A PATHETIC SESSION

It turned out to be another pathetic trading session for the Indian equity indices which got pounded by around a percentage point on the settlement day of April series Futures and Options contracts. The benchmarks extended the three day declining streak for the fourth consecutive session as the selling pressure gathered greater momentum after government released the disappointing food inflation numbers which stayed absolutely flat at 8.76% on annual basis during week-ended April 16 compared with 8.74% recorded in the previous week. With the downward trend of food inflation coming to a halt in recent weeks, and core inflation showing a considerable uptic in the months of February and March 2010, inflation continues to remain at highly uncomfortable levels, making the growth-inflation mix increasingly complex and the job of Reserve Bank of India (RBI) increasingly difficult. Market participants resorted to broad based position squaring as they felt that RBI will now be forced to adopt more aggressive stance in its annual monetary policy review meet on May 3rd. The large cut suffered by domestic bourses came in the face of an optimistic European and Asian markets which largely traded on a positive note. Back home, the NSE's 50-share broadly followed index Nifty, shut shop with around a percent cut, below the crucial 5,800 support level while Bombay Stock Exchange's Sensitive Index, Sensex took a one hundred and fifty points blow to settle below the psychological 19,300 mark. By the end of trade, the broader markets caught up with the weakness that was evident in larger peers and slipped deeper into the red terrain. The midcap index plunged 0.97% while the smallcap index closed with 0.48% losses. On the sectoral front, the real estate stocks did the maximum damage as the high beta BSE's Realty index shaved off over 3% after majors like Unitech, DLF and HDIL took nasty cuts of 7.54%, 2.71% and 1.63% respectively. The Metal pocket too got pummeled by investors as it lost 1.20% after majors like SAIL and JSW Steel slipped by 3.35% and 3.12% respectively. On the result front, stocks like ICICI Bank, LIC Housing Finance, Orient Paper & Industries, Mangalam Cement were commended by the investors in the session while shares of companies like Vijaya Bank and Bank of Baroda, JSW Energy and Biocon got punished badly.

On the global front, majority of Asian equity indices settled in the green zone with Japanese benchmark grabbing the top gainer's position after inching higher by over one and half a percent point supported by better than expected domestic earnings. The European equities are trading in the green zone as France's CAC advanced 0.62%, Britain's FTSE 100 traded flat and Germany's DAX climbed 0.38%. On the other hand, the screen trading for US index futures indicated that the Dow could open on a flat note.

On the F&O front, for the April series the Nifty and Sensex shaved off around 0.8% each while in the broader market, Small cap index rocketed 8% and CNX midcap index soared 2.9%. Among sectoral movers, IT index remained the top laggard by plummeting 5.8% followed by Realty which slipped 4.3% while the metal counter was down 1.5%. On the other hand the Auto and FMCG indices grabbed the top gainers position after garnering 3.4% points followed by the Oil and Gas index which rose by 2.2%. Among Individual laggards, DLF was down 14.5%, Infosys was down 9.5%, RCom down 7.4%, RIL down 7.32%, Wipro down 6.7% and NTPC down 5.2%. On the flipside, Sesa Goa, M&M and ONGC skyrocketed by nearly 10% followed by Bharti up 8.2%, HCL Tech up 7%, Hero Honda up 6.4%, ITC up 5.4% and Sterlite up 5%. From the expiry perspective the rollovers seen today were in line with March month expiry with market wide rollover of over 65% and Nifty rollovers of over 61%. Huge rollovers were also witnessed in heavyweights like ONGC (71%), Unitech (78%), SAIL (75%) and Suzlon (87.44%). On expected lines, markets registered strong volumes of over Rs 2.38 lakh crore on the April series F&O settlement day. The turnover for NSE F&O segment remained on the higher side compared to Wednesday at over 2.19 lakh crore. Market breadth remained negative as there were 1097 shares on the gaining side against 1793 shares on the losing side while 101 shares remained unchanged.

Finally, the BSE Sensex plunged by 156.67 points or 0.81% to settle at 19,292.02 while the S&P CNX Nifty lost 48.45 points or 0.83% to end at 5,785.45.

The BSE Sensex touched a high and a low of 19,542.05 and 19,265.92 respectively. The BSE Mid-cap and Small-cap index declined by 0.97% and 0.48% respectively. 

ONGC up 1.99%, ICICI Bank up 0.92%, Bharti Airtel up 0.56%, Bajaj Auto up 0.26% and Sterlite Industries up 0.14% were the major gainers on the Sensex.

On the flip side, Reliance Communication down 5.13%, Cipla down 2.77%, DLF down 2.71%, Hero Honda down 2.62% and Jindal Steel down 2.17% were the major losers on the index.

Oil marketing companies (OMCs) will hike petrol prices by around Rs 3 per litre by middle of the next month even as the government is also contemplating hiking the diesel prices by around Rs 2 per litre. While petrol prices are, at least in theory, free to be determined by retailers, diesel prices continue to be regulated by the government.

