Indian equities trim gains; trade continues on a firm note

Indian equity markets trimmed its gains but continue to trade firm in green in the late afternoon session. Traders were seen piling up the positions in TECk, Realty and IT sector while selling was witnessed in Health Care, Consumer Durables, and FMCG sector. HCL Technologies, Wipro, TCS and Infosys from IT pack were seen trading firm in green pulling the markets higher. DLF from Realty space was trading in green with a gain of around five percent giving the much needed support. Sterlite, Sesa Goa, SAIL and Tata Steel from Metal pack were firm pushing the markets higher. The Supreme Court, in a major development having implications for the India’s corporate sector, cancelled the 122, 2G spectrum licences granted by former telecom minister A Raja on the ground that they were issued in a 'totally arbitrary and unconstitutional' manner. Among the telecom companies, Unitech, DB Realty, Videocon, Tata Teleservices were badly hit on their licences being cancelled while Bharti Airtel, MTNL and Idea Cellular  rallied as barring them, almost all other telecom stocks were granted licences post 2008. Reliance Communications too has taken a hit despite the company releasing an announcement that all its licenses were either issued in 2001 or prior to it. On the global front, the Asian markets were trading in green on optimistic note while the European markets were trading on a mix note. Back home, the NSE Nifty and BSE Sensex were trading above their psychological 5,250 and 17,400 levels respectively. The market breadth on BSE was in favor of advances in the ratio of 1497:1238 while 102 scrips remained unchanged.

The BSE Sensex is currently trading at 17,442.14 up by 141.56 points or 0.82% after trading as high as 17,504.25 and as low as 17,308.28. There were 20 stocks advancing against 10 declines on the index.

The broader indices were trading on a positive note; the BSE Mid cap index rose 0.51% while Small cap climbed 0.59%.

On the BSE sectoral space, TECk up 2.22%, Realty up 1.66%, IT up 1.51%, Power up 1.40% and Metal up 1.32% were the major gainers while HealthCare down 0.70%, Consumer Durables down 0.46% and FMCG down 0.19% were the only losers in the space.

Bharti Airtel up 7.93%, DLF up 4.77%, Sterlite Industries up 4.74%, Wipro up 3.49% and Hero MotoCorp up 3.25% were the major gainers on the Sensex, while Cipla down 1.99%, Sun Pharma down 1.30%, Jindal Steel down 1.08%, ITC down 1.02% and Tata Motors down 0.82% were the major losers in the index.

Meanwhile, with the Union Budget on the anvil, the RBI Governor, Duvvuri Subbarao has emphasized the need to cap fiscal deficit for economic stability. Without being specific to the Indian government’s borrowing, the Governor said that beyond a point, borrowings militate against growth. Therefore it is important that fiscal deficit be maintained at the right levels of GDP. Moreover, the Government needs to spend these funds on merit goods and public goods, particularly on building physical infrastructure and improving human and social capital rather than on unproductive current expenditure.

The RBI Governor further emphasized that as countries, we need to learn from the Euro zone crisis.  Greece, Portugal, Italy and Spain and many other euro zone countries were on the brink of defaulting on their loans, as they had borrowings in excess of 100% of their GDPs. The ongoing recession had made matters worse for these economies as government revenues had reduced.

The aforementioned comments assume importance in the Indian context, as India's public debt to GDP is estimated at 65%, the second highest among emerging markets, behind Hungary. They have also come right before the announcement of the budget. The fiscal deficit in 2011-12 is expected to exceed the budget estimate of 4.6 % of the GDP on account of subdued receipts and overshooting of the subsidy bill by at least Rs 1 lakh crore. To bridge the receipt-expenditure gap, the government plans to exceed its borrowing target for the current fiscal by Rs 92,000 crore, taking the government’s borrowings to a total Rs 5.1 lakh crore. Yields on the government bonds had recently shot up to close to 9% levels following the announcement of upward revision in market borrowing programme.

The RBI chief pointed out the need for conducting open market operations (OMOs), and said that OMOs are motivated by the objective of easing liquidity or reducing the yields on bonds for debt sustainability. In the presence of large sovereign borrowing that makes the Government's fiscal stance unsustainable, central banks typically have little choice. If the central banks do not conduct OMOs to bring systemic liquidity within reasonable limits, they risk losing control over financial stability. In India, however, the question is whether the OMOs are acting as a disincentive for fiscal discipline.

Since November, RBI has bought Rs 70,000 crore of government bonds via OMOs - a move that helped in cooling off the yields. This week, the central bank will be conducting an OMO to buy government bonds worth Rs 10,000 crore. This is despite a cut in cash reserve ratio by 50 basis points that released Rs 32,000 crore of liquidity in the system. Liquidity conditions continue to remain under pressure, as reflected in the repo borrowings by banks and the elevated overnight call money rates.

The S&P CNX Nifty is currently trading at 5,269.15, higher by 33.45 points or 0.64% after trading as high as 5,289.95 and as low as 5,225.75. There were 32 stocks advancing against 18 declines on the index.

The top gainers on the Nifty were Bharti Airtel up 7.89%, DLF up 4.97%, Sterlite up 4.60%, HCL Tech up 4.54% and Wipro up 3.68%.

IDFC down 4.75%, Reliance Communications down 4.03%, Dr Reddy down 2.95%, Cairn down 2.51% and Cipla down 2.01% were the major losers on the index.

In the Asian space, Shanghai Composite jumped 1.96%, Hang Seng surged 2.00%, Jakarta Composite climbed by 1.16%, Nikkei 225 advanced 0.76%, Straits Times ascended 0.13%, Seoul Composite soared 1.28% and Taiwan Weighted garnered 1.37%.

The European markets were trading on a mix note with, France’s CAC 40 ascended 0.32%, Germany’s DAX jumped 0.07% and Britain’s FTSE 100 dropped 0.21%.