BULLS CAPITULATE

Indian equity indices have once again taken a turn for the worse as investors at large resorted to hefty profit booking after witnessing a four hundred points rally on the Dalal Street in two previous trading sessions. Foreign institutional investors (FII) are relentlessly attempting to plough back their hot money from the underperforming emerging markets because of the acceleration seen in the developed western economies like US and also on expectations that the Reserve Bank of India will be continuing with interest rate tightening cycle going forward. Mounting uncertainties over the lingering civil upheaval in Egypt too has pummeled local sentiments on the last trading day of the week. The market leads from the global stock markets remained sanguine but to no avail as bulls capitulated to the beers that were not relenting a bit. The NSE's 50-share broadly followed index, Nifty got pulverized a day after staging a smart recovery and closed near the low point of the day below the 5,400 support level while the Bombay Stock Exchange's Sensitive Index Sensex managed to hold on to the 18,000 level after collapsing around four hundred fifty points. The broader markets too got crushed in Friday's trade but managed to outperform their larger peers with BSE's midcap plummeting 1.37% and BSE's smallcap plunging 1.57%. All sectoral indices remained on sellers' radar today with the rate sensitive, Real Estate leading the way down after drifting 3.37% as realty majors like DB Realty and Unitech sulking 10.04% and 7.11% respectively. The FMCG pack too saw ruthless profit booking on the BSE as it shaved off 3.08% on account of the ongoing political turmoil in Egypt, which forced many Indian consumer companies to suspend their operations on a temporary basis, giving rise to fears that earnings might be affected in case of a protracted crisis. Stocks of FMCG majors like Marico, ITC and United Spirits nosedived over four percent points. On the other hand fertilizer stocks witnessed huge buying interests on reports that the Committee of Secretaries (CoS) is scheduled to meet on February 7 to assess the Urea decontrolling mechanism and some announcement in this connection might be made even before the General Budget to be released on February 28.

On the global front, cues remained optimistic as all Asian markets barring the Japanese and Indonesian benchmarks remained closed today on account of Lunar New Year Day holiday. The Japanese Nikkei settled around two-week high levels as sentiments there got a fillip after Nippon Steel and Sumitomo Metal Industries agreed to merge in a deal that would create the world's No-2 steel producer. While, markets in Europe are trading on a positive but cautious note. On the other hand, the screen trading for US index futures indicated that the Dow could open on a flat note.

Earlier on the Dalal Street, the benchmarks began on a cautious note despite positive cues from the overnight US markets which remained optimistic as the benchmarks there surged in late hours after getting good jobs data while the Fed's chairman Ben Bernanke statement that the central bank will stick to its efforts to spur the economy stoked sentiments there. However the indices managed to break into the green for a brief period in the mid-morning session but that turned out to be a sucker's rally as the bourses drifted back in to the red. The frontline indices failed to show any kind of resilience thereafter and treaded on a southbound journey. The markets saw position squaring for most part of the day and eventually finished the day's trade around the day's low with extensive losses. Volumes for markets remained significantly higher compared to Thursday at around Rs 1.63 lakh crore while the turnover for NSE F&O segment too stayed at elevated levels at over Rs 1.44 lakh crore. The market breadth on the BSE was dreadfully negative as there were 873 shares on the gaining side against 2003 shares on the losing side while 106 shares remained unchanged.

On Charts: The S&P CNX Nifty closed below 5,402 levels which is a crucial support level for the index. Going forward the next important support for the Nifty will be around 5348 level while resistance will be 5585 and 5625 levels.

Finally, the BSE Sensex plunked 441.16 points or 2.39% to settle at 18,008.15 while the S&P CNX Nifty plummeted 131 points or 2.37% to end at 5395.75.

The BSE Sensex touched a high and a low of 18,542.20 and 17,926.98, respectively.

M&M down 5.31%, ITC down 4.23%, Reliance Infra down 3.76%, Tata Power down 3.63% and Hindalco Inds down 3.58% were the major laggards on the Sensex, while Baja Auto up 1.27% was the only gainer on the index.

The BSE Mid-cap and Small-cap indices plunged 1.37% and 1.57%, respectively.

Meanwhile, India's Commerce and Industry Minister Anand Sharma has said that the government wants to promote the foreign direct investment (FDI) into the country and was willing to address various concerns being raised by foreign investors. Referring to substantial delays in steel major Posco's $12 billion project in Orissa, he said government was working to bring time taken for various clearances down.

