Local equity markets show some amount of recovery

The local equity markets continue to trade choppy with positive bias in the late-morning session as bargain hunting from investors on selected stocks has emerged after the market slipped to four-month low in morning trade. On the other hand majority of the regional peers were trading in negative terrain while Dow future too showing downtick in the screen trade. Back home the recovery is led by Index heavyweight like ITC, HDFC and Infosys. The BSE IT sector, which was a hammered in the last week, is getting favor from the bulls today. Wipro up 1.61%, TCS up1.47% and Infosys up 1.38% has emerged as the top gainers on the BSE, meanwhile  Reality , Power , Capital Goods, Auto and Metal companies were witnessing selling pressure and the broader indices were trading in negative terrain. The market breadth on the BSE was negative; there were 1460 shares on the loser's side against 1084 shares on the gainers' side, while 123 shares were unchanged. The defensive sector, FMCG too has moved higher on buying from traders. Airline shares fell after state-run oil marketing companies raised jet fuel prices by 2% with effect from 16 January 2011 midnight.

In Asian stocks Chinese shares led losses on Monday after the Chinese central bank raised their reserve requirements by another 0.50 percentage points on Friday, 14 January 2011. The key benchmark indices in China, Hong Kong, Indonesia, Singapore Japan, South Korea and Taiwan fell between 0.12% to 2.8%.China's central bank on Friday raised the amount of money banks must keep on reserve for the seventh time in a year. It ordered state-owned banks to set aside an additional 0.5% of deposits as reserves, effective 20 January 2011.

The BSE Sensex increased 47.47 points or 0.25% at 18,907.91. The index touched a high and a low of 18967.53 and 18,779.38 respectively.

The BSE Mid-cap index and Small-cap index were down by 0.51% and 0.35% respectively.

The main gainers in the BSE sectoral space were  IT up 1.29%, FMCG up 1.17%, Bankex  up 0.82%, TECk up 0.80% and Consumer Durables (CD) 0.62%. Reality down 0.83%, Power down 0.82%, Capital Goods down 0.80%, Auto down 0.57% and Metal down 0.54% were the major losers in the sectoral space.

The major gainers on the Sensex were ITC up 2.11%, HDFC up 1.75%, Wipro up 1.61%, TCS up 1.47% and Infosys up 1.38%.

On the flip side, Reliance Infra down 5.09%, Reliance communication down 3.54%, JP associates down 2.30%, Hero Honda 2.14% and Sterlite Industries was down by 1.73% .

The Reserve Bank of India (RBI) has found in a recent study that even as the corporate sector witnessed substantial volume growth over the first half of the current fiscal, the growth in profitability has been rather muted as industries were facing higher costs in wake of rising prices and higher interest rates in the country.

Based on a study of 2576 select non-financial non-government companies the RBI inferred that sales growth, which had been flat in the first half of the previous financial year, was robust during April-September 2010 on account of rise in consumption demand and better price realizations seen over the latest period. Also, aggregate stock-in-trade was sharply built-up in the first half of 2010-11 to meet the rising demand.

Nonetheless, despite improvement in sales, profitability did not grow much on annual basis owing to rising costs. "...despite recording robust sales of about Rs 10 lakh crore, corporates on an aggregate could not improve their year-on-year profit performance largely on account of higher input costs, significant increase in interest payments and lower foreign exchange related gain," concluded the RBI in a study published in its monthly bulletin for January 2011.

"With faster increase in total expenditure in relation to sales, profitability in terms of operating, gross and net margins contracted by 140, 140 and 120 basis points, respectively, in the first half of 2010-11. Interest burden, which is measured as a ratio of interest payments to gross profits, increased by 90 basis points due to faster increase in interest outgo in comparison to gross profits. Depreciation provision reported a growth of 18.7% compared to more than 20% growth observed in the first half of last year indicating lower capacity additions," observed the RBI.

After having hiked its benchmark policy rates six times in current financial year, the central bank had earlier stated in Oct that in wake of rising cost of capital, it would not like to hike rates further in the short term. However, the inflation continues to remain a major problem and even as the central bank itself sees the rising interest rate regime as a dampener on growth, it might still hike rates further going forward to keep inflation expectations under control.

The S&P CNX Nifty was up by 9.35 points or 0.17% to 5663.90.The index touched a high and a low of 5682.05 and 5624.15 respectively.

The top gainers on the Nifty were Kotak Bank up 2.30%, Axis Bank up 2.24%, ITC up 1.99%, HDFC up 1.71% and Wipro up 1.65%

The top losers on the index were Reliance Infra down by 5.13%, Rpower down by 4.66%, Reliance Capital down by 4.13%, Reliance Communication down by 3.68%, and Sesa Goa down by 3.44%

The regional peers were trading in red; Shanghai Composite trimmed 2.89%%, Hang Seng declined 0.27%, Jakarta Composite slipped 1.11%, Straits Times dropped 0.11%, Seoul Composite shed 0.40% and Taiwan Weighted slid 0.83% whereas KLSE Composite up by 0.22% Nikkie 225  up 0.04% were the only gainers.

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