BOUNCE BACK

Stock markets in India showed a remarkable bounce back after drifting into the negative territory for a brief period as the benchmark equity indices fervently rallied around one and half a percent. With the sharp rise, the key equity indices halted the two session declining streak and recovered some part of the losses they suffered in last two sessions. Sentiments got buttressed in the session amid speculations that Reserve Bank of India might have taken certain measures to rein the depreciating run of the beleaguered Indian currency which recovered from the day's lows it hit earlier in the session. Besides, the government's decision to hike prices of petrol overnight by as high as Rs 7.50 per litre instilled some hopes among market participants that the government would now take certain bold steps to lift sentiments in the markets. Stocks from the Oil & Gas pocket rallied vehemently in the session with the upstream ONGC shooting over four percent amid expectations that government may soon hike diesel prices as well. Other downstream oil marketing PSUs too showed strength as they gained on the back of overnight decline in international crude oil prices to the lowest levels in last seven months. Meanwhile, investors were also seen piling up positions in the rate sensitive Bankex index which soared by about two percent led by HDFC bank shares which zoomed over three percent. However, the markets witnessed some resistance around the psychological 16,200 (Sensex) and 4,900 (Nifty) levels in early afternoon trades. The markets soon came of the highs of the day after the mixed European market opening. While markets in London and Germany surged over a percent in early trades, the benchmark in France sank lower as reports showed that manufacturing PMI in Euro-zone's second largest economy fell to the lowest levels not seen in last three years. Back home, though there were no major laggards in BSE's sectoral space, however some individual names like Maruti Suzuki, HUL and Sun Pharma languished in the negative terrain.

Moreover, the broader markets too came off from lows of the day and traded with moderate gains of around half a percent, relatively underperforming their larger peers. The bourses surged on large volumes of over Rs 0.7 lakh crore while the market breadth on BSE was in favor of advances in the ratio of 1317:897 while 123 scrips remained unchanged.

The BSE Sensex is currently trading at 16,177.83 up by 229.73 points or 1.44% after trading as high as 16,184.16 and as low as 15,934.77. There were 27 stocks advancing against 3 declines on the index.

The broader indices were trading on a positive note; the BSE Mid cap index gained 0.56% and Small cap index rose 0.59%.

On the BSE sectoral space, Oil & Gas up 2.13%, Bankex up 1.96%, Metal up 1.49%, PSU up 1.34%, TECk up 1.07% were the major gainers, while there were no laggards in the space.

ONGC up 4.28%, HDFC up 3.51%, Hindalco up 3.12%, HDFC Bank up 3.05% and Jindal Steel up 2.65% were the major gainers on the Sensex, while Maruti down 1.22%, HUL down 0.26% and Sun Pharma down 0.24% were the major losers in the index.

Meanwhile, petrol prices have been raised by a whopping Rs 7.54 litre with effect from May 24, taking the prices of petrol to Rs 73.14 a litre in the national capital. Following the hike, a litre of petrol will now cost Rs 78.16 in Mumbai, Rs 77.53 in Kolkata and Rs 77.05 in Chennai. This is the first hike in the last six months and has been necessitated due to the increase in prices of global crude oil. Nonetheless it is the steepest price hike in petrol price ever.

As was expected, the hike in prices has seen sharp reactions from the common people and from other political parties. However, the markets have reacted positively to the increase and the rupee is also expected to appreciate. Most analysts are now expecting that this hike will be followed by an increase in the prices of diesel, LPG and kerosene as well.

Justifying the government's move the Oil Minister, S Jaipal Reddy stated that the depreciation in rupee had necessitated the increase in fuel prices. This was because when the rupee falls by one against the dollar, oil companies suffer losses to the tune of Rs 8,000 crore annually. The rupee has seen a substantial fall in the last fortnight and has touched an all time low of Rs 55 against the dollar. Last year the rupee was around Rs 46 to a dollar. This has translated in to a loss of Rs 72,000 crore, this year for oil company's just on account of rupee depreciation.

The losses on petrol are over and above Rs 512 crore per day that oil firms lose on selling diesel, domestic LPG and kerosene. Diesel is currently sold at a loss of Rs 15.35 a litre, kerosene at Rs 32.98 per litre loss and oil firms lose Rs 479 on sale of every 14.2-kg domestic LPG cylinder.

The price of petrol has been deregulated but continues to be under government supervision. Even though global prices had shot up, the government had kept the oil companies from raising prices because of political considerations. Since the three oil PSUs were suffering heavy losses they had threatened the government that they would go ahead and increase the prices of petrol if they were not compensated for the loss. As a result the government has announced subsidies to the tune of Rs 38,500 crore for the last fiscal of FY12.

The price is expected to have an inflationary impact on the economy and the Planning Commission is of the view that the impact will be a onetime price adjustment and will not have a cascading effect. The retail inflation (Consumer Price Index) for April was 10.36%, up from 9.38% in February. The inflation based on movement in wholesale prices (WPI) moved up to 7.23% in April from 6.89% in March.

The S&P CNX Nifty is currently trading at 4,906.20, up by 70.55 points or 1.46% after trading as high as 4,906.70 and as low as 4,830.15. There were 44 stocks advancing against 6 declines on the index.

The top gainers on the Nifty were ONGC up 4.13%, HDFC up 3.38%, Hindalco up 3.16%, Bank of Baroda up 3.04% and HDFC Bank up 2.94%.

Maruti down 1.05%, JP Associates down 0.91%, HUL down 0.59%, Cairn down 0.28% and Tata Power down 0.17% were the major losers on the index.

In the Asian space, Shanghai Composite declined 0.54%, Jakarta Composite eased 0.08% and Taiwan Weighted dropped 0.32%.

On the other hand, Hang Seng rose 0.23%, KLSE Composite advanced 0.37%, Nikkei 225 inched up 0.08%, Straits Times gained 0.18% and KOSPI Composite added 0.32%.

The European markets got off to a mixed start as France's CAC 40 fell 0.64%, Germany's DAX climbed 1% and United Kingdom's FTSE surged 0.91%.