Markets return to green; Sensex up by 20.89 points

The domestic markets are once again trading in green amidst alternate bouts of buying and selling among blue chip stocks. Also, the overall undertone of the markets remains cautious in trade today ahead of F&O expiry on Thursday and the ongoing political turmoil in West Asia. While rest of the Asian markets with an exception of Jakarta Composite which was up by 0.82%, were trading in the red; the US index futures were showing an up-tick in screen today. Back home, Auto segment continues to gain strength and is clearly helping the markets to stay afloat in the green. Oil & Gas and Metal counters were the other significant gainers in the BSE sectoral space. On the other hand, Information Technology, Healthcare and Bankex were the major laggards in the local markets. In the broader markets, while the BSE Small-cap index managed to hold on to its gains and was up by 0.24%, the BSE Mid-cap index declined 0.05% at this point of time. The market breadth on the BSE remained in favour of advances in the ratio of 1324:1269 while 118 scrips remained unchanged.

The BSE Sensex advanced 20.89 points or 0.11% at 18,317.05. The index touched a high and a low of 18,364.26 and 18,226.40, respectively.

The BSE Mid-cap index declined 0.05%, while the Small-cap index gained 0.24%. 

In BSE sectoral space Auto up 0.47%, Oil & Gas up 0.45%, Metal up 0.44%, Realty up 0.20% and Power up 0.14% were the major gainers.

On the flip side, Information Technology (IT) down 0.85%, TECk down 0.45%, Healthcare (HC) down 0.39%, Bankex down 0.35% and Consumer Durables (CD) down 0.30% were the major losers on the BSE sectoral space.

Meanwhile, India's battered oil marketing companies (OMCs), which have seen their losses on account of selling fuel products at government determined prices surge over the last few months, are hoping that the government will implement some permanent subsidy sharing mechanism in the forthcoming General Budget and also come up with  clearly defined roadmap to incremental reforms in fuel retailing.

Brent crude has continued to remain over $100 a barrel and in fact has been inching towards the $110 a barrel amidst some increasing tension in various Middle East countries. Earlier in January, the three-week long unrest in Egypt helped push Brent over $100 a barrel. There have been fears that after Tunisia and Egypt, the unrest could spread to other countries in the Middle-East that could result in some significant disruption in world oil supplies. Although such a possibility is low at the time, it can nonetheless further drive up prices on speculations even if there is a little bit of negative news.

As a result, the losses of OMCs on selling diesel have increased to close to Rs 10 a litre from Rs 2 a litre in May 2010 while that on cooking gas stand at Rs 275 per cylinder. Total under-recoveries in the current financial year are now expected to surge to beyond Rs 80,000 crore. So far the government has only provided compensation of Rs 21,000 crore and even after accounting for the discounts from upstream companies, the OMCs are facing substantial losses. This can seriously impede the growth plans of OMCs and impact their financial health. Not only will this put the country's long term energy security into jeopardy but also hit government's plan to selling its stake in oil sector companies.

At present the situation is very much in grey as to by how much the government would increase its contribution towards under-recoveries and how much would be left for the retailers to absorb. This not only weakens the finances of OMCs but also impact their investment decisions. In this wake, the publically controlled fuel retailers want that the government should come up with a permanent subsidy sharing mechanism in the upcoming budget so that the uncertainty surrounding the matter can be tackled.

The government too in fact has been looking at its options to save the common man from excessive burden even as the financial health of OMCs has to be protected for long term energy security of the country. One way out of the trouble could be cutting the excise duty on diesel and cooking gas which will reduce the under-recoveries that the OMCs are facing without raising the prices. The plan earlier was that a review of the oil sector duty regime immediately, however, the finance ministry decided against it and would now be bringing any such changes in the forthcoming budget.

Another possibility is having a flexible taxing regime that would cut the tax on fuels when crude prices rise to cushion the increase in retail prices. Since it can impact the budget math, the government will also have to find other avenues where taxation can be increased to compensate for lower revenue from fuel sales. For instance, a decline in taxes on fuels could be compensated by a hike in taxes on select high-end automobiles. Such a system would be temporary and only kick in when crude prices surge. While it would ensure revenue of the government remains stable, it will also solve the troubles of OMCs, though at the expense of some other sectors like automobiles.

The top gainers on the Sensex were Rel Infra up 9.66%, HDFC up 2.28%, Sterlite Inds up 2.05%, RCom up 1.47% and Hero Honda up 1.37%.

Tata Power down 2.41%, SBI down 1.84%, Infosys down 1.59%, Bajaj Auto down 1.48% and DLF down 1.01% were the top losers on the index.

Given the high inflation that has been witnessed by Indian economy over last one year or so, the government may increase the tax exempted income limit in the forthcoming General Budget to be released on Feb 28, said the financial services conglomerate Goldman Sachs.

'Income tax relief can be provided to lower income brackets to compensate for inflation. This could take the form of raising the tax exemption limit from the current Rs 1.6 lakh,' it said in a report. Currently, income of Rs 1,60,000 is exempted from tax for individuals. However, the limit is higher at Rs 1,90,000 crore for women and Rs 2,40,000 for senior citizens.

In the direct tax code (DTC) to be applicable in next fiscal year according to the finance ministry, the tax exempted income ceiling has been pegged at Rs 2 lakh. However, inflation has been surging over last one year which has eroded the real income of individuals, particularly those at the lower end of the income pyramid. This has led to suggestions that tax exemption limit should be hiked for the coming fiscal itself which will help counter the impact of inflation by raising disposable income. 

However, the finance ministry also faces some serious constraints on how much relief it affords to give to the public. First, as per the revised fiscal consolidation path envisaged in the fiscal responsibility and budget management act, the government has to cut the fiscal deficit to 4.8% in 2011-12 as against 5.5% budgeted in the current year. Further, its spending on flagship social sector schemes like the Mahatma Gandhi National Rural Employment Guarantee Act etc will increase. This obviously necessitates raising the level of revenue and hence limits how much tax relief can be provided. The finance ministry therefore will have to draw a very fine balance between tuning taxation in line with inflation and ensuring buoyancy in revenue. 

The S&P CNX Nifty added 1.70 points or 0.03% to 5470.90. The index touched a high and a low of 5491.35 and 5446.35, respectively. 

The top gainers of the Nifty were Rel Infra up 9.56%, Reliance Capital up 3.72%, Sterlite Inds up 2.41%, HDFC up 2.32% and Dr Reddy's up 2.14%.

The top losers of the index were Ranbaxy down 4.60%, Tata Power down 2.43%, IDFC down 2.05%, Sesa Goa down 1.81% and SBI down 1.81%.

Rest of the Asian markets with an exception of Jakarta Composite which was up by 0.82%, were trading in the red. Shanghai Composite plunged 0.17%, Hang Seng dipped 0.64%, KLSE Composite lost 0.14%, Nikkei 225 slid 0.80%, Straits Times declined 0.72%, Seoul Composite shed 0.42% and Taiwan Weighted slipped 1.67%.

Unit-8, 3rd Floor, First Mall, The Mall, Ludhiana-141001, Punjab (INDIA).

To unsubscribe or change subscriber options visit: http://www.aweber.com/z/r/?TJzsLEwstCyc7OysHMyctEa0nIyszExMzA==