Towering food inflation take benchmarks below crucial levels

Indian benchmark indices continued their struggle for the third consecutive session of trade as they went home with about half a percent of loss. Subdued sentiments ahead of the corporate earnings season coupled with sharp surge in food inflation numbers weighed heavily on the frontline indices. The fifty shares nifty slipped over half a percent to settle a tad below the psychological 6,050 mark while BSE's 30-share sensitive index, Sensex registered over a hundred points cut to settle around the crucial 20,200 level. The broader markets remained underperformers by quite a margin today after they witnessed intense selling pressure and the BSE's midcap and smallcap indices closed in the red territory for the third straight day. Rate-sensitive's like banking, realty and auto counters the witnessed the maximum brunt today amid growing apprehensions that the towering food inflation will pressurize the Reserve Bank of India (RBI), which left benchmark policy rates unchanged in the last review, to step down from its self imposed moratorium in November review and tighten the stance of monetary policy further in the forthcoming policy review scheduled for January 25. Real Estate counter remained in doldrums and lost about two and half a percent on the BSE, being the biggest laggard in the space. Auto heavyweight Bajaj Auto plummeted 3.60% on Wednesday, on concerns that the two-wheeler industry growth would moderate over FY12-13 and competition would intensify. While fertilizer stocks took a deep cut after a group of ministers (GoM) headed by finance minister Pranab Mukherjee deferred its decision to decontrol urea prices and bringing it under the Nutrient Based Subsidy (NBS) policy regime for now even as a panel of secretaries were asked to work out a viable model for decontrolling the prices. Among the other losers, cement producers including Ambuja Cement and ACC sulked 5.15% and 4.25% respectively ahead of the earnings season, on fears that companies will face cost pressure on increasing coal prices. On the other hand, Information technology stocks bucked the weak markets for the second straight day and witnessed some buying interests today taking cue from the strength in the dollar.

On the global front, cues remained positive from the Asian counterparts which closed mostly in the green led by the Japanese markets where the dollar strengthened against the yen following robust US private-sector jobs data and boosted earnings prospects for exporters. All key benchmark indices in Europe were trading in the positive region with DAX being the biggest gainer in the space after soaring around a percent. The screen trading for US index futures also indicates that the Dow could gain 0.24% at the opening bell.

Earlier on the Dalal Street, the bourses commenced the day in the green zone tracking Asian markets which gained strength after the US markets closed on a strong note on getting better than expected jobs report. But the frontline indices drifted into the red soon and afterwards commenced a south bound journey for the day. The benchmarks gyrated in a narrow range through the day and huge bouts of profit taking in the dying hours led the bourses go home with cuts of around half a percent. Volumes in the local markets picked up to some extent to around Rs 1.20 lakh crore while the turnover for NSE F&O segment too remained on the higher side compared to Wednesday at over Rs 1.01 lakh crore. The market breadth on the BSE was extremely negative; there were 995 shares on the gaining side against 1861 shares on the losing side while 161 shares remained unchanged. Meanwhile, the oil and gas minister Murli Deora cleared on Wednesday that there was no immediate plan to hike the prices of diesel at this stage despite the fact that global crude oil prices have been on the rise resulting in significant increase in the under recoveries of the oil marketing companies (OMCs). Rise in diesel prices results in a cascading impact and directly impacts the prices of most consumer goods. An increase in retail prices of diesel, which is the main transportation fuel, will lead to rise in freight costs, forcing producers to hike prices for nearly every commodity. A 5% increase in diesel prices, which the government has been contemplating earlier, could lead to nearly 1% jump in overall wholesale prices index (WPI) after accounting for cascading impact. 

On charts: The S&P CNX Nifty managed to settle above the crucial 6020-mark in trade today but the undertone remained extremely cautious. The index took a support around 6022-level during the session, which is the 38.20% retracement of the rally started on December 10, 2010.  The Nifty has started its reverse journey since January 04, 2011 after touching a high of 6181.05. Going forward, the index may find strong resistance around 6080.73 (23.60% retracement) and 6180 while on the downside 5,992 and 5,964 will be the important support levels to watch.

The BSE Sensex plunged 116.36 points or 0.57% at 20,184.74. The index touched a high and a low of 20,425.85 and 20,107.17 respectively. The advances and the declines were in the ratio of 11:19.

The BSE Mid-cap and Small-cap indices tanked 1.18% and 1.04%, respectively.

The main losers in the BSE sectoral space were Realty down 2.41 %, Capital Goods down 1.88%, Auto down by 1.59%, Consumer Durables (CD) was down by 1.41 % and Bankex down by 1.14%.

