Inflation continues to bother equities

The market drifted lower today, as a surge in inflation reignited worries of interest rates rising further. Caution on bourses around the globe, ahead of key US inflation data, also weighed on the sentiment. Nevertheless, it finished above the lower level due to recovery by index heavyweight Reliance Industries and some IT pivotals. Telecom, cement and banking shares edged lower.

The 30-share BSE Sensex lost 113.45 points (0.9%), to settle at 12,430.40. The Sensex came off the lower level after tumbling 227.75 points, to 12,316.10, at 14:49 IST. It was the Sensex's lowest level in five months.

The S&P CNX Nifty shed 35.05 points (0.96%), to end at 3,608.55. The Nifty March 2007 futures were at 3,570.05, compared to the spot Nifty closing of 3,608.55.

The BSE clocked a turnover of Rs 3225 crore, lower than Thursday’s Rs 3834 crore.

The wholesale price index rose 6.46% in the 12 months to 3 March 2007, up from the previous week's annual increase of 6.10% due to higher edible oil and naphtha prices, data showed on Friday. The figure was higher than an expected 6.31%.

Finance Minister P Chidambaram said on Friday the government had asked the central bank to take monetary steps necessary to maintain price stability. "When I met with the central board of the RBI recently I pointed out ... and urged the RBI to continue to be vigilant and take such measures as are necessary to maintain price stability," Chidambaram told the Lok Sabha.

All sectoral indices on BSE, barring the BSE Oil & Gas Index, ended in the red today. The BSE Capital Goods Index was the worst hit. It shed 222.69 points (2.6%), to 8,334.96, while the BSE's banking sector index, the Bankex, was the second-biggest loser. The Bankex lost 83.71 points (1.3%), to end at 6,107.72. The BSE IT Index lost 47.62 points (0.97%), to settle at 4,879.46 and the BSE FMCG Index lost 15.98 points (0.97%), to finish at 1,625.99.

The BSE Oil & Gas Index rose 23 points (0.38%), to settle at 6,049.30. Gains in Reliance Industries (RIL), which has a huge 57% weightage in this index, helped the energy sector benchmark end firm for today.

The BSE Small-Cap Index lost 93.54 points (1.4%), to settle at 6,274.64. The BSE Mid-Cap Index lost 45.22 points (0.8%), to end at 5,235.57.

The sentiment remains brittle after volatility of the past few weeks, which was caused by global factors amid mixed economic data in the US. A sharp fall of nearly 9% in Chinese stocks on 27 February 2007, had left global bourses badly shaken that time. The sharp fall led some investors to cut carry trades, where they borrow cheaply in Japan and invest in countries with higher yields.

Asian and European stocks edged lower today ahead of a key US data on consumer price index, which will be unveiled later in the day. Benchmark indices in London, Germany and France were down 0.2 - 0.4%. Stocks in China slipped into the red and Japanese stocks ended the day weak. Japan’s Nikkei 225 average ended 0.69% in the red. China’s Shanghai Composite Index ended down 0.7%.

On the domestic front, the bulls were looking for some sops like a cut in corporate surcharge for a post-Budget rebound. But this did not materialise. Instead, the dividend distribution tax was raised in the Union Budget 2007-08. Earlier, the market had witnessed a pre-Budget correction. Sensex is off 15.1% from its lifetime high of 14,652.09 of 8 February 2007. It has lost 9.8% in calendar 2007 so far.

The next major trigger for the bourses is Q4 March 2007, earnings which will start next month. Market men will closely watch what company managements will have to say about the outlook for FY 2008. Global liquidity still remains strong and may provide the trigger for recovery.

Today, Reliance Industries (RIL) firmed up. The stock was up 1.1% to Rs 1298, and off the session’s low of Rs 1262. A media report today suggested it was close to signing a deal for 59% stake in a $20 billion joint venture with US-based Dow Chemical Company.

Banks fell but pared intra-day losses. HDFC Bank shed 1.3% to Rs 905, but was off the session’s low of Rs 890. The State Bank of India shed 0.8% to Rs 914, and was off the session’s low of Rs 845. ICICI Bank was down 1.8% to Rs 807, up from the session’s low of Rs 802. The Lok Sabha today passed the Banking Regulation (Amendment) Bill, 2007. The Banking Regulation (Amendment) Bill is aimed at allowing more operational flexibility to the Reserve Bank of India (RBI)in the conduct of monetary policy. The bill seeks to amend Section 24 of the Banking Regulation Act, 1949 to enable the RBI to specify the statutory liquidity ratio without any floor rate. At present banks are required to invest a minimum of 25% of their deposits in government securities, as dictated by the statutory liquidity ratio (SLR).

Reliance Communications dropped 4% to Rs 374.50. As many as 36.5 lakh shares changed hands in the counter on BSE. Bharti Airtel was down 1.5% to Rs 716.50, after the stock moved between positive and negative territory. Telecom shares were impacted by concerns of increased competition after Vodafone, on Thursday, reached a partnership agreement with Essar. As per the accord, Vodafone will manage routine operations of Hutch-Essar, which will be renamed Vodafone-Essar.

IT pivotals witnessed intra-day recovery. Wipro gained 1.6% to Rs 570.50, and off the session’s low of Rs 556.10. TCS was down 0.1% to Rs 1235, off the session’ s low of Rs 1215.60. Infosys was down 1.3% to Rs 2050, off the session’s low of Rs 2025.10.

Cement shares drifted lower. Gujarat Ambuja Cements lost 2.8% to Rs 103 and ACC shed 2% to Rs 717. Cement shares have tumbled over the past few days, after manufacturers agreed early this month not to raise prices for one year.

Two firms listed at a discount to their IPO prices, extending a recent trend of new scrips getting listed below their IPO prices. Page Industries settled at Rs 282.20, a discount of 21.6% over the IPO price of Rs 360. Raj Television Network settled at Rs 225.95 on BSE, a discount of 12% over the IPO price of Rs 257. The stock posted the second-highest turnover, grossing Rs 211.12 crore on BSE.

Tata Motors gained 3.3% to Rs 750. The Managing Director, Tata Motors, Ravi Kant said on Thursday its small car project coming up at Singur, Kolkata was on track and would be completed by the middle of next year.

IT firm MindTree Consulting posted a turnover of Rs 467.93 crore, and was the turnover topper on BSE. The stock had seen high volumes ever since listing early this month. It had spurted earlier this week, but ended 3% lower today, at Rs 901.90.

Reliance Industries (RIL), which helped the Sensex at the lower level, was the third highest in terms of turnover. RIL aggregated Rs 152.60 crore today on BSE. Page Industries, another debutante for the day, was the fourth-highest with a turnover of Rs 145.69 crore.

At Rs 138.10 crore, Reliance Communications was the fifth-highest in terms of turnover. The stock lost 3.5%, to settle at Rs 376.90.

Although FIIs resumed buying on Thursday, their daily volume as reflected in daily gross sales and purchases figures for the day was low. They were net buyers to the tune of Rs 18.50 crore on Thursday (15 March 2007) compared to their outflow of a huge Rs 861.40 crore on 14 March. An intermittent surge in funds withdrawal by FIIs has been observed this month. As per provisional data released by the National Stock Exchange, FIIs were net sellers to the tune of Rs 202 crore today.