Post session - Quick review

The Indian equity markets showed a resilient performance to continue their unabated run for yet another day. The benchmark indices got a gap-up start on the back of supporting global cues as the US markets surged overnight, while the Asian markets showed jubilation with the good manufacturing numbers across the globe. Though, the European debt crisis lingered but the better economic data from the world’s largest economy boosted the morale of the investors across the globe. Back home, the domestic markets started adding strength to the tremendous comeback of last session supported by the initial gains in the capital goods, power and commodity stocks. Auto stocks too extended their gains as the car sales in the country accelerated for the third straight month in January, indicating that sales in the next fiscal year could be robust. Also, India's manufacturing sector activity surged to an eight-month high in January as factories stepped up production on increased demand according to HSBC Holdings Plc and Markit Economics.

The trade was going smooth, then during the mid morning the much talked about judgment of Supreme Court in the 2G scam case arrived. The apex court quashed the 122 licences granted by former telecom minister A Raja, holding that the scandal-tainted 2008 sale was conducted in “totally arbitrary and unconstitutional” manner. Though, Union Home Minister P Chidambaram got relief as the SC directed the trial court to examine his alleged role in the grant of spectrum. Licences held by five companies were cancelled in the verdict, while a fine of Rs 5 crore each on three telecom companies was imposed who offloaded their shares after getting the licences. Further, it was directed that the current licences will remain in place for four months, in which time the government should decide fresh norms for issuing licences. The markets shocked with the news slipped, touching the lowest point of the day but the jitters were short lived and the markets recovered in no time, though the banking stocks came under pressure due to the exposure to the telecom sector, at once the largest public sector lender SBI slumped over 5 percent but recovered as the management said that bank is not worried about the companies whose licences have been cancelled as they may bid again. On the other hand the verdict proved a blessing in disguise to some other telecom companies like Bharti Airtel and Idea who are likely to get benefited more largely on account of shift in subscriber base and cut in competition. There were some good earnings announcements that too supported the markets upmove. Finally the technology sector turned out to be the best performer, while by the end the defensive sector health care and FMCG turned out to be laggards of the day.

The market breadth on the BSE ended positive; advances and declining stocks were in a ratio of 1541:1306 while 147 scrips remained unchanged. (Provisional)

The BSE Sensex gained 105.04 points or 0.61% and settled at 17,405.62. The index touched a high and a low of 17,504.25 and 17,308.28 respectively. 20 stocks advanced against 10 declining ones on the index (Provisional)

The BSE Mid-cap index gained 0.51% while Small-cap index was up by 0.59%. (Provisional)

On the BSE Sectoral front, TECk up 2.04%, IT up 1.52%, Metal up 1.29%, Capital Goods up 1.07% and Realty up 1.07% were the top gainers while Health Care down 0.64%, Consumer Durables down 0.61% and FMCG down 0.30% were the only losers.

The top gainers on the Sensex were Bharti Airtel up 6.58%, DLF up 3.94%, Wipro up 3.72% Sterlite Industries up 3.65% and Hindalco Industries up 3.27%.

On the flip side, Cipla down 1.89%, ITC down 1.44%, Jindal Steel down 1.24%, Tata Motors down 1.03% and Sun Pharma down 0.91% were the top losers in the index. (Provisional)

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.

India VIX, a gauge for market’s short term expectation of volatility gained 3.49% at 23.69 from its previous close of 22.89 on Wednesday. (Provisional)

The S&P CNX Nifty gained 29.65 points or 0.57% to settle at 5,265.35. The index touched high and low of 5,289.95 and 5,225.75 respectively. 32 stocks advanced against 18 declining ones while 1 stock remained unchanged on the index. (Provisional)

The top gainers on the Nifty were Bharti Airtel up 6.48%, HCL Tech up 5.28%, ACC up 5.16%, Sesa Goa up 4.46% and Ambuja Cement up 4.14%.

On the other hand, IDFC down 5.04%, Reliance Communications down 4.28%, Reliance Power down 2.46%, Dr. Reddy down 2.36% and Cairn India down 2.33% were the top losers. (Provisional)

The European markets were trading on a mix note, with France's CAC 40 down 0.04%, Germany's DAX up 0.05% and Britain’s FTSE 100 down 0.24%.

Sentiments continue to remain sanguine in Asia and all the indices barring Straits Times ended the session in the positive terrain on Thursday as investors’ confidence encouraged by better than expected manufacturing data from the US, Europe and China, suggesting resilience in the global factory sector that helped to paint a brighter picture of the global economic outlook. Meanwhile, Seoul shares rose for a third straight day on Thursday as a gush of offshore buying broke a stubborn resistance line, with global sentiment bullish while, Chinese Shanghai gained about two percent, led by financial companies after a report said banks’ dividend payout ratio could be cut. Moreover, Taiwan stocks ended 1.37 percent higher at a five-month closing high, topped by LCD makers and computer counters.