 0.51%. The index has touched a high and a low of 5,421.90 and 5,351.70 respectively.  There were 35 stocks advancing against 15 declining one's on the index.

The top gainers of the Nifty were SBI up by 3.08%, L&T up by 2.69%, Reliance Power up by 2.29%, ICICI bank up by 1.73% and Wipro up by 1.67%.

On the flip side, Cipla down by 1.45%, TCS down by 1.45%, ACC down by 1.06%, NTPC down by 0.89% and Maruti Suzuki down by 0.81% remained the top losers on the index.

Most of the Asian equity indices were trading in the red; Shanghai Composite lost 0.39%, Hang Seng declined by 0.27%, Jakarta Composite slid 0.15%, KLSE Composite shed 0.68%, Seoul Composite lost 0.58% and Taiwan Weighted was down by 0.57%.

On the flip side, Nikkei 225 gained up by 0.31% and Straits Times was up by 0.08%.