Sensex, Nifty extends early gains; Nifty above 5,050 level

Indian equity markets extended early gains amid sustained buying across the board. Local benchmarks also following positive global markets as major central banks of several countries planning to take coordinated action to boost the sagging economies, ahead of Greek elections result. Investors waiting for the RBI policy decision on June 18, with continued expectations for a 25 bps rate cut. In currency markets, Indian rupee trading higher against dollar as American currency lost against Euro and other currencies overseas. On sectoral front all were trading in green. On the global markets, Asian shares also extended gains, while European shares are expected to open higher. Back home, the market breadth favoring positive trend; there were 1,397 shares on the gaining side against 869 shares on the losing side while 126 shares remained unchanged.

The BSE Sensex is currently trading at 16,792.64, up by 114.76 points or 0.69%. The index has touched a high 16,833.84 and low 16,701.28 of respectively. There were 25 stocks advancing against 5 declines on the index.

The broader indices were trading on a positive note; the BSE Mid-cap index was up by 0.47%, while Small-cap index was up by 0.40%.

The top gaining sectoral indices on the BSE were Bankex up 1.09%, CD up 0.97%, Auto up 0.93%, Oil & Gas up 0.91% and Metal up 0.90%, while there was no loser on the index.

The top gainers on the Sensex were Coal India up 2.10%, Hero MotoCorp up 2.01%, ICICI Bank up 1.83%, Tata Motors up 1.78% and Sun Pharma up 1.64%. On the flip side, Bajaj Auto down 1.01%, Sterlite Industries down 0.79%, Tata Power down 0.16%, BHEL down 0.12% and HDFC down 0.02% remained the top losers on the Sensex.

Mean while, in an attempt to woo farmers to plant more and increase their profitability, the government unveiled its recent populist measure by hiking the minimum support price (MSP) of kharif or summer crops for 2012-13 (October-September) season in the range of 16% to 53%. However, the move is likely to have serious implications, as on one hand it would stoke up inflationary pressure on the economy while on the other increase the food subsidy bill, which is already hovering around Rs 75,000 crore.

At a time when input costs are rising, the Cabinet Committee on Economic Affairs’s (CCEA) decision to hike MSPs of major crops would provide some relief to farmers as it would not only compensate them for higher input costs but also increase their profitability. However, government’s decision seems to be ill-timed as the headline inflation has resumed its skyward journey and is hovering at 7.55% which is way above the Reserve Bank of India’s comfort zone.

The rise in MSPs will further augment structural uptrend in food price inflation, which in turn would underpin headline inflation and complicate matters for monetary policy. An increase in the floor prices of oilseeds and pulses is also likely to burn holes in the pockets of consumers. However, some experts also believe that this move will have little impact on inflation as the market prices of most of the commodities are already more than the new MSPs.

The total food subsidy deficit at the end of the current year is forecasted to reach Rs 40,000 crore with increased MSP on paddy which is substantially higher than Rs 31,750 crore under-provisioning of food subsidy expected earlier in the current year. This is likely to exert added pressure on the food subsidy burden of the government.

The S&P CNX Nifty is currently trading at 5,093.20, up by 38.45 points or 0.76%. The index has touched a high and low of 5,103.50 and 5,069.15 respectively. There were 43 stocks advancing against 7 declines on the index.

The top gainers of the Nifty were Ambuja Cement up 2.70%, Coal India up 2.28%, Hero MotoCorp up 2.22%, ACC up 2.04% and ICICI Bank up 1.97%. On the flip side, Bajaj Auto down 1.09%, Sterlite down 0.88%, Sesa Goa down 0.69%, Tata Power down 0.33% and BHEL down 0.25% were the major losers on the index.

The Asian equity indices were trading mixed trend; Jakarta Composite down 0.31%, KOSPI Composite Index down 0.71%, Shanghai Composite down by 0.43%.

On the flip side, Nikkei 225 up 0.01%, Taiwan Weighted up 1.14%, Straits Times Index up 0.62%, Hang Seng Index was up 1.14% and KLSE Composite up 0.27% were the gainers.