Markets extend Fridays’ pullback rally on bright global cues

Local equity markets continued to ascend to new intra-day high as investors picked up fundamentally strong stocks that had fallen to low levels in the past few weeks of volatile trade. The benchmark indices are now trading at the high point of the day up by more than two percent. On the global front, all the Asian counterparts were trading in the green and US index futures were also showing up-tick in screen trade today at this point of time. Back home, capital goods sector has been the clear leader in boosting the local markets with a gain of more than 4%. Auto, fast moving consumer goods, consumer durables and metal counters were also among the major gainers. Broader markets too have joined the rally and have extended their gains with BSE mid-cap and small-cap indices gaining around 2.81% and 3.46%, respectively. The market breadth on the BSE was heavily in favour of advances; the gainers thrashed the losers in the ratio of 2316:447 while 56 shares remained unchanged. Meanwhile, India's headline inflation dipped marginally to 8.23% for the month of January compared with 8.43%; as prices of certain commodities such as sugar, wheat and pulses eased, though essential items such as onion and other vegetables continue to remain dearer.

The BSE Sensex zoomed 394.06 points or 2.22% at 18,122.67. The index touched a high and a low of 18,131.22 and 17,857.12, respectively.

The BSE Mid-cap and Small-cap indices rose 2.81% and 3.46%, respectively.

In the BSE sectoral space, Capital Goods (CG) up 4.16%, Auto up 3.11%, Fast Moving Consumer Goods (FMCG) up 3.01%, Consumer Durables (CD) up 2.91% and Metal up 2.79% were the major gainers, while there were no losers on the index.

Meanwhile, headline inflation in the country in January dipped marginally to 8.23% from 8.43% in the previous month. In an absolute sense, the number remains stubbornly high and continues to elude the policy makers despite a very strong farm harvest and continued monetary policy tightening by the Reserve Bank of India (RBI). According to the data released by the government on Friday, the 'All Commodities' index (Base 2004-05=100) for the month of December rose by 1.2% to 145.9 from 144.1 for the previous month. Over the current fiscal so far, the index has risen by 7.44%. In other words, prices have increased more than 7% in the fiscal so far compared with RBI's preference of 5% inflation over a full fiscal.

Looking at the sub segments, it becomes clear that major contribution on the upside has come from the food and primary commodities, which have been key reason for high inflation for over a year. Annual inflation in the primary commodities rose further to 17.28% in January compared with 16.46% in the previous month. The index for this broader group was up whopping 2.38% over the last month and has risen 16.58% over the current fiscal so far.

Within the primary goods segment, food inflation rose to 15.65% from 13.55% in the previous month. There was a lot of cheer in government circles after food inflation fell to a single digit figure in the month of November, but that has clearly proved to be a short-lived development and over the last two months food inflation has nearly doubled, taking the situation back to square one. The index for 'Food Articles' group was also up substantially by 2.03% to 190.7 from 186.9 for the previous month. The buildup in food inflation since March stands at 15.65%, clearly reflecting the woes of marginal section of society.

The only relief was that there was some significant decline in inflation in the manufacturing space which stood at 3.75% against 4.46% a month ago. This contradicts with the purchasing managers' index (PMI) which has been showing a rise in input prices being faced by manufacturers. However, things become clearer when one looks at the manufacturing index, which continues to rise and increased significantly by 0.78% to 129.9 from 128.9 in the last month. This indicates that even in this group the downside in inflation has come just from base effect even as the prices are increasing at a pretty significant rate on a month-on-month basis.

Finally, the index for fuel and power which has a weight of 14.91% in the overall WPI increased by 1.8% to 151.3 from 150.1 for the previous month due primarily to higher prices of light diesel oil (7%), aviation turbine fuel, petrol and naphtha (5% each) and furnace oil (4%). The annual inflation for this group increased marginally to 11.41% from 11.20% in the previous month. Fuel inflation could have surged further had the government hiked diesel prices in line with rise in global crude prices.

The top gainers on the Sensex were Tata Motors up 5.51%, L&T up 5.25%, Jindal Steel up 4.29%, BHEL up 3.97% and Tata Power up 3.75%, while DLF down 0.67% was the sole loser on the index.

With rising prices of the allow at home, domestic manufacturers want the 5% import duty levied on steel to be scrapped in order to ensure prices in India do not run too far ahead of global prices. Steel is one of the fundamental inputs and rise in steel prices can result in cascading rise in prices of most goods, thus further fuelling already high inflation.

After remaining week during most of the last calendar year, steel prices may have been firming up since the month of December 2010. Large imports and some weaknesses in demand had earlier prevented the companies from hiking prices significantly, but as the global prices move up too, Indian steel producers have implemented three hikes in last 4-5 fortnights.

The latest hike came at start of the February as major steel companies including SAIL, JSW Steel and Tata Steel etc announced 8-10% hike in prices of the benchmark hot-rolled coils (HRC) to pass on part of the rising cost of production to consumers. Since December, prices are up around 20% across various varieties of steel products. In fact, prices of the downstream products have seen much greater hike than HRCs since Dec 15.

In this wake, the All India Confederation of Small & Micro Industries (AICSMI) has urged the government to cut the import duty on steel so that if domestic prices rise further, there is an option of importing from overseas. The AICSMI is contending that while steel companies have seen some increase in cost due to rise in iron ore and coal prices, the massive hike of Rs 9,000 per tonne in benchmark products was in no way justifiable in current circumstances.

The S&P CNX Nifty jumped 120.85 points or 2.28% to 5430.85. The index touched a high and a low of 5432.85 and 5340.25, respectively. 

The top gainers of the Nifty were Tata Motors up 5.71%, L&T up 5.38%, Jindal Steel up 4.71%, BHEL up 4.14% and Sesa Goa up 4%.

On the flip side, DLF down 0.89% and Siemens down 0.15% were the only losers on the index.

All the regional counterparts were trading in the green; Shanghai Composite surged 2.53%, Hang Seng gained 1.27%, Jakarta Composite picked up 0.84%, KLSE Composite rose 1.15%, Nikkei 225 increased 1.13%, Straits Times added 0.99%, Seoul Composite accelerated 1.89% and Taiwan Weighed climbed 0.88%.

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