Local equity markets bounce back; food inflation eases for second straight week

The local equity markets have bounced back from the negative zone to positive in late morning session on the back of decline in food inflation index. Food inflation fell for the second straight week to a nine-week low of 11.05% for the week ended February 5 as pulses, wheat and potato prices declined. The other Asian markets continue to trade mixed and US index futures were trading marginally lower in the screen trade. Back home, BSE Sensex  and NSE Nifty were now trading above their crucial levels 18,300 and 5,500 levels respectively. While the sectoral picture was mostly positive, individual stocks moved on news flow. Mahindra Satyam was trading 3.11 per cent higher after the company settled the class action suit in the US for $125 million. SAIL was trading 2.11% higher on the back of company's plan to set up a 3 million tonne (MT) per annum plant in Mongolia with around Rs 15,000 crore investments. However, it will be set up only if the Mongolian government insures linkages to raw materials to feed the proposed facility and land.The overall market breadth on BSE remains in the favour of advances which have outpaced the declines in the ratio of 1603:896, while 98 shares remained unchanged. The broader markets were  trading higher compared with the benchmarks .

The BSE Sensex surged 66.37 pointsor 0.36% to 18,367.27.The index touched a high of 18,369.17 and a low of 18,233.79 respectively.

The BSE Mid cap and Small cap indices were up by 0.89% and 1.01% respectively.

In BSE sectoral indices, Metal up 0.86%, Consumer Durables (CD) up 0.78%, Bankex up 0.69%, TECk up 0.58% and Realty up 0.55% were the main gainers in the BSE sectoral space while FMCG down 0.61%, OIL& Gas down 0.56% were the only losers on the BSE sectoral space.

The top gainers of the BSE Sensex were Bharti Airtel up 1.84%, HDFC up 1.72%, HDFC Bank up 1.58% Sterlite Industries up1.49% and JP Associates up 1.27%.

Tata Power down 0.75%, ICICI Bank down 0.59%, Wipro down 0.54%, Maruti Suzki down 0.53% and ONGC down 0.52% were top losers on the BSE Sensex.

The Indian government is fast running out of feasible options in context of the surging fuel subsidy as the global crude prices continue to remain at elevated levels. Brent crude rose above $104 a barrel on Wednesday amidst some increasing tension between Israel and Iran and has shown little signs of easing even as Egypt problem recedes.

Earlier in January, the three week long unrest in Egypt helped push Brent over $100 a barrel. There have been fears that after Tunisia and Egypt, the unrest could spread to other countries in the Middle-East that could result in some significant disruption in world oil supplies. Although such a possibility is low at the time, it can nonetheless further drive up prices on speculations even if there is a little bit of negative news.

This however is not good for India which imports close to 80% of the crude oil consumed in the country. As the crude oil prices have been rising, the under-recoveries of the state-controlled fuel retailers have been rising. According to the estimates of oil ministry, the under-recovery of oil marketing companies (OMCs) have increased to over Rs 10 a litre from nearly Rs 6 a litre in December.

Union Oil and Gas Minister S Jaipal Reddy had on Tuesday reiterated that the government did not intend to hike the administered prices of diesel and cooking fuels despite the surge in under-recoveries of the OMCs, which are now likely to close to Rs 80,000 crore than Rs 70,0000 crore expected earlier. It will however increase its subsidy share from 33% to 50% to help protect financial health of fuel retailers.  

Even a 50% contribution from finance ministry will leave 16% of the losses to be absorbed by the OMCs. These companies are not in a position to bear even these kind of losses in longer term, and even if things are left like this in the current fiscal, there must be some better mechanism in the next fiscal. This may in form of some flexibility on taxes and retail prices or greater support from the government. However, one thing is sure, the OMCs cannot be left venerable, as these are very important pillar of Indian energy security.   

The S&P CNX Nifty increased 19.85 points or 0.36% at 5,501.55.  The index touched high of 5,506 and a low of 5,463.40 respectively.

The top gainers of the Nifty were IDFC up 2.95%, Ambuja Cement up 2.79%, HDFC up 2.24%, SAIL up 2.12% and HDFC Bank up 1.78%

The top losers of the index were GAIL down 1.22%, HCL Tech down 0.85%, Cairn India down 0.78%, HUL down 0.71% and ONGC down 0.70%.

The other Asian markets were trading mixed; Shanghai composite tumbled 0.08%, Straits Times declined 12.21%, Seoul Composite trimmed 11.89% and Taiwan Weighted   lowered 0.33% While Hang Seng was trading flat.

On the other hand, Nikkei 225 increased 0.26%, KLSE Composite gained 0.40%, Jakarta Composite added 0.42%.

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