CONSOLIDATION

Wednesday's trading session was clearly of consolidation as the Indian frontline equity indices appeared a bit fatigued and remained in directionless trajectory throughout the day. Nevertheless, the benchmarks managed to extend the winning momentum for the fourth consecutive day of trade as local sentiments continued to show signs of improvement. Today's session largely remained characterized by choppiness as the aimless indices moved only sideways in a tight band amid lack of triggers. Meanwhile, in an interaction with TV editors, Indian Prime Minister Manmohan Singh affirmed that government was trying to bring justice in India's largest corruption scandal. However, the markets paid no heed to the PM's interaction and continued to trade lackluster. With the earnings season almost coming to an end, the bourses are now expected to turn their focus on the Union Budget which is expected in less than a fortnight; however people at large remain apprehensive that the Budget may not be a market moving event. The NSE's 50-share broadly followed index, Nifty settled on an absolutely flat note below the crucial 5,500 level while the Bombay Stock Exchange's Sensitive Index, or Sensex gained around twenty five points to end at the psychological 18,300 mark. The broader markets succeed to outperform their larger peers as the BSE's midcap gained 0.53% and smallcap index jumped 1.01%. The high beta Realty counter on the BSE sectoral space was the biggest gainer with 2.12% gains as index heavyweight Unitech soared 9.30% which lost 28% over the past eight sessions on to the firm's alleged involvement in 2G irregularities. The Metal's pocket too soared 1.49% after witnessing hefty buying in Tata Steel as marketmen rewarded strength to the company after it posted more than two-fold rise in its third quarter earnings. The fertilizer pack too witnessed hefty position build up after government decided to increase fertilizer subsidy.

On the global front, most Asian equity indices made a positive close with the Hang Seng surging over a percent, being the top gainer in the space. The Japanese markets climbed to touch fresh nine months high levels as the wilt in yen against the dollar underpinned sentiments. The European counterparts too appear to be in a sanguine mood as they trade in the positive zone with around half a percent gains. On the other hand, the screen trading for US index futures too indicated that the Dow could open on an optimistic note.

Earlier on the Dalal Street, the indices began on a cautious note tracking sluggish cues from the Asian markets which opened on a tepid note on the back of weak leads from overnight US markets, which closed lower on worse than expected retail sales report that once again raised the concern of slow economic recovery. The frontline indices continued to see-saw around the neutral line in a very tight band through the day's trade as the bourses remained in the consolidation mode after the three day pullback rally. The 30 share benchmark index touched the high point of the day in the late hours of trade but could not manage to hold on the impetus and drifted to eventually settle with paltry gains. Volumes for markets were lower than Tuesday at over Rs 1.19 lakh crore while the turnover for NSE F&O segment too remained lower at over Rs 1.05 lakh crore on Wednesday. The market breadth on the BSE was positive as there were 1688 shares on the gaining side against 1103 shares on the losing side while 172 shares remained unchanged.

Finally, the BSE Sensex advanced 27.10 points or 0.15% to settle at 18,300.90 while the S&P CNX Nifty was flat, up by 0.70 points or 0.01% to end at 5481.70.

The BSE Sensex touched a high and a low of 18,358.84 and 18,216.12, respectively.

The top gainers on the Sensex were JP Associates up 6.67%, Tata Steel up 3.97%, Jindal Steel up 3.28%, Wipro up 3.03% and Tata Power up 1.74%.

HDFC down 2.53%, RCom down 1.72%, M&M down 1.55%, Hero Honda down 1.41% and ONGC down 1.18% were the top losers on the index.

The BSE Mid-cap and Small-cap indices gained 0.53% and 1.01%, respectively.

Meanwhile, the government has kick-started the deliberations for the much talked direct subsidy transfer mechanism. It has set up a high-level task force under Nandan Nilenkani, the UID chairman, to explore the possibility of directly transferring subsidy being provided in domestic cooking gas, kerosene and fertilizers to consumers.

