Markets remain lethargic in trade; Sensex down 130 points

After starting today's session on a weak note, Indian indices continue to trade in the negative territory even in late-afternoon trades. The Asian markets, though are trading mixed as commodity stocks were hit by lower prices of gold and crude due to stronger dollar. The US index futures were also showing down-tick in screen trade at this point of time. On the Dalal Street, the BSE's 30-share Sensex and the NSE's 50-share Nifty were moving in a tight range. Stocks from Fast Moving Consumer Goods, Oil & Gas, Information Technology, Consumer Durables and Healthcare space are witnessing some buying interest while stocks from Bankex, Capital Goods, Realty, Auto and Metal space are trading in the red. Meanwhile, investors cashed out of banks for the second consecutive day as several banks have raised deposit rates in the past week which are expected to hurt their margin in the near term. Index heavyweight Reliance Industries (RIL) bucked the weak trend and is trading in the positive zone with gains of more than half a percent on its plan to establish a $1.2 billion liquefied natural gas (LNG) import terminal on either the east or west coast in order to meet demand at its refineries and petrochemical plants. Meanwhil, broader markets also continue to reel under pressure as the BSE Mid-cap and Small-cap indices slipped 0.66% and 0.35%, respectively. The market breadth on the BSE was in favour of declines in the ratio of 1643:1104 while 103 scrips remained unchanged.

The BSE Sensex lost 130.11 points or 0.63% at 20,368.61. The index touched a high and a low of 20,509.95 and 20,349.37, respectively.

The BSE Mid-cap and Small-cap indices slipped 0.66% and 0.35%, respectively.

The main losers in the BSE sectoral space were Bankex down 2%, Capital Goods (CG) down 1.11%, Realty down 1.01%, Auto down 0.81% and Metal down 0.65%.

On the other hand, Fast Moving Consumer Goods (FMCG) up 0.45%, Oil & Gas up 0.21%, Information Technology (IT) up 0.19%, Consumer Durables (CD) up 0.13% and Healthcare (HC) up 0.11% were the only gainers in the BSE sectoral space.

Meanwhile, even as the Indian economy remains in the bullish zone with strong growth outlook, the foreign direct investment (FDI) into the country has gone down by 7% in the month of November. FDI in Nov stood at $1.6 billion compared with $1.72 billion in the same month a year ago.

The November decline was the second consecutive month of downturn after a brief uptic seen in September, and has only confirmed a poor trend in the FDI this fiscal. The cumulative FDI inflows in the current fiscal so far (April- November 2010) now stand at just $14 billion, registering a decline of 27.4% when compared with FDI of $19.32 billion in the corresponding year-ago period.

The decline in FDI comes despite the fact that Indian government has been working towards making the FDI regime more liberal. The commerce and trade ministry had recently also released a compilation of all FDI related rules to increase the awareness and make it easy for foreign investors to understand rules governing investment in the second fastest growing country in world.

Further, this is perhaps the worst time to loose on FDI as India needs greater capital inflows in wake of the surge in current account deficit to record highs in September quarter. Economists expected that CAD can surge to over 3.5% in the current financial year compared with 2.7% in the last year. Although the foreign portfolio inflows are likely to remain robust going forward, FDI is much less volatile than portfolio flows and therefore is preferred over the latter route by the receiving country. 

The top gainers on the Sensex were Hindalco Inds up 1.44%, Tata Power up 1.42%, TCS up 1.01%, Jaiprakash Associates up 0.88% and ITC up 0.87%.

ICICI Bank down 2.83%, Bajaj Auto down 2.49%, HDFC down 2.11%, DLF down 1.90% and Sterlite Inds down 1.78%, were the top losers on the index.

The Indian government expects that fiscal deficit in the current financial year will be less than the budgeted target of 5.5% of the gross domestic product (GDP) even as its subsidy expenditure, particularly in fuel and fertilizer sectors, is expected to rise, due to potentially faster growth in the revenues.

Secretary in the ministry of finance Ashok Chawla has said in an interview given to a financial daily that government would be able to end the FY11 with a deficit figure of lower than 5.5% as tax collections were showing greater buoyancy than what was envisaged while preparing the budget last year. Also, the non-tax revenue has already exceeded the budgeted target.

The trend in the fiscal deficit is already clear in that the figure has come down by nearly 40% in the April-November 2010 period at Rs 1,86,522 crore compared with Rs 3,06,221 in the corresponding period of the previous year.  The decline is primarily because of improved tax revenue growth and windfall gain of Rs 1.06 lakh crore in the non-tax revenue from sale of telecom spectrum against a budgeted estimate of Rs 35,000 crore.

The Indian government was successful in cutting down the high fiscal deficit, which was a legacy of the excessively regulated economy till 1990s, in the last decade. However, years of good work was washed away following the global financial crisis when the government had to launch fiscal stimulus to help boost a slowing economy. As a result, fiscal deficit jumped to over 6.5% in FY09 from less than 3% in FY08.

The government has, in the Union Budget for 2010-11, announced a road map for a return to fiscal consolidation and measures for fuel price liberalization and proposed tax reforms including the direct tax code (DTC) and goods and services taxes (GST) are expected to aid this process. According to a recent publication by the RBI, going forward, fiscal consolidation will necessitate focusing on the 'quality of adjustment', which would involve substantial expenditure compression under-pinned by revenue-led correction while ensuring that capital outlay to aid medium-term growth prospects are not affected.

The S&P CNX Nifty trimmed 45.65 points or 0.74% to 6100.70. The index touched a high and a low of 6141.35 and 6093.85, respectively. 

The top gainers on the Nifty were HCL Tech up 1.97%, Sun Pharma up 1.83%, Tata Power up 1.16%, GAIL up 1.13% and ITC up 1.13%.

The top losers on the index were ICICI Bank down 2.93%, Axis Bank down 2.56%, Bajaj Auto down 2.55%, HDFC down 2.49% and Kotak Mahindra Bank down 2.32%.

Other Asian markets are trading mixed at this point of time. Hang Seng increased 0.14%, Jakarta Composite gained 0.24%, KLSE Composite added 0.94% and Straits Times rose 0.26%.

On the flip side, Shanghai Composite shed 0.49%, Taiwan Weighted trimmed 1.68%, Nikkei 225 decreased 0.17% and Seoul Composite declined 0.12%.

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