Benchmarks near their day’s high on positive global cues; IT sector rallies

Local equity markets continue to trade in the green and are near their day's high, on the back of positive global cues on the last trading day of the week. All the Asian markets were trading in positive territory following overnight gains in the US market on encouraging earnings and better-than-expected jobs data. US index futures too were showing an up-tick in screen trade today. Back home, key benchmark indices are moving northwards in an aggressive manner and all sectoral indices on the BSE are trading in the green. Information Technology sector is leading with maximum gains followed by technology, capital goods, realty and consumer durables segments. Index heavyweights such as RIL, Infosys, L&T, ICICI Bank, HDFC, etc are also trading higher since morning. Mirroring their larger counterparts gains, broader markets are also trading in the green with BSE Mid-cap and Small-cap indices gaining 0.71% and 0.79%, respectively. The market breadth on the BSE was in favour of advances in the ratio of 1580:1110 while 125 scrips unchanged. Investors seem to have shrugged off concerns about inflation, high oil prices and fears about likely monetary tightening moves by the Reserve Bank of India (RBI). Also, sentiments seem to be upbeat after tabling of the two reforms bills on banking and GST bill in the Lok Sabha, easing concerns over Japan's nuclear problems and legendary US investor Warren Buffett's indications to invest in India in a big way.

The BSE Sensex surged 182.89 points or 1% at 18,533.63. The index touched a high and a low of 18,560.59 and 18,480.69, respectively.

The BSE Mid-cap and Small-cap indices soared 0.71% and 0.79%, respectively.

All the sectoral indices on the BSE were trading in the green. Information Technology (IT) up 2.48%, TECk up 2.09%, Capital Goods (CG) up 1.57%, Realty up 0.93% and Consumer Durables (CD) up 0.86% were the major gainers.

Meanwhile, deputy Governor of the Reserve Bank of India (RBI) said on Thursday that the sudden reversal in non-food manufacturing inflation in the month of February was a key concern for the Indian central bank which so far has only been worried about the elevated levels of food and primary goods' inflation.

In an interview given to a business news channel, Gokarn said that the RBI has been trying to do a balancing act between growth and inflation and has so far been successful in not disrupting growth prospects while tightening the monetary stance. However, he added that there is a need to be watchful the emerging inflationary trends, particularly the unexpected jump in manufacturing inflation is quite concerning.

In the month of February, WPI inflation in the primary articles declined from 17.28% to 14.79% while the same in the food commodities also came down from nearly 15% to about 10%. However, in case of manufacturing commodities, inflation went up from 3.75% to 4.94%. This indicates that while improved supply of food and other primary commodities in wake of a strong Kharif harvest has eased prices, the strong domestic demand scenario in case of manufactured products is causing supply bottlenecks.

Further, manufacturing inflation sans manufactured food items, generally called as core inflation, showed even sharper increase in February. The core inflation increased from around 4% to 6%, clearly indicating that capacities were coming under pressure. What is worse is that as the central bank continues to tighten its monetary policy to fight inflation, it will have a dampening impact on investment and capital formation. This will in turn slow down the adjustment in capacities to surging demand and thereby growth in the economy.

Gokarn added that there had been a concern regarding possible slowdown in capital formation and growth and that is why the central bank has been looking to calibrate its policy tightening. All the rate hikes by the RBI in current monetary tightening cycle have been in the quantum of 25 basis points only. The Deputy Governor pointed out that a very aggressive action against inflation by raising rates much higher than what central bank did could have had negative fallout. However, he did accept that even calibrate tightening will have some impact on demand, but added that that was the motive when the target variable was inflation.

The top gainers on the Sensex were Infosys up 2.85%, Wipro up 2.57%, L&T up 2.41%, DLF up 2.39% and TCS up 1.79%.

On the flip side, Tata Steel down 0.22%, Cipla down 0.21% and Hindalco Inds down 0.20% were the only losers on the index.

Riding on a strong Kharif crop in the last season and Rabi crop in ongoing season, the Indian farm sector is set for a bumper growth year. The agriculture ministry in its latest projections has pegged the overall growth in the farm sector at 5.4% compared with the production levels in the last fiscal.

According to the analysis done by the agriculture ministry, there has been substantial growth in area under cultivation of major crops and most of the grain as well as cash crops from both the Kharif and Rabi seasons will see significant year-on-year growth in the current fiscal. While the growth can be partly attributed to low base, improvement in weather prediction systems also get part of the credit according to the government.

India's farm sector production had been miserable in previous two years. The first half growth in current fiscal has been reported at 3.8% which marks substantial improvement over growth of (-) 0.1% and 0.4% in previous two years. Good monsoon last year however boosted the Kharif crop while some late rains also improved soil moisture and resulted in good conditions for the Rabi crop as well.

The Annual Report of the Department of Agriculture and Cooperation has also expressed satisfaction over the growth of investment and capital formation in agriculture in the recent past. The annual report estimates that gross capital formation, or investment, in agriculture as a percentage of Gross Domestic Product (GDP) in this sector has substantially increased to 22.3% in 2009-10 from 15.8% in 2005-06. In absolute terms, the capital formation in agriculture and allied activities in 2009-10 was over Rs 1,300,000 crore, as per the report. The total private expenditure in the farm sector in the first four years of the Eleventh Plan is estimated to be Rs. 44,413 crore, up from Rs. 14,952 crore in the entire five year period of the Tenth Plan.

Despite the better growth seen in farm sector, its share in overall national income however will continue to fall in current fiscal as well. As per the Central Statistical Organization's (CSO) estimates, the share of agriculture in the country's GDP has fallen from 17.4% in 2006-07 to 14.2% in 2011-11. The falling share of agriculture in GDP though is an expected outcome in a fast growing and structurally changing economy.

The S&P CNX Nifty sprang 52.20 points or 0.95% at 5574.60. The index touched high of 5588.70 and a low of 5560.95, respectively.

The top gainers on the Nifty were Infosys up 3%, DLF up 2.65%, Wipro up 2.57%, L&T up 2.33% and Axis Bank up 2.13%.

On the other hand, Ranbaxy Lab down 1.23%, Gail down 1.03%, SAIL down 0.52%, Cairn India down 0.23% and Siemens down 0.22% were the major losers on the index.

Most of the Asian markets are trading in the green. Shanghai Composite sprang 0.94%, Hang Seng added 0.84%, Jakarta Composite soared 0.26%, KLSE Composite increased 0.09%, Nikkei 225 surged 1.07%, Straits Times gained 0.83%, Seoul Composite jumped 0.85% and Taiwan Weighted advanced 0.40%.  

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