Markets trade flat with negative bias

The Indian equity markets pared all its early gains and currently trading flat with negative bias on profit booking at some heavyweight counters. The investors remained quite cautious ahead of a speech from Federal Reserve Chairman Ben Bernanke and on the Reserve Bank of India's warning that inflation is likely to remain high and economic growth will be around 8% or even lower in 2011-12 due to high interest costs. On sectoral front investors picked up shares in auto, IT and healthcare stocks. Buying was seen in information technology and capital goods sector shares as well. However, reality, power, metal stocks were pulling the market. Bank, Oil, FMCG and (ADAG) shares as well as select consumer durables shares were being dumped. On the global front, Asian markets continued to trade mixed. Back home, the market breadth favoring negative trend; there were 1,002 shares on the gaining side against 1,398 shares on the losing side while 109 shares remained unchanged.

The BSE is currently trading at 16,143.42, down by 2.91 points or 0.02%. The index has touched a high and low of 16,256.38 and 16,107.80 respectively. There were 15 stocks advancing against 15 declines on the index.

The broader indices descended in red; the BSE Mid cap index was down by 0.66% while, Small cap index was down by 0.44%.

The top gaining sectoral indices on the BSE were, Auto up by 1.06%, IT up by 0.91%, HC up by 0.58%, TECk up by 0.57%, and CG up by 0.07%. While, Realty down by 2.16%, Power down by 1.32%, Metal down by 1.07%, Bankex down by 0.75%, and PSU down by 0.59% were the top losers on the index.

The top gainers on the Sensex were Mahindra &Mahindra up by 2.37%, Hero Motors up by 2.05%, Infosys up by 1.39%, Tata Motors up by 1.03% and Sun Pharma up by 0.96%.

On the flip side, DLF down by 3.56%, Tata Power down by 3.24%, Jaiprakash Associates down by 2.78%, Hindalco Industries down by 2.19% and NTPC down by 1.76% were the top losers on the Sensex.

Meanwhile, country's macro-economic fundamentals may get worsen if the global economy slips back to recession, because the current financial health of government don't allow it to offer stimulus packages like it has given during  the 2008 global financial meltdown. The uncertainties in the global economy have increased after the downgrade of the United States credit rating and debt crisis in European nations.

 After releasing the RBI's Annual report, RBI deputy governor Subir Gokarn said 'the fiscal space to provide counter-cyclical policy is limited compared to what it was in 2008,'by adding further he said 'a lot will hinge on the stand that Fed governor Bernanke takes. 

The government is likely to exceed its fiscal deficit target of 4.6% of Gross Domestic Product for the current financial year on the back of subsidies on the petroleum products and fertilizers surge. And the welfare spending on employment programmes such as Mahatma Gandhi National Rural Employment Guarantee Scheme are also expected to put limitation on government financial health, if the revenue collection plunges below the expected level due to slowdown on economic growth.

'There are risks that the twin deficits, fiscal and current account, could increase if the global economic problems deepen,' the RBI's Annual report said. The alarming warning has come at the time when industry experts and economist are debating over the issue of whether RBI should take a halt in rate hikes. The RBI, since, March 2010, has increased its short term lending and borrowing rates by 11 times to curb inflation.

The economic growth condition for current fiscal year is unfavorable compared to last financial year due to a number of unfavourable developments. Global uncertainties have increased. If global financial problems intensifies and slows down global growth markedly, it would impart a downward bias to the growth projection as suggested in First Quarter Review of Monetary Policy 2011-12. The 'above trend growth' is expected to decelerate, yet remain about 8%.

The headline inflation, measured by the wholesale price index, remained a major macro-economic challenge, due to the supply side constrains. The headline inflation has been hovering around double digit mark for quite some time. With weak supply response, inflation remains an important macro-economic challenge,' RBI said. High inflation cannot be accepted as new normal.

The RBI's Annual report said, "Inflation is likely to remain high and moderate only towards the latter part of the year to about 7% by March 2012. Should the global recovery weaken, commodity prices may decline further, which should have a salutary impact on domestic inflation".

It is expected that if the debt crisis in US and Europe deepens, then the capital outflow is most likely to occur as foreign portfolio investors could set equities in the emerging markets, including India to make out losses. Along with the outflow of capital, risk aversion may increase the cost of borrowing for Indian companies and also impact direct investments. Moreover, the domestic bonds may still remain unattractive option if a slowdown affects the fiscal position negatively.

The S&P CNX Nifty is currently trading at 4,835.50, lower by 4.10 points or 0.08%. The index has touched a high and low of 4,872.00 and 4,825.70 respectively. There were 17 stocks advancing against 33 declines on the index.

The top gainers of the Nifty were M&M up by 2.37%, Hero Motors up by 2.04%, Infosys up by 1.84%, TCS up by 1.41% and Dr Reddy up by 1.29%.

On the flip side, RCOM down by 5.74%, Reliance Capital down by 5.06%, Reliance Infra down by 4.07%, DLF down by 3.71% and Sesa Goa down by 3.05% were the major losers on the index.

Most of the Asian counterparts were trading in the red; Shanghai Composite was down by 0.63%, Hang Seng was down by 0.11%, Jakarta Composite was down by 1.01%, KLSE Composite was down by 1.24% and Straits Times was down by 0.57%.

On the flip side, Nikkei 225 was down by 0.33%, Seoul Composite was up by 0.86% and Taiwan Weighted was up by 0.46%. 

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