Domestic equity markets retrieve some of the lost ground

Domestic equity market continue to trade in negative terrain on the back of profit taking seen in index pivotal, though the benchmarks have trimmed some of its looses but overall mood remain cautious and traders are staying on the sidelines ahead of the Food inflation data due later in the noon and December headline inflation which will provide clues on how much the central bank would tighten policy on January 25. The markets which had day up yesterday after six sessions of losses drifted lower in early trade after IT bellwether Infosys reported muted earnings. Infosys Technologies, India's second-largest software services exporter, today reported 2.5% drop in sequential consolidated net at Rs 1,780 crore for the quarter ended December 2010 as against Rs 1,737 crore in the preceding September 2010 quarter. However, broader indices are keeping up the spirit and are trading in green deriving some strength from the positive global cues, as regional counterparts are trading upbeat mood. Meanwhile, the US future indices too are showing an uptick on the screen trade. Back Home, on the sectoral front, stocks from IT, TECk, Bankex, Consumer Durables and Healthcare are edging lower in the trade, while stocks from Realty, Capital Goods, Oil & Gas, Metal and Auto space are garnering investor's attention. The overall market breadth on the BSE, is in the favour of advances which have outperformed declines in the ratio of 1301:842, while, 89 shares remained unchanged.

The BSE Sensex is currently trading at 19,447.71, down by 86.39 points or 0.44%. There were 16 stocks advancing against 13 declines while one stock remained unchanged on the index.

The broader indices were outperforming benchmarks; the BSE Mid cap and Small cap indices were up by 0.52% and 0.63% respectively.

The top gaining sectoral indices on the BSE were, Realty up by 0.69%, Capital Goods up by 0.36%,Oil & Gas up by 0.25%, Metal and Auto were up by 0.24%, while, IT down by 1.73%, TECk down by 1.18%, Bankex down by 0.80%, Consumer Durable down by 0.51% and  Health Care down by 0.26% were the major losers on the index.

Meanwhile,credit demand in India is on the rise as the economy grows at a robust pace of close to 9% even as the deposit growth continues to lag. The central bank has been urging banks to raise more deposits to bring the two legs of financial intermediation in balance in order to avoid a structural liquidity crisis going forward.

According to the latest released by the Reserve Bank of India (RBI), credit growth in the year ending December 31 increased to 24.42% compared with a low of 13% in the previous year. Total outstanding credit at the end of the last calendar year stood at Rs 37.63 lakh crore as compared with Rs 30.24 lakh crore a year ago.

Deposit growth however continues to lag the strong credit demand. Bank deposits grew by 16.46% over the last year to touch Rs 49.71 lakh crore at the end of 2010. Deposit growth over the calendar year 2009 was recorded at 17.7% with total deposits of Rs 42.6 lakh crore at the end of 2009. Deposit growth went down for nearly a year before recovering slowly in the second half of 2010 but still continue to be behind the trend growth rate as well as current credit growth.

The RBI had earlier raised concerns on the poor credit expansion saying that it was one of the reasons for tight liquidity prevailing in the markets. Banks have been borrowing close to Rs 1 lakh crore over last couple of fortnights from the RBI through its liquidity adjustment facility. In the customary pre-policy meet with the central bank, bankers urged for a reduction in cash reserve ratio of (CRR) and statutory liquidity ratio (SLR) to help ease the tight cash scenario. The central bank while has already taken some steps towards this end including a cut in SLR last month, wants the banks to improve deposit mobilization.

The banks have taken some steps off-late like hiking the fixed deposit rates and there are some indications that the incremental deposit mobilization is reaching close to credit disbursal. This is reflected in the fact that on a fortnightly basis, credit grew 3.39% and deposits 3.58% over the 15 days ending December 31. Clearly the recent deposit rate hikes is working but banks will need to further improve deposit mobilization to ensure that at a time when RBI is raising its short term lending rates, they do not have to depend much on its repo facility.

The top gainers on the Sensex were Reliance Communication up by 2.68%, TCS up by 1.48%, Reliance Infra up by 1.33%, DLF up by 1.20% and Jaiprakash Associates up by 1.19%.

Infosys down by 3.70 %, ICICI bank down by 1.50%, Hero Honda and Jindal Steel were down by 1.21% each and SBI was down by 0.93%.

The Indian government is set to review the cap on cotton exports from the country on Friday. The Empowered Group of Ministers (EGoM) under chairmanship of union finance minister Pranab Mukherjee had said while formulating the 5.5 million bales (of 170 kg each) limit on exports that the quota would be reviewed in January when a clearer picture of harvest emerged.

The review comes in backdrop of upward revision in estimates of cotton production in the current season starting September 2010. India's Cotton Advisory Board (CAB) had recently revised upward estimate of harvest to 32.9 million bales. Cotton Association of India (CAI) on the other hand expects even greater upside and has estimated the current season's production to be 34.75 million bales of 170 kg each.

The CAI has been demanding the export cap to be hiked. President of the CAI Dhiren Sheth said on Wednesday that he was expecting the cap to be hiked on account of upward revision in the production estimates. Cotton exporters have been contending that if surplus commodity was not exported, it will result in excess supply in domestic market leading to slump in prices and hence will hurt the interests of farmers.

The textile industry on the other hand is lobbying hard to prevent any further exports of cotton. Already the prices of cotton have more than doubled over last one year and further exports will only boost prices in the domestic market. The industry had recently in a letter to the Prime Minister Manmohan Singh demanded immediate ban on export of cotton and cotton waste in wake of recent surge in prices in both Indian and international markets.

The government will in this context evaluate a decision to hike the export limit. Commerce secretary Rahul Khullarhas said recently that in case of production turning out to be more than estimates, there was a case for higher exports, but did not commit on whether the cap would be hiked. There is speculation in the market that exports of additional 2 million bales may be allowed. A committee of secretaries comprising of finance, agriculture and textile secretaries is expected to take a call on this issue on Friday.

The S&P CNX Nifty is currently trading at 5,836.60, down by 26.65 points or 0.45%. There were 25 stocks advancing against 25 declines on the index.

The top gainers of the Nifty were Ambuja Cement up by 3.54%, Reliance Communication up  by 2.45%, ACC up by 1.95%, Kotak Bank up by 1.70% and TCS up by 1.40%.

The top losers of the index were Infosys down by 3.87%, ICICI Bank down by 1.52%, Jindal Steel and Dr Reddy both down by 1.46% and Hero Honda was down by 1.35%.

Majority of the Asian equity indices were trading in the green; Shanghai Composite was up by 0.04%,Hang Seng was up by 0.50%, Jakarta Composite was upby 1.05%, KLSE Composite was up by 0.21%, Nikkei 225 was up by 0.62%, Straits Times was upby 0.20%, and Taiwan Weighted was up by 0.10%.

While, Seoul Composite down by 0.39% was the lone gainer in the Asian pack.

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