Benchmarks end F&O expiry session on an optimistic note

Indian equity indices witnessed another stable session of trade a day after breaking the jinx of trading in a narrow band in previous session. The benchmarks managed to extend their gains on the December series futures and options (F&O) expiry day. The fifty stock nifty scaled above 6100-mark for first time since November 15, while the BSE Sensex garnered well over half a percent points to close a tad below the 20,400 mark. Out of 30 components of the Sensex, 27 edged higher in trade today while 36 out of 50 constituents of Nifty finished in the green. Gains remained broad-based during the session with consumer durables, realty and information technology counters attracting maximum traction. The broader indices too rallied with conviction as the mid-cap pocket which underperformed its larger peers yesterday managed to outclass them today.

While the global markets exhibited mixed trends and all the Asian counterparts, barring Japanese and Malaysian markets, closed in the green territory. While the European equity indices were trading on a somber note with moderate cuts. The US index futures were flat with a negative bias in screen trade.

On the Dalal Street, the markets got off to a positive start this morning despite the mixed cues from the global counterparts. The bourses moved in a narrow range with a positive bias for most part of the day's but picked up some strength in dying hours. The frontline indices consolidated at higher levels for second straight day to shut shops near the high point of the day. Volumes in the local markets soared today to over Rs 1.88 lakh crore while the turnover for NSE F&O segment too remained on the higher side compared to Wednesday at over Rs 1.69 lakh crore due to December series F&O expiry. The market breadth on the BSE was positive; there were 1645 shares on the gaining side against 1217 shares on the losing side while 160 shares remained unchanged.  Meanwhile, investors once again shrugged off the concerns of rising food price inflation.According to the data released by the ministry of commerce and industry, India's food price index rose 14.14% on annual basis during week-ended Dec 18, substantially faster compared with 12.13% in the week-ended Dec 11 and 9.46% in the previous week.

On the charts: The S&P CNX Nifty has successfully closed above 6080 mark, which was strong resistance for the index. If the index breaks 6030-mark, next major supports will be around 5,988 and 5,842 marks. On the other hand, resistance will be around 6,133 6180 and 6,242 levels.

Finally, the BSE Sensex jumped 133.04 points or 0.66% to settle at 20,389.07 while the S&P CNX Nifty gained 41.50 points or 0.68% to end at 6101.85.

The BSE Sensex touched a high and a low of 20,410.91 and 20,274.12 respectively.

NTPC up 2%, Hero Honda up 1.88%, Tata Motors up 1.87%, Tata Power up 1.84% and Sterlite Inds up 1.78% were the major gainers on the Sensex.

On the other hand, HDFC Bank down 1.18%, ONGC down 0.64%, Bajaj Auto down 0.26%, RCom down 0.22% and SBI down 0.12% were the only losers on the index.

The BSE Mid-cap and Small-cap indices rose 0.73% and 0.43%, respectively.

Meanwhile, food inflation in the country is again on the rise after declining for several weeks due to improved supply of food commodities and activation for high base effect from the previous year. Overall outlook of the food inflation in this wake becomes clouded, contradicting the expectations of the government and the central bank.

According to the data released by the ministry of commerce and industry, India's food price index rose 14.14% on annual basis during week-ended Dec 18, substantially faster compared with 12.13% in the week-ended Dec 11 and 9.46% in the previous week. On a sequential basis, the index rose sharply by 1.1% to 187.8 from 185.8 for the previous week due to higher prices of vegetables and spices, particularly the onion prices which soared due to supply crunch. This was fifth consecutive week of rise in index, suggesting prices were continuing to rise despite expected increase in supply of farm commodities.

The index for 'Non-Food Articles' group on the other hand rose by 0.8% to 173.0 compared with 171.6 for the previous week. The broader 'Primary Articles' index, which has a weight of 20.12% in the overall wholesale price index (WPI), also increased by 1% to 189.7 compared with 187.9 for the previous week. The annual rate of inflation, calculated on point to point basis, for this group also rose significantly to 17.24% from 15.35% for previous week.

The index for 'Fuel & Power' with a weight of 14.91% in overall WPI on the other hand increased by 0.8% to touch 150.7 compared with 149.5 in the previous week, mainly due to higher prices of light diesel oil, naphtha and aviation turbine fuel. The annual rate of inflation for this group too increased to 11.63% compared with 10.74% in the previous week. If the government raises administered prices of diesel, inflation may increase further, though the possibility of this happening in near term has declined. 

