Indian benchmarks pare losses in late afternoon session

Indian equities trim losses to continue its weak trade in red in the late afternoon session in absence of buying among wary investors. The market did not paid heed towards positive development regardless C Rangarajan, economic advisor to the Prime Minister and head of the PMEAC stating that country’s rate of growth in financial year 2011-12 is estimated at 7.1%, which is shade higher than advance GDP estimates of the CSO. Though he admitted that manufacturing has not been doing well, but the FY12 farm growth is seen higher at 3%, while the economic growth for the coming year is seen at 7.5%-8%. Traders were seen piling up positions in IT, TECk and Oil & Gas sector while selling was witnessed in Consumer Durables (CD), Realty and Bankex sector. TCS, Infosys, Wipro and HCL Tech from IT pack were seen trading in green pulling the markets higher. Industry heavyweight RIL was seen trading in green giving the much needed support. RIL has agreed to form a joint venture with Russian petrochemical company SIBUR to produce butyl rubber in India. Also, BPCL and ONGC from Oil & Gas sector were seen trading in green pushing markets higher. SBI, PNB, Axis Bank, ICICI Bank and Kotak Bank from Banking counters were trading in red exerting pressure on the markets. In the scrip specific development, State Bank of India was trading week in red on reports that the bank has committed around Rs 1,200 crore to beleaguered Kingfisher Airlines. IL&FS Investment Managers was firm in green on reports that it may buy out Hershey's 51% stake in its JV with the Godrej Group. MIC Electronics is currently locked in upper circuit limit on reports that it will consider further issue of preferential shares on February 27.

On the global front, Asian markets were trading on a mix note while the European markets were trading in red on pessimistic note. Back home, the NSE Nifty and BSE Sensex were trading below their psychological 5,600 and 18,400 levels respectively. The market breadth on BSE was in favor of declines in the ratio of 1029:1832 while 118 scrips remained unchanged.

The BSE Sensex is currently trading at 18,363.30, down by 65.21 points or 0.35%. The index has touched a high and a low of 18,523.78 and 18,339.15 respectively. There were 14 stocks advancing against 16 declines on the index.

The broader indices were underperforming benchmarks; the BSE Mid cap and Small cap indices have lost 1.33% and 1.19% respectively.

The top gaining sectoral indices on the BSE were IT up 1.46%, TECk up by 0.63%, Oil & Gas up by 0.39%, Capital Goods up 0.15% and Health Care up by 0.05%. While, Consumer Durables down by 3.01%, Realty down by 2.46%, Bankex down by 2.05%, Metal down by 1.89% and Power down by 1.08% were the top losers on the index.

The top gainers on the Sensex were TCS up 1.88%, Infosys up 1.58%, BHEL up by 1.56%, ONGC up by 1.54% and Sun Pharma up by 1.37%. On the flip side, Sterlite Industries down 6.15%, SBI down by 5.08%, DLF down 3.85%, Jindal Steel down 2.56% and NTPC down 2.34% were the top losers on the Sensex.

Meanwhile, Indian economy is expected to grow at 7.1% in FY’12, marginally higher than the 6.9% projected by Central Statistical Organisation’s (CSO) advance estimates, as per the Prime Minister's Economic Advisory Council (PMEAC). Further, growth in FY’13 has been projected to be around 7.5-8% if the global environment turns favourable. PMEAC, Chairman, C Rangarajan, while releasing the document ‘Review of the Economy 2011-12’, has stated that the slight improvement in growth numbers is expected to come from the agriculture and construction sectors, which are expected to perform better as compared to advance estimates.

As per PMEAC, growth in agriculture is expected to be 3% backed by strong growth in horticulture and the animal husbandry sectors. The construction sector, backed by better growth in cement, will see an expansion of 6.2%. Manufacturing is expected to grow at a disappointing rate of 3.9% whereas growth in services will be strong at 9.4%, whereas the electricity sector has done well.

