Benchmarks continue to shrivel amid an increasingly vulnerable domestic setup

Indian stock markets got pounded for yet another day of trade as local investors time and again squared off their positions after FIIs continued profit booking dragging the markets lower. It was the domestic investors who remained the primary sellers in today's session dragging the frontline indices to around seven month low levels. There was no stopping to the relentless selling pressure in the day's trade which has dragged down the benchmarks way below all key technical levels. The market leads from the European stock markets remained positive but of no avail as profit booking remained the order of the day. The NSE's 50-share broadly followed index, Nifty got pulverized to close near the low point of the day just above the 5,300 support level while the Bombay Stock Exchange's Sensitive Index Sensex plummeted way below the 18,000 level after collapsing over two hundred fifty points. The broader markets had to bear a brutal assault today as they went on to underperform their larger peers by quite a margin with BSE's midcap shaving off 2.42% and BSE's smallcap shelving  3.23%. All sectoral indices remained on sellers' radar with the Consumer Durables (CD) counter languishing at the bottom of the table with about 4% losses. Majors like VIP Industries and Titan industries sulked the most in the space as they took deep cuts of 7.15% and 6.02% respectively. The rate sensitive pockets like Real Estate, Auto and Bankex too lead the way down after drifting 3.08%, 2.70% and 2.28% respectively. Auto heavyweight M&M drenched close to 6%, being the top laggard on the Sensex while real estate major Unitech plunged 7.09% being the biggest loser in the realty space. ONGC too declined 5.58% on the BSE after the government said that legitimate concerns of state-owned ONGC will need to be addressed before it can approve Vedanta Resources' $9.6 billion acquisition of Cairn India.

On the global front, cues remained mixed, all Asian markets barring the Japanese and Malaysian benchmarks closed on a negative note as sentiments remained cautious since investors speculated that Chinese central bank might hike interest rates. While, the European counterparts are trading on a flat note, consolidating their position around the neutral line with DAX being the top gainer. On the other hand, the screen trading for US index futures indicates that the Dow could open on a flat note.

Earlier on the Dalal Street, the benchmarks started on a flat to positive note on the back of strong cues from the overnight US markets which got a lift from good earnings report and some merger announcements. However the indices plunged into the red after trading in the positive terrain for a brief period in the early trade as selling pressure gathered greater force. The frontline indices failed to show any kind of resilience thereafter and treaded on a southbound journey. The markets saw position squaring for most part of the day and eventually finished the day's trade around the low point of the day with massive losses of around one percentage point. The markets registered volumes of over Rs 1.25 lakh crore while the turnover for NSE F&O segment remained on the higher side at around Rs 1.25 lakh crore compared to Monday at over Rs 1.10 lakh crore in last session. The market breadth on the BSE was dreadfully negative as there were 551 shares on the gaining side against 2299 shares on the losing side while 136 shares remained unchanged.

Finally, the BSE Sensex flumped 261.49 points or 1.45% to settle at 17,775.70 while the S&P CNX Nifty crash-dived 83.45 points or 1.55% to end at 5312.55.

The BSE Sensex touched a high and a low of 18,141.51 and 17,742.18, respectively.

The top gainers on the Sensex were Bajaj Auto up 1.69%, Tata Power up 1.47%, Cipla up 0.83%, Hindalco Inds up 0.82% and Infosys up 0.24%.

M&M down 5.97%, ONGC down 5.58%, JP Associates down 5.21%, Reliance Communications down 4.20% and Hero Honda down 4.06% were the top losers on the index.

The BSE Mid-cap and Small-cap indices plunged 2.42% and 3.23%, respectively.

Meanwhile, in order to give some relief to inflation hit Indians, the government is likely to hike the tax exempt income ceiling from current Rs 1.6 lakh in the forthcoming General Budget to be presented by Union Finance Minister Pranab Mukherjee in the Parliament on February 28.

The government has already committed to raise the income tax exemption limit to Rs 2 lakh when it implements the Direct Taxes Code (DTC) in 2012-13. However, given the high inflation seen throughout the current fiscal, which has also been dubbed as main reason for slow growth in consumption of non-durables, the government may limit to Rs 2 lakh in FY12 itself.

