Markets trade choppy; Nifty struggling around 5350 mark

Benchmark indices have tumbled on yet another day and are trading near to their 5-month lows in the early noon session. While, US index futures are showing an up-tick in screen trade at this point of time, trading was mixed on bourses in other parts of Asia. Back on the Dalal-street, the trade has turned choppy in the second half and the indices have further dipped into red. All the sectoral indices on BSE were currently trading in the red. Consumer durables, realty, auto, oil and gas, banking sector were taking the maximum beating. Index heavyweights such as RIL, Infosys, L&T, ICICI Bank, SBI etc are further dragging the markets lower. The BSE Mid-cap and Small-cap indices, declining by 1.56% and 2.02%, respectively, are completely underperforming their larger counterparts for yet another day. The market breadth on the BSE was dismal; the losers thrashed the gainers in the ratio of 2038:612 while 106 shares remained unchanged.

The BSE Sensex sank 146.56 points or 0.81% at 17,890.63. The index touched a high and a low of 18,141.51 and 17,848.25, respectively.

The BSE Mid-cap and Small-cap indices plunged 1.56% and 2.02%, respectively.

All the BSE sectoral spaces were trading in the red with deep cuts. Consumer Durables (CD) down 2.51%, Realty down 2.24%, Oil & Gas down 1.50%, Bankex down 1.46% and Auto down 1.36% were the major losers.

Meanwhile, in a move that will help the policy makers, particularly the Reserve Bank of India (RBI) to better gauge the underlying inflationary momentum in  the Indian economy, the government will release new consumer prices indices (CPIs) on February 18, said an official release from the Planning Commission.

The government will release new series of CPIs for rural, urban and combined (rural + urban) with base 2010 (January-December =100) for January 2011 onwards, said the Central Statistical Organization (CSO). These indices will be available for five major groups, namely, food, beverages and tobacco; fuel and light; housing; clothing, bedding and footwear; and miscellaneous.

At present, India has four different CPIs and a wholesale prices index (WPI). There remains significant difference within the CPIs themselves and even higher difference when the CPIs are compared with the WPI. As such, the policy makers have to reconcile the differences between different indices, which sometimes are too large to be explained or to be factored in, for instance, by the RBI.

In this wake, the WPI has been getting much higher attention of the central bank when it comes to policy making. This is against the international best practice of assessing inflation by the CPI. The main reason for RBI following the WPI is the relatively broader coverage (447 items with a weight of 57% for manufactures), and its frequent and timely availability, as compared to the complicated mode of calculation of the CPIs and long delays in release.

Further, the current CPI numbers do not encompass all the segments of the population in the country and do not reflect the true picture of underlying price momentum. As such, the government has been looking to replace or augment the CPIs by some composite measure which will now be in form of the composite rural-urban CPI to be released on Feb 18.

Initially, the CSO proposes to release provisional indices for the period of one year. These provisional numbers will be subsequently revised and final numbers with complete data for all-India and also for all the States/Union Territories would be released with a time lag of two months. The CSO expects that the data reporting will be considerably improved and there may not be any need to bring out separate provisional numbers after December, 2011. As such, indices for January 2012 onwards along with annual inflation rates are likely to be released with a time lag of one month only.

The top gainers on the Sensex were Tata Power up 2.08%, Hindalco Inds up 1.68%, Bajaj Auto up 1.67%, Cipla up 1.46% and HDFC up 1.22%.

ONGC down 4.49%, M&M down 3.66%, JP Associates down 2.69%, Tata Steel down 2.43% and Hero Honda down 2.25% were the top losers on the index.

The liquidity deficit being faced by Indian commercial banks has eased significantly over the last one fortnight or so on account of the steps taken by the Reserve Bank of India (RBI) in December policy review and also due to rising deposit growth as banks hike deposit rates across the maturities.

Banks have been borrowing Rs 60,000-65,000 crore from the repo window of the central bank through its liquidity adjustment facility (LAF) off-late as compared with average borrowings of close Rs 1 lakh crore seen in last few months. However, the deficit is still somewhat higher compared with the comfort zone of the RBI at Rs 45000-50,000 crore.

Nonetheless, the easing liquidity crunch is now helping banks bring down the interest rate on bulk deposits and certificate of deposits, which had crossed 10% (for one year maturity) in January. Banks have probably realized that, as urged by the central bank too, it is beneficial to have more deposits, even as a somewhat higher cost, than relying on CDs or short term money market when the interest rate cycle is clearly on a significant uphill journey.

The RBI, while has been keeping the liquidity in the deficit mode in the system to improve the transmission of monetary policy decisions, has also stated a number of times that it would not like to see the liquidity get too tight. While tight liquidity is good for rapid transmission of central bank's signals, it can also cause frictions in the bond market and hit credit expansion, thus impacting growth. As such, the RBI has been willing to bring down the deficit to around 1% of net demand and time liabilities of the banks (NDTL) that work out to be around Rs 45,000 crore.

The S&P CNX Nifty fell 45.20 points or 0.84% to 5350.80. The index touched a high and a low of 5432.35 and 5335.85, respectively. 

The top gainers of the Nifty were Tata Power up 1.99%, BPCL up 1.78%, Hindalco Inds up 1.70%, Bajaj Auto up 1.62% and Cipla up 1.41%.

The top losers of the index were ONGC down 5.07%, JP Associates down 4.43%, M&M down 3.91%, Axis Bank down 2.71% and Tata Steel down 2.53%.

Asian markets were trading mostly in the red; Hang Seng dipped 0.13%, Jakarta Composite shed 0.77%, Straits Times fell 0.06%, Seoul Composite dropped 0.58% and Taiwan Weighted slipped 0.37%.

On the flip side, KLSE Composite advanced 0.28% and Nikkei 225 rose 0.41%.

The Chinese markets were closed on account of the annual Lunar New Year holidays.

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