Markets hover near their day’s low; BSE Auto index down 2.21%

The local equity markets are hovering near their day's low level in the late-morning session on getting disappointing food inflation data as investors continued selling on concern of policy rate hike that dragged the Sensex from its psychological 20,000 levels and nifty from 6000. In the mean time mixed trend in the Asian region was unable to give any support, though US futures were trading in green in the screen trade. Back home, The BSE Auto index was down 2.21% and it has lost more than 6.20% in five sessions from a recent high of 10,235.41 on 31 December 2010.Auto stocks have corrected recently as interest rates are on rise, higher interest rates costs more for consumers to borrow money for buying a vehicle. At the same time the higher commodity prices too are pinching auto firms on the margin side. Correction was due after these stocks witnessed solid rally last year. The BSE Auto index had risen 30.21% compared with the Sensex return of 14.03% till 6 January 2011. The broader indices were also trading in negative terrain. The market breadth on the BSE was negative; there were 1862 shares on the loser's side against 822 shares on the gainers side, while 74 shares were unchanged. The S&P CNX Nifty may face resistance around 6052 mark whereas support will be around 5950 mark for the day

All the major Auto companies were trading lower, Mahindra & Mahindra (down 3.63%), Ashok Leyland (down 3.23%), Tata Motors (down 2.65%), TVS Motor Company (down 2.88%), Maruti Suzuki India (down 1.30%), Bajaj Auto (down 1.38%) ,Escorts (down 1.12%),  and Hero Honda Motor (down 0.81%),. In the sectoral space there were no gainers at this pint of time.

The BSE Sensex shed 190.79 points or 0.95% at 19993.95. The index touched a high and a low of 20,210.62 and 19951.48 respectively.

The BSE Mid-cap index and Small-cap index were down by 1.22% and 1.36% respectively.

The main losers in the BSE sectoral space were Auto down by 2.21%, Consumer Durables (CD) down 1.89% , Metals down by 1.80%, TECk down by 0.90% and  IT down by 0.81%, while there were no gainers in the BSE sectoral space.

The major gainers on the Sensex were  ICIC Bank up 0.91%, Reliance Communication up 0.79%, Cipla up 0.59%, Reliance Infra up 0.58% and Sterlite Industries up 0.08%

On the flip side,Hindalco down by 3.63%, M&M down by 3.62%, Tata Motors down by 2.65%, HDFC Bank down by 1.97% and Tata Steel was down by 1.94% .

Union finance minister Pranab Mukherjee said on Thursday that the sticky food inflation was because of rising demand for primary commodities amidst increasing incomes as well as problems in supply chain management. While demand cannot be lowered and supply increase will only be gradual, supply chains can be managed well to increase their efficiency, he said.

Mukherjee has in this wake asked the state governments to urgently look into the supply management of items that are driving the current round of food inflation in the economy, in particular looking at the local factors that are widening the gap between the wholesale and retail prices. State governments need to ensure that all bottlenecks in the supply chain are removed, said Mukherjee.

The finance minister while reacting to the recent figures of food inflation which have shown a surge in the last few weeks and touched 18.32% for the week ending December 25, 2010 said that it was a matter of worry and more steps will be taken to bring down prices. Food inflation for the week ending December 25 was more than doubled from its level of 8.6% on November 20, 2010.

Mukherjee argued that that much of this inflation has been due to significant increase in the prices of a few primary items like fruits and vegetables, milk, meat, poultry, eggs and fish. He said that in fact, in the week for which the data has been released today, three-fourths of food inflation is explained by inflation in vegetables, and nearly one-fourth is explained by inflation in milk. While there are some weather induced supply constraints on some of these items, which go against the seasonal decline normally seen at this time of the year, a large part of price rise is due to widening gap between the wholesale and retail prices and the growing demand for these products due to rising income levels.

The union government now seems better to appreciate the sticky nature of food inflation that was pointed out by the Reserve Bank of India (RBI) some time ago a study. While the government has earlier been hoping for inflation to come down as Kharif crop comes in markets, the RBI had said that faster growth and resulting increased disposable income was also responsible for increasing demand of food commodities and hence surge in prices and therefore only a significant increase in supply could cure this issue. 

The S&P CNX Nifty trimmed 64 points or 1.06% to 5,984.25. The index touched a high and a low of 6051.20 and 5976.50, respectively.

The top gainers on the Nifty were Sun Pharma  up 1.88%, Reliance Communication up 0.89%, Cairn up 0.85% ICICI Bank  up 0.70% and Powergrid up 0.66%.

The top losers on the index were Hindalco down 4.83%, M&M down 3.77%, Sesa Goa down 3.53%, Tata Motors down 2.99% and SAIL was down 2.84%.

The other  regional peers were trading mixed; Jakarta Composite declined 2.12%, Straits Times shed 0.59% and Taiwan Weighted decreased 1.13%, whereas KLSE  composite inched up  0.15%,Shanghai Composite moved up 0.63%,Hang Seng increased  by 0.09%, Nikkei surges  0.11% and Seoul Composite up 0.41%.

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