Petrol prices were revised six times following the deregulation in June last year with the last hike coming in January 2011. After that the OMCs were expecting that there could be some reduction in petroleum sector duties in FY12 budget which will pre-empt the need for hiking fuel prices. However, Finance Minister Pranab Mukherjee left the petroleum sector duties unchanged in Budget. Then came the state assembly elections and OMCs had to hold on to petrol prices even as the global crude prices surged beyond $120 a barrel. Now however as the state assembly elections are nearing an end, OMCs are set to hike petrol prices.

The move to hike diesel prices is also becoming more likely on account of the fact that the OMCs will be losing record amount of money if retail prices are not hiked. The intensity of crisis will be no less than what happened in first half of 2008 when crude oil touched a high of $147 a barrel. However, with the kind of hikes the government is prepared to make, like Rs 3 and Rs 2 per litre respectively in petrol and diesel, it would not help solve the problem much.

The companies are currently losing a record Rs 18 on every litre of diesel and Rs 7 on petrol. The under-recovery on kerosene is no less at Rs 28 per litre while each cylinder of domestic LPG involves a revenue loss of Rs 315. At the current rate, OMCs will lose Rs 177,562 crore in revenues over the financial year. Clearly by hiking prices by Rs 2-3, the surging under-recover bill is unlikely to be brought down significantly.

The finance ministry in this wake will have to bear substantially high fuel subsidy than last year. 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 5-10% of the under-recoveries. Therefore, a large chunk of the subsidy burden will fall on finance ministry only. What is worse is that unlike 2008, government fiscal deficit scenario is not very good and surge in under-recoveries will have a high impact on overall government finances as well even with a partial subsidy sharing by it. 

Realty down 3.03%, Metal down 1.20%, IT down 1.12%, Capital Goods (CG) down 1.06% and TECk down 0.93% were major losers in the BSE sectoral space. There were no gainers in the BSE sectoral space.

The S&P CNX Nifty touched a high and a low of 5,856.40 and 5,776.95 respectively.

The top gainers on the Nifty were Sun Pharma up 1.81%, ONGC up 1.53%, BPCL up 0.64%, ICICI Bank up 0.48% and Sterlite Industries up 0.38%.

The top losers on the index were Reliance Communication down 5.04%, Kotak Bank down 3.59, SAIL down 3.53%, Ranbaxy down 3.52% and Hero Honda down 3.07%.

India's food inflation remained nearly flat during the week ended April 16, hinting that the traditional decline which is seen in food prices following the Kharif harvest was over. Food inflation had shown considerable decline in February and March after remaining rigid in previous few months despite a very strong Kharif crop last season.

According to the data released by the commerce and industry ministry on Thursday, the food price index rose at 8.76% during the 12 months ending April 16, almost flat compared with a corresponding figure of 8.74% a week ago. On a weekly basis, however, the index was nearly down by 0.2% to 182.6 compared with a figure of 182.9 for the previous week.

The index for non-food articles group also declined by 0.4% to 192.5 from 193.2 for the previous week. However, the index for minerals group rose by 3.0% to 267.0 from 259.2, pushing up the broader primary articles index, which has a weight of 20.12% in the overall wholesale prices index, by 0.1% to 190.9 from 190.8 for the previous week. The annual rate of inflation, calculated on point to point basis, for this group stood at 12.08% for the week under review as compared to 11.96% for the previous week. 

The index for fuel and power group, which has a weight of 14.91% in the WPI, increased by 0.6% to 160.3 from 159.4 for the previous week due to higher prices of lubricants (14%), light diesel oil and furnace oil (3% each) and naphtha (2%). The annual rate of inflation for this group rose to 13.53% for the week under review as compared to 13.05% for the previous week. In an absolute sense, the fuel group inflation continues to remain at elevated levels and in case the government decides to pass on part of the increase in global crude oil prices through hike in administered prices of retail fuels, it will further boost the same.

With the downward trend of food inflation coming to a halt in recent weeks, and core inflation showing a considerable up tic in the months of February and March 2010, it is becoming quite clear that headline inflation may not come down sharply any time soon. What this means in turn is that the central bank will in all likelihood continue to tighten its monetary policy stance throughout the 2011.

European markets were trading in green. France's CAC 40 was up by 0.44%, Germany's DAX gained 0.42% and Britain's FTSE 100 was trading higher by 0.01%.

Most of the Asian indices finished in the positive terrain on Thursday after the Federal Reserve renewed its pledge to stimulate US economic growth with low interest rates and as companies posted higher earnings. Japanese Nikkei closed with a gain of more than one and half a percent to its highest level since last month quake, supported by better-than-expected domestic earnings. Moreover, Seoul shares ended on a flat note, with Hyundai Motor rallying more than 7 percent to a record closing high after its decent results announcement, but fall in technology stocks like Samsung Electronics weighed on the investors' sentiments.