Local equity markets continue to trade in positive terrain

The local equity markets continue to remain in positive terrain in late morning session tracking the gains in most of the Asian markets. Some relief came with news from Saudi Arabia and other OPEC nations including those in West Africa that they are willing and able to replace any lost Libyan oil as soon as companies ask for it, including crude of the same quality. While US Dow future was up 45 points in the screen trade. Back home, In BSE sectoral indices bankex , FMCG ,CD , PSU and Oil & Gas   counters were inching higher  while  IT ,Metal and TECk counters continued to witnessed some selling pressure . Hindalco down by 3.82%,Sesa Goa 2.82% and Strelite industries was down by 2.02% .The broader indices too were showing some strength the BSE Mid cap and Small cap indices were up by 0.11% and 0.31% respectively. The market breadth on the BSE was in favour of advances in the ratio of 1354:1123 while 109 scrips remained unchanged.

The BSE Sensex surged 73.39 or 0.42% at 17,705.80. The index has touched a high of 17,801.02 and 17,589.57 respectively.

The BSE Mid cap and Small cap indices were up by 0.11% and 0.31% respectively.

The top gaining sectoral indices were bankex up by 1.69%, FMCG up by 1.27%, CD up by 0.62%, PSU up by 0.62 and Oil & Gas was up by 0.54%.

On the other hand, IT down by 1.22%, Metal down by 0.65% and TECk down by 0.34% were the losers.

The top gainers on the BSE were, Tata Motors up by 3.28%, SBI up by 2.89%, ICICI Bank up by 2.64%, ITC was up by 2.21% and JP Associates up by 2.10% .

Tata Power down by 2.54%, Hindalco Inds down by 3.77%, Reliance Inds down by 2.64%, Tata Power down 2.38%, Sterlite industries down by 1.68% and M&M down by 1.20% were the top losers on the index.

India's FMCG industry has been on a fast growth track mapping a quick recovery in Indian economy, rising disposable incomes and surging middle class. However, the industry is also facing a lot of pressure from high inflation and rising cost of production. The industry therefore has a whole lot of expectations from the forthcoming Budget and is hoping that the finance ministry will provide it the next major trigger.

The foremost demand of the industry is control on inflation. Headline inflation in India has remained at highly elevated levels over the last year or so. Even worse is the situation in the primary commodities where prices have increased by 30-35% in the past two years. There has also been substantial hike in freight rates and packaging costs.

Not only the high inflation impacts the cost of production for the industry and pressurizes its margins but also squeezes the disposable income of people and hence impacts demand side for the industry as well. Citing the example of contraction seen in non-durable goods over recent months in the index of industrial production, the industry has urged the government to take some effective steps to check inflation as it can keep eroding real disposable income even in a fast growing economy and impact the demand for FMCG products. 

The industry is also strongly against any further hike in excise duty. The government had cut the excise duty by 4% following the global economic slowdown and rolled it back by 2% in the budget for current fiscal. Given the strong growth outlook and the need for pursuing fiscal consolidation, it is apprehended that the finance ministry will further hike the excise duty by 2%. The FMCG industry however feels that any further hike, particularly in wake of high inflation, will severely hit both the cost side and demand side of the industry.

Over the last few years, rural India has been becoming an important destination for FMCG products. As the farm incomes have risen over the last decade riding on consistent increase in government support prices of crops and spending on various rural schemes, FMCG products have increasingly found a destination there. However, the potential in rural markets is still far from exhausted. In fact, the industry has just started to realize the potential in rural areas. In this wake, the FMCG companies want the government to substantially increase allocation to rural spending schemes like that National Rural Employment Guarantee Scheme etc. This will boost the disposable income in rural India and further push the demand for FMCG products.

Finally, the FMCG industry has been a strong supporter of goods and services tax (GST) and, in fact, is likely to be one of the biggest beneficiary of the major reform. The application of a uniform indirect tax will help bring down the cost of FMCG products and hence prices. This will provide a major trigger for the demand side of industry. FMCG players therefore want the finance ministry to come out with a compromise formula in the forthcoming Budget that can be acceptable to all the states and would lead to an early implementation of the GST.

The S&P CNX Nifty increased 34.95 or 0.66% at 5,297.65. The index has touched high of 5,326.85 and 5,263.85 respectively.

The top gainers of the Nifty were Tata Motors up by 3.91%, ICICI Bank up by 3.33%, SBI up by 2.94%, ITC up by 2.82% and  Suzlon was up by 2.53%.

The top losers of the index were Hindalco down by 3.82%, Reliance Infra down by 3.28%,Tata power down by 2.87%, Sesa Goa down 2.82% and Strelite industries  was down by 2.02%.

Most of the Asian markets baring Shanghai Composite down 0.06% were trading in green; Hang Seng gained 1.60%, Taiwan Weighted added 0.68%, Jakarta Composite was up by 0.18%, KLSE Composite gained 0.32%, Nikkei 225 was up by 0.71% and Straits Times was higher by 1.24%.

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