The nation has been gripped by rapid-fire economic reforms unleashed by the Congress-led UPA government. But a lot of these recent measures will lead to higher inflation in India, dimming the hope of cheaper credit and higher growth
Over the last few days, the government has announced a slew of reform measures such as foreign direct investment (FDI) in retail, aviation and broadcasting as well as diesel price hike and capping the number of LPG gas cylinders per consumer per year. However, this will not alleviate the immediate drag on the economy—interest rates, which have remained high—partly because inflation in India is running high. According research by Standard Chartered Bank, “notwithstanding recent exuberance on the fiscal reform front, we have raised our fiscal deficit and inflation forecasts for FY13 (ending March 2013). We believe that the government’s recent larger-than-expected revision of fuel prices and the delayed onset of the monsoon rains will push inflation in India higher.”
The bank had raised its average FY13 inflation forecast to 7.6% y-o-y (year-on-year), after factoring in the impact of delayed monsoon rains on food inflation in India. Since then, three important changes have pushed its FY13 average inflation forecast to 7.8%.
It increased retail fuel product prices after a gap of one year by 12%. It also limited the supply of subsidized cooking gas to six cylinders per household per year. This implies a 22% price increase, assuming that each household needs at least eight cylinders a year. The government also reduced the petrol excise duty by 7.5%. According to bank, “the direct impact of these revisions is equivalent to 70 basis points (bps) of inflation and is likely to push headline inflation in India above 8% in next few months. While our initial 7.6% average forecast incorporated some rise in fuel product prices, the government has been more aggressive than we expected.”
Inflation in primary articles was lower than expected in July and August because of lower price of fruit and vegetable. But given “insufficient monsoon rains, we expect fruit and vegetable prices to move higher eventually. Indeed, July CPI (consumer price index) inflation in India showed a 7.9% m-o-m increase in vegetable prices versus a decline of just 5.9%. Thus, the probability remains of future revisions to this series.” The bank also reminds that “inflation in manufactured products increased sharply to 6.14% in August from 5.4% in June. The index rose a further 0.8% in August, after a 0.6% rise in July. Core inflation edged up to 5.6% y-o-y in August from 5.44% the previous month. Price pressures exist across the board but are most notable for sugar (+8% m-o-m) and cement (+ 2% m-o-m). Since these price changes have driven the index to higher levels, the impact on headline inflation will be felt for the rest of FY13.”
The impact of all this is no cuts in interest rates. The bank notes that “in its recent monetary policy statement, the RBI highlighted persistent inflationary pressures and noted the upside pressure from high global commodity prices and India’s still wide fiscal and current account deficits. It made it clear that managing inflation remains its priority.”
If the Nifty closes below 5,600, it may bring in sideways movement
The Indian market, which had hit a 14-month high last week, edged lower today on profit booking. Although the Nifty could manage a higher low today, it made a lower high and also ended in the negative. If the Nifty closes below 5,600 we may see sideways movement setting in. The National Stock Exchange (NSE) saw a volume of 103.58 crore shares and an advance decline ratio of 1030:666.
The market opened flat in the absence of any domestic triggers and a subdued trend in the Asian benchmarks as investors focused their attention to economic growth. The Nifty resumed trade at 5,692, one point up from its previous close and the Sensex started off three points higher at 18,756.
Select buying in blue chips saw the benchmarks hitting their intraday high in early trade. At this point the Nifty touched 5,710 and the Sensex moved up to 18,811. However, in a matter of minutes selling pressure in fast moving consumer goods, technology and oil & gas sectors soon pushed the market into the negative.
The indices were range-bound and hovered on both sides of their previous closing levels in subsequent trade. Feeble recovery attempts were thwarted by selling pressure in heavy weights. A lacklustre opening of the European indices kept the market down in the second half of trade.
The benchmarks touched their lows in post-noon trade with the Nifty at 5,664 and the Sensex going down to 18,669.
The market closed marginally of the day’s lows amid a range-bound session. The Nifty settled 22 points down at 5,670 and the Sensex declined 79 points to settle at 18,673.
The broader markets outperformed the Sensex today; the BSE Mid-cap index gained 0.33% and the BSE Small-cap advanced 0.85%.
The top sectoral gainers were BSE Power (up 1.70%); BSE Realty (up 1.45%); BSE Capital Goods (up 1.15%); BSE Consumer Durables (up 0.88%) and BSE Auto (up 0.78%). The main losers were BSE Fast Moving Consumer Goods (down 1.48%); BSE Oil & Goods (down 1.43%); BSE PSU (down 0.50%); BSE TECk and BSE Healthcare (down 0.32% each).
