CONSOLIDATION CONTINUES

Indian benchmarks seems to have stuck to the psychological 5,850 and 19,600 levels as they have not budged from those levels for the third straight session despite the mounting volatility because this being the April series Futures and Options expiry week while a slew of disappointing quarterly earnings announcement too added to the consolidation mood. Markets once again refused to give in to the initial selling pressure as they staged a smart pull back rally in the second half of trade taking cues from the European counterparts which traded with good gains despite somber leads from the Asian peers. Better than expected results from the Cement majors and rebound in telecom stocks resulted in sentiment turnaround as investors covered short positions not only in ACC, Ultratech Bharti Airtel and RCom but also in banking and auto heavyweights like SBI, ICICI Bank, Tata Motors and Bajaj Auto. However, the upside chances for the frontline indices remained capped as intense selling pressure was exerted on FMCG and IT majors like HUL, P&G, TCS and Wipro. Investors also continued to punish index heavyweight Reliance Industries for second straight session for below expectation earnings of Q4 and it shaved off around a percent point. The NSE's 50-share broadly followed index Nifty, settled with single digit losses, above the crucial 5,850 support level while Bombay Stock Exchange's Sensitive Index, or Sensex too ended with marginal losses around the psychological 19,600 mark. The broader markets failed to show any kind of fervor this Tuesday as the BSE midcap index and BSE smallcap index both fell by 0.03%. On the sectoral front, the Healthcare index, grabbed the top gainers position after climbing by 0.42% due to rally in stocks like Biocon and Dr Reddy's Lab which surged 2.13% and 1.71% respectively. On the other hand, the Consumer Durables pocket languished at the bottom of the table with 0.80% losses on the back of the 1.90% and 1.80% decline in Videocon and VIP respectively. Stocks like GVK Power & Infra and GMR Infra nosedived by 4.57% and 3.16% respectively after Apex court ruled that private developers of the airports at Delhi and Mumbai will henceforth not be allowed to charge airport development fee (ADF) from passengers. ADF of Rs 200 and Rs 1,200 for domestic and international flights respectively, was being levied on passengers embarking at Delhi while Rs 100 and Rs 600 was being charged from domestic and international passengers respectively, boarding from Mumbai by the private developers. On the result front, cements stocks like ACC and Ultratech Cement kept buzzing through the session while stocks like Aventis Pharma, Tata Teleservices, Facor Alloys too were commended by investors. While shares of companies like Sesa Goa, Indiabulls Securities and Procter & Gamble got punished badly.

On the global front, majority of Asian equity indices settled in the red zone with Japanese benchmark being the laggard with losses of over a percent point as investors' sentiment got pummeled by disappointing earnings announcement by Nintendo and Nidec. The European markets after starting on an absolutely flat note are trading with moderate gains as France's CAC was gaining 0.37%, Britain's FTSE 100 rising 0.39% and Germany's DAX was up by 0.43%. On the other hand, the screen trading for US index futures too indicated that the Dow could open with gains of around a quarter percent point.

Earlier on Dalal Street, the benchmark got off to a quiet start as investors remained cautious tracking Asian equities which witnessed heavy bouts of profit booking on the back of the mixed corporate earnings announcements on overnight Wall. The indices slipped deeper in to the red zone after the flat opening, as across the board position squaring gathered momentum in the morning trade. However, after hitting intraday low levels in the early afternoon session the markets staged a smart recovery and even went on to steal a look into the green territory. But slight profit booking in a few blue-chip stocks in the dying moments led the bourses to eventually snap the session on a flat note with a negative bias. On expected lines, markets registered strong volumes of over Rs 2.34 lakh crore on the second day of F&O expiry week. The turnover for NSE F&O segment too remained higher compared to Monday at over 2.19 lakh crore. Market breadth remained negative as there were 1286 shares on the gaining side against 1570 shares on the losing side while 121 shares remained unchanged.

Finally, the BSE Sensex declined by 38.96 points or 0.20% to settle at 19,545.35  while the S&P CNX Nifty lost 6.10 points or 0.10% to end at 5,868.40.

The BSE Sensex touched a high and a low of 19,626.13 and 19,306.92 respectively. The BSE Mid-cap and Small-cap indices declined by 0.03% each. 

Bharti Airtel up 1.65%, Hindalco Industries up 1.55%, Tata Motors up 1.50%, Reliance Communication up 1.29% and Jindal Steel up 1.10% were the major gainers on the Sensex.

On the flip side, Hindustan Unilever down 1.99%, Maruti Suzuki down 1.91%, Sterlite Industries down 1.56%, Reliance Infrastructure down 1.55% and Mahindra & Mahindra down 1.48% were the only losers on the index.