Further, in order to give a boost to savings in the country, the government is also likely to enhance the limit of investment in accepted instruments to claim deduction from taxable income. At present the investment limit for which tax can be deducted stands at Rs 1.2 lakh including Rs20,000 in infrastructure bonds. The same might be hiked to Rs 1.4-1.5 lakh to encourage long-term savings.

The idea behind the potential move is that a higher saving rate gets translated into a higher investment rate, and higher investment as a percentage of gross domestic product (GDP), higher is the potential growth that an economy can achieve. For instance, the saving and investment rates in Indian economy were around 20 and 24% respectively in late 1990s when the economy was growing at around 6%. The same increased to 30/34% in early years of current decade that resulted in growth surpassing the 9% level in three years before the global financial crisis. China, which has seen growth in excess of 10%, has its saving/investment rates in mid-40s. 

All the BSE sectoral spaces were trading in the red. Consumer Durables (CD) down 3.81%, Realty down 3.08%, Auto down 2.70%, Bankex down 2.28% and Oil & Gas down 2.06% were the major losers.

As the global economy continues to post a steady though gradual recovery, India's Information Technology (IT) industry is also seeing robust recovery and after nearly flat numbers in last fiscal, total exports of the industry are likely to expand by around 19% in this financial year. Overall revenue will also see a similar growth to touch $76 billion compared with $59 billion last year.

Further, the industry was reinventing itself in order to move further up the value chain and was putting more stress on innovation. This will help the total exports to grow three-folds over the current decade to touch $175 billion by the end of current decade, said the NASSCOM, the top industry body representing the Indian IT companies.

'IT will continue to play a significant role in the transformational agenda of India. Export revenue is expected to increase three times at $175 billion by 2020. However, among the various segments in the sector, the IT segment will continue to perform better than the BPO industry and software and engineering products,' Nasscom President Som Mittal said on Monday.

Mittal said that the strong growth is possible because the total size of the market that Indian IT industry can service will also grow nearly three-folds over the same time. 'The addressable market is set to triple in size to touch $1.5 to $1.6 trillion from the present $500 billion and a large part of these new opportunities will come from SMB (small and medium businesses) segment and increased government spending,' said Mittal.

Traditionally, the Indian software industry has relied upon the US and UK as the key regions to get business from. During the economic slowdown when companies cut their IT spending, doubts were raised over the sustainability of Indian IT companies' business model. However, the industry has been reinventing itself, particularly in wake of the emergence of newer technologies such as the cloud, which offers software services over the internet, with NASCOMM providing the direction to smaller and mid-sized companies. 

The S&P CNX Nifty touched a high and a low of 5432.35 and 5303.40, respectively.

The top gainers of the Nifty were Bajaj Auto up 1.81%, Tata Power up 1.50%, Siemens up 0.91%, Cipla up 0.78% and Hindalco Industries up 0.75%

The top losers of the index were JP Associates down 6.49%, M&M down 6.16%, ONGC down 5.83%, Kotak Mahindra Bank down 5.23% and Hero Honda down 4.69%.

European markets were trading in the green on Tuesday. France's CAC 40 gained 0.01%, Germany's DAX jumped 0.19%, while Britain's FTSE 100 advanced 0.10%.

Asian equity indices finished the day's trade mostly in the negative terrain shrugging off the strong cues of US markets overnight. Seoul shares recoiled in the trade today on account of fall in shipyards and exporters including Daewoo Shipbuilding and Hyundai Motor. Investors hopes that Chinese central bank will raise interest rates or hike reserve requirements also weighed the sentiments in the region. However Japanese Nikkei rose about half a percent led by financial giants where, Mitsubishi UFJ Financial Group jumped 1.6, Mizuho Financial Group soared 1.8 percent and Sumitomo Mitsui Financial Group surged 2.2 percent, while Chinese stock market remained closed today on account of Chinese New Year holiday.

Asian Indices	Last Trade	Change in Points	Change in %
Hang Seng	23,484.30	-69.29	-0.29
Jakarta Composite	3,459.93	-27.77	-0.80
KLSE Composite	1,539.55	3.95	0.26
Nikkei 225	10,635.98	43.94	0.41
Straits Times	3,185.36	-6.82	-0.21
Seoul Composite	2,069.70	-12.04	-0.58
Taiwan Weighted	9,111.46	-33.89	-0.37
Shanghai Composite	-	-	-

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