Downward trend continues for the benchmark indices

The benchmark equity indices continue to trade in the downward direction, in view of the jump in food inflation that rose above 18% for the week ended December 25, 2010. Meanwhile the global cues remain mixed as rest of the Asian markets settled mixed while major European markets are trading in green and Dow future too was trading in green but these cues were unable to lift the sentiments of the local markets. Back home both the benchmark indices, Nifty and Sensex, are trading above their psychological levels of 6000 and 20,100 respectively and the Index heavy weight scrip like Reliance and Bharti were  trying to give some support to the markets   up by  1 % and 0.95% respectively .On the sectoral front, keeping up the momentum are stocks from TECk, and Information Technology space, while, stocks from Reality, Capital Goods ,Fast Moving Consumer Goods (FMCG) ,Auto  and Consumer Durables counters are down and out. The broader indices too have surrendered to the selling pressure as both Midcap index and Small cap index have bowed down by 1.1% and 0.93% respectively. The market breadth on the BSE is extremely negative; there were 1890 shares on the gaining side against 915 shares on the losing side, while 107 shares remain unchanged. Banking counters continued to witness hammering from the bears. Food inflation in the country is again on the rise after having declined to single digits by end of November and has increased very rapidly over the last several weeks. Further, the hike is not only due to surge in prices of one or two commodities like onions as the inflation in broader primary goods segment is also increasing equally. The development will put a lot of pressure on the central bank to tighten monetary policy further.

In the mean time cements stocks like Grasim Industries, Ambuja Cement , ACC , Ultratech Cement and Jaiprakash Associates  were trading lower as institutions sold ahead of the earnings season on fears that companies will face cost pressure on increasing coal prices, cement prices have been increased by rupees 7-8 per bag in the western and southern regions from beginning of January, and the northern region is likely to see a similar price hike in the near term. However, some brokerage houses are maintaining their negative stance on the sector as the key concern of oversupply remains due to capacity addition and cost pressure due to higher coal prices.

The BSE Sensex trimmed 127.38 points or 0.63% at 20,173.72. The index touched a high and a low of 20,425.85 and 20,107.17 respectively.

The BSE Mid-cap and Small-cap indices slipped 1.1% and 0.93%, respectively.

The main losers in the BSE sectoral space were Reality down 2.07%,Capital Goods down 1.76%, Fast Moving Consumer Goods (FMCG) down 1.59%, Auto down by 1.22% and Consumer Durables (CD) was down by 1.06%.

On the other hand, Information Technology (IT) up 0.19% and TECk up 0.13% were the only gainers in the BSE sectoral space.

The top gainers on the Sensex were NTPC up 1.23%, Reliance Infra up 1.21%, RIL up 1.13 Hindalco up 0.95% and Bharti Airtel up 0.90%.

Sterlite Industries down 3.88% ,HUL down 3.44%, Cipla down 3.32%, Bajaj Auto down 3.31% and ONGC down 3.16% were the top losers on the index.

There is room for further monetary policy tightening in the country as the inflation continued to rule higher than the comfort zone, said the Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan. He however added that by the end of the current fiscal the headline inflation would come down to 6-6.5%.

'We have always thought that inflation rate should remain close to 4%. Therefore, I would regard any inflation above that level as uncomfortable and may need the RBI to take some action... Inflation is likely to be around 7% by December end and between 6% and 6.5% by March end,' Rangarajan said while talking to reporters on the sidelines of a function.

India's headline inflation slowed to 7.48% in November from 8.58% in October, but the prices of food articles have gone up sharply in recent weeks. In fact the food inflation that had gone down into single digit by end of November has surged again to 14.44% for the week ending December 18, on account of high onion and milk prices. As such, the outlook of inflation remains rather mixed despite the Kharif crop making a strong growth last season.

Chief Economic Adviser to the Finance Ministry, Kaushik Basu, who was also present at the function, blamed the recent surge in prices of some of the food commodities like onions on supply chain issues and cartelization by traders. He said greater investment in back-end infrastructure would be needed to rein in food inflation in the medium term. The RBI has also been doing a study on surging food prices and had said recently that as the average income level increases in a rapidly growing economy, people tend to buy more protein based food which was the main reason behind high food inflation.

Talking about fiscal deficit, which has been a matter of grave concern for many economists, Rangarajan said that the government was very much on road to meet the fiscal deficit target of 5.5% of the gross domestic product (GDP) in FY11. 'There is no need for extra borrowings this fiscal. We also expect the liquidity situation to improve this quarter,' he explained adding that medium term fiscal consolidation roadmap that was outlined in the FY11 budget would not be difficult to be followed.

The S&P CNX Nifty shed 37.90 points or 0.62% to 6041.90. The index touched a high and a low of 6116.15 and 6022.35, respectively. 

The top gainers on the Nifty were Sun Pharma up 1.81%, RPower up 1.19%, Bharti up 1.15%, NTPC up 1.15% and Reliance Infra up 1.12%

The top losers on the index were Ambuja Cements down 4.76%,Sterlite down 3.93%, HUL down 3.62% and ACC was down 3.34%

Majority of the regional peers settled mixed.Shanghai Composite shed 0.51%,Jakarta Composite declined 1.40%  and  Seoul Composite declined 0.24% while  KLSE  composite gained 0.14%,Hang Seng  increased  by 0.12% Straits Times inched 0.67%, Taiwan Weighted advanced 0.42% and Nikkei surged by 1.44%.

The European markets were trading in green. CAC-40 increased 0.41%, FTSE 100 advnced 0.21% and DAX surged 0.37%.

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