Thirteen of the 30 stocks on the Sensex closed in the positive. The key gainers were BHEL (up 6.41%); Jindal Steel (up 4.18%); Mahindra & Mahindra (up 3.66%); Maruti Suzuki (up 3.13%) and HDFC Bank (up 1.47%). The losers were led by HDFC (down 2.52%); ITC (down 2.25%); Hindustan Unilever (down 2.16%); ONGC (down 2.06%) and Reliance Industries (down 1.61%).
The top two A Group gainers on the BSE were—Lanco Infratech (up 9.61%) and Oberoi Realty (up 9.56%).
The top two A Group losers on the BSE were—Ruchi Soya (down 10.24%) and Apollo Tyres (down 4.37%).
The top two B Group gainers on the BSE were—NRC (up 20%) and PG Electroplast (up 19.98%).
The top two B Group losers on the BSE were—Kilitch Drugs India (down 40.20%) and Ansal Properties (down 17.69%).
Out of the 50 stocks listed on the Nifty, 21 stocks settled in the positive. The major gainers were BHEL (up 7.27%); Jindal Steel (up 4.64%); Maruti Suzuki (up 3.74%); M&M (up 3.72%) and Reliance Infrastructure (up 3.17%). The top losers on the index were HDFC (down 2.77%); ONGC (down 2.55%); SAIL (down 2.37%); ITC (down 2.20%) and HUL (down 2.15%).
The Asian pack settled mostly lower as investors focused on growth prospects in their respective economies amid signs of slowdown. Fresh concerns about the resolution of the European debt crisis also dampened sentiments.
The Hang Seng declined 0.19%; the Jakarta Composite tanked 1.03%; the KLSE Composite dropped 0.70%; the Nikkei 225 fell 0.45% and the Straits Times slipped 0.33%. On the other hand, the Shanghai Composite gained 0.32%; the Seoul Composite added 0.05% and the Taiwan Weighted rose 0.18%.
At the time of writing, the top three European indices were in the negative and US stock futures were trading lower.
Back home, foreign institutional investors were net buyers of shares totalling Rs2,327.82 crore on Friday whereas domestic institutional investors were net sellers of stocks amounting to Rs1,127.27 crore.
Reliance MediaWorks and China-based Galloping Horse America are set to part-own some of the businesses of Hollywood film-maker James Cameron's Digital Domain Productions through a $30.2 million bid. The “winning bid” was submitted with Galloping Horse, a leading firm in China engaged in film and TV financing, production, distribution, advertising and publishing, Reliance MediaWorks said in a statement today. Digital Domain Media, which has churned out blockbusters such as 'Titanic' and 'Avatar', had filed for bankruptcy protection on September 11. Reliance MediaWorks soared 14.60% to close at Rs78.50 on the NSE.
EPC contractor and infrastructure project company, Sunil Hitech Engineers, has been awarded contracts of over Rs370 crore by BHEL, GAIL, BGR Energy Systems, Thermax Engineering, Doosan Chennai Works, among others. The stock jumped 4.55% to settle at Rs70.05 on the NSE.
Last year in March the government had placed 62 blocks on offer out of which 28 were awarded to companies owned by family members of the former ED official
New Delhi: Just a week after filing cases in coal block allocation scam, the Central Bureau of Investigation (CBI) has begun probing alleged irregularities in the country's first-ever attempt to explore untapped mineral wealth worth thousands of crores lying in the deep sea bed, sensing another mega scam, reports PTI.
CBI sources said a preliminary enquiry has been registered by the agency in connection with the alleged favours extended to the companies by the unknown officials of the Indian Bureau of Mines (IBM) while awarding licences for exploring minerals in the sea bed of Bay of Bengal and Arabian Sea.
It is alleged four beneficiaries companies owned by the family members of an Indian Revenue Service (IRS) officer are also under the agency's scanner as they bagged nearly half of the blocks despite lacking necessary qualification, they said.
The sources said in March last year government, in a first attempt to explore offshore mineral wealth, had placed 62 blocks on offer out of which 28, nearly half, were awarded to companies owned by family members of the former Enforcement Directorate official who had also served in Mines Ministry.
The final award of licences had been put on hold after aggrieved parties approached the Bombay High Court and the Andhra Pradesh High Court seeking their cancellation.
The companies allegedly owned by the son and brother of the officer are based at the same address on Kasturba Gandhi Marg in the national capital, they said.
It is alleged that companies were incorporated after bids were invited from the interested parties willing to go for exploration and did not have any experience in offshore mining at the time of notification.
The CBI sources said it is a matter of probe how these companies with such alleged lacunae managed to score over rival firms which were in fray for the lucrative contracts.
Sources claimed it has been alleged that at screening committee level the companies belonging to the kin of the officer scored much above the rival firms.
Indian Bureau of Mines, which works under the Ministry of Mines, had announced in March last year the list of companies that had won the bids of exploration of mineral wealth.
However, the Nagpