Benchmarks reverse some of the early gains; broader indices enter the red zone

Reversing some of its early session gains, the Bombay Stock Exchange benchmark-- Sensex-- is managing to trade over 30 points higher in the mid morning session tracking positive global cues and even as investors target buying of some fundamentally strong stocks available at attractive lower levels. The local bourses are seen trading bit range bound after policymakers indicated tackling inflation was a top priority to sustain growth as the Prime Minister Manmohan Singh said on Friday, that high headline inflation is beginning to pose a serious threat to India's high growth plans. On the global front, Asian stocks extended their early gains after opening high as the US job market showed further signs of recovery, highlighting a brighter outlook for its economy, while, US future too were showing an uptick on the screen trade. Back home, on the BSE Sectoral front, stocks from Healthcare, Consumer Durables and Capital Goods counters were spoiling the play, while, shares from Realty, FMCG and Oil & Gas sector were leading the gainers pack. The overall market breadth on BSE was in the favour of declines which thrashed advances in the ratio of 1309:1184, while, 80 shares remained unchanged. Meanwhile, the central statistical organization (CSO) has pegged the advanced estimate for growth in Indian economy at 8.6% for the current financial year compared to 8% revised GDP growth in the previous financial year. With 8.9% growth in the first half, the CSO is predicting significant slowdown in the second half growth at 8.3%, which is also expected by most other economists.

The BSE Sensex is currently trading at 18,008.15, up by 34.15 points or 0.19 %. There were 19 stocks advancing against 10 declines on the index, while one stock remained unchanged.

The broader indices have entered into the red zone; the BSE Mid cap and Small cap indices lost 0.31% and 0.29% respectively. 

The top gaining sectoral indices on the BSE were, Realty up by 1.08 %, FMCG up by 0.90%, Oil& Gas up by 0.58%, PSU up by 0.40% and TECk up by 0.31%. While, HC down by 1.13%, Consumer Durables down by 0.57%, Capital Goods down by 0.37% and Metal down by 0.33% were the  losers on the index.

The top gainers on the Sensex were Hero Honda up by 2.51%, Bharti Airtel up by 2.29%, HDFC Bank up by 1.56%ITC was up by 1.50% and JP Associates up by 1.38%.

Cipla down by 4.19%, Hindalco down by 2.66%, Tata Motors down by 1.99%, Tata Power down by 1.48% and Bajaj Auto down by 1.37% were the top losers on the index were.

Cement was one of the first industries to respond to the stimulus provided by the government following the global economic downturn of late 2008 and posted an emphatic recovery in early months of 2009. However, after surprising markets on the upside throughout the last financial year, the industry has been on the downhill journey since start of the monsoon season in 2010 as costs have been rising amidst stagnant dispatches, leading to pressure on margins.

On the demand side, the partial withdrawal of the stimulus package by the government in February last year, the completion of Commonwealth Games-related construction activities in Delhi-NCR region, the disruptions in infrastructure work in the state of Andhra Pradesh due to political turmoil, and a very strong and prolonger monsoon season in 2010, have all resulted in significant decline in growth in cement dispatches.

Even as the demand has been going down sharply, capacity additions have continued as these have been planned much in advance. Total capacity of the cement industry expanded by nearly 13% in 2010, even as demand remained nearly stagnant, hitting capacity utilization. This undermined market prices by 10-15%. While producers did try to keep the price artificially high by controlling supply, such arrangements did not, and never do, worked for long. Most of the players in such atmosphere would prefer to drive volumes even at lower prices.

Cost of production on the other hand has been on the rise. Coal prices have been on the rise internationally due to rising demand from India and China. With the mine supply not expanding fast enough globally, and production costs rising for miners too, coal prices are expected to rise further in medium term. In the short run, Australian floods, which have taken nearly 5% of the world supply off the charts, will keep prices high. Transportation costs too have been increasing due to rising fuel prices and there is high likelihood of further increase in diesel prices post the General Budget-2011.

However, despite rising costs, the substantial capacity addition over the last one year has eroded the pricing ability of the industry amidst weakening demand. Now that the demand seems set to start improving post 2011-monsoon season, ability of the producers to hike prices is still not clear. Most analysts expect that cement companies will continue to post weaker performance over 2011 until there is significant softening cost of production.

The S&P CNX Nifty is currently trading at 5,402.80, up by 7.05 points or 0.13 %. There were 25 stocks advancing against 25 declines on the index.

The top gainers of the Nifty were Hero Honda up by 2.62%, Bharti Airtel up by 2.48%, ITC up by 1.60%, HDFC Bank up 1.56% and ACC up by 1.47%.

The top losers of the index were Cipla down by 4.01%, Hindalco down by 2.45%, GAIL and HCL Technologies were down by 2.09% and Tata Motors down by 1.92%.

Asian markets were trading on a mixed note; KLSE Composite was up by 0.22%, Nikkei 225 was up by 0.61%, Seoul Composite was up by 1.07% and Jakarta Composite up by 0.10%.

On the flip side, Hang Seng was down by 0.49%, and Straits Times was down by 0.14%.

 

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