Sensex consolidates in noon trades; Oil & Gas, Metal stocks limit upside

Stock markets in India continued to trade in a tight range in Wednesday afternoon session as investors lacked conviction to open fresh positions amid growing uncertainty over domestic market outlook. The psychological 5,250 (Nifty) and 17,250 (Sensex) levels proved as difficult nuts to crack for the frontline indices which drifted lower in late morning trades as investors remained worried that the ruling Congress led UPA coalition government’s debacle in four out of five states that went to the polls last month may prove as a deterrent for economic reforms in the nation. Besides, the glumness looming in the global markets too dampened investors’ mood in the session. Markets across Asian region faltered for third straight session as distressed market participants continued to square off positions ahead of a deadline for debt laden Greece to get sufficient support for a bond swap deal from its private creditors and avert a disastrous debt default. Reports that the European region is already in recession, with the economy shrinking 0.3% in the fourth quarter of last year played the spoilsport. Sentiments globally remained somber as renewed worries over a recession in Europe and slowdown in global growth engines like China, threatened investors’ risk appetite globally. The European stock futures too are indicating a lower opening for the markets there tracking the somber global sentiments. Back home, investors were largely seen squaring off positions from the Oil & Gas and Metal counters which plunged over 1.25% each. Index heavyweights like Reliance Industries and ONGC plunged over 1% in the session, thereby preventing the benchmarks from moving into the green terrain.  While some gains in IT and high beta realty index capped the losses for the markets.

Moreover, the broader markets too traded on a pessimistic note with moderate cuts, underperforming their larger peers by a small margin. The bourses climbed on good volumes while market breadth on BSE was in favor of declines in the ratio of 1524:998 while 111 scrips remained unchanged.

The BSE Sensex is currently trading at 17,123.49 down by 49.80 points or 0.29% after trading as high as 17,239.35 and as low as 17,051.28. There were 11 stocks advancing against 19 declines on the index.

The broader indices were trading on a negative note; the BSE Mid cap index declined 0.39% and Small cap declines 0.39%.

On the BSE sectoral space, IT up 0.60%, Realty up 0.42%, Healthcare up 0.37%, TECk up 0.29% and FMCG 0.17% were the major gainers, while Oil & Gas down 1.26%, Metal down 1.26%, Power down 1.15%, PSU down 0.91% and Capital Goods down 0.46% were the major losers in the space.

Wipro up 2.14%, Hero Moto up 1.23%, Bajaj Auto up 1.04%, DLF up 0.89% and HUL up 0.83% were the major gainers on the Sensex, while Jindal Steel down 3.42%, Sterlite down 1.62%, RIL down 1.58%, NTPC down 1.55% and BHEL down 1.43% were the major losers in the index.

Meanwhile, at a time when the country is facing high levels of inflation combined with a burgeoning fiscal deficit, the Confederation of Indian Industries (CII) has suggested that the government should announce some bold initiatives to spur investments by the private sector. The current economic scenario limits the scope of monetary and fiscal policy thereby creating a need for private sector to fill up the gap in investments.

Government's plan to attract an average annual investment of $200 billion over the 12th five-year plan starting next fiscal will require it to build an atmosphere which encourages private investment, especially when 50% of the investment is to come from the sector.

CII in its pre budget memorandum has suggested that to encourage capital investment, depreciation rates for plant and machinery be raised from 15% to 30%, at least for a period of two years. This move can prove to be critical in a world where technology is changing at a fast pace and companies need to keep up productivity levels to remain globally competitive. It is also a sure shot way of kick starting investments in the economy. A higher depreciation rate of 50% in case of retrofitting technologies which are more energy efficient and environment friendly can encourage companies to go green.

It has also been recommended that the current rates of excise and service tax be left untouched to encourage investments. Further, to reuse investible resources, money received by the sale of capital be exempted from capital gains tax if reinvested in setting up a new business or used in expansion of an existing unit.

At least 100 mega projects in manufacturing and infrastructure should be fast tracked to meet the target of 50% private investment. Projects under the Delhi-Mumbai Industrial Corridor or zones created under the National Manufacturing Policy can be used for this purpose.

It is also recommended that funds lent out for investments in infrastructure and related activities be exempted from interest and long term capital gains by reintroducing Section 10(23G) which was deleted from the fiscal 2006-07, on grounds that the interest rates had come down substantially. Since interest rates have climbed up back, it is suggested that the provision be reintroduced. A weighted deduction of 200% on in-house Research and Development (R&D) should also be extended to all sectors in order to make India an attractive base for R&D.

The S&P CNX Nifty is currently trading at 5,203.60, lower by 18.80 points or 0.36% after trading as high as 5,243.85 and as low as 5,183.50. There were 16 stocks advancing against 34 declines on the index.

The top gainers on the Nifty were DLF up Bajaj Auto up 1.85%, Wipro up 1.75%, HDL Tech up 1.72%, HUL up 1.09% and Hero Moto up 1.08%.

Jindal Steel down 3.63%, Power Grid down 2.48%, BPCL down 2.24%, IDFC down 1.93% and Sterlite down 1.84% were the major losers on the index.

In the Asian space, Shanghai Composite declined 0.69%, Hang Seng sank 0.88%, Jakarta Composite shed 0.63%, KLSE Composite plunged 0.84%, Nikkei 225 slipped 0.64%, Straits Times shrank 0.70%, Seoul Composite dived 0.91% and Taiwan Weighted dropped 0.44%.