MARKETS SURGE

A day after consolidating, Indian benchmarks carried forward their exhilaration as they turned back to winning ways and spurted around one and half a percentage points capturing crucial 5,900 and 19,700 levels for the first time in 2011. Interests of overseas institutional investors in the domestic equities showed little signs of fading any time soon, as they continued to pile up positions in not only frontline stocks but more so in the smallcap and midcap spaces. Riding high on Team India's cricket world cup success, euphoric investors even overlooked the spike in crude oil prices which soared to around two and half year highs due to persistent turbulences in the Arab world. While pressure exerted by 2G Scam linked telecom shares too got offset as supportive leads from across the globe limited the downside risks for the local bourses. The NSE's 50-share broadly followed index Nifty, after garnering close to one and half a percent points conquered the crucial 5,900 support level while Bombay Stock Exchange's Sensitive Index, Sensex fell just short of hitting a triple century of gains and closed above the psychological 19,700 level. In the broader markets the BSE's Midcap and Smallcap indices outclassed their larger peers by quite a margin as they went home with strong gains of 1.67% and 2.83% respectively. On the sectoral front, the Capital Goods pocket grabbed the top gainer's position after garnering 2.38% as heavyweights like BHEL surged 2.84% on reports that the company's provisional net profit for the year ended 2010-11 grew to at Rs 6021 crores against Rs 4311 crores in the same period a year ago while its turnover climbed to Rs 43451 crores from Rs 34154 crores a year ago. The Information technology counter too remained amid the thick of things and advanced 2.18% on the back of surge in bellwethers like HCL Tech and TCS each which zoomed 4.59% and 2.70%. Index heavyweight Reliance Industries too made its presence felt in the session by surging 1.41% by the end of trade. While there remained no sectoral laggard in the space, individual stocks like RCom which plunged 2.24%, followed by HUL down 1.62% were the prominent losers.

On the global front, most Asian equity indices finished the day's trade in the positive terrain led by Hong Kong's shares which was up by  about one and half a percent while Japanese Nikkei too snapped the day's trade on the higher note supported by export-oriented stocks on the back of a weaker yen. The European markets too traded on a flat note as France's CAC, Germany's DAX and Britain's FTSE exhibited mixed trends. On the other hand, the screen trading for US index futures indicated that the Dow could open with marginal gains.

Earlier on Dalal Street, the benchmark got off to a steady start in the morning trade tracking leads from Asian markets which traded with conviction as sentiments took support from Wall Street which closed higher on Friday. The indices pared some of initial gains in the mid-morning session and touched intraday low levels. However, a sudden revival was witnessed thereafter as stocks of Auto and IT companies led them to a northward direction. Eventually the benchmarks managed to hold on to the 5,900 and 19,700 levels as they snapped the session around high point of the day with almost one and half a percent gains. On the expected lines, markets registered low volumes of over Rs 1.02 lakh crore while the turnover for NSE F&O segment too remained at the lower side at over Rs 0.86 lakh crore. Market breadth remained extremely positive as there were 2437 shares on the gaining side against 477 shares on the losing side while 74 shares remained unchanged.

Finally, the BSE Sensex climbs by 281.34 points or 1.45% to settle at 19,701.73 while the S&P CNX Nifty zooms by 82.40 points or 1.41% to end at 5908.45.

The BSE Sensex touched a high and a low of 19,729.60 and 19,449.36 respectively. The BSE Mid-cap and Small-cap indices gained by 1.67% and 2.83%, respectively. 

Mahindra & Mahindra up 4.75%, Jaiprakash Associate up 3.25%, BHEL up 2.84%, HDFC Bank up 2.78% and TCS up 2.70% were the major gainers on the Sensex.

On the flip side, Reliance Communication down 2.24%, Hindustan Unilever down 1.62%, Cipla down 1.51%, Sterlite Industries down 0.37% and Reliance Infrastructure down 0.30% were the Major losers on the index.

A study by the Reserve Bank of India (RBI) has said that China was getting unfair advantages in bilateral trade with India due to relatively undervalued Yuan. In a research paper titled 'The implications of renminbi revaluation on India's trade', the RBI said China's policy of keeping its renminbi artificially down against the US dollar was impacting India's exports to the communist nation as well.

