Benchmarks continue northward journey; Nifty breaches 5750 level

After making a flat start the Indian equity markets have trading strength to strength as inflation worries eased on the back of fall in crude oil prices. The fact that crude oil prices haven't gone up in the last few days and that prices of other commodities too seem to be correcting has prompted investors to take risk. It seems that the markets are in no mood of losing ground and bulls have got firm grip on the bourses for sixth straight trading day in a row. Mirroring their larger counterparts, broader markets are also trading in the green with BSE Mid-cap and Small-cap indices gaining 0.34% and 0.29%, respectively. The market breadth on the BSE was in favour of declines in the ratio of 1273:1365 while 113 scrips unchanged.

Meanwhile, in the 9th round of auction under the New Exploration Licensing Policy (NELP), ONGC bid for 28 out of 34 oil and gas exploration blocks. In all, 75 bids were received for 33 out of 34 oil and gas blocks on offer with Oil India bidding for 17. Further, Reliance Industries bid for six while Cairn India submitted offers for two out of the 34 on offer. The government hired UK-based Fugro Data Solutions to market the NELP-IX blocks. There were total 34 oil and gas blocks which include eight in deepwater areas, seven in shallow water and nineteen onshore properties.

The BSE Sensex surged 158.28 points or 0.84% at 18,943.14. The index touched a high and a low of 19,121.93 and 18,944.82, respectively.

The BSE Mid-cap and Small-cap indices soared 0.34% and 0.29%, respectively.

All the sectoral indices on the BSE were trading in the green. Realty up 1.63%, Teck up 1.22%, IT up 1.00%, Capital Goods up 0.98% and Power up 0.76% were the major gainers.

The top gainers on the Sensex were Reliance Communication up 4.75%, Hero Honda up 3.06%, Bharti Airtel up 2.40%, DLF up 2.35% and Tata Motors up 1.88%.

On the flip side, Tata Steel down 0.51% and ITC down 0.17% were the only losers on the index. 

In a move that will boost fertilizer firms, the government is planning to compensate the companies that were given bonds in lieu of subsidy provided by them. It plans to either compensate for losses made in offloading bonds or buy back the same. At that time, the government used to partly compensate the fertilizer firms for subsidy put in retail sale of fertilizers through issuing bonds.

The practice of fertilizer bonds has already been scrapped by the current finance ministry Pranab Mukherjee who believed bonds were an opaque way of subsidizing and it was better to compensate in lieu of subsidy given by any organization in cash. The fertilizer as well as oil subsidy was given in cash in 2009-10 and the same process has been followed in the current year as well.

Nonetheless, the bonds issued to fertilizer companies in FY08 and FY09 have become a burden on them as the receivers could not offload these in markets due to poor economic atmosphere prevailing at that time. The global financial crisis and following slowdown in economy meant that companies that got the fertilizer bonds had to keep the same with them for longer period or sell the same at capital loss.

Now however the government is planning to compensate the companies. It has two options. It can either buyback the bonds or compensate the companies that have incurred or will incur losses on bonds. The Cabinet Committee on Economic Affairs will consider the matter on Tuesday. The government had issued a total of Rs 27,500 crore worth bonds in the two year period under consideration. The fertilizer companies have so far sold part of the bonds for Rs 10,000 crore, which involved a market loss of Rs 300 crore. 

In order to compensate the companies who have already incurred losses or may incur on sale, the government now plans to provide the actual loss a company has made on sale of bonds or 10% of the face value of bonds in case the companies have not yet sold the bond. It will also consider buy back of bonds from companies which have been unable to offload the same or direct the banks to liquidate the same on face value and compensate banks for potential losses. 

The S&P CNX Nifty gained 58.25 points or 1.02% at 5745.50. The index touched high of 5747.75 and a low of 5680.70, respectively.

The top gainers on the Nifty were Hero Honda up 4.55%, RCom up 4.42%, SesaGoa up 3.36%, Bharti Airtel up 2.98% and DLF up 2.86%.

On the other hand, IDFC down 1.88%, Ranbaxy down 0.74%, SAIL down 0.56%, Grasim down 0.45% and GAIL down 0.39% were the major losers on the index.

Some of the Asian markets are trading in the red. Shanghai Composite down 1.01%, Hang Seng down 0.01%, Jakarta Composite declined 0.52%, KLSE Composite up 0.28%, Nikkei 225 declined 0.21%, Straits Times declined 0.07%, Seoul Composite advances 0.77% and Taiwan Weighted up 0.51% .

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