Choppy benchmarks witness some buying in the noon trades

Local frontline indices, which oscillated around the neutral line for most part of morning trades, are showing some signs of recovery as the indices are looking set to breach the important psychological 5,300 and 17,600 levels. Investors are covering good amount of short positions from information technology and capital goods counters as they overlooked weak leads like the subdued opening for European markets and overnight surge in international crude oil prices. The markets were also unwilling to drift below the neutral line on expectations that the markets have already bottomed out and investors are waiting for a catalyst to open long positions in the beaten down but fundamentally strong counters. However, reports that monsoon rains in India will be "below normal" for the second time in three years limited the upside chances for the markets as marketmen feared that it may potentially lower farm output and accelerate inflation. Investors booked profits in the defensive FMCG stocks while they also did not seem very comfortable holding high beta real estate stocks which traded only with over half a percent cut.

Moreover, the broader markets continued to languish in the red terrain with moderate losses, underperforming their larger peers by quite a margin. The markets rose on weak volumes compared to yesterday. The market breadth on the BSE was in favor of declines in the ratio of 1037:1519 while 105 scrips remained unchanged.

The BSE Sensex is currently trading at 17,592.36 up by 32.06 points or 0.18% after trading as high as 17,678.86 and as low as 17,524.51. There were 12 stocks advancing against 17 declines on the index.

The broader indices were trading on a negative note; the BSE Mid cap and Small cap indices fell by 0.28% and 0.31% respectively. 

On the BSE sectoral space, IT up 0.93%, Capital Goods up 0.66%, Bankex up 0.42%, Teck up 0.23% and HC up 0.23% were the major gainers, while Consumer Durables down 2.53%, FMCG down 0.92% and Real Estate down 0.64% were the only losers on the index.

The top gainers on the Sensex were Tata Power up by 2.03%, Sterlite up by 1.82%, Cipla up by 1.76%, Infosys up 1.71% and M&M up 1.70%.

On the flip side, JP Associates Bharti Airtel down by 2.76%, HUL down by 1.97%, Jindal Steel down by 1.71%, Maruti down by 1.30% and TCS down by 1.07% were the top losers on the index.

India reeling under the pressure of highest levels of inflation among Asia's major economies, faces another unpleasant news, that monsoon rains will be below normal for the second time in three years which will not only potentially lower farm output but also accelerate the rampant inflation. The Indian Meteorological Department (IMD) has forecast a marginally weak monsoon in July to September period at 95% of the long period average (LPA) of the last 50 years, with a model error of plus or minus 4%. Earlier in April the IMD had forecast that monsoon rains will be around normal levels at 98% of the LPA.

The IMD press release also stated that rainfall over the country in the month of July 2011 is likely to be 93% of its LPA and that in the month of August is likely to be 94% of LPA both with a model error of plus or minus 9%. Meanwhile, the only positive that emerged from the report is that precipitation over the North-West India, which is India's major food-grain producing areas, may be 97% of the 50-year average. IMD has also forecast 95% of its LPA over North-East India, 95% of its LPA over Central India and 94% of its LPA over South Peninsula, all with a model error of plus or minus 8%.

The Met department classifies overall rainfall in the country into five major categories: "deficient" (below 90 per cent of LPA rainfall), "below normal" (90-96 per cent), normal (96-104 per cent), "above normal" (104-110 per cent) and "excess" (above 110 per cent of LPA).

The cautionary statement is unlikely to be good news for the Indian government which is counting on good rainfall to harvest record quantities of food grain and oilseeds for a second year and calm the rate of price rise, which has already led the Reserve Bank of India to hike interest rates 10 times since mid-March 2010. With "below normal" rainfall it will be certain that food inflation, which has declined from around 20% to around 9% year on year, may witness trend reversal and also adversely impact rural demand which has a major role to play in India's overall economic activity.

The S&P CNX Nifty is currently trading at 5,297.25, higher by 21.40 points or 0.41% after trading as high as 5,310.50 and as low as 5,269.70. There were 33 stocks advancing against 17 declines on the index.

The top gainers of the Nifty were Ambuja Cement up by 2.52%, Sterlite up by 2.41%, Tata Power up by 2.13%, M&M up by 2.09% and Axis Bank up by 2.03%.

Bharti Airtel down by 2.86%, HUL down by 1.85%, Jindal Steel down by 1.63%, TCS down by 1.20% and SAIL down 1.10% were the major losers on the index.

All Asian markets continued to trade on a positive note as Shanghai Composite rose 0.25%, Hang Seng added 0.56%, Jakarta Composite gained 0.64%, KLSE Composite inched up 0.07%, Nikkei 225 jumped 1.79%, Straits Times amassed 0.24%, Seoul Composite climbed 0.77% and Taiwan Weighted increased 0.27%.

The European markets have opened on a quiet note as France's CAC 40 eased 0.10%, Germany's DAX shed 0.12% and London's FTSE fell 0.16%.

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