Sharma, who was leading a business delegation of the industry body Ficci to Italy, welcomed the fact that environment and forest ministry had given the go-ahead to Posco to set up a 12 million metric tonne per annum steel plant in Orissa. The project has been stalled since 2005 over various environmental issues. Sharma said that while the time taken for clearances was regrettable, government was working on streamlining procedures.  

Assuring foreign investors full support of his ministry, Sharma said India has a stable and investor-friendly policy regime and needs more direct investment and the government will address any and all concerns raised by investors. 'I reassure the investors that India will have a robust policy regime, stability of policy and no reversibility and a friendly FDI policy,' he said.

Sharma has been critical of the delays in environment ministry and has been urging for more transparency in order to speed up decisions. The government is now likely to constitute a group of ministers to redraw the guidelines for giving environment clearances. Although the final clearances will still be in hands of environmental ministry, these guidelines will address a lot of concerns raised by commerce, coal and steel ministry in context of long and complicated procedures required for green nodes.

The commerce ministry is also looking to promote further liberalization of the FDI regime in India. The department of industrial policy and promotion (DIPP), which works under the commerce ministry, had earlier came up with a series of discussion papers on allowing or hiking ceilings in case of FDI is already allowed in a number of sectors including the multi-brand retail, defense and insurance etc.

All the BSE sectoral spaces were trading in the red with deep cuts. Realty down 3.37%, Fast Moving Consumer Goods (FMCG) down 3.08%, TECk down 2.28%, Information Technology (IT) down 2.26% and Bankex down 2.23% were the major losers.

The S&P CNX Nifty touched a high and a low of 5556.30 and 5369.05, respectively.

The top losers on the Nifty were Sun Pharma down 5.79%, Kotak Bank down 4.97%, Ambuja Cement down 4.51%, M&M down 4.34% and Hindalco Inds down 4.19%, while Baja Auto up 1.27% was the only gainer on the index.

India's Prime Minister Dr Manmohan Singh said on Friday the high inflation being faced by the country presently, particularly in the food commodities space, has posed a serious threat to the growth momentum. There seem few easy solutions as inflation is being driven by supply-side bottlenecks that are hard to be corrected in short term, he accepted.

Food inflation in India has been volatile over recent months but has continued to remain over the 10% mark for most of the time. It did go down in the month of November, as was expected following a bumper Kharif crop, but surged again in December and has continued to remain above the 15% level in the month of January as well.

Further, the problem of surging food prices is not restricted to India only and even at global level the food prices are running at record levels. World food prices have hit their highest level on record in January, said the United Nations on Thursday. Food and Agriculture Organization's (FAO) Food Price Index rose for the seventh month in a row to reach 231, topping the peak of 224.1 last seen in June 2008. This is the highest level the index has reached since records began in 1990.

The new figures clearly show that the upward pressure on world food prices worldwide is not abating. These high prices are likely to persist in the months to come and have become the biggest policy challenge for countries in the developing world, right from India and China to Egypt and Tunisia. In response, some countries are increasing food imports and have built stockpiles to meet their domestic needs. However, with surging global prices even imports are not a solution any more.

The Indian government had earlier stated that it will cut import duties and strengthen export duties to ensure greater supply of food items domestically. However, the way the global prices are surging, even cutting import duties will not be of much help. The only solution in this wake is increasing domestic productivity and curbing the rising gap between retail and farm gate prices. This, however, is a task that is difficult to be accomplished in short run and the government therefore can only hope that the strong expected Rabi crop will help bring down food prices.

Japanese Nikkei surged more than one percent and hit two-week high on last trading day of the week, bolstered by steel sector as Nippon Steel and Sumitomo Metal Industries agreed to merge in a deal that would create the world's No-2 steel producer. Moreover better-than-expected results as well as encouraging US chain-store sales data also boosted sentiment in the region. Stock markets in the China, Hong Kong, South Korea, Malaysia and Singapore remained closed today on account of Lunar New Year Day holiday.

Nikkei 225 surged 112.16 points or 1.08% to 10,543.52 and Jakarta Composite jumped 15.34 points or 0.44% to 3,496.17.

European markets were trading in the green on Friday. France's CAC 40 gained 0.45%, Germany's DAX jumped 0.29% and Britain's FTSE 100 advanced 0.52%.