Renewed pressure from ADAG stocks weigh on the markets

Local equity markets are witnessing some selling pressure as investors are seemingly booking profits on the last trading day of the week after the last five sessions rally. However, the downside has been limited from the positive global cues as rest of the Asian markets, were trading in the green albeit Shanghai Composite lost around 0.78%; and US index futures were also showing an up-tick in screen trade at this point of time. On the Dalal Street, barring defensive stocks such as Information Technology, Fast Moving Consumer Goods and Healthcare, all sectoral indices were trading in the red.  Realty, auto, oil and gas stocks were the major laggards. ADAG stocks again came under selling pressure today as Reliance Infra and Reliance Comm were among the top losers on the Sensex. Index heavyweights RIL, ONGC, L&T, ICICI Bank, SBI, ITC etc are also dragging the markets lower. The broader markets came under the selling pressure too as BSE Mid-cap and Small-cap indices lost 0.49% and 0.69%, respectively. The market breadth on the BSE was in favour of declines in the ratio of 1599:1031 while 97 scrips remained unchanged.

The BSE Sensex slid 54.63 points or 0.30% at 18,452.19. The index touched a high and a low of 18,690.97 and 18,430.93, respectively.

The BSE Mid-cap and Small-cap indices dipped 0.49% and 0.69%, respectively.

In BSE sectoral space Realty down 1.51%, Auto down 1.33%, Oil & Gas down 1.01%, Capital Goods (CG) down 0.72% and Metal down 0.67% were the major losers.

On the flip side, Information Technology (IT) up 0.70%, TECk up 0.29%, Fast Moving Consumer Goods (FMCG) up 0.24% and Healthcare (HC) up 0.05% were the only gainers on the BSE sectoral space.

Meanwhile, the government has finally got some relief from the ongoing inflation trouble as the pace of price rise in food commodities decelerated significantly over last 2-3 week. Both the Planning Commission and the Finance Ministry said on Thursday that the declining trend was likely to continue going forward as well.

Union Finance Minister Pranab Mukherjee expressed optimism that food inflation will come down to single digit as the rate of price rise of essential items moderates. "Now it is going down and I think WPI (wholesale price index) has also come down by 2 percentage point. So it is good sign... In quite some time food inflation will also be under single digit,' Mukherjee said.

In a similar tone, the Deputy Chairman of Planning Commission Montek Singh Ahluwalia also welcomed the decline in inflation and assured the downward journey would continue. 'I am glad that food inflation has come down and I do expect that the decline would actually continue,' Ahluwalia said. He added that while there might be some volatility and the pace of decline may not be as sharp every week as seen in the latest reported week, the overall trend would remain downwards on high base effect and strong farm harvest expected this year.

Earlier, the data released by the ministry of commerce and industry on Thursday showed that food price index rose 11.05% on annual basis during week-ended Feb 5, significantly slower compared with 13.07% recorded in the previous week. More importantly, on a sequential or week-on-week basis, the index for food goods decreased substantially by 2.14% to 182.9 from 186.9 for the previous week, mainly due to lower prices of fruits & vegetables (8%) and pulses (1%). This was second consecutive sharp decline in food prices index, indicating that supply side scenario was improving.

The industry is hoping that if the food inflation, biggest contributor to headline inflation at the moment, continues to come down, it will give more space to the Reserve Bank of India (RBI) to hold its key short term lending rate at the current level for a while after having implemented as many as seven rate hikes in the current financial year so far. The central bank has been under pressure to go aggressive to counter inflation which has proved very sticky throughout the last year, and sans a significant decline in inflation, there is a high likelihood of the central bank tightening monetary policy further in forthcoming mid-quarterly review in March.

The top gainers on the Sensex were Wipro up 2.02%, HDFC Bank up 1.57%, HUL up 1.57%, TCS up 1.41% and BHEL up 1.37%.

JP Associates down 3.77%, Rel Infra down 3.28%, RCom down 3.15%, Tata Motors down 2.54% and ONGC down 2.39% were the top losers on the index.

India's auto industry has had a dream run over the last 4-6 quarters and has surprised most analysts on the upside. In fact, the unprecedented performance of the industry over last one year point out towards a stylized fact. The size of the Indian economy now seems to have crossed a critical minimum level where the auto demand starts turning around in a big way, as was seen in China in the last decade or the US in 1960s and 1970s.

As such, the industry seems to be on an inflexion point and growth is likely to remain strong for an extended period now. At this crucial juncture, the industry has lined up a number of expectations from the forthcoming General Budget to be presented on Feb 28 by Union Finance Minister Pranab Mukherjee that automakers contend will help push India into big league comparing with the US and China.

The industry has urged the finance ministry to reduce excise duty currently placed at 22% for big cars and remove the additional Rs 15,000 tax imposed on the same. The extent tax structure, according to the auto industry has been fuelling the gulf between small and bigger cars. Big cars are defined as those which are longer than four meters and have more than 1,200 cc engine in case of petrol and 1,500 cc in case of diesel. The ones with a lesser specifications fall in the small car category, and attract 10% excise.

The industry also wants that vehicles meant for rural markets should get some additional excise duty relief in the forthcoming budget.  There is a consensus among most government departments to subsidies some specific vehicles that have a mass use in rural areas. As the rural India becomes increasingly an important customer for India Inc, the industry expects the government to take measures that will further boost rural demand. Not only will this help push auto sales, but also help bridge gap between rural and urban India.

The industry also has high expectations on the front of green business. With Indian government seriously looking to counter pollution and lower India's carbon intensity by 20% till 2020 on a base of 2005, as committed internationally, the auto industry feels there should be more incentives for production of green vehicles.

The S&P CNX Nifty drifted lower by 14.35 points or 0.26% to 5532.10. The index touched a high and a low of 5599.25 and 5521.35, respectively. 

The top gainers of the Nifty were Wipro up 1.96%, HUL up 1.90%, IDFC up 1.65%, TCS up 1.60% and HDFC Bank up 1.44%.

The top losers of the index were JP Associates down 3.49%, Suzlon down 3.17%, RCom down 3.10%, Rel Infra down 3.03% and RPower down 2.61%.

Rest of the Asian markets, barring Shanghai Composite, which was down by 0.78% were trading in the green. Hang Seng surged 1.26%, Jakarta Composite jumped 2.03%, KLSE Composite rose 0.65%, Nikkei 225 gained 0.06%, Straits Times added 0.56%, Seoul Composite advanced 1.82% and Taiwan Weighted gained 1.84%.

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