Key indices hover near the neutral line

Benchmark equity indices have pared the gains and are hovering near the neutral line with marginal losses in afternoon trade. Nifty is somehow managing to hold on to its crucial 5,300 level and Sensex has also held on to its 17,750 level. While rest of the Asian markets are trading deep in the red after policy makers in China hiked interest rates; US index futures also were a bit under the weather in trade at this point of time, reflecting the somberness in global investor sentiment. Back home, while selling was witnessed across the board with realty, power, metal, consumer durables and fast moving consumer goods stocks leading the pack of losers, oil & gas and banking stocks were trading firm. Index heavyweights like RIL, ICICI Bank, HUL and L&T were providing some support to the markets. Midcap and smallcap stocks are under severe pressure, and mirroring their fall, the BSE Midcap and Smallcap indices have now lost around 1.74% and 2.08%, respectively. The market breadth on the BSE was in favour of declines in the ratio of 2069:613 while 78 scrips remained unchanged. Meanwhile, DB Realty tanked 17%, as the Central Bureau of Investigation (CBI) arrested the company's promoter Shahid Usman Balwa in connection with 2G spectrum allocation scam.

The BSE Sensex declined 20.38 points or 0.11% at 17,755.32. The index touched a high and a low of 17,864.32 and 17,593.79, respectively.

The BSE Mid-cap and Small-cap indices plummeted 1.74% and 2.08%, respectively.

In the BSE sectoral space Realty down 3.12%, Power down 2.05%, Metal down 1.62%, Consumer Durables (CD) down 1.14% and Fast Moving Consumer Goods (FMCG) down 1.10% were the major losers; while Oil & Gas up 0.80% and Bankex up 0.30% were the only gainers in BSE sectoral space.

Meanwhile, the forthcoming General Budget for fiscal year 2012 is all set to see a substantial hike in the farm credit target set by the finance ministry owing to the ongoing high food inflation in the country, which most economists have largely dubbed on supply side constraints in the farm sector.

Economists have been pointing out that demand management, for instance by the Reserve Bank of India (RBI) was unlikely to bring down the food inflation as demand for food commodities tend to be quite inelastic, particularly in a fast rising disposable income scenario. As such, the need was to improve the supply side by augmenting the capacity of farm sector.

The union government has seen a lot of criticism for ignoring the farm sector since the financial deregulation started in early 1990s. Capital formation in the farm sector, as a percentage of  gross domestic product (GDP) has came down significantly over the next couple of decades and that has resulted in slowdown in productivity improvement or even stagnation in case of some crops.

One of the ways to improve investment in farm sector is to deliver higher credit to farmers and the government is likely to hike the farm credit target by at least 20% in the FY12 General Budget to Rs 4,50,000 crore compared with FY11's Rs 3,75,000 crore. Over the last couple of years, government has already been implementing substantial hike in farm credit, but economists feel that it was still not sufficient to meet entire needs of a sector that still employs nearly 60 Indians.

What the government needs to do is to increase public investment, or come up with public-private partnership (PPP) schemes in order to improve public infrastructure for farm sector like better irrigation facilities. Currently only 40% of total farm land in India is irrigated and any year with poor monsoon, like 2009, generates a huge food supply shock. The genesis of currently high inflation can be in fact traced back into the 2009's poor monsoon. It also needs to invest more in agri research to expedite the development of better seeds and farm management techniques.

The top gainers on the Sensex were HDFC up 3.93%, M&M up 2.84%, ICICI Bank up 1.95%, RIL up 1.46% and HDFC Bank up 0.72%.

JP Associates down 4.01%, Hindalco Inds down 3.87%, BHEL down 3.40%, Bajaj Auto down 2.58% and RCom down 2.21% were the top losers on the index.

The telecom regulatory authority of India (TRAI) has submitted its revised recommendations for the pricing of excess second generation (2G) spectrum with the operators. The regulator has once again linked the price of such spectrum with the price discovered in the 3G auction held last year, which will have serious financial implications for telecom companies.

According to the latest recommendations, the spectrum with operators over and above the 6.2 MHz, which was contracted in the license, should be charged in proportion to prices discovered in the 3G auctions. Further, the operators will have to pay a onetime fee for using this spectrum for all the years they have held it. This can range over Rs 7,000 crore for government owned BSNL to around Rs 4,000 crore for Bharti.

Since the telecom ministry Kapil Sibal had said recently that the spectrum bundled with license for new operators who got licenses in 2008 will be restricted at 4.4 MHz, they will have to pay for spectrum more than this level in any circle. Although currently not many new operators hold excess spectrum in many circles, the low ceiling on start up spectrum will mean they will have to pay much higher money for additional spectrum which would be needed as the subscriber number grows.

The implications for the incumbent operators do not end just here. The licences of some of incumbent operators, including the market leader Bharti Airtel, will be coming for renewal after completing 20 years of initially allowed period in several circles. These operators will too now have to pay much higher prices for the spectrum which will hit costs sharply. Total implications for incumbent operators could be much higher in this wake as compared to just the onetime spectrum fee being asked by the TRAI.

The S&P CNX Nifty was flat and was down by 0.75 points or 0.01% to 5311.80. The index touched a high and a low of 5339.45 and 5253.55, respectively. 

The top gainers of the Nifty were Sun Pharma up 5.19%, Kotak Mahindra Bank up 4.78%, HDFC up 4.23%, M&M up 2.84% and ICICI Bank up 2%.

The top losers of the index were JP Associates down 4.32%, Hindalco Inds down 3.74%, BHEL down 3.47%, RPower down 3.02% and Bajaj Auto down 2.76%.

All the Asian markets were trading in the red with deep cuts; Shanghai Composite plunked 0.73%, Hang Seng declined 1.17%, Jakarta Composite shed 1.99%, KLSE Composite trimmed 0.11%, Nikkei 225 tanked by 0.17%, Straits Times tumbled 1.26%, Seoul Composite plummeted 1.17% and Taiwan Weighted dropped 1.15%.

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