Markets manage to hold their neck in the green; trades around neutral line

Key benchmark indices are gyrating in a tight-range around the neutral line as investors are not showing much interest in building up positions. Meanwhile, with earning season coming to an end, the market is now looking forward to the upcoming Union Budget 2011-12 for further direction. Prime Minister (PM) Manmohan Singh's discussion with television editors in the morning today seems to have gone down the drain for the markets as no significant upmove has been witnessed so far. On the global front, while US index futures are showing an up-tick in screen today; majority of the Asian markets are trading in the negative territory at this point of time. Back home, realty, metal and capital goods counters witnessed maximum traction while Auto stocks are mostly seen struggling to make significant progress up north. Information technology and technology stocks are mostly trading flat. The broader markets continue to hold in the green with BSE mid-cap and small-cap indices gaining by 0.34% and 0.91%, respectively. The market breadth on the BSE remained in favour of advances; the gainers outpaced the losers in a ratio of 1564:1027 while 108 scrips were unchanged. Meanwhile, all fertilizers company were up in trade today as Central Government decided to raise the quantum of subsidy payable to fertilizer companies to ensure that the domestic prices of NPK nutrients like urea, di-ammonium phosphate (DAP) and muriate of potash (MOP)  are maintained at 'reasonable' levels. Rashtriya Chemicals & Fertilizers was up by 1.38%, Chambal Fertilisers & Chemicals was up by 1.33% and Deepak Fertilisers & Petrochemicals was up by 1.04%.

The BSE Sensex gained 10.97 points or 0.06% at 18,284.77. The index touched a high and a low of 18,349.17 and 18,216.12, respectively.

The BSE Mid-cap and Small-cap indices rose 0.34% and 0.91%, respectively.

In BSE sectoral space Realty up 1.38%, Metal up 0.87%, Capital Goods (CG) up 0.63%, Consumer Durables (CD) up 0.53% and Fast Moving Consumer Goods (FMCG) up 0.53% were the major gainers.

On the other hand, Auto down 0.44%, TECk down 0.08% and Information Technology (IT) down 0.08% were the only losers on the BSE sectoral space.

Meanwhile, the Reserve Bank of India (RBI) may hike its key short term lending rates by 25 basis points (bps) in its next month's mid-quarterly monetary policy review to check an increasingly sticky looking inflation, said the global financial services conglomerate Goldman Sachs.

'We expect the RBI to hike policy rates by 25 bps in the March 17 policy meeting and by a cumulative 100 bps in calendar year 2011,' the Goldman Sachs said in a recent policy research note. The central bank will meet on March 17 for the last mid-quarterly policy review for the current financial year.

Headline inflation in the country as measured by the wholesale price index (WPI) dipped marginally in January to 8.23% from 8.43% in the previous month. In an absolute sense, however, the number remains stubbornly high and way above the comfort zone of the Indian monetary authority. The central bank had also substantially raised its inflation target for the fiscal-end to 7% in its January policy review from 5.5% given earlier.

What is critical is that most of the contribution to inflation continues to come from the primary commodities, especially the food items. There were a lot of expectations that as the Kharif harvest comes into markets, food inflation will begin to come down. However, so far, neither the record Kharif harvest, nor the extremely strong outlook of the Rabi crop has been able to impact food inflation which remains stubbornly high in the range of 10-20%.

The RBI had in its last policy review too hiked policy rates by 25 bps. In fact, the central bank has been rising rates in all of its last eight policy reviews but the December one.  However, it has been keeping its upward movement of rates quite calibrated so as to ensure that the recovery in Indian economy does not fault. Economists in this wake have been dubbing the central bank's stance as being 'behind the curve' and pressure on RBI has been increasing to take some bold measures to bring down the sticky inflation.

The top gainers on the Sensex were JP Associates up 3.37%, Tata Steel up 2.75%, Jindal Steel up 2.16%, Bajaj Auto up 1.30% and L&T up 1.17%.

HDFC down 2.48%, M&M down 2.11%, Hindalco Inds down 1.86%, RCom down 0.94% and HDFC Bank down 0.82% were the top losers on the index.

The Indian government has reiterated that it did not intend to hike the administered prices of diesel and cooking fuels despite the surge in under-recoveries of the oil marketing companies (OMCs). It will however increase its subsidy share from 33% to 50% to help protect financial health of fuel retailers.  

India's fuel subsidy bill could reach as much as Rs 80,000 crore from earlier expected Rs 70,000 crore as the crude oil prices harden, said the Union Oil and GAs Minister S Jaipal Reddy on Tuesday, adding that despite this the government would not increase fuel prices at the moment. "We are not at the moment thinking of increasing prices," he responded when asked would the government pass on rising crude prices to the consumers.

Reddy said that half of the revenue loss incurred by the state-controlled fuel retailers on selling diesel, domestic LPG and kerosene would be met by the government by way of cash grants. Another one-third would be contributed by upstream firms like ONGC through discounts on products. The rest might have to be absorbed by the OMCs.

Oil Secretary S Sundareshan said that out of a total of Rs. 46,000 crore worth under-recoveries in fuel sales in the first three quarters this fiscal, the government has already provided Rs 21,000 crore and upstream firms have contributed one-third. This still however leaves more than Rs 9,000 crore to be absorbed. With crude oil prices surging, under-recovery will be much higher in the fourth quarter and therefore the overall losses left to be absorbed by the OMCs could be over Rs 20,000 crore.

The oil minister said in this wake that the finance ministry might cut the indirect taxes on fuels so as to keep prices down without forcing too high under-recoveries on part of the fuel retailers. While cutting the excise duty on oil products will hit revenues, many economists have been pointing out that there was no point in first collecting taxes and then giving them to OMCs for compensation against under-recoveries. 

The S&P CNX Nifty advanced 5.60 points or 0.10% to 5486.60. The index touched a high and a low of 5497.50 and 5460.35, respectively. 

The top gainers of the Nifty were JP Associates up 3.54%, Tata Steel up 2.82%, Jindal Steel up 2.19%, Ambuja Cement up 1.89% and Axis Bank up 1.63%.

The top losers of the index were IDFC down 3.45%, HDFC down 2.80%, M&M down 2.41%, Hindalco Inds down 1.79% and RCom down 0.98%.

The other regional peers were trading mostly in the red; Jakarta Composite declined 0.15%, KLSE Composite shed 0.14%, Straits Times shed 0.08%, Seoul Composite drifted lower by 1.06% and Taiwan Weighted dropped 0.10%, while Shanghai Composite surged 0.57%, Nikkei 225 gained 0.57% and Hang Seng rose 0.46%.

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