Optimism undeterred despite SC’s 2G rap; Benchmarks climb 0.75%

Lively Indian markets, riding on the back of sanguine global cues once again settled on a positive note and registered a hat-trick of closes in the green terrain. The equity indices managed to elegantly overcome from the early set back which resulted after 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. Post hitting session’s lows on the back of Supreme Court’s judgment, the benchmarks managed to recuperate swiftly and settled with gains of around three fourth of a percent. The frontline gauges tested the psychological 17,500 (Sensex) and 5,300 (Nifty) levels in the session but stern resistances around those levels pushed the indices lower by the end. The recovery was led by heavyweight banking stocks which rebounded after slipping earlier as investors worried over their exposure to telecom companies. Among the telecom companies, Unitech, DB Realty, Videocon, Tata Teleservices were badly hit on their licences being cancelled while Bharti Airtel and Idea rallied in the session as barring them almost all other telecom stocks were granted licences post 2008. Besides, heavyweight PSU stocks like ONGC and BHEL rallied in the session on the buzz that an empowered group of ministers (EGoM) is likely to consider 5% stake divestment in the companies via auction. On the global front, investors’ morale got underpinned after stronger than expected manufacturing reports from the global growth engines viz. China and India along with upbeat factory activity data from developed economies like the US and EU, spurred hopes that a recovery could be back on track. All markets from the Asian space were notably higher while European bourses exhibited subdued trends amid disappointing earnings announcements and a potentially huge deal between mining majors Glencore and Xstrata.

Earlier on Dalal Street, the benchmark got off to a gap up opening as sentiments got bolstered following the overnight rally on Wall Street on the back of a slew of encouraging economic reports while traders were also confident that Greece would soon reach an agreement with its creditors to avert a disorderly debt default. After trading on a firm note for about two hours, hefty bouts of selling pressure emerged abruptly in late morning trades which dragged the key gauges to the lowest point in the session. However, the kneejerk selling pressure was immediately countered on the back of hefty buying in banking, IT and metal stocks. Thereafter, the indices remained choppy and gyrated in a narrow range to eventually snap the third straight session on a positive note. The NSE’s 50-share broadly followed index Nifty, climbed over half a percent and settled a above the psychological 5,250 support level while Bombay Stock Exchange’s Sensitive Index - Sensex amassed triple digit gains to close at the psychological 17,400 mark. The broader markets too went home on positive note with around half a percent gains but were outclassed by their larger peers. On the BSE sectoral front, the TECk counter remained the leading gainer with over 2% gains. The Metal and Capital Goods pockets too went home with strong gains of about 1.5%. The defensive Healthcare pocket on the other hand languished at the bottom of the table with over 0.5% cut. The markets rebounded on good volumes of over Rs 1.4 lakh core while the turnover for NSE F&O segment remained on the higher side as compared to that on Wednesday at over Rs 1.2 lakh crore. The market breadth remained optimistic as there were 1573 shares on the gaining side against 1295 shares on the losing side while 126 shares remained unchanged.

Finally, the BSE Sensex rose 131.27 points or 0.76% to settle at 17,431.85, while the S&P CNX Nifty up by 34.20 points or 0.65% to close at 5,269.90.

The BSE Sensex touched a high and a low of 17,504.25 and 17,308.28 respectively. The BSE Mid cap and Small cap indices were up by 0.55% and 0.54% respectively.

The major gainers on the Sensex were Bharti Airtel up 6.88%, DLF up 4.05%, Sterlite Industries up 3.90%, Wipro up 3.46% and GAIL up 3.15%. While, Cipla down 2.53%, ITC down 1.36%, Jindal Steel down 1.05%, Tata Motors down 0.99% and Sun Pharma down 0.86%, were the major losers on the index.

The top gainers on the BSE sectoral space were TECk up 2.08%, IT up 1.53%, Metal up 1.40%, Capital Goods (CG) up 1.35% and Realty up 1.25%, while Health Care (HC) down 0.62%, Consumer Durables (CD) down 0.26% and FMCG down 0.26% were top losers on the sectoral space.

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 touched a high and low of 5,289.95 and 5,225.75 respectively.

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 flip side, IDFC down 5.04%, RCOM down 4.28%, RPower down 2.46%, Dr Reddy down 2.36% and Cairn down 2.33% were the top losers on the index.

The European markets were trading mixed as France's CAC 40 was up 0.01%, Britain’s FTSE 100 down 0.09% and Germany's DAX up by 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.