BATTERED AGAIN

Indian markets have bucked an extremely fragile and discouraging global setup and settled the day with moderate losses given the fact that major Asian stock markets including China and Japan got butchered around two percentage points. Oil prices seemed to control the market movement in today's trade as with every spike in the global prices of crude following escalating civil upheaval in Libya and Bahrain, the nervousness among traders translated into position squaring. Indian crude oil basket has spurted beyond the psychological $100 per barrel level as protests in Libya, one of the 10 richest oil producing countries, escalated while supply side pressures threatened to become more acute. Thanks to the Reliance Industries and BP deal which buttressed the index heavyweight by around 3% and thereby capping the downside risks for the benchmark index. Meanwhile, as the budget session got underway on Monday, the Prime Minister in Lok Sabha gave a formal go ahead to the JPC formation to investigate into the burgeoning 2G spectrum scam, and announced that the government is committed to weed out corruption. The NSE's 50-share broadly followed index, Nifty plunged around a percent to settle above the crucial 5,450 level while the Bombay Stock Exchange's Sensitive Index, or Sensex plummeted over three fourth of a percent to end a tad below the psychological 18,300 mark. The broader markets on the other hand continued their downtrend and declined in tandem with the larger peers.  The BSE's midcap index shaved off 0.85% and smallcap index shed 0.73% in Tuesday's session. The Oil and Gas counter kept buzzing through the day as it surged 1.26% after RIL and Cairn India soared 2.98% and 3.29% respectively, ironically all other shares in the index went home with large cuts. The consumer durables pack too remained amid the thick of the things after majors like Titan Industries and Gitanjali Gems amassed 3.02% and 3.65% respectively. However the capital goods pack remained under tremendous selling pressure and got pounded by 2.12% as bellwether stocks like L&T and BHEL remained under seller's radar and drifted 2.65% and 1.71% respectively. Auto pocket too failed to show strength after yesterday's fall as it once again retreated 1.93% in today's session after shares of Tata Motors and Hero Honda plunged 2.12% and 3.36% respectively. Furthermore, Ranbaxy got vitiated by 4.12%, after posting numbers way below street expectations for the fourth quarter of 2010 as it registered net losses of Rs 98 crore against a net profit Rs 262 crore in Q4 2009.

On the global front, Asian benchmarks got butchered in today's session, pounded by continued political tensions in the Middle East which triggered profit booking in overbought stocks from cautious investors. Chinese benchmarks, Shanghai Composite bear the maximum brunt in the space as it went home with over two and half a percent cut. The European counterparts too could not stand the global weakness and succumbed to the brutal, selling pressure with the CAC 40 witnessing the maximum damage of around one and half a percent. On the other hand, the screen trading for US index futures too indicated that the Dow could open with a cut of around a percent.

Earlier on the Dalal Street, the benchmark began the day on a somber note as negative news flows from the Arab world spooked sentiments not only locally but throughout the Asia as well. The bourses had to deal with geopolitical risks throughout the day protests in Libya against the country's leader of 41 years, Muammar Gaddafi intensified, with several casualties being reported in the strife-stricken nation. The index gyrated below the neutral line in a narrow band through the first half in the absence of any optimistic market triggers. But the second half saw the frontline indices being dragged to lower than comfortable levels as investors squared of positions in auto shares on speculations of a hike in excise duty in the Budget 2011 which is scheduled to be announced three working days later. The indices eventually went home with around a percent cut on significantly large volumes of over Rs 2.05 lakh crore while the turnover for NSE F&O segment too remained at elevated levels at over Rs 1.89 lakh crore on Tuesday. The market breadth on the BSE was abysmal as there were 1125 shares on the gaining side against 1713 shares on the losing side while 101 shares remained unchanged.

Finally, the BSE Sensex declined 142.15 points or 0.77% to settle at 18,296.16 while the S&P CNX Nifty dropped 49.40 points or 0.90% to end at 5469.20.

The BSE Sensex touched a high and a low of 18,457.90 and 18,187.33, respectively.

Hero Honda down 3.36%, L&T down 2.65%, HDFC Bank down 2.59%, Jindal Steel down 2.48% and JP Associates down 2.39% were the major laggards on the Sensex.

On the flip side, RIL up 2.98%, RCom up 1.49%, Sterlite Inds up 1.42%, Reliance Infra down 0.10% and TCS down 0.04% were the only gainers on the index.

The BSE Mid-cap and Small-cap indices dipped 0.85% and 0.73%, respectively.

Meanwhile, India should work towards bringing down the current account deficit (CAD) to around 2% of the gross domestic product (GDP) from around 3% expected for the current fiscal, said the Prime Minister's Economic Advisory Council (PMEAC) has in its latest review of Indian economy.

