Sensex rallies to day’s highs on stimulus hopes; European cues

Stock markets in India showed renewed vigor in Friday afternoon trades with the benchmark equity indices rallying around a percent to touch the day’s high levels. Supportive cues from the European markets were propelling the domestic markets to higher levels as the key gauges breached the psychological 5,100 (Nifty) and 16,800 (Sensex) levels. Domestic markets got off to an encouraging start as cues across global space remained supportive. Markets across the Asian region largely traded on a positive note as investors were influenced by overnight rally in US markets amid intensifying hopes that additional stimulus is on its way from the US Federal Reserve following the initial jobless claims data which rose for the fifth time in last six weeks and as consumer prices fell 0.3 percent in May, the biggest drop in more than three years. Markets’ mood also was buttressed by reports that central banks from major economies are preparing for coordinated action to provide liquidity if needed after the Greek election this weekend. On the domestic front, after getting the disappointing industrial production numbers and the slightly below 5 percent threshold - core inflation number, market participants are growing increasingly hopeful that the Reserve Bank of India would resort to monetary easing. This is propelling the interest rate sensitive Automobile and Banking counters, which have already jumped over one and half a percent, to higher levels. Some degree of political uncertainty too has had its toll on sentiments amid constant developments in the political circles on presidential election. Meanwhile, cues from the money market too remained positive as rupee has come off the day’s lows and is showing signs of appreciation against the US dollar. Besides, stocks from the fertilizer counter traded on a somber note with hefty cuts after India’s Cabinet Committee on Economic Affairs (CCEA) deferred the Fertilizer Ministry’s proposal to raise the retail prices of urea by 10% to Rs 5,841 per tonne for the financial year 2012-13. Though across the board buying was evident on the BSE sectoral space, however some individual names including Bajaj Auto and Sterlite Industries bucked the trend and traded with notable losses.

Moreover, the broader markets traded on positive note with gains of around half a percent but failed to match the fervor with which their larger peers rallied. The bourses surged on good volumes of over Rs 0.7 lakh crore while the market breadth on BSE was in favor of advances in the ratio of 1382:1002 while 137 scrips remained unchanged.

The BSE Sensex is currently trading at 16,834.88 up by 157.00 points or 0.94% after trading as high as 16,857.15 and as low as 16,701.28. 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 rose 0.50% and Small cap index added 0.32%.

On the BSE sectoral space, Auto up 1.63%, Bankex up 1.43%, Consumer Durables up 1.07%, Oil & Gas up 0.98% and Metal up 0.89% were the major gainers, while there were no laggards in the space.

Tata Motors up 4.32%, Hero Moto up 2.42%, ICICI Bank up 2.36%, Coal India up 2.02% and Sun Pharma up 1.64% were the major gainers on the Sensex, while Bajaj Auto down 1.17%, Sterlite down 0.74%, HDFC down 0.40%, BHEL down 0.12% and NTPC down 0.07% were the major losers in the index.

Meanwhile, 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 5,105.70, higher by 50.95 points or 1.01% after trading as high as 5,112.15 and as low as 5,069.15. There were 44 stocks advancing against 6 declines on the index.

The top gainers on the Nifty were Tata Motors up 4.57%, Ambuja Cement up 2.82%, Hero Moto up 2.44%, ICICI Bank up 2.38% and ACC up 2.27%.

Bajaj Auto down 1.25%, Sterlite Inds down 0.69%, Sesa Goa down 0.51%, HDFC down 0.26% and BHEL down 0.23% were the major losers on the index.

In the Asian space, Shanghai Composite advanced 0.56%, Hang Seng surged 1.38%, KLSE Composite ascended 0.33%, Nikkei 225 inched up 0.01%, Straits Times Index soared 0.97% and Taiwan Weighted jumped 1.14%.

On the other hand Jakarta Composite declined 0.32% and KOSPI Composite Index sank 0.71%.

The European markets got off to a positive start as France’s CAC 40 advanced 0.54%, Germany’s DAX ascended 0.42% and the United Kingdom’s FTSE 100 gained 0.44%.