Markets made firm start ahead of Union Budget 2011 - 2012

The Indian equity markets have made a firm start ahead of the Union Budget 2011-2012 to be released later in the day. The US markets made a positive close on Friday as crude prices cooled off a bit and steadied after surging to their more than two years high. Though, the Asian markets were trading on a mixed note at this point of time. Back home, sustained buying in key heavyweights and broader indices were keeping the momentum on a positive side for the benchmark indices as positive indications of the Economic Survey provided some boost to investors' confidence. The sentiments also remained positive after Finance Minister Pranab Mukherjee on Friday, said Indian markets need not to worry over global oil price uncertainty, indicating Monday's budget may ease taxes and rationalize subsidies to cushion the impact of surging global oil prices. On the sectoral front, public sector undertaking, capital goods and oil and gas were the top gainers in trade; on the other hand, software and banking were the only losers. The broader indices were outperforming benchmarks. Both Mid Cap and Small Cap indices were trading up by more than one percent. The market breadth on the BSE was positive; there were 1179 shares on the gaining side against 434 shares on the losing side while 53 shares remained unchanged.

The BSE Sensex opened at 17,811.08; about 111 points higher compared to its previous closing of 17,700.91, and has touched a high and a low of 17,832.72 and 17,732.38 respectively. The index is currently trading at 17,801.67, up by 100.76 points or 0.57%. There were 21 stocks advancing against 9 declines on the index.

The overall market breadth started in the positive terrain, with 70.77% stocks advancing against 26.05% declines. The broader indices out performing benchmarks; the BSE Mid cap and Small cap indices were up by 1.03% and 1.10%, respectively.

The top gaining sectoral indices on the BSE were, PSU up by 2.19%, CG up by 1.35%, Oil and Gas up by 1.06%, Power up by 1.01% and Realty was up by 0.91%. While, Auto down by 1.08% and FMCG down by 0.21% were the only losers on the index.

The top gainers on the Sensex were Jindal Steel up by 2.39%, L&T up by 1.78%, ONGC up by 1.54%, HDFC up by 1.44% and Infosys was up by 1.39%.

Hero Honda down by 2.12%, Tata Motors down by 1.72%, Bajaj Auto down by 1.55%, Hindalco down by 1.17% and M&M down by 0.81% were the top losers on the index.

Meanwhile, 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.

The S&P CNX Nifty opened at 5,330.15; about 27 points higher compared to its previous closing of 5,303.55, and has touched a high and a low of 5,345.80 and 5,316.55 respectively. The index is currently trading at 5,340.60, up by 37.05 points or 0.70%. There were 37 stocks advancing against 13 declines on the index.

The top gainers of the Nifty were Reliance Capital up by 4.14%, IDFC up by 4.09%, Jindal Steel up by 2.26%, HDFC up by 2.09% and ONGC up by 1.87%.

The top losers of the index were Hero Honda down by 2.16%, Tata Motors down by 2.07%, Sesa Goa down by 1.70%, ACC down by 1.67% and Ambuja Cement was down by 1.57%.

Asian markets were trading on a mixed note; Shanghai Composite was up 4.83 points or 0.17% to 2,883.40, Hang Seng was up 133.79 points or 0.58% to 23,146.16, Jakarta Composite was up 0.46 points or 0.01% to 3,443.99 and Nikkei 225 was up by 33.83 points or 0.32% to 10,560.59.

On the flip side, KLSE Composite was down 0.97 points or 0.07% to 1,488.30, Straits Times was down 10.39 points or 0.34% to 3,014.77 and Seoul Composite was down by 15.04 points or 0.77% to 1,948.39.

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