'By keeping renminbi (RMB) undervalued against the US dollar (USD) and depreciating it in line with the USD in the international market without taking into account the economic fundamentals of China, it invariably and distinctly provides competitive advantage over its trade competitors and trade partners including India,' said the research paper. This is not the first time the RBI has signaled towards undue advantage China corners do due to its relatively cheaper currency.

'In this context, one of the factors favoring China is the cost advantage of its exports, influenced by various domestic factors. Factor like production-oriented subsidies for firms and industries does support China model. The cost of production as well as productivity of labor also becomes an added advantage in its export promotion,' the RBI study observed.

India's trade deficit has been on the rise against China and most economists have been, at least partially, blaming this on undervalued renminbi. In the financial year ending March 2010, the deficit stood at $19.2 billion in a total bilateral trade of around $60 billion. Concerns have been raised by economists and policy makers alike that such a high trade deficit was unsustainable and India must take steps to bring it down.

The Indian government has been somewhat soft in criticizing the currency policies of the Chinese government, which has come under severe attack from the US on the same matter, probably in wake of the two Asian giants looking to improve relations. However, the central bank had raised the same issue earlier as well and seems to reflect a feeling deeper in the Indian policy makers, particularly in wake of surging trade gap with China. The government also probably does not mind when the concerns are raised by a seemingly autonomous body like the RBI. 

Capital Goods (CG) up 2.38%, IT up 2.18%, TECk up 1.84%, Auto up 1.83%, and Bankex up 1.78% were the major gainers in the BSE sectoral space. There was no loser in the BSE sectoral space.

The S&P CNX Nifty touched a high and a low of 5,918.70 and 5,833.20 respectively.

The top gainers on the Nifty were Mahindra & Mahindra up 4.90%, HCL Tech up 4.51%, Cairn up 3.71%, JP Associates up 3.30% and HDFC Bank up 3.05%.

The top losers on the index were Reliance Communication down 2.42%, Hindustan Unilever down 1.69%, Sesa Goa down 1.64%, GAIL down 1.48% and Cipla down 1.31%.

India's tyre makers failed to make much out of the cut in import duty on rubber that was obtained following a lot of lobbying by the industry. Over the last quarter, total rubber imports into the country totaled around 10,000 tonne only, despite the fact that government had allowed 40,000 tonne of imports at concessional rates.

Rubber prices remained at highly elevated levels over most of the second half of last financial year, causing a significant cost escalation for the tyre industry, 50% of whose total cost is constituted by natural rubber. This resulted in protest by the industry to high import duty for natural rubber at 20% which allowed domestic rubber producers to jack up prices in line in with the surging international prices. After a much delay and deliberations, the government finally agreed to provide lower import duty to 7.5% for 40,000 tonne of imports.

This was supposed to help tyre companies bring down their cost of production even as demand was surging and capacity constraints were becoming increasingly evident. However, despite the government accepting the demand, the industry failed to make much benefit out of it. This is mainly because there were a lot of procedural delays that narrowed the window of imports and also the global went further up, neutralizing any potential gains from cut in import duty.

According to the tyre industry players, although the government issued notification for cut in import duty on December 22, 2010 itself, the procedures delays like finalization of a selection criteria for eligible importers meant actual imports under the concessional duty rate could not happen before middle of February 2011. By this time the global prices had surged further, which left little incentive for tyre makers to import despite the lower duty applicable at that time.

Tyre industry has faced substantial increase in cost of production over the last financial year. Not only the prices of natural rubber but that of other key inputs, including carbon black and nylon thread, as well have been rising in line with surging crude prices. Labour and other costs too have been increasing. As a result the industry has been facing pressure on margins. The only positive for the industry has been the fact that its demand side has remained robust on back of surging automobile sales which has given the space to tyre makers for passing on at least part of the increase in cost to consumers.

European markets were trading in mix on Monday. France's CAC 40 declines 0.10%, Germany's DAX was up by 0.05% and Britain's FTSE 100 increased by 0.24%.

Asian equity indices finished the day's trade mostly in the positive terrain on Monday as investors remained confident after Wall Street closed higher on Friday on the back of better-than-expected non-farm payrolls report and as the US unemployment rate fell to a two-year low. Japanese Nikkei snapped the day's trade on the higher note supported by export-oriented stocks on the back of a weaker yen and Hong Kong shares remained the biggest gainer amongst the Asian counterparts surging by about one and a half percent. However, Stock markets in China and Taiwan remained closed on occassion of Tomb Sweeping Festival and Children's Day respectively.