Benchmark equity indices gyrate in a tight band with a positive bias

The benchmark equity indices gyrated in a tight band with a positive bias in the late-morning session tracking mixed cues from the regional peers .On the other hand Dow futures was showing downtick in screen trade.Back home, on the Dalal Street, the BSE Sensex and the NSE Nifty were trading marginally above the psychological 20,000 and 6,000 levels, respectively. Majority of the sectoral indices are trading in green leaving metal counters. The broader indices are mirroring the benchmark indices  The market breadth on the BSE was positive; there were 1748 shares on the gaining side against 859 shares on the losing side while 85 shares were unchanged. The S&P CNX Nifty may face resistance around 6048, 6,080 and 6,242 levels. On the other hand support for the index will be around 5,938 mark.

The BSE Sensex surged 89.47 points or 0.45% to 20,163.13. The index touched a high and a low of 20,190.13 and 20,062.60, respectively.

The BSE Mid-cap and Small-cap indices advanced 0.62% and 0.87%, respectively.

The main gainers in the BSE sectoral space were Healthcare (HC) up 1.25%, Consumer Durables (CD) up 1.23%, Capital Goods (CG) up 0.93%, Realty up 0.89% and Information Technology (IT) up 0.69%.

On the flip side, Metal down 0.19% was the sole loser in the BSE sectoral space. The major gainers on the Sensex were ICICI Bank up 1.33% DLF up 1.20% , TCS up 1.18%, Tata Power up 1.16% and Jaiprakash Associates up 1.12%.

The major losers on the index were RCom down 1.80%, Reliance Infra down 0.99%, Sterlite Inds down 0.92%, Tata Steel down 0.64% and  Bharti Airtel down 0.46%.

Tyre makers may not get any substantial help from the government's move to cut import duty on natural rubber as prices of the crucial raw material continue to remain strong. Natural rubber makes up for about half the cost of manufacturing tyres and prices of the commodity have been on an upswing throughout the current year.

Till recently, the import duty on rubber (raw material) was at 20%, compared with 8.5% on tyres (manufactured product), a situation technically called inverted duty structure. Consequently, as rubber prices soared over the last quarter of the year, it became increasingly cheaper to import tyres instead of rubber, hitting the domestic tyre industry.

However, the government had last week cut down the import duty on rubber to 8.5%. Analysts though are not very enthused and do not see much benefit of the move. The key question is whether the lowering of import duty result in lower rubber costs for tyre makers. At this stage, it looks unlikely to happen. This is because international prices have too continued to increase as supply shortfall of natural rubber is not just an Indian but global phenomenon at present.

The Association of Natural Rubber Producing Countries (ANRPC) has said recently that rubber supplies from key producing countries including Indonesia are still low as unfavourable weather has been disrupting production, and prices therefore are likely to continue remaining at the high levels. It was earlier expected that prices will start coming down because of expected supply response to high prices seen in the current season. However, weather problems, coupled with aging of trees are likely to prevent any substantial supply response in 2011 as well, keeping price strong.

What the recent move by the government does achieve is correcting the invested duty structure. To the extent that a lower 8.5% duty on imported tyres made Chinese tyres cheaper, the industry will now be able to compete to the imported tyres at a more level playing field.  However, overall pressure on margins will be there as cost of production has increased substantially while the prices have been passed on to consumers to the bare minimum extent in wake of high competition in the industry.

The S&P CNX Nifty increased 24.50 points or 0.41% to 6,036.10. The index touched a high and a low of 6,045.75 and 6,012.60, respectively. 

The top gainers on the Nifty were Dr Reddy up 2.80%, Ambuja Cements up 2.38%, Sun Pharma  up 1.63% ,Sesa Goa up 1.52%, ICICI Bank up 1.46% and Suzlon up 1.27%.

The top losers on the index were RCom down 1.90%,SAIL down 1.46%,  Power grid  down 1.13% , Reliance Infra down 1.02% and  Sterlite Inds down 0.89%

The regional peers are trading on a mixed note, Jakarta Composite added 0.10%, Nikkei 225 increased 0.75%, Straits Times advanced 0.55% and Taiwan Weighted jumped 0.35% while Shanghai Composite trimmed 0.42%, KLSE Composite declined 0.01% and Seoul Composite dipped 0.02%.  

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