Benchmarks gain strength; trade continues in a positive note

Indian equity indices gained strength and are trading in a positive note with buying coming in at frontline counters and investor accumulating blue chip stocks as bargain hunting. Market participant were seen piling up the positions in Oil & Gas, Power and FMCG while selling was witnessed in IT, Bankex and Auto sector. Stocks like Indraprastha Gas, STARCOM, Residency Projects, Essar India and Hindoostan Mills hit new high while stocks like Great Offshore, Euro Ceramics, Allied Digital, ThinkSoft Global, Infinite Computers, ARSS Infra, SKS Microfinance, Ramky Infra and Northgate Technologies hit new low. Sesa Goa was trading under pressure on reports that a panel appointed by the Supreme Court has recommended a ban on mining in the iron ore-rich areas of Tumkur and Chitradurga in the state of Karanatka. Sugar stocks like Bajaj Hindustan, Shree Renuka Sugars, Balrampur Chini, Triveni Engineering, Oudh Sugar and Sakthi Sugar were in limelight after the government notified exports of additional five lakh tonnes of sugar, which a panel of ministers had approved last week. SpiceJet was trading firm on reports that private equity firm TPG Capital is negotiating to buy a minority stake in it. Stocks of Ramky Infrastructure and Aurobindo Pharma dipped on buzz of CBI raid though Ramky clarified that CBI visited the group's premises on Saturday and sought information regarding certain projects awarded to it. Amtek Auto rebounded after the company announced buyback plans. ADAG’s - RCOM was trading firm after the company has put tower unit on the block for $5 billion. It has hired UBS to sell its 95% stake in Reliance Infratel. Meanwhile, Prime Minister Manmohan Singh’s confirmed that the Planning Commission has proposed to set the Twelfth Five Year Plan target at 9 percent GDP growth. He further affirmed that the commission has pointed out that given the uncertainties in the global economy, and the challenges in the domestic economy even a 9 percent target is feasible only if some difficult decisions are taken by the government. On the global front, Asian markets were trading in red barring Hang Seng while the European markets were trading in mix. Back home, the NSE Nifty and BSE Sensex were trading above their psychological 4,800 and 16,200 levels, respectively. The market breadth on the BSE was positive in the ratio of 1555:1097 while, 116 scrips remained unchanged.

The BSE Sensex is currently trading at 16,235.50 up by 93.83 points or 0.58% after trading as high as 16,304.40 and as low as 16,046.48. There were 21 stocks advancing against 9 declines on the index.

The broader indices were too trading on an optimistic note; the BSE Mid cap index gained 0.63% while Small cap rose 0.91% respectively.

On the BSE sectoral space, Oil & Gas up 1.90%, Power up 1.45%, FMCG up 1.09%, PSU up 0.90% and Capital Goods up 0.87% were the only gainers while IT down 0.75%, Bankex down 0.53%, Auto down 0.30% and TECk down 0.19% were the only losers on the index.

ONGC up 4.30%, JP Associates up 4.03%, Tata Power up 3.53%, Jindal Steel up 2.67% and Hindalco up 2.23% were major gainers on the Sensex, while M&M down by 2.07%, DLF down 2.06%, TCS down 1.81%, HDFC Bank down 1.72% and Sun Pharma down 1.72% were the major losers on the index.

Meanwhile, the committee of secretaries (CoS) has decided to enlarge the definition of back-end infrastructure for the proposed Foreign Direct Investment (FDI) in multi brand retail, which allow big international retail companies to open their stores in India.

The CoS has asked the department of industrial policy and promotion (DIPP) to work out the definition and include three new areas as a part of back end infrastructure investment. The three new areas are design improvement, quality control and packaging of products. Earlier the definition mainly comprised investment in logistic and procession of agriculture goods. 

The expansion of the back-end infrastructure will give greater flexibility to the foreign investors for structuring their investment in the retail sector. After the intense debate over the issue, the CoS has reached to the agreement that one of the key conditions for allowing FDI up to 51% in Multi-brand retail will be that minimum of 50 of their investment has to be compulsorily in the back-end infrastructure. 

The recommended policy, which has been sent to cabinet for the final call, had set the minimum for investment in the retail sector is set to be around $100 million. The DIPP’s decision of including design improvement was in the line to the recommendation of the ministry of micro, small and medium enterprises. The ministry of micro, small and medium enterprises has suggested that the foreign retailers must invest a small percentage of their profit, such as 1%, in design improvement, developing quality control mechanism and creating innovations in packaging for their small-scale suppliers.

The DIPP has agreed to include the recommendation and indicated it would be included in the definition of back end infrastructure to incentivize big retailers to investment. However, the DIPP is still in discussion, whether it should made compulsory and certain percentage of profit fixed for it. In order to provide more flexibility to foreign investors, the DIPP is also discussion on the issue of the investment in back end infrastructure by the foreign investors or by a different company on behalf of the investors.  

Many different government departments are having intense debate over the issue of inclusion of this clause, the department of economic affairs under the finance ministry has strongly opposed this clause, arguing that there would be many commodities for which 50% back end infrastructure may not be needed. The ministry of statistics and programme implementation is in support of ministry of Finance’s view.  It has made argument that such limitation should not be laid because retailers would make such investments in any case to run their business successfully. 

However, the department of consumer affairs is in support with the clause and it want to increase the limitation to the more than 75% from 50% for investment in back end infrastructure. It has recommended that the FDI in working capital should not be allowed. However, the DIPP rejected the recommendation of the department of consumer affairs stating it to be unreasonable. Money being fungible, distinguishing between capital expenditure and working capital would be a problem, DIPP said

The Reserve Bank of India argued that in the current working condition, data of investment were collected only for balance of payments purposes and post investment monitoring was not undertaken. Therefore, the RBI would not be in position to monitor compliance of the back-end investment clause. Hence, it was decided that foreign investors must be self-certify compliance with the condition and keep records so that the government can check.

The S&P CNX Nifty is currently trading at 4,870.05, higher by 24.40 points or 0.50% after trading as high as 4,889.05 and as low as 4,808.75. There were 31 stocks advancing against 19 declines on the index.

The top gainers of the Nifty were IDFC up 4.86%, RCOM up by 4.60%, JP associates up 4.46%, ONGC up 4.26%, and Tata Power up 3.53%.

Axis Bank down 2.90%, Seas Goa down 2.81%, GAIL down 2.18%, DLF down 2.09% and M&M down 2.02% were the major losers on the index.

Asian markets traded on a somber note, Shanghai Composite plunged 0.73%, Jakarta Composite slumped 0.32%, KLSE Composite shaved off 0.80% Nikkei 225 plummeted 1.04%, Straits Times sulked 0.29%, Seoul Composite nosedived by 1.96% and Taiwan Weighted receded 0.41%. On the flip side, Hang Seng was up 0.45%.

The European markets were trading in mix with, France’s CAC 40 advanced 1.57%, Germany's DAX shed 0.14% and London’s FTSE gained 1.05%.