At present, the biggest criticism of the subsidy policy of the government is its untargeted nature. For instance, the subsidy given in diesel is meant for public transportation and farm use, but the same is also availed by rich people driving multi-utility vehicles. Clearly, there is a need to target the subsidies in a better way so that only the needy ones are the beneficiaries while market prices of products is charged from other people.

Direct cash transfers to the deserving beneficiaries have been recommended by different government panels and committees over the years to remove price distortions, get more for the poor out of every rupee spent on subsidy which will help improve welfare in redistribution and at the same time bringing down the overall spending of the government on subsidies.

Earlier, a committee headed by former planning commission member Kirit Parikh had given a report on the matter saying the use of smart cards could provide a transparent and effective distribution system for subsidized products. Since the UID's qualify for such a smart card, the government has been hoping that with rollout of UID cards, it will be able to improve efficiency of subsidies.

The top gaining sectoral indices on the BSE were Realty up 2.12%, Metal up 1.49%, Consumer Durables (CD) up 1.02%, Capital Goods (CG) up 0.56% and Fast Moving Consumer Goods (FMCG) up 0.41%.

On the other hand, Healthcare (HC) down 0.58%, Auto down 0.37%, Public Sector Undertakings (PSU) down 0.20% and Oil & Gas down 0.11% were the only losers on the BSE sectoral space.

India's insurance industry has had a difficult year in 2010 which was marred by the IRDA versus SEBI fight on ULIP (unit linked insurance products). Also, the much awaited insurance amendment bill remained in the limbo due to political opposition and no further movement could happen on further liberating the foreign direct regime in the sector. In this wake, the insurers have a lot of expectations from the forthcoming budget and is hoping that these measures will help push up the growth trajectory of the industry.

First, the biggest demand of the industry is increase in ceiling on FDI. At present only 26% of FDI is allowed in insurance sector, but most experts feel that this leaves little incentive for the foreign partner. As such, the demand for hiking the limit to 49% has been a long pending one and the government has even looked at it favourably. The industry is hoping that while the limit might not be hiked in budget itself, an announcement to this regard should at least be made.

Further, the industry is saying that the current ceiling of investments in saving instruments including risk cover, pension products, etc that are eligible for aggregate deduction at Rs 1 lakh is too little and must be increased in line with rapidly rising overall national incomes and per-capita income in the country.

Further, the proposed Direct Tax Code (DTC) provides deduction of Rs 50,000 for life cover, health cover and tuition fees. Life insurance industry feels that as the limit is clubbed with tuition fee, there would be little left for life cover. As such, the industry has suggested that first the limit should be increased and second it should be wholly and exclusively for life insurance products.

Another demand of the company is that as proposed DTC, amount received as proceeds from a life insurance policy will be taxable as income from residuary source. The industry wants that payments on maturity should be allowed as deduction without any condition. Survival benefits, that is, the interim payments should also be treated as payment on maturity. In other words, the exempt-exempt-exempt (EEE) regime should be fully protected under the DTC as well. 

The S&P CNX Nifty touched a high and a low of 5504.80 and 5460.35, respectively.

The top gainers on the Nifty were JP Associates up 6.56%, Tata Steel up 4.47%, Jindal Steel up 3.57%, Wipro up 2.70% and Ambuja Cement up 2.56%.

The top losers on the index were HDFC down 2.72%, IDFC down 2.32%, HCL Tech down 2.05%, Sun Pharma down 1.99% and RCom down 1.92%.

European markets were trading in the green on Wednesday. France's CAC 40 gained 0.80%, Germany's DAX jumped 0.15% and Britain's FTSE 100 advanced 0.66%.

Majority of the Asian markets made a positive close on Wednesday, though the trade remained choppy but most of the indices were able snap the session in green. The Chinese markets moved higher supported by the spike up in the steel stocks while the Japanese markets surged to touch their fresh nine months high helped by a softer yen against the dollar, the dollar climbed against the yen to its highest in eight weeks on Tuesday. On the other hand, the Korean market was worst performer of the day as the major indices there were pressured by a second straight session of foreign selling and fall in automakers and crude refining stocks.