India's oil marketing companies (OMCs) have continued to subsidies prices of petrol despite the government deregulating the same in June last year. In fact under-recoveries of OMCs on petrol have increased sharply over last couple of months owing to surge in global crude prices.  

However, with the crucial assembly elections coming to an end soon, OMCs are likely to get a window for raising petrol prices, though partially. While the under-recovery on petrol is currently around Rs 7 a litre, fuel retailers may hike prices by around Rs 3 a litre. This action may come by middle of the next month by when the ongoing elections for various state assemblies would be over.

The three government controlled OMCs had last time revised petrol prices in January this year when the same were hiked by Rs 2.50 a litre, the sixth hike implemented since the fuel was deregulated in June last year. After that the companies were hoping for some reduction in duties on petroleum sector in the FY12 Budget but the same evaporated as Finance Minister Pranab Mukherjee maintained a status quo on petroleum sector duties.

Then the state assembly elections came close and OMCs had to hold on to petrol prices even as the global crude prices surged beyond $120 a barrel. Now as the state assembly elections are nearing an end, OMCs are getting ready to implement a hike in petrol prices. Following that, the Union Oil and Gas minister S Jaipal Reddy is expected to raise a proposal at the Cabinet level for cutting the subsidies in other fuels by raising market prices, and possibly by cutting some duties as well.

The finance ministry will anyway have to bear the brunt of higher crude prices. Even if it does not reduce duties, it will still have to bear a much larger share of under-recoveries of the OMCs as the latter do not have the financial muscle to bear substantial losses. The oil ministry has already cleared that up-stream companies will not bear more than 33% of the under-recoveries and OMCs would not be in a position to absorb more than 10-15% of the under-recoveries. Therefore, a large chunk of the subsidy burden will fall on finance ministry only.

Healthcare (HC) up 0.42%, Fast Moving Consumer Goods (FMCG) up 0.08%, TECk up 0.06%, Metal up 0.05% and Capital Goods (CG) up 0.01% were the major gainers in the BSE sectoral space. Consumer Durables (CD) down 0.80%, Oil &Gas down 0.35%, Realty down 0.31%, IT down 0.28%, Bankex down 0.14% were major losers in the BSE sectoral space.

The S&P CNX Nifty touched a high and a low of 5,893.20 and 5,791.55 respectively.

The top gainers on the Nifty were Siemens up 3.58%, Grasim up 1.98%, Hindalco up 1.76%, Bharti Airtel up 1.74% and Dr Reddy's up 1.64%.

The top losers on the index were Maruti down 2.07%, Hindustan Unilever down 2.04%, Reliance Capital down 2.04%, Axis Bank down 1.79% and SAIL down 1.62%.

Global rating agency Fitch has said that a slowdown in China may not impact India directly in the short term but in case the trend drags down for a longer period, it will push up competition for Indian manufacturers and Chinese can flood global markets, and to some extent Indian as well, with cheaper products.

The agency said that moderation in growth in China can result in excess capacities that will negatively impact the overall demand-supply equation. "Over the longer term a slowing China would result in excess capacities across many manufacturing sectors and would change global demand-supply dynamics, especially given the country's low cost of production," Fitch said in a recent report adding that this could result in intense competition for India's manufacturing exporters.

On the positive side, the agency believe that Indian companies were perhaps better placed at handling a slowdown in either Chinese or global economy that its counterparts in China. The agency noted that while both the countries are reporting strong GDP growth and had managed the financial crisis well, the corporate sector in these economies operated in structurally very different environments. Economists believe that the bottom up approach of India can provided added resilience in case of a slowdown compared with China's top down approach.

At a macro level too India was better positioned to manage increasing risk arising out of rapid growth or changing global financial scenario. While India's growth over last couple of decades has been driven by domestic demand and structural changes at home, growth in China was mainly fuelled by exports and bank finance. However, the sheer scale of China's producers gave them significant advantage compared with Indian counterparts in most manufacturing businesses.

India had another advantage over China in terms of its superior financial sector regulation capacities. Fitch observed that India's regulatory environment has remained focused on controlling credit growth while China's growth has largely been funded by bank credit. The RBI has regulated the credit flow to the local corporate sector with prudence and caution which has helped the country's banks in managing their asset quality better during the global economic slowdown.

European markets were trading in green. France's CAC 40 was up by 0.27%, Germany's DAX gained 0.42% and Britain's FTSE 100 was trading higher by 0.32%.

All the Asian equity indices barring KLSE Composite finished the day's trade in the negative terrain on Tuesday led by Japanese Nikkei which lost more than a percent in trade today as investors' sentiment hurt by weak earnings reports from Nintendo and Nidec while, worries about the impact of last month's natural disasters on corporate Japan too dampened the sentiments in the region. Moreover, Chinese benchmark index fell more than half a percent as investors remained cautious ahead of an upcoming long weekend and potential policy tightening.