Rail budget proves to be a low key affair; markets climb over 0.5%

The Railway Budget 2011 turned out to be a low key affair for the equity markets as it failed to bolster sentiments in the local markets which snapped the day’s trade with gains of over half a percent on a day when equities globally rallied fervently, following sanguine cues from the US.

The frontline equity indices got off to an exhilarating gap-up opening but failed to sustain the sanguine momentum as investors chose to take profits off the table ahead of the release of Monthly WPI inflation numbers. The benchmarks nearly flattened out in early noon trades after reports showed India's inflation accelerated for the first time in five months in February, putting the Indian Reserve Bank in a tight corner, a day ahead of its mid quarter monetary policy review in which it is now likely to abstain from resorting to any liquidity easing measures.

Rate sensitive counters gave a mixed reaction to the announcement as high beta Realty index plunged around 1% being the top laggard on the BSE sectoral space on speculations that the chances for a cut in funding costs are grim. While on the other hand, the Banking index rallied close to 2% outperforming all the sectoral as well as frontline indices as investors hopes that the Union Budget could contain beneficial measures to the sector, including making provisions on non-performing loans tax deductible.

Eventually, the domestic markets quadrupled the joy of closing in positive territory and re-captured the psychological 17,900 (Sensex) and 5,450 (Nifty) levels ahead of a lot of important events like announcement of RBI monetary policy review meet, Indian Economic Survey and the Federal budget. Investors also remained optimistic as they awaited the advance tax number announcement by domestic companies, due on March 15, and speculated that increased tax numbers would signal improved corporate earnings.

Meanwhile, investors’ risk appetite got bolstered after the US markets logged the best gains in 2012 and scaled multi-year highs after US Federal Reserve slightly lifted its outlook, predicting the GDP to grow moderately this year, but the central bank held to its forecast that interest rates will likely stay near zero until at least 2014. In the meantime, industry body FICCI has opined that the government is most likely to overshoot its targeted fiscal deficit of 4.6% of GDP this fiscal and should be near the 5.7-5.8% mark as estimated by while it may be around the 5.2% mark in the next fiscal.

On the global front, Asian benchmarks snapped the day on an optimistic note as investors resorted to hefty buying for second straight session as sentiments got support from encouraging global economic reports including German economic sentiment index which rose considerably in March, hitting its highest since June 2010 while the US retail sales registered the biggest gain of 1.1% in five months in February. The sanguine mood reflected in the European markets as well since investors added positions with conviction on hopes of strengthening global economy.

Back home, the NSE’s 50-share broadly followed index Nifty, settled with half a percent gains above the psychological 5,450 support level while Bombay Stock Exchange’s Sensitive Index – Sensex- amassed over a hundred points and closed above the psychological 17,900 mark.

Moreover, broader markets failed to settle on an encouraging note as the Small Cap index underperformed all its larger peers after closing with moderate cuts. The markets gained on good volumes while the market breadth turned negative by the end of trade as there were 1405 shares on the gaining side against 1513 shares on the losing side while 133 shares remained unchanged.

Finally, the BSE Sensex gained 105.68 points or 0.59% to settle at 17,919.30, while the S&P CNX Nifty rose by 34.40 points or 0.63% to close at 5,463.90.

The BSE Sensex touched a high and a low of 18,040.69 and 17,837.22 respectively. The BSE Mid cap index up by 0.32% and Small cap index was down by 0.28%.

The major gainers on the Sensex were NTPC up 2.63%, ICICI Bank up by 2.61%, L&T up by 2.47%, ONGC up by 2.21%, Tata Motors up by 2.19%. While TCS down by 3.56%, Wipro down by 1.41%, Tata Steel down by 1.10%, Jindal Steel down by 1.06% and Bajaj Auto down by 0.93% were the major losers on the index.

On the BSE sectoral the gaining indices were Bankex up by 1.83%, Capital Goods up by 1.60%, PSU up by 1.38%, Power up by 1.05%, FMCG up by 0.90% while Realty down by 0.96%, IT down by 0.67%, TECk down by 0.51%, Consumer Durables (CD) down by 0.19% and Metal down by 0.10% were top losers on the BSE sectoral space.

Meanwhile, the pace of inflation unexpectedly quickened to 6.95% in February, driven largely by an increase in food prices like vegetables and protein-based items. According to the data released by the Ministry of Commerce and Industry, the wholesale price index (WPI) went up to 6.95% in February 2012 as compared to 6.55% in January. The rise has come in as a surprise as most analysts had forecasted the inflation number to be around 6.75%. Core inflation (which excludes certain items that face volatile price movements), however has seen a declining trend which has fuelled hope of a rate cut by the Reserve Bank.

Provisional data released by the government showed that food inflation was 6.07% in February against (-) 0.52% in January 2012 and was largely responsible for the increased number. Prices of pulses rose by 7.91% and that of vegetables by 1.52%. Egg, meat and fish became dearer by 20% as compared to 18.63% in January. Milk became expensive by 11.7%, while prices of rice and cereals increased by 1.53% and 1.71% respectively. However, the prices of potato and onion declined by 2.22% and 48.50% year-on-year in February. Food articles have 14.3% share in the WPI basket.

Manufactured items became costlier 5.75% year-on-year in February against 6.49% in the previous month. Among manufactured items, iron grew dearer by 15.82% and edible oil prices rose 7.57% year-on-year. Tobacco products moved up by 10.1% and basic metals became 10.44% expensive. Prices of manufactured items have a weight of around 65% in the WPI basket.

Prices of fuel and power rose by 12.8% in January as compared to 14.21% last month. Inflation in overall primary articles stood at 6.28% in February as compared to 2.25% in January. Non-food primary articles, which include fibres and oilseeds, showed moderation to (-) 2.56% in February. In January, inflation was 0.55%.

The headline inflation numbers for December 2011 was revised upwards to 7.74% from the provisional estimate of 7.47%.

The S&P CNX Nifty touched a high and low of 5,499.40 and 5,437.80 respectively.

The top gainers on the Nifty were PNB up 5.62%, BPCL up by 3.15%, NTPC up by 2.74%, Axis Bank up by 2.71%, L&T up by 2.70%. On the flip side, TCS down by 3.76%, JP Associate down by 3.17%, RCOM down by 1.60%, Tata Steel down by 1.41%, DLF down by 1.25% were the top losers on the index.

The European markets were trading in green, as France's CAC 40 was up 0.91%, Britain’s FTSE 100 up 0.51%, while Germany's DAX was up by 1.34%.

Buoyed by positive economic data from US, most of the Asian equity indices continued their northward journey for yet another day on Wednesday. The US retail sales for February, which rose at their fastest pace in five months, and positive stress tests for 15 of the 19 largest US banks helped push stocks on Wall Street to multiyear closing highs. Meanwhile, Japanese Nikkei average climbed over 1.5 percent to close above 10,000 level for the first time in seven months as Japanese exporters continued to benefit from the yen’s weakness; Toyota Motor advanced 2.3 percent and Sony jumped 4.7 percent. However, Hong Kong pared most of its early gains and was down by 0.15 percent on Wednesday while Shanghai fell 2.63 percent after Chinese Premier Wen  Jiabao warned of a risk of a property bubble, denting hopes of an easing of tight real estate rules.