Markets under pressure; Sensex trades below 19700 mark

The benchmarks seems to have lost ground and are still trading lower in the early noon trade, though the broader markets were trading in green but the gains remain marginal. Earlier the markets did witnessed exceptional pullback and bulls made indices to enter into a positive territory but it didn't sustain there for long and profit taking dragged the markets back into red, BSE Mid-cap and Small-cap indices were up by 0.59% and 0.76%, respectively. Some BSE sectoral indices like Realty, Consumer Durables, Power, PSU and Capital Goods are trading in green on the same time Teck, FMCG, IT, Bankex and Health Care are in red. The market breadth on the BSE was in favour of advances in the ratio of 1652:1089 while 91 scrips remained unchanged. On the other hand The Asian markets continue to trade mixed, Seoul Composite, KLSE Composite and Nikkei were still reeling in red.

The Reserve Bank of India (RBI) said on Tuesday that although the inflation so far has remained at elevated levels despite the continued policy tightening, the central bank and policy makers of the country could not accept such high level of inflation as new normal for seeking a higher growth trajectory, indicating that it will toughen its stance against rapidly rising prices going forward. Deputy Governor of the RBI Subir Gokarn said that India could not risk accepting high inflation as the 'new normal,' nor could the central bank allow inflation to remain at elevated levels in search of high growth. He candidly admitted that inflation-growth tradeoff was not that straight forward and there was a possibility that in medium run high inflation could act as a dampener on investment and hence overall economic growth in the country. "...sustainability of growth over the long term does require controlling inflation'' Gokarn said.

The BSE Sensex lost 53.63 points or 0.27% at 19,633.82. The index touched a high and a low of 19,811.14 and 19,550.55 respectively.

The BSE Mid-cap and Small-cap indices gained 0.59% and 0.76%, respectively.

The sectoral indices trading in the green on the BSE are Realty up 1.86%, Consumer Durables up 0.99%, Power up 0.80%, PSU up 0.35% and Capital Goods up 0.18%.

On the flip side, Teck down 0.56%, FMCG down 0.50%, IT down 0.41%, Bankex down 0.28% and Health Care down 0.06% were the major losers.

The top gainers on the Sensex were Reliance Infra up 1.81%, Hero Honda up 0.85%, NTPC up 0.85%, Tata Motors up 0.66% and Bajaj Auto up 0.65%.

On the flip side, Wipro down 2.02%, Hindalco down by 1.55%, Bharti Airtel down 1.38%, M&M down 1.13% and ITC down 1.11% were the losers on the index.

Meanwhile, worried over rising cost of funding amidst continued tightening of monetary policy stance by the Reserve Bank of India (RBI) and its impact on credit off-take, bankers on Tuesday urged the central bank to take a pause in its tightening cycle. They also asked for a cut in reserve rations to improve the liquidity conditions in the system.

In the run up to annual monetary policy released for fiscal year 2011-12, top bakers met the Governor of the RBI D Subbaro on Tuesday. There was a near consensus among bankers that further substantial tightening in monetary policy stance will force them to pass on increase in cost of funding to borrowers in a significant way that could have a negative bearing on the overall credit demand.  They however did not seem averse to the idea of milder tightening of say 25 basis points over first half of FY12.

Bankers also wanted the Reserve Bank to cut either the cash reserve ratio (CRR) or the statutory liquidity ratio (SLR) that can help bring more liquidity into the system. "Bankers have made a very clear representation that CRR, SLR must come down. We requested RBI to slash the CRR as well as the SLR or at least one of these even though we admit that inflation is a big concern. We see inflation at 7% by the end of the financial year," said K Ramakrishnan, chief executive of Indian Banks Association (IBA).

The RBI has in last financial year ending March 31, 2011 hiked its key policy rates including the repo rate or the rate at which it lends to banks and reverse repo, the rate at which it allows banks to park their surplus liquidity with it eight times. However, since the liquidity has been tight in the system, the CRR was left unchanged for most part of the fiscal while SLR was temporarily cut to ease liquidity.

Nonetheless, with the liquidity situation easing and expected to ease further as government spending picks up, the central bank is unlikely to cut the CRR or SLR. If anything, the RBI might hike CRR going deep into FY12 in case liquidity turns too much positive. On the issue of tightening in policy rates as well the central bank is expected to raise repo and reverse repo rates by 50-75 bps at least during the calendar year 2011 as inflation remains at elevated levels.

Bankers also requested the RBI to give them more time for restructure loans given to microfinance institutions (MFIs). The central bank had earlier given time till March 31, 2011 to banks to restructure such loans but banks have now asked for an extension of one quarter that is likely to be granted. The restructuring of MFI loans became a major issue following the Andhra government's ordinance that restricted the business of MFIs and impacted the loan repayment capability temporarily. The central bank on the other hand raised concerns about sharp increase in banks' lending to the real estate sector that it contends can lead to an asset bubble in the economy.

The S&P CNX Nifty lost 14.25 points or 0.24% at 5895.80. The index touched high and low of 5944.45 and 5868.80, respectively.

The top gainers on the Nifty were SesaGoa up 3.30%, BPCL up 2.69%, Reliance Infra up 1.77%, GAIL up 1.66% and RPower up 1.50%.

On the other hand, Wipro down 2.26%, Hindalco down 1.55%, Bharti Airtel down 1.47%, Kotak Bank down 1.40% and HDFC Bank down 1.33% were the major losers on the index.

Asian markets were trading mixed, Seoul Composite down 0.17%, KLSE Composite down 0.07% and Nikkei down 0.32%.

The gainers were Hang Seng up 0.37%, Straits Times up 0.29% and Shanghai Composite up 1.13%, Jakarta Composite up 0.63% and Taiwan Weighted advanced 1.69%.

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