Benchmarks remain range bound in the green; food inflation again comes to double digit

Key benchmark indices faced resistance at crucial psychological levels and are trading range bound. Both the benchmark indices - BSE Sensex and NSE Nifty are trading well above their crucial levels of 18,000 and 5,500. Though Middle East and North Africa tensions have not eased yet, global investor sentiment remained firm as most of the Asian markets are trading in the green and US index futures too are showing an up-tick in screen trade at this point of time. Back to the Indian markets, the BSE Realty index was the top sectoral gainer followed by capital goods, information technology and auto counters; while oil & gas segment was the lone loser in the sectoral indices declining by 0.11%. The broader markets were in line with the benchmark indices, the BSE Mid-cap and Small-cap indices gained 0.61% and 0.89%, respectively. The market breadth on the BSE was positive; the gainers thrashed the losers in a ratio of 1607:1025 while 123 shares remained unchanged. Meanwhile, after having fallen throughout the month of February, food inflation seems to be reversing its trajectory again. According to the data released by the ministry of commerce and industry, food price index rose 10.02% on annual basis during week-ended March 12, as compared with 9.42% recorded in the previous week.

The BSE Sensex advanced 127.02 points or 0.70% at 18,333.18. The index touched a high and a low of 18,373.97 and 18,286.42, respectively.

The BSE Mid-cap and Small-cap indices gained 0.61% and 0.89%, respectively.

All the sectoral indices on the BSE, with an exception of Oil & Gas, which was down by 0.11% were trading in the green. Realty up 2.51%, Capital Goods (CG) up 1.50%, Information Technology (IT) up 1.01%, TECk up 0.91% and Auto up 0.89% were the major gainers.

Meanwhile, the Reserve Bank of India (RBI) had advocated in its discussion paper on issuing new banking licenses that foreign direct investment in the new banks to be licensed in near term should be restricted to 49% instead of the current norm that allows banking companies to have up to 74% FDI. However, the finance ministry seems to the reluctant to accept this regression in FDI norms.

The central bank feels that initially the FDI in the new banks should be restricted to a relatively lower level and once the new banks have established themselves in the market and the central bank is satisfied with their performance, a greater FDI to the tune of 74%, as is the case with existing banks, could be allowed. 

However, the finance ministry has expressed its reservations to the proposal saying that to restrict FDI in new banks to 49% would amount to withdrawing a hitherto liberal foreign investment policy, that in turn can hurt investor sentiments and also impact India's image as an increasingly liberal economy, at least as far as foreign investment in concerned. 

Another issue around the matter is the treatment of banks exceeding 49% of FDI. As per the current FDI norms, companies which are more than 50% owned by foreigners are dubbed as foreign companies. However, in case of banks, even with over 50% stake (less than 74%) being held by foreigners, they are treated as Indian banks as long as management and control is in the hands of Indians. This is crucial distinction in case of banking industry as local banks get much more liberal policies as compared to foreign banks.

In case the FDI in new banks is allowed to be over 49%, in that scenario how would the banks which are say majority owned by foreigners be treated. The finance ministry wants the central bank to ensure the guidelines for issuing new banks bring clarity on the matter. What the finance ministry wants is that RBI clearly mentions in its guidelines that new banks will be exempted from Press Notes 2, 3 and 4, which deal with classifying a company with over 50% foreign ownership as foreign company. In other words, it wants the RBI to clearly mention that in case of new banks as well even if the foreign ownership increases over 50%, they will continued to be treated as local bank as long as the management is with Indian citizens.

The top gainers on the Sensex were Hindalco Inds up 2.65%, BHEL up 2.59%, TCS up 2.22%, M&M up 1.88% and Wipro up 1.52%.

On the flip side, Maruti Suzuki down 0.90%, Reliance Infra down 0.42%, Bajaj Auto down 0.37%, HDFC down 0.03% and RIL down 0.03% were the only losers on the index.

Despite the continued tightening of monetary policy by the Reserve Bank of India (RBI) and some uptic in market rates as well, demand for credit continues to remain robust, a heartening sign for an economy that is anticipated to slowdown because of rising cost of financing.

According to the data compiled by the central bank, credit offtake from the banking industry grew by over 23% for the one-year period ended March 11, which also signals that the India Inc is doing just fine, at least till now, despite the ongoing high inflation and in response the continued monetary tightening by the Indian monetary authority. According to the RBI, total credit offtake during the period under review stood at Rs 39.37 lakh crore as against Rs 32.20 lakh crore a year ago.

However, even as the credit growth remains robust, deposit growth is only gradually improving and as a result the gap between the deposit and credit growth is widening. During the period under discussion, total deposits with the scheduled commercial banks in India went up to about Rs 52.85 lakh crore compared with Rs 45.50 lakh crore as on March 12, 2010, which works out to be a growth of around 16.1% on an annual basis.

Clearly, the gap between the deposit and credit growth rate is substantial. The central bank has been pointing out that the increasing difference between the two was also one of the reasons for the liquidity crunch which has been in the deficit mode for last several months. While government spending will ease the temporary liquidity crunch, a more structural issue is the slower growth in deposits as compared with loans. 

Banks have also been looking to adhere to the advice of the central bank and several of them have raised their deposit rates over last one quarter or so. This has had its impact on deposit growth rate which has improved from around 13% a quarter ago to 16.5% presently. The latest figure is much close to the RBI's fiscal-end target of 17% given in the January policy review. The growth in deposits nonetheless is still much slower compared to growth in loans and banks will have to further push the former to maintain equilibrium in the system. 

The S&P CNX Nifty added 35.05 points or 0.64% at 5515.30. The index touched high of 5528.25 and a low of 5500.75, respectively.

The top gainers on the Nifty were Hindalco Inds up 2.80%, BHEL up 2.79%, TCS up 2.23%, M&M up 1.87% and Wipro up 1.64%.

On the other hand, Gail down 1.40%, Maruti Suzuki down 0.90%, Cairn India down 0.72%, Reliance Infra down 0.56% and Bajaj Auto down 0.54% were the major losers on the index.

Most of the Asian markets are trading in the green. Hang Seng added 0.95%, Jakarta Composite soared 1.29%, KLSE Composite increased 0.11%, Straits Times gained 0.89%, Seoul Composite jumped 1.22% and Taiwan Weighted advanced 0.37%; while Shanghai Composite dropped 0.02% and Nikkei 225 declined 0.15%.

Unit-8, 3rd Floor, First Mall, The Mall, Ludhiana-141001, Punjab (INDIA).

To unsubscribe or change subscriber options visit: http://www.aweber.com/z/r/?TJzsLEwstCyc7OysHMyctEa0nCyMDIzsDA==