Markets take U-turn; trades in the green

Markets have rebounded into positive territory thanks to some feisty buying at lower levels in several front line counters. Key benchmark indices are trading at the day's high with NSE Nifty trading firm at the intra-day high level of 5,480; the BSE Sensex is also trading above the psychological 18,250 level. As far as global markets are concerned, while, Asian markets were trading in the mixed range and stock markets in Indonesia and Malaysia remained closed for the day on account of Prophet Muhammad's birthday; US index futures were showing down tick in screen at this point of time. Back home, Bankex, Oil & Gas, Public Sector Undertakings and Power segments were the major gainers. On the flip side, Capital Goods, Healthcare and Information Technology were the major laggards in the BSE sectoral space. Meanwhile, broader indices have also bounced back into the positive zone; the BSE Mid-cap and Small-cap indices rose 0.15% and 0.48%, respectively. The market breadth on the BSE was positive; the gainers outpaced the losers in a ratio of 1345:1255 while 96 shares remained unchanged.

The BSE Sensex gained 62.70 points or 0.34% at 18,264.90. The index touched a high and a low of 18,287.54 and 18,050.48, respectively.

The BSE Mid-cap and Small-cap indices rose 0.15% and 0.48%, respectively.

In BSE sectoral space Bankex up 1.91%, Oil & Gas up 0.80%, Public Sector Undertakings (PSU) up 0.80%, Power up 0.50% and Consumer Durables (CD) up 0.22% were the only gainers.

On the other hand, Capital Goods (CG) down 0.81%, Healthcare (HC) down 0.69%, Information Technology (IT) down 0.41%, Realty down 0.25% and TECk down 0.22% were the major losers on the BSE sectoral space.

Meanwhile, India is currently facing one of the worst inflation shocks since the economic deregulation started in early 1990s. Following the commodity rally and subsequent financial crisis of late 2008, inflation went down globally. Similar trend was witnessed in India as well, but in the food commodities space, inflation never really went down much. This is reflected in the fact that even though the wholesale prices index (WPI) had reached below the zero level around the middle of the 2009 calendar year, the consumer prices indices continued to remain significantly high. The failed monsoon of 2009 further boosted the already sticky food prices, and since then food inflation has remained at highly elevated levels.

As per the latest data released by the commerce and industry ministry, headline inflation in the country in January dipped marginally to 8.23% from 8.43% in the previous month. Most policy makers were expecting couple of quarters ago that inflation would have come down to 5%- 6% by January. The sticky inflation has however consistently proved the forecasts of the government, and even the Reserve Bank of India (RBI), wrong, and credibility of both in terms of their ability to check or counter inflation is very much at stake.

Since the monetary policy has little impact on food prices, the only solution is to boost the supply side which rests on the government. The RBI has nonetheless been rising its short term policy rates as if it leaves the monetary policy untouched, inflation expectations would harden further and food inflation could generalize quickly into broader economy. However, a supply side solution can only come from the government.

Not only the continued high inflation hits the marginal section of society very hard, it can also derail the domestic demand story the Indian economy.  Therefore, the India Inc wants that government uses the forthcoming Budget to come up with some strategic thinking on the farm sector and put in place a sustainable solution to the inflation problem.

Expected measures in the Budget range from some short term ones like tweaking the import/export duties and undertaking greater imports off food commodities through various public sector companies, to long term vision like boosting capacity and efficiency of food storage facilities, raising productivity through promoting greater farm sector capital formation and improving the efficiency and coverage of the public distribution system etc.  

The top gainers on the Sensex were RCom up 4.62%, Rel Infra up 3.33%, ICICI Bank up 2.38%, SBI up 2.11% and Tata Power up 1.93%.

M&M down 2.32%, JP Associates down 2.06%, TCS down 2.01%, BHEL down 1.88% and Hindalco Inds down 1.03% were the top losers on the index.

India's power industry wants the government to continue with the duty-free import of equipment used in electricity generation projects. Private sector power producers have approached the government to urge that no change in duty structure takes place in the unfavourable direction in the forthcoming Budget, contending that it was necessary to achieve ambitious power capacity addition targets.

Association of Power Producers, the newly formed industry body of power producers, has written to the commerce and industry minister Anand Sharma that restrictions on import of equipment will not only result in an increase in project costs but also delays in project implementation and will therefore harm the overall objective of enhancing power generation capacity in the country.

Power equipment makers on the other hand have been lobbying for import duty on imported power equipments as major producers like China were doling out export sops and increase in shipments into India was reducing the sale of local producers. Some quarters in the government also are of the view that keeping long term development of industry in mind, imports should be restricted.

As a result, the government has been contemplating a levy between 11% and 14% across the board on foreign power generation equipments. The issue has been on the limelight ever since a report by the Planning Commission member Arun Maira advocated such a step. The panel headed by Arun Maira was set up to suggest ways to boost domestic manufacturing of power equipment. Following its report, the heavy industry ministry has been proposing a levy of 11%-14% for power equipment imports.

The power producers however feel that the move will hit their ambitious plans and prove negative in the short run at least. Poor production capacity of power generation equipments is a long standing and well known issue that has been delaying India's power generation projects for ages. Power majors argue that since the equipment industry was unable to improve its production capacity even when imports were restricted by levies; there is no guarantee that an import duty now will boost domestic production capabilities. On the contrary, it may only reward inefficiency of power producers at the cost of slowdown in power capacity addition. 

The S&P CNX Nifty advanced 24.60 points or 0.45% to 5480.60. The index touched a high and a low of 5484.25 and 5408.35, respectively. 

The top gainers of the Nifty were Rel Capital up 6.32%, RCom up 4.78%, Kotak Mahindra Bank up 3.28%, Rel Infra up 3.27% and IDFC up 2.97%.

The top losers of the index were M&M down 2.52%, JP Associates down 2.34%, BHEL down 1.96%, TCS down 1.87% and SAIL down 1.26%.

The other regional peers were trading mixed; Shanghai Composite rose 0.02%, Nikkei 225 advanced 0.20% and Taiwan Weighted surged 0.42% while Hang Seng declined 0.76%, Straits Times dropped 1.05% and Seoul Composite down 0.20%.

Stock markets in Indonesia and Malaysia remained closed for the day on account of Prophet Muhammad's birthday.

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