Equity markets continue to trade sideways

Indian equity markets continued to trade sideways in late afternoon session as traders stayed away from the markets. Some brokers have suggested their clients not to sell shares today, February 16, 2011, in the cash market which they had bought yesterday, February 15, 2011, due to merging of settlements due to a bank holiday today, 16 February 2011, for Muslim festival Id-E-Milad. However the local markets seem to be in consolidation mood in the last leg of the trade.  On the other hand, other Asian markets mostly settled in green and the European markets have made a positive start while Dow future was trading positive in the screen trade. Back home, In the BSE sectoral space Auto  PSU  and power  stocks were dragging the markets down but Realty , Consumer Durables (CD) , Metal , Fast Moving Consumer Goods (FMCG) , and Capital Goods (CG) counter were trading strong and protecting the index from fall . The BSE Mid-cap and Small-cap indices rose 0.32% and 0.80%, respectively .The market breadth on the BSE remained in favour of advances; the gainers outpaced the losers in a ratio of 1645:1121 while 108 scrips were unchanged.

The BSE Sensex gained 17.32 points or 0.09% at 18,273.80. The index touched a high and a low of 18,358.84 and 18,216.12, respectively.

The BSE Mid-cap and Small-cap indices rose 0.32% and 0.80%, respectively.

In BSE sectoral space Realty up 1.55%, Consumer Durables (CD) up 1.38%, Metal up 0.99%, Fast Moving Consumer Goods (FMCG) up 0.73% and Capital Goods (CG) up 0.47% were the major gainers.

On the other hand, Auto down 0.73%, PSU down 0.10% and power down 0.08% were the only losers on the BSE sectoral space.

The top gainers on the Sensex were JP Associates up 4.37%, Jindal Steel up 2.90%Tata Steel up 2.81%, , Wipro up 1.58% and HUL up 1.28%.

HDFC down 2.73%, M&M down 2.19%, Hindalco Inds down 1.50%, Cipla down 1% and Tata Motors  down 0.96% were the top losers on the index.

The government has kick-started the deliberations for the much talked direct subsidy transfer mechanism. It has set up a high-level task force under Nandan Nilenkani, the UID chairman, to explore the possibility of directly transferring subsidy being provided in domestic cooking gas, kerosene and fertilizers to consumers.

At present, the biggest criticism of the subsidy policy of the government is its untargeted nature. For instance, the subsidy given in diesel is meant for public transportation and farm use, but the same is also availed by rich people driving multi-utility vehicles. Clearly, there is a need to target the subsidies in a better way so that only the needy ones are the beneficiaries while market prices of products is charged from other people.

Direct cash transfers to the deserving beneficiaries have been recommended by different government panels and committees over the years to remove price distortions, get more for the poor out of every rupee spent on subsidy which will help improve welfare in redistribution and at the same time bringing down the overall spending of the government on subsidies.

Earlier, a committee headed by former planning commission member Kirit Parikh had given a report on the matter saying the use of smart cards could provide a transparent and effective distribution system for subsidized products. Since the UID's qualify for such a smart card, the government has been hoping that with rollout of UID cards, it will be able to improve efficiency of subsidies.

Government's subsidy bill has been increasing sharply over last few years. Actual subsidy bill has increased from around Rs 48,000 crore in 2005-06 to Rs 1.31 lakh crore in the last financial year. While the budgeted figure for current fiscal is at Rs 1.16 lakh crore, the actual or the revised figure that will be presented in forthcoming budget will be far higher as the fuel subsidy spending will be significantly higher than budget estimates due to surge in global crude prices. At the same time, existing subsidy delivery mechanism has failed to provide proper benefit to the deserving.

Keeping in line with the best practices of public finance, the government should be doling out subsidies to the poorest or most deserving only. Any subsidy that fails to discriminate between economic standing of receivers is rather unjust. In this wake, the government hopes that the high level panel set by it will come up with a way to link the subsidy with UID and help transfer cash payments directly to the beneficiary.   

The S&P CNX Nifty was flat, up by 0.90 points or 0.10% to 5486.60. The index touched a high and a low of 5,504.80 and 5460.35, respectively. 

The top gainers of the Nifty were JP Associates up 4.43%, Jindal Steel up 2.84%, Tata Steel up 2.75%, , Ambuja Cement up 2.35% and Axis Bank up 1.90%.

The top losers of the index were HDFC down 2.80%, M&M down 2.57%,IDFC down 2.25%, Dr Reddy  down 1.73% ,Hindalco Inds down 1.58% .

The other regional peers mostly in the green; Jakarta Composite was flat , KLSE Composite increased  0.06%, Straits Times advanced 0.46%, and while Shanghai Composite surged 0.86%, Nikkei 225 gained 0.57% and Hang Seng rose 1.12% while Seoul Composite shed 1.06% Taiwan Weighted dropped 0.10%,

European markets were trading in the green. FTSE surged 0.50%, CAC-40 advanced 0.91% and DAX climbed 0.38%.

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