On the other hand emerging as the only gainers in the BSE sectoral space were stocks from Information Technology (IT) up 0.47% and TECk up 0.37%.

SHARIAH 50 trimmed 9.87 points or 0.79% and settled at 1,236.51.It touched a high of 1,252.44 and 1,231.46.

Meanwhile, 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 rapidly. The development will put a lot of pressure on the central bank to tighten monetary policy further.

According to the data released by the ministry of commerce and industry, India's food price index rose 18.32% on annual basis during week-ended Dec 25, substantially faster compared with 14.14% in the week-ended Dec 11. The pace of rising food prices now is once again close to year-ago levels of around 20%. On a sequential or week-on-week basis, the index for food goods rose by whooping by 2.50 % to 192.5 from 187.8 for the previous week due to higher prices of fruits and vegetables (7%) and milk and egg (2%). This was sixth consecutive week of rise in index, suggesting prices were continuing to rise despite expected increase in supply of farm commodities.

The index for 'Non-Food Articles' group on the other hand declined by 0.5% to 172.2 compared with 173.0 for the previous week. The broader 'Primary Articles' index, which has a weight of 20.12% in the overall wholesale price index (WPI), however increased by 1.95% to 193.4 compared with 189.7 for the previous week. The annual rate of inflation, calculated on point to point basis, for this group surged to 20.20% from 17.24% for previous week.

The index for 'Fuel & Power' with a weight of 14.91% in overall WPI on the other hand remained unchanged at its previous week's level of 150.70. The annual rate of inflation for this group too remained unchanged at 11.63%. However, the fuel inflation is still high in an absolute sense and the government is understood to have deferred a hike in diesel prices for now to help keep fuel inflation from rising further.

The top gainers on the Sensex were Hindalco up 1.70% TCS up by 1.39%, NTPC up 1.33%, Bharti Airtel up 0.96% and RIL up 0.94%.

The stocks that faced the immense selling pressure on the Sensex were Sterlite Industries down 3.80%, Bajaj Auto down by 3.60%, ONGC down by 3.17%,Cipla down by 3.05% and Maruti Suzuki down by 2.99%.

The oil and gas minister Murli Deora cleared on Wednesday that there was no immediate plan to hike the prices of diesel at this stage despite the fact that global crude oil prices have been on the rise resulting in significant increase in the under recoveries of the oil marketing companies (OMCs).

"We are trying to see that there is no further price increase (in diesel)," the minister said while talking to reporters. "If crude oil prices increase then something will have to be done, but we are doing our best to ensure that the prices of the essential commodities do not increase further," he added.

Rise in diesel prices results in a cascading impact and directly impacts the prices of most consumer goods. An increase in retail prices of diesel, which is the main transportation fuel, will lead to rise in freight costs, forcing producers to hike prices for nearly every commodity. A 5% increase in diesel prices, which the government has been contemplating earlier, could lead to nearly 1% jump in overall wholesale prices index (WPI) after accounting for cascading impact.

The S&P CNX Nifty shed 31.55 points or 0.52% to 6,048.25. The index touched a high and a low of 6116.15 and 6022.30, respectively. The advances and the declines were in the ratio of 17:33

The top gainers on the Nifty were Sun Pharma up 2.45%, TCS up by 1.90%,HCL Technologies up by 1.62%,Hindalco Industries up by 1.54% and NTPC up by 1.38%.

The top losers on the index were Ambuja Cements down 5.43%, ,ACC down by 4.17%, Sterlite down 3.66%, Bajaj Auto down by 3.64% and ONGC down by 3.42%.

The European markets were trading in green. CAC-40 increased 0.83%, FTSE 100 advanced 0.64% and DAX surged 0.97%.

Most of the Asian equity indices finished the trade in the positive terrain on Thursday led by the japanese market where the dollar jumped against the yen following robust US private-sector jobs data and boosted earnings prospects for exporters. Japanese Nikkei climbed to an eight-month high and ended the session with a gain of about one and a half percent. Taiwan's stocks rose about half a percent led by Yuanta Financial Holdings, surged over six percent in the day's trade on news it would sell its stake to Singapore stock broker Kim Eng.

Asian Indices	Last Trade	Change in Points	Change in %
Shanghai Composite	2824.20	-14.40	-0.51
Hang Seng	23,786.30	28.48	0.12
Jakarta Composite	3736.26	-47.45	-1.25
KLSE Composite	1568.37	2.20	0.14
Nikkei 225	10529.76	148.99	1.44
Straits Times	3279.70	25.45	0.78
Seoul Composite	2077.61	-4.94	-0.24
Taiwan Weighted	8883.21	36.90	0.42

 

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