The latest hike in food inflation is quite sharp and has challenged the expectations that food prices will soften with a bumper Kharif crop. It will increase the pressure on the Reserve Bank of India (RBI), which had left benchmark policy rates unchanged in the last review, to tighten the stance of monetary policy further in the January review. The central bank had itself said recently that the upside risk on inflation remained strong. As no consistent declining trend in food inflation is visible, the RBI may have no choice but to further hike rates in January.

In the BSE sectoral space, Consumer Durables (CD) up 1.32%, Realty up 1.26%, Information Technology (IT) up 1.04%, Metal up 0.98% and Public Sector Undertakings (PSU) up 0.97% remained the major gainers while Oil & Gas down 0.06% remained only loser on the BSE sectoral space. 

Steel prices, which continue to remain week despite rising raw material costs, may see an increase in the first week of January as companies look to pass at least a part of the increase in cost of production to the consumers. The increase in prices will be in the range of 3-5% and will help the companies cover the recent increase in raw material costs. Analysts opine that steel prices are at their lowest levels given the surging cost of production. While upside has been difficult due to some slowdown in infrastructure projects, the downside is certainly limited. The industry feels that demand will start moving up in the next quarter and therefore major producers like SAIL, JSW Steel, Essar Steel and Tata Steel may all go for a hike in prices to the tune of Rs 300-700 per tonne.

In fact, following a weak monsoon season, the companies did try to hike prices in September, but the increase did not prove to be sustainable and a correction followed immediately in October. Steel companies also offered additional discounts in November to liquidate their inventories. On the other hand, costs have continued to rise. This has resulted in the steel companies taking a hit on margins. The situation however may change with turn of the year as rising cost and stronger global prices coupled with recovering demand will give companies more pricing power.

One of the key reasons for expected pick-up in global prices is the concerted effort by the steel producers including the Chinese ones to keep a balance between demand and supply and not flood the markets. Also, as the winter season eases going further in the March quarter, construction activity tends to improve in the southern hemisphere which will also boost steel demand.

In case of India, local prices are not only impacted by global prices but also the supply-demand equation. Weak demand and large imports have kept the prices down in most of the fiscal so far. However, demand is expected to increase significantly in the first quarter of 2011. Also, following the scrap of export incentives by Chinese government, steel imports into India are also likely to decline. Coupled with rebound in global prices and decline in imports, the increase in domestic demand will help producers push prices over coming months.

The S&P CNX Nifty touched a high and a low of 6,106.40 and 6,062.35, respectively.

Suzlon Energy up 5.99%, Tata Power up 1.98%, Tata Motors up 1.90%, HUL up 1.74% and NTPC up 1.57% were the major gainers on the Nifty.

On the other hand, HDFC Bank down 1.45%, BPCL down 1.29%, PNB down 1.05%, Kotak Mahindra Bank down 0.79% and ACC down 0.77% were the major losers on the index.

All the Asian equity indices barring KLSE Composite and Nikkei finished the trade in the positive terrain on Thursday on the back of increase in gold and copper prices which boosted commodities stocks across the globe. South Korean stocks too rose by about half a percent supported by purchases by funds, aimed at shoring up the year-end values of their portfolios. However Japanese Nikkei fell more than one percent as dollar weakened to a seven-week low against the yen.

Shanghai Composite rose 8.05 points or 0.29% to 2,759.57, Hang Seng increased 30.04 points or 0.13% to 22,999.34, Jakarta Composite advanced 4.30 points or 0.12% to 3,703.51, Straits Times added 4.55 points or 0.14% to 3,212.46, Seoul Composite surged 7.51 points or 0.37% to 2,051.00 and Taiwan Weighted was up 41.56 points or 0.47% to 8,907.91.

On the flip side, KLSE Composite was down 5.43 points or 0.36% to 1,518.91 and Nikkei 225 declined 115.62 points or 1.12% to 10,228.92.

European markets were trading mixed on Thursday. France's CAC 40 trimmed 0.35% and Germany's DAX shed 0.20%, while Britain's FTSE 100 added 0.06%. 

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