BEAR GRIP

It was another dooms day for the major equity indices in India which once again lost over a percentage point in a day's trade. After getting clobbered on the expiry day of January F&O series, the bourses once again failed to gain any kind of solace as intense selling pressure was seen across the board. A bulk of stocks, right from the heavyweights to the relatively smaller peers, witnessed the bloodbath in the absence of any local or global triggers that could lift sentiments. The NSE's 50-share broadly followed index, Nifty took a yawning plunge and tested the crucial 5,500 support level while the Bombay Stock Exchange's Sensitive Index Sensex took a close to 300 points slash for second straight day to settle around the psychological 18,400 mark. The carnage also continued in broader markets which bear the maximum brunt and the BSE's midcap and smallcap indices plummeted 2.66% and 3.59% respectively. The high beta, Real Estate stocks once again languished at the bottom of the BSE sectoral list after tumbling around five percent, shaving off around eight and a half percent in last two trading sessions. Realty majors like HDIL and DLF remained the biggest laggards in the space after drifting 10.06% and 7.02% in a single day. The consumer durable counter too witnessed huge profit booking as it shaved off 3.91% with the likes of Blue Star and Whirlpool sliding deeper into the red with 11.61% and 5.73% losses respectively. Meanwhile, HDFC Bank went home with 0.08% gains after posting an increase of 33% in its net profit for the quarter ended December 31, 2010. ONGC surged 1.89% being the top gainer among heavyweights on discovering natural gas reserves in its maiden well, drilled to tap shale gas in West Bengal. While there was no sectoral index that closed in the green zone, there were only a handful of stocks which figured in the gainers list of Sensex including FMCG majors HUL and ITC.

On the global front, cues from the Asian markets largely remained negative with the Japanese stocks being the leading laggards as they plunged over a percent after Standard & Poor's, leading credit ratings agency downgraded the Japan's long-term sovereign debt rating citing concerns over its massive debt levels. While the European counterparts too traded on a pessimistic note and the FTSE 100 shed over half a percent, being the biggest loser in the space. The screen trading for US index futures indicates that the Dow could get a flat to negative start at the opening.

Earlier on the Dalal Street, the benchmark slipped below the neutral line immediately after making a soft start in the early trade tracking the somber Asian counterparts which got dragged as sentiments went awry amid renewed apprehensions over the global economic recovery prospects. The frontline indices continued its southbound journey as ruthless position squaring remained the flavor of the day. The benchmarks eventually finished the first day of new F&O series with huge cuts, just above the crucial support levels as some short covering in the dying hours of trade pulled up the markets a bit. The indices have fallen like a house of cards in the last two sessions of trade and that too on high volumes. The turnover for markets continued to stay at elevated levels on the very first day of a new F&O series. The volumes on the last trading day of the week was at around Rs 1.41 lakh crore while the volumes for NSE F&O segment too remained high at over Rs 1.22 lakh crore. The market breadth on the BSE was awfully bad as there were a meager 506 shares on the gaining side against 2386 shares on the losing side while 117 shares remained unchanged.

On charts: S&P CNX Nifty has taken support around 5550 mark, if it breaks this level next support will be around 5,402 and 5,365 levels while it may face resistance round 5623 and 5685. Meanwhile, Nifty's downtrend may continue further till it holds above 5,623 mark.

Finally, the BSE Sensex plummeted 288.46 points or 1.54% to settle at 18,395.97 while the S&P CNX Nifty tumbled 92.15 points or 1.64% to end at 5512.15.

The BSE Sensex touched a high and a low of 18,723.12 and 18,235.45, respectively.

The top gainers on the Sensex were ONGC up 1.89%, Rel Infra up 1.13%, HUL up 0.54%, Bharti Airtel up 0.45% and HDFC Bank up 0.30%.

DLF down 7.02%, M&M down 4.93%, Hindalco Inds down 4.27%, Tata Motors down 4.07% and BHEL down 3.91%, were the top losers on the index.

The BSE Mid-cap and Small-cap indices fell 2.66% and 3.59%, respectively.

