Benchmarks trade positive after a cautious start

The Indian equity markets have made a cautious start as investors remained worried after a petrol price hike and rise in inflation while, the global cues too remained unsupportive as the US markets extended their fall overnight as the crisis in Europe persisted and most of the Asian counterparts were trading in the negative terrain at this point of time, indicating somber investors' sentiments. Back home, on the sectoral front, consumer durables witnessed the maximum gain in trade followed by capital goods and fast moving consumer goods while, oil and gas and public sector undertaking remained the only losers on the BSE sectoral space. The broader indices were out performing benchmarks. Moreover, public sector undertaking (PSU) oil marketing companies (OMCs) viz., Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL) and Indian Oil Corporation all were trading higher on decline in crude oil prices tracking the plunge in the gasoline. The market breadth on the BSE was positive; there were 933 shares on the gaining side against 526 shares on the losing side while 66 shares remained unchanged.

The BSE Sensex opened at 18,374.45; about 29 points higher compared to its previous closing of 18,345.03, and has touched a high and a low of 18,398.78 and 18,352.48.

The index is currently trading at 18,398.36, up by 53.33 points or 0.29%. There were just 22 stocks advancing against 8 declines on the index.

The overall market breadth has made a positive start with 61.18% stocks advancing against 34.49% declines. The broader indices were outperforming benchmarks; the BSE Mid cap and Small cap indices were up 0.34% and 46% respectively. 

The top gaining sectoral indices on the BSE were, CD up by 1.05%, CG up by 0.95%, FMCG up by 0.85%, IT up by 0.75% and TECk up by 0.70%. While, Oil and Gas down 0.95% and PSU down by 0.35% remained the only losers on the index.

The top gainers on the Sensex were TCS up by 1.59%, M&M up by 1.36%, ITC up by 1.10%, L&T up by 1.08% and Tata Steel up by 0.93%.

ONGC down by 3.55%, Hero Honda down by 2.16%, NTPC down by 0.78%, Maruti Suzuki down by 0.49% and SBI down by 0.43%, were the top losers on the index.

Meanwhile, the RBI Reserve Bank of India has recommended banks, post October, to hold the investment in liquid funds at lower levels. This recommendation is especially for banks who own Mutual Funds. If this rule of capping lenders' investment in Mutual Fund products becomes effective, it may hamper money flow from banks to liquid schemes.

This restricting rule will force banks to focus more on raising funds through individual Fixed Deposits (FDs) and Mutual Funds (MFs) to turn to retail clients to build assets under management. Banks have been blamed of sharing a warm relationship with MFs to meet their money requirement. Capital Market watchdog SEBI has frequently pressed MFs to build a business based on retail portfolios rather than institutional money

The RBI, however, did not recognize the level to which banks need to bring down their investments in liquid schemes; the experts have the view, it will be ideal for banks to maintain their holding within the 10% mark or level. But on the other hand, banks executives are interpreting this informal 'limit' as 5-6% of lenders' net-worth.

An RBI official is said to have expressed the central bank's opinion to top bank executives soon after it announced this investment restriction in its monetary policy review on May 3. The RBI has also informed bank executives to cut exposure to liquid schemes in phased manner over the next 5 months rather than exchanging the entire amount just before the new limit comes to effect. The revised investment limit will be based on the banking industry's total net-worth as on March 31, 2011.

The Mutual Fund Industry estimates banks' total net-worth by this date between Rs. 3 lakh crore to Rs 4 Lakh crore. At 10% of the net-worth banks' money flow into liquid schemes will be capped at Rs 30,000 - Rs 40,000 after October. At present, banks' investments in liquid schemes are about Rs 90,000 crore. If the banks make a decision to limit the investment in liquid schemes at 5-6% of their net-worth, the Mutual Fund industry may end up getting only about Rs. 15,000 to Rs. 20,000 Crore.

Banks invest their excess money in liquid schemes, which is invest in debt securities for a period less than a year, including Certificates of Deposits issued by banks, Commercial Papers from companies, Treasury Bills and the Collateralized Lending and Borrowing Obligation (CBLO) market, for quick return. These funds in turn, lend to banks in the overnight CBLO market. Mutual Funds are also among the major investors in the Certificate of Deposits.

The S&P CNX Nifty opened at 5,496.10; about 3 points lower compared to its previous closing of 5,499.00, and has touched a high and a low of 5,513.70 and 5,495.75 respectively.

The index is currently trading at 5,513.60, up by 14.60 points or 0.27%. There were 36 stocks advancing against 14 declines on the index.

The top gainers of the Nifty were M&M up by 1.53%, TCS up by 1.28%, Axis Bank up by 1.19%, L&T up by 1.18% and Sesa Goa up by 1.13%.

The top losers of the index were ONGC down by 4.06%, Hero Honda down by 2.03%, Ranbaxy down by 1.61%, Ambuja Cement down by 1.36% and Gail was down by 1.18%.

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