Gross fixed capital formation (GFCF) as a proportion of GDP is expected to slip to 29.3% registering a decline of almost 4% points over the last four years. However, an improvement of 1.5 to 2.0 percentage points of GDP can be expected in 2012-13. This is expected to happen due to improvement in domestic demand on the back of stabilizing inflation.  The weaker currency is also likely to improve the prospects for net export demand.

Headline inflation is projected to be around 6.5% at the end of March 2012, due to the effective use of monetary policy by the RBI. However, adjustments made to the selling prices of sensitive refined petroleum products to cover costs and reduce the huge burden of subsidy being borne by Government and the oil companies, will be passed on to 2012-13 and will express itself on headline inflation. Inflationary pressures will continue to ease through 2012-13 and will remain around 5-6% for the year.

Further, the Balance of Payments situation remains tight due to larger than expected Current Account Deficit (CAD) and lower than expected net capital inflows. Though there has been some recovery in the CAD during January and February 2012, thanks to the appreciating rupee, the BoP position remains stretched and CAD is expected to be at 3.6% of the GDP in FY’12. The CAD for the year 2012-13 will be 3%, however PMEAC has recommended that it will be judicious to try and limit the CAD, over the medium term, to between 2-2.5% of GDP.

Also, on the capital account side, the report has recommended that capital inflows, especially those in the form of equity, must be encouraged and improved domestic conditions for investment and growth are the basic pre-requisites, along with fundamental macroeconomic stability, i.e. prices, exchange rate and fiscal balances. The fiscal deficit is expected to go beyond the budgeted 4.6% of GDP, primarily due to much higher than budgeted subsidies - especially that on refined petroleum products.

Rangarajan has expressed his concerns about the growing fiscal deficit and has said that the government must strive to contain it as a large subsidy bill directly reduces the resources that are available for development expenditure. While expanding the borrowing needs of Government it also squeezes investible resources and undercuts productive investment by the private sector. He has also recommended that the government incontestably demonstrate that it is on the path of fiscal consolidation and thus reinforce the final pillar of macroeconomic stability.

The PMEAC Chairman is also of the view that the government, in FY’13, should express itself most powerfully in the infrastructure sector - in power, roads, railways, ocean ports and air ports, in rural and urban infrastructure. This is because the inadequacy of infrastructure availability continues to act as a constraint for the expansion of economic activity across the country. Also it is likely that the targets set for 2011-12 in power and roads may be achieved. Hence, the government must set ambitious targets for 2012-13 for both capacity creation in key infrastructure areas and operational performance, especially in the coal sector, such that a fillip is provided to the improvement of economic activity in 2012-13, which is also the first year of the Twelfth Plan.

The S&P CNX Nifty is currently trading at 5,580.40, down by 26.75 points or 0.48%. The index has touched a high and a low of 5,629.95 and 5,573.35 respectively. There were 18 stocks advancing against 31 declines while 1 stock remained unchanged on the index.

The top gainers of the Nifty were BPCL up by 3.57%, BHEL up by 1.86%, TCS up 1.83%, Sesa Goa up by 1.76% and Infosys up by 1.67%. While Sterlite Inds down by 5.65%, SBI down by 5.23%, DLF down by 3.58%, Jindal Steel down by 2.84% and PNB down by 2.73% were the major losers on the index.

The Asian equity indices were trading mixed, Shanghai Composite was up by 0.93%, Hang Seng was up by 0.33%, Nikkei 225 was up by 0.96%, Seoul Composite gained 0.22% and Taiwan Weighted was up by 1.01%. On the flip side, Jakarta Composite lost 0.39%, KLSE Composite was lower by 0.07% and Straits Times dropped 0.80%.

The European markets were trading in red with, France’s CAC 40 dropped 0.14%, Germany’s DAX shed 0.37% and Britain’s FTSE 100 lost 0.11%.