UNABLE TO GATHER STEAM

Local share market ended the range bound day of trade on a flat note with positive bias despite a few rounds of selling now and then at some front line counters. Firm trend in the global markets on the hopes that the US economic recovery is well on track, appeared to cushion the local sentiment, thereby prompting the domestic traders to indulge in some short-covering after a sharp downward correction last week. Though the markets ended the session in the green territory supported by gains in the FMCG, Realty, Oil & Gas and select metal companies, but the trade remained lackluster after the huge sell off witnessed on Dalal Street on Friday due to lack of conviction among investors at current levels, as fears of another rate hike by the RBI in its monetary policy review on March 17, 2011 kept looming large. The fears of rate hike resurfaced after a central bank deputy's commented over the weekend, saying that the crisis in Egypt, which has been pushing up oil prices globally, would have an impact on monetary policy action. While, Prime Minister Manmohan Singh fanning the inflationary concerns said on Friday that 'high inflation posed a 'serious threat' to the country's growth momentum, and was driven by supply-side shortages'.

On the Global front, Asian equity indices finished the day's trade on a mixed note. While, European shares neared a two-and-a-half year high, extending Friday's rise on the back of Asian and U.S. gains, with surging mining stocks led higher by a dividend-raising Randgold Resources.

Earlier, the Indian equity indices made cautious start despite positive close of US markets overnight, as investors preferred staying on the sidelines as they lacked conviction for the strength of the market after the massive loss on the local bourses on Friday amidst the lingering worries over surging inflation and interest rates in the country. Though the barometer indices did show enthusiasm after the economy body CSO pegged the India's GDP growth rate at 8.6% given the growth of 8.9% registered in the first half, indicating a growth of 8.3% in the second half of the fiscal, much higher than what government or RBI has estimated, but the market returned back to the consolidation mood despite the positive opening of the European market as the fears of the rate hike re- popped in investor's mind, however, selected buying in few stocks of Realty, Oil & Gas  and Fast moving Consumer Goods counterbalanced the losses of the Healthcare, Consumer Durable and capital Goods counters, thereby helping the barometer index to settle on a flat note. As the 30 share index --Sensex-- settled a tad above of its physiological level of 18,000 mark, while the 50 share index--Nifty --once again closed tad below its 5400 mark.

Finally, the BSE Sensex advanced 29.04 points or 0.16% to settle at 18,037.19 while the S&P CNX Nifty was flat and up by 0.25 points to end at 5396.

The BSE Sensex touched a high and a low of 18,180.94 and 17,977.01, respectively.

Hero Honda up 2.75%, ITC up 2.62%, DLF up 2.32%, JP Associates up 2.27% and NTPC up 1.47% were the major gainers on the Sensex.

On the flip side, Cipla down 2.95%, HDFC down 2.07%, Wipro down 2.05%, Hindalco Inds down 1.96% and L&T down 1.89% were the main losers on the index.

The BSE Mid-cap and Small-cap indices lost 0.52% and 0.83%, respectively.

Meanwhile, the biggest macroeconomic challenge that the Indian economy was facing was rigid inflationary scenario, said the Chairman of Economic Advisory Council to the Prime Minister (PMEAC) on Saturday, adding that both government and central bank will need to take steps to counter the challenge posed by surging food prices.

Rangarajan said that inflation was mainly being driven by the high prices of food commodities and the government while was expecting it to moderate in 2011, more steps were required for a sustainable solution to the problem. He said the 8.43% year-on-year inflation seen in Dec 2010 was expected to come down to around 7% by March 2011. But the supply side needed a lot of work to get inflation sustainable below 5%.

While delivering the fifth G K Sundaram Endowment lecture organized by the South India Cotton Association here on Friday he said that long terms solutions like more investment in the farm sector in order to develop more irrigation facilities that will help facing a low rain year in a better way and improving the efficiency and capacity of the public food storage facilities should be implemented.

In its last policy review held on Jan 25, the RBI too had hiked its March-end 2011 inflation projection substantially to 7% compared with 5.5% given earlier. This clearly reflects that even the central bank has been under-estimating inflation pressures, or that the expected downside from factors like a strong Kharif harvest and six rounds of policy tightening by RBI has not materialized to the extent anticipated by policy makers.

On the growth front the Chairman said that with savings rate touching 34% and investments having exceeded 36% of the GDP, the country could achieve 9% GDP expansion in a sustained way. 'The broad economic parameters relating to savings and investment are conducive for growth. Despite the financial crisis, the economy grew at an average pace of 8.5% between 2005-06 and 2009-10. This clearly represented acceleration in the pace of growth and marks a distinct break from any previous five year period," he said.

The top gaining sectoral indices on the BSE were Realty up 1.67%, FMCG up 1.42%, Oil & Gas up 0.76%, Power up 0.28% and Information Technology up 0.18%.

On the other hand, Healthcare (HC) down 1.50%, Consumer Durables (CD) down 1.32%, Capital Goods (CG) down 1.11% and Bankex down 0.36% were the only losers in the BSE sectoral indices.

The central statistical organization (CSO) has released the advanced estimate for national income in Indian economy for current fiscal, predicting some slowdown in growth in the second half of the fiscal. The CSO pegged the growth in gross domestic product (GDP) for FY11 at 8.6%, which, given the growth of 8.9% registered in the first half, indicates a growth of 8.3% in the second half.

In an absolute sense though the growth is fairly robust at 8.6%, 60 basis points higher compared with 8% revised estimate for the last fiscal. The challenge for the government from here on will be to ensure around 8.5% growth at least in the next fiscal as well given the slowdown in the second half that the CSO numbers inherently assume and most other economists also expect.

The government had earlier pegged its growth target for current fiscal at 8-8.5%, but with strong performance in the first half increased the same to 8.75%. However, most economists believe that here will be some slowdown in the Indian economy in second half, particularly in the March quarter, due to a very high base from the last year. Also, the high inflation currently being seen is impacting consumer demand, and further expected monetary tightening by the RBI will affect both household consumption and corporate investment demand.

A much bigger surprise came from the CSO on the fiscal deficit front, where the organization pegged the fiscal gap for the current fiscal at 4.8% compared with a budgeted figure of 5.5%. This certainly is a huge downside to the Budget estimate and even though the figure looks very pretty to eyes, it will be interesting to see that if it does turn out to be the right estimate, what the finance ministry does in the next year.

The S&P CNX Nifty touched a high and a low of 5440.35 and 5376.95, respectively.

The top gainers on the Nifty were Suzlon up 4.06%, JP Associates up 3.83%, Hero Honda up 3.83%, ITC up 2.58% and DLF up 1.96%.

The top losers on the index were PNB down 3.59%, Cipla down 2.61%, Wipro down 2.58%, Ranbaxy 2.24% and L&T down 2.04%.

European markets were trading in the green on Monday. France's CAC 40 gained 1.12%, Germany's DAX jumped 0.96% and Britain's FTSE 100 advanced 0.77%.

Asian equity indices finished the day's trade on a mixed note. Japanese Nikkei gained about half a percent in the trade as exporters got a lift from a weakened yen. The strong corporate earnings also lifted the sentiments, while energy producers such as PetroChina pressured Hong Kong stocks, which lost about one and a half percent as crude-oil prices dropped.Among Asian indices, Nikkei and Seoul Composite led the gainers list while Hang Seng and Straits Times edged lower in trade, while Stock markets in the China and Taiwan remained closed today on account of Lunar New Year holiday.