The Council however believes that at the moment the CAD was not a major issue facing the economy and India had enough foreign exchange reserves to tackle any unforeseen situation. While the CAD is forecasted to be 3% of GDP in 2010-11, it is expected that the deficit will continue to remain elevated at around 2.8% of GDP in 2011-12. The panel however added that the higher levels of CAD for the current and next year must be viewed as a transitional situation.

It recommended that efforts must be maintained to bring down the CAD to a more manageable level of between 2.0 - 2.5% of GDP. This is desirable to impart much needed stability on the external payments front and to reduce the risk the domestic economy runs from volatility in international financial markets. However, in order to do this it is necessary, on one hand, to make our exports more competitive and on the other, to moderate the dependence of the Indian economy on imported fuels to the extent that is possible, said the Council.

It has also raised some concerns on decline in foreign direct investment (FDI) seen in the last one year. According to a recent report prepared by the United Nations Conference on Trade and Development (UNCTAD), FDI inflows into India amounted to just $23.7 billion in 2010, as against $34.6 billion in 2009. This was despite the fact that in the last calendar year, emerging market economies attracted more foreign investment than developed countries for the first time in history as the global economic engine shifts to the EMEs. This clearly indicates that not everything was fine with the policy regime.

The PMEAC in this wake urged the government to look into and correct underlying issues. "While capital inflows have been adequate in the current year to finance the elevated CAD and it is expected this will be so true in the next year also, adequate attention must be paid to take the necessary steps so that the Indian economy is seen to be an attractive destination for foreign investors. This is a task with many facets. The decline in FDI in the current year is a matter of concern and it is important for policy makers to examine what concerns there may be amongst foreign investors, which has resulted in this outcome and take considered and appropriate steps," said the PMEAC.

In BSE sectoral space Capital Goods (CG) down 2.12%, Auto down 1.93%, Bankex down 1.85%, Public Sector Undertakings (PSU) down 1.24% and Metal down 1.16% were the major losers; while Oil & Gas Up 1.26% and Consumer Durables (CD) up 1.21% were the only gainers on the BSE sectoral space.

After years of negligence, the Indian government is likely to give a major boost to the semi conductor industry in the forthcoming Union Budget for FY12. Various experts have been urging the government to take steps in direction given the increasing dependence of the country on imported chips, even in basic equipments.

Analysts have been projecting that the demand for the electronics hardware will rise from $45 billion in 2009 to $400 billion by 2020. What it means is that by 2020, India would be spending more on electronic imports than on oil imports if the domestic production level is not drastically increased from the current levels, which even lag behind small countries like Taiwan. It has been clear for quite some time that the Indian semiconductor space will need some significant break to take it to a level where it can become global competitive.

The new incentive scheme that the government is expected to announce in Budget is an attempt to improve on the package that was introduced under its semiconductor policy - 2007, which has very much failed in its broader objectives of boosting semiconductor industry in India. In 2007, the government had offered 20-25% subsidies to large investments of Rs 1,000 crore to Rs 2,500 crore in semiconductor fab units and eco-system units. However, the policy mainly attracted investments by solar photovoltaic segment only.

Industry insiders have been saying that the government should minimize the threshold for manufacturing units to ensure that any benefits of such policy reach to the young technocrat entrepreneurs.  Since it is not practical for small companies to invest huge sums exceeding Rs 1,000 crore, the government will have to revisit the threshold to follow a bottom up approach, as has been the case with the software industry.

In fact the government had asked for recommendations of the industry and the new policy is being formulated accordingly. It is understood that the new incentive scheme would no longer be totally focused on large projects, rather, it would try to give some sops to the entire value chain of electronic systems, including chips, chip components, accessories, assembly, testing etc. If all these segments are brought under the incentive net, it will surely generate positive currents in the industry.

The S&P CNX Nifty touched a high and a low of 5519.45 and 5437.30, respectively.

The top gainers of the Nifty were RIL up 3.13%, Cairn India up 3.04%, RCom up 1.60%, Dr Reddy's up 1.15% and Sterlite Inds up 1.05%.

The top losers of the index were Ranbaxy down 4.12%, Suzlon down 3.59%, Axis Bank down 3.49%, Hero Honda down 3.47% and BPCL down 3.15%.

European markets were trading in the red on Tuesday. France's CAC 40 lost 1.55%, Germany's DAX shed 0.50% and Britain's FTSE 100 slid 1.22%.

Asian markets ended lower for the second successive session on Tuesday, weighed by continued political tensions in the Middle East which triggered profit booking in overbought stocks from cautious investors. The worsening political crisis in Libya, with mounting violence against pro-democracy protesters, with Libyan security forces reportedly firing on demonstrators from war planes and helicopters made the investor's cautious.

Further Japan's Nikkei average tumbled on Tuesday, slipping from 9-1/2-month highs for its first decline in last seven days as investors pocketed profits after its longest winning streak in over a year, triggered by turmoil in the Middle East that could have a medium-term effect on Japanese stocks.