Markets recover some lost ground; still in the red

Benchmark equity indices having pared some of their losses continue to trade in the negative terrain in the mid afternoon session. The BSE Sensex is trading above its psychological level of 18,400 and the Nifty is also managing to hold its neck above the crucial 5,500 level. On the global front, US index futures were showing down-tick in screen trade today at this point of time while the Asian markets too were ruling lower, weighed down by worsening political unrest in the Middle-East and North Africa. Back home, among the sectoral indices, auto, capital goods, banking and fast moving consumer goods segments are dragging the markets lower, while oil & gas and consumer durables are holding on to their gains. The broader indices were hovering near the neutral line; while the BSE Mid-cap index declined 0.19%, the Small-cap index was flat and up by 0.01%. The market breadth on the BSE was in favour of declines in the ratio of 1358:1137 while 114 scrips remained unchanged. Meanwhile, railway related stocks were trading in the green today ahead of the railway budget on February 25, 2011. Titagarh Wagons was up by 1.15%, Kalindee Rail Nirman was up by 1.88%, Texmaco was up by 2.25% and Stone India was up by 5.92%.

Idea Cellular is down 4.52% at Rs 60.15. The company has reportedly been caught in violation of merger and acquisition norms and will have to pay stringent penalties which will include a Rs 300-crore fine, withdrawal of 3G spectrum in four circles and canceling of 2G licences in six circles.

The BSE Sensex sank 32.43 points or 0.18% at 18,405.88. The index touched a high and a low of 18,457.90 and 18,248.49, respectively.

The BSE Mid-cap index declined 0.19%, while the Small-cap index was flat and up by 0.01%. 

In BSE sectoral space Auto down 1.58%, Capital Goods (CG) down 1.26%, Bankex down 1.26%, Fast Moving Consumer Goods (FMCG) down 0.64% and Public Sector Undertakings (PSU) down 0.64% were the major losers; while Oil & Gas Up 2.62% And Consumer Durables (CD) up 0.44% were the only gainers on the BSE sectoral space.

India should work towards bringing down the current account deficit (CAD) to around 2% of the gross domestic product (GDP) from around 3% expected for the current fiscal, said the Prime Minister's Economic Advisory Council (PMEAC) has in its latest review of Indian economy.

The Council however believes that at the moment the CAD was not a major issue facing the economy and India had enough foreign exchange reserves to tackle any unforeseen situation. While the CAD is forecasted to be 3% of GDP in 2010-11, it is expected that the deficit will continue to remain elevated at around 2.8% of GDP in 2011-12. The panel however added that the higher levels of CAD for the current and next year must be viewed as a transitional situation.

It recommended that efforts must be maintained to bring down the CAD to a more manageable level of between 2.0 - 2.5% of GDP. This is desirable to impart much needed stability on the external payments front and to reduce the risk the domestic economy runs from volatility in international financial markets. However, in order to do this it is necessary, on one hand, to make our exports more competitive and on the other, to moderate the dependence of the Indian economy on imported fuels to the extent that is possible, said the Council.

It has also raised some concerns on decline in foreign direct investment (FDI) seen in the last one year. According to a recent report prepared by the United Nations Conference on Trade and Development (UNCTAD), FDI inflows into India amounted to just $23.7 billion in 2010, as against $34.6 billion in 2009. This was despite the fact that in the last calendar year, emerging market economies attracted more foreign investment than developed countries for the first time in history as the global economic engine shifts to the EMEs. This clearly indicates that not everything was fine with the policy regime.

The PMEAC in this wake urged the government to look into and correct underlying issues. "While capital inflows have been adequate in the current year to finance the elevated CAD and it is expected this will be so true in the next year also, adequate attention must be paid to take the necessary steps so that the Indian economy is seen to be an attractive destination for foreign investors. This is a task with many facets. The decline in FDI in the current year is a matter of concern and it is important for policy makers to examine what concerns there may be amongst foreign investors, which has resulted in this outcome and take considered and appropriate steps," said the PMEAC.

The top gainers on the Sensex were RIL up 4.76%, RCom up 3.79%, Sterlite Inds up 2.81%, Rel Infra up 2.24% and Wipro up 0.78%.

Hero Honda down 3.01%, Tata Motors down 2.32%, Maruti Suzuki down 2.03%, M&M down 1.96% and Jindal Steel down 1.80% were the top losers on the index.

Steel industry in India recovered swiftly from the impact of global downturn in the early 2009 riding on stimulus measures announced by the government and the RBI. There was an increasing pick-up in activity levels in the steel industry throughout the 2009. The industry performed well in early months of the year 2010 as well but has been impacted by some slowdown in demand and surging costs.

Although demand side has already given signals of improvement in 2011, cost side remains a major worry and the industry has already implemented three price hikes over last couple of months. As the costs continue to surge, the industry has demanded a series of measures from the government to be implemented in the forthcoming General Budget to be presented on Feb 28, sans which it will have to further hike prices.

The foremost demand of the industry is grant of an infrastructure status. Steel firms have asked the finance ministry to grant infrastructure status to the steel industry which would ensure long term funds and tax holidays for the steel industry. In fact, this has been a long pending demand and even as the government considers steel production as a core sector activity, it is not allowed the benefits that a formal infra tag attracts. Both the government owned SAIL and private companies have made representation to the finance ministry with this demand. 

Another key demand of the industry is increase in import duty on the benchmark product - HR coils. For the growth of industry, steel makers along with Associated Chambers of Commerce and Industry has called on the finance ministry to raise import duty on HR coils to 10% from the current 5%. Surging imports, mainly from China have been the biggest trouble for the industry in calendar year 2011 and higher import duty is the only remedy against the issue. The ASSOCHAM has said in a statement that pro active policy measures adopted by government of India can help extend HR coil capacity by an additional 8 million tonne during 2011-12, making India surplus for HR coils by more than 6 million tonne. 

Steelmakers have also urged the finance ministry to increase the export duty on iron ore. Iron ore is the most important raw material for making steel and it has seen a lot of volatility internationally over the last one year or so. Prices have surged to record high levels in international markets and with low export duty on iron ore, the associated volatility is also imported into India through greater export of the commodity. This has also forced the steel makers to hike prices. 

The S&P CNX Nifty shed 12.25 points or 0.22% to 5506.35. The index touched a high and a low of 5519.45 and 5458.75, respectively. 

The top gainers of the Nifty were RIL up 4.83%, RCom up 3.95%, Cairn India up 3.89%, Reliance Capital up 3.32% and Sterlite Inds up 2.65%.

The top losers of the index were Hero Honda down 3.14%, Suzlon down 2.53%, BPCL down 2.42%, Sun Pharma down 2.38% and Tata Motors down 2.35%.

All the Asian markets were trading in the red with deep cuts in trade today. Shanghai Composite plunged 2.49%, Hang Seng dipped 1.97%, Jakarta Composite tripped 1.31%, KLSE Composite lost 0.82%, Nikkei 225 slid 1.78%, Straits Times declined 1.45%, Seoul Composite shed 1.76% and Taiwan Weighted slipped 1.87%.

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