Meanwhile, the Reserve Bank of India (RBI) cleared on Thursday that it has no current plans to take new steps in order to ease the tight cash conditions prevailing in the Indian banking system and it expects that various factors which have been contributing to the shortfall in liquidity in the system will begin to ease in coming months.

At the post policy review conference with analysts, in response to a question on how the central bank was planning to tackle the liquidity crunch, the Governor of RBI D Subbarao said that there would be no further buying of bonds to ease the liquidity, neither any steps like cut in cash reserve ratio or further lowering the statutory liquidity ratio (SLR) were required to manage the issue. 

Subbarao reiterated that it wanted to see the liquidity adjustment facility (LAF) window in the deficit mode for some more months to come, so the liquidity deficit in that context was consistent with its anti-inflationary stance. 'But, we certainly want it to be in a less deficit than it is now because deficit right now is around 2% of net demand and time liabilities and we think that the more appropriate level would be 1% and that is where we would like it to be," he accepted.

However, a number of factors were together responsible for tight liquidity in the Indian banking system, said Subbarao , adding that the government's spending to be raised or cash balances to be carried forward in the next federal budget will partly address the shortage. He also urged banks to boost deposits or curb lending to reduce mismatches caused by difference in credit and deposit growth rates. 'The frictional and the structural components of the liquidity situation must unwind in the months ahead,' he added.

All the sectoral indices were in the red in the BSE sectoral space. Realty down 4.96%, Consumer Durables (CD) down 3.91%, Auto down 3.56%, Capital Goods (CG) down 3.06% and Power down 2.47%, were the top losers in the BSE sectoral space.

The S&P CNX Nifty touched a high and a low of 5614.40 and 5459.55, respectively.

The top gainers on the Nifty were ONGC up 2.53%, Rel Infra up 1.69%, ICICI Bank up 1.03%, HUL up 0.85% and SAIL up 0.60%.

The top losers on the index were DLF down 6.91%, M&M down 4.85%, Hero Honda down 4.47%, Reliance Capital down 4.28% and ACC down 4.24%.

The Indian government is looking to introduce a new emission trading mechanism to deal with pollution. This first domestic emissions trading scheme will be launched in the states of Tamil Nadu and Gujarat from 1 February. Once a wider database is available, the government will extend the program to rest of the country.

Under this system, the companies consuming less energy will be able to sell the efficiency certificates to the non-efficient ones, domestically. The domestic energy efficiency trading system, named Perform, Achieve and Trade (PAT), is similar in approach to the international Clean Development Mechanism of the United Nations and is also expected to boost the credibility of India's domestic environmental practices.

Further, the Ministry of Environment and Forest will soon launch a more elaborate Emission Trading Scheme (ETS). The fundamentals will be same in sense there will a cap on overall emission and companies failing to achieve the cap will have to buy credits from companies which emit less pollution than the allowed cap. This however will be wider in nature and scope and will be implemented on a national basis.

Under the currently prevailing system, state pollution control boards determine the degree of allowable pollution for various industries. But in the new system, while there will be a regulator determined cap on peak emissions, over time this cap will be determined in a market-based system, where a price will be set on emissions. This will bring the much needed dynamism in protecting environment while at the same time ensuring greater flexibility for businesses.

The government has been looking to improve environmental practices in the country to meet its commitments given at the Copenhagen Summit in 2008 to cut its carbon emission intensity by 20-25% by 2020 from a base of 2005. This means that the emission of green house gases will have to be cut by 25% for every unit of GDP produced over the next 10 years. To achieve the objective, it is mandatory to have an incentive based emission reducing system rather than the command-control structure involving penalties by state pollution boards prevailing currently.

European markets were trading mixed on Friday. France's CAC 40 lost 0.06% and Britain's FTSE 100 slipped 0.09%, while Germany's DAX gained 0.77%.

Asian equity indices finished mostly in the negative terrain on the last trading day of the week. Japanese Nikkei lost more than one percent after Standard & Poor's (S&P), a leading credit ratings agency downgraded the nation's sovereign-debt rating. The sentiments in the region were also weighed down by weak earnings reports from some big companies such as Canon Inc. and Kia Motors Corp. Moreover, Hong Kong shares closed with a cut of over half a percent amid lingering concerns over a possible rate hike by China.