Benchmarks remain range bound; food inflation surges to 14.44%

The key benchmark indices continue to trade rang bound in positive terrain, tracking other Asian markets which are trading mostly higher. The US index futures are also showing an up-tick in screen trade. Back home, the BSE's 30-share Sensex and the NSE's 50-share Nifty were trading above the crucial 20,300 and 6,070 levels, respectively. Currently, Public Sector Undertakings, Consumer Durables, Capital Goods, Information Technology and Fast Moving Consumer Goods sectors are trading firm, though Healthcare segment is flat. Meanwhile, despite today being the expiry of the December 2010 futures & options (F&O) contracts, markets are mainly trading in the range-bound manner, though volumes are pretty good today at this point of time at around Rs 80,000 crore. Buying activity was also seen in broader markets as BSE Mid-cap and Small-cap indices advanced 0.35% and 0.34%, respectively. The market breadth on the BSE was in favour of advances; there were 1498 shares on the gaining side against 1148 shares on the losing side, while 124 shares were unchanged.On the macro front, the government relesed data on India's food price index, which rose 14.44% in the week ended December 18, from 12.13% in the previous week.

The BSE Sensex gained 88.48 points or 0.44% at 20,344.51. The index touched a high and a low of 20,364.93 and 20,274.12, respectively.

The BSE Mid-cap and Small-cap indices advanced 0.35% and 0.34%, respectively.

The main gainers in the BSE sectoral space were Public Sector Undertakings (PSU) up 0.94%, Consumer Durables (CD) up 0.92%, Capital Goods (CG) up 0.75%, Information Technology (IT) up 0.70% and Fast Moving Consumer Goods (FMCG) up 0.65%; while Healthcare (HC) down by 0.04% was the only loser in the BSE sectoral space.

Meanwhile, food inflation in the country is again on the rise after having 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. 

The major gainers on the Sensex were Tata Power up 1.29%, Wipro up 1.13%, Tata Motors up 1.10%, HUL up 1% and BHEL up 0.88%.

On the flip side, HDFC Bank down 1.29%, RCom down 1.01%, ONGC down 0.66%, Cipla down 0.57% and DLF down 0.33% were the major losers in the BSE sectoral space. 

The notices sent by the Department of Telecommunications (DoT) to new operators for missing rollout obligations seem to have worked quickly. At least three Indian telecommunication companies including Etisalat DB Telecom, Loop Telecom and Unitech Wireless have paid a penalty to the union government for the delayed launch of mobile services compared with laid down rules.

Earlier, the government had issued showcause notices to all the new operators accusing them of failing to meet the roll out obligations. 'Etisalat DB has received communication from the DoT for imposition of liquidated damages towards roll-out obligation for the first year in respect of four telecom circles aggregating to Rs.9.9 crore. Etisalat DB has made payments for Rs.9.9 crore under protest,' the company said in a statement. Similarly, Uninor, a joint venture between India's Unitech and Norway's Telenor, also said that the company has deposited the penalty as claimed by DoT.

Even though companies have paid the penalties, these continue to contend that they had no fault in the matter and delays occurred due to government policies of restricting import of telecom gear and also delayed allocation of spectrum which is crucial for launching the services. All the companies said they paid the fines but under protest. The government and Telecom Regulatory Authority of India (TRAI) however do not agree with companies' argument.

Earlier, a report by the Comptroller and Auditor General (CAG) of the country had raised a storm when it observed that the decision of the telecom ministry to give away the licences in 2008 at 2001 prices had resulted in a loss of up to Rs 1.76 lakh crore (based on 3G auction price). The apex auditor also accused of new operators of hoarding spectrum and not following the rollout requirements as agreed under the license.

The S&P CNX Nifty rose 19.55 points or 0.32% to 6079.90. The index touched a high and a low of 6087.40 and 6062.35, respectively. 

The top gainers on the Nifty were Suzlon Energy up 2.32%, Tata Power up 1.32%, Wipro up 1.19%, Tata Motors up 1% and HUL up 1%.

The top losers on the index were RCom down 1.26%, Kotak Mahindra Bank down 1.01%, HDFC Bank down 0.94%, BPCL down 0.84% and SAIL down 0.83%.

Other Asian markets were trading mostly in the positive terrain. Shanghai Composite rose 0.29%, Hang Seng soared 0.14%, Jakarta Composite climbed 0.23%, Straits Times advanced 0.16%, Seoul Composite added 0.37% and Taiwan Weighted surged 0.47%, while KLSE Composite trimmed 0.13% and Nikkei 225 plunged 1.12%.

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