Local equity indices recoil in consolidation mood after soft start

Indian equity markets after getting flat start seems to have slipped again in consolidation mood with several stocks facing stiff resistance at higher levels. The local bourses earlier aided by the smart gains posted by some key stocks from metal, capital goods and information technology sectors, has now pared most of the gains shadowing the weak global cues. On the global front, overnight losses of the US markets have hindered trader's sentiment .Wall street edged lower as the weaker than expected retail sales report once again fueled the concern of slow economic recovery, while Asian markets today are witnessing cautious day of trade with oil price soaring high after the unrest flared in several Middle Eastern states. The US futures are trading exceptionally well and are currently showing an uptick on the screen trade. Back on Dalal Street, stocks from Metal, Capital Goods, and Fast Moving Consumer Goods are still striving hard to keep the momentum on the positive side, while stocks from Realty, Auto and Power are in control of the bears.

The BSE Sensex opened at 18,273.06; only 0.74 points higher compared to its previous closing of 18,273.80, and has touched a high and low of 18,349.17 and 18,238.73 respectively. 

The index is currently trading at 18,305.11, up by 31.31 points or 0.17%. There were 17 stocks advancing against 12 declines on the index.

The overall market breadth has made a strong start with 63.93% stocks advancing against 32.08% declines.

The broader indices were outperforming the benchmarks; the BSE Mid cap and Small cap indices were up by 0.35% and 0.51% respectively.

In BSE sectoral indices, Metal up 1.40%, Capital Goods (CG) up 0.54%, FMCG up 0.49%, Oil and Gas up 0.47%, and PSU up 0.18% were the main gainers in the BSE sectoral space.

On the other hand Realty down1.06%, Auto down 0.15%, Power down 0.10%, Consumer Durables (CD) down 0.09% and IT down 0.04% were the main losers on the BSE sectoral space.

The top gainers of the BSE Sensex were Tata Steel up 2.27%, Jindal Steel up 1.98%, L&T up 1.10%, Sterlite Industries up 0.70%, and Hindalco Industries up 0.59%.

DLF down 1.84%, HDFC down 1.22%, Reliance Communication down 0.79%, Tata Motors down 0.71% were top losers on the BSE Sensex.

Meanwhile, in a move aimed at lowering the prices of fuels, or at least preventing them from rising further, without hitting the health of oil marketing companies (OMCs), the government is likely to tweak with the taxation structure for the oil sector in the forthcoming Union Budget to be unveiled on Feb 28.

After the global Brent crude oil prices breach $100 a barrel mark, the government is looking at options to save the common man from excessive burden even as the financial health of OMCs has to be protected for long term energy security of the country. Already it has allowed increase in petrol prices to help bring them in line with rising global crude oil prices. But it is difficult to allow a similar hike in diesel and cooking gas due to high inflation that the country is presently facing.

One way out of the trouble could be cutting the excise duty on diesel and cooking gas which will reduce the under-recoveries that the OMCs are facing without raising the prices. This will however impact the budget math of the government as excess revenue from petroleum products make a significant chunk of government's incomes. The plan earlier was that a review of the oil sector duty regime immediately, however, the finance ministry decided against it and would now be bringing any such changes in the forthcoming budget only.

The OMCs are currently selling diesel and cooking gas at a loss over Rs 7 a litre and more than Rs 275 a gas cylinder respectively. Total under-recoveries in the current financial year are not expected to surge beyond Rs 75,000 crore. So far the government has only provided compensation of Rs 21,000 crore and even after accounting for the discounts from upstream companies, the OMCs are facing substantial losses. This can seriously impede the growth plans of OMCs and impact their financial health. Not only will this put the country's long term energy security into jeopardy but also hit government's plan to selling its stake in oil sector companies.

While this year the government can afford to provide bigger sum to the tune of RS 20,00 crore or so in the final settlement for the fiscal as it has comfortable fiscal position due to onetime revenue from telecom spectrum auctions, the same liberty will not be there in next time. In this wake, the finance ministry is planning to bring down the taxes on oil products which will keep market prices down even if crude remains high.

Another possibility is having a flexible taxing regime that would cut the tax on fuels when crude prices rise to cushion the increase in retail prices. Since it can impact the budget math, the government will also have to find other avenues where taxation can be increased to compensate for lower revenue from fuel sales. This will however ensure that the government does not lead to basic analysis of the monetary policy that can impact the given, by the government to the monetary authority in regard to its independence.   

The S&P CNX Nifty opened at 5,467.60; about 13.4 points lower compared to its previous closing of 5,481, and has touched a high and a low of 5,497.50 and 5,466.80 respectively. 

The index is currently trading at 5,482.60, up by only 0.03 points or 0.04%. There were 23 stocks advancing against 27 declines and one stock remained unchanged on the index.

The top gainers of the Nifty were Tata Steel up 2.58%, Jidal Steel up 1.74%, Sesa Goa up 1.30%,L&T up1.17% and BPCL up 0.98%.

The top losers of the index were IDFC down 2.14%, DLF down by 2.09%, HDFC down 1.79%, Reliance capital down 1.22% and Kotak Bank down 1.18%.

Majority of the Asian markets were trading in the green; Shanghai composite surged by 5.03 or 0.17% to 2,904.27, Nikkei 225 was up by 68.64 points or 0.64% to 10,815.31, Seoul Composite was up by 3.33 points or 0.17% to 2,013.85 ,Taiwan Weighted up by 26.30 or 0.30% to 8,748.23 and Hang Seng was up by 136.02 points or 0.59% to 23,035.80 while Straits Times down by 0.94 points or 0.03% to 3,079.72 , KLSE Composite down by 2.45 points or 0.16% to 1502.88 and Jakarta Composite down by14.80points or 0.43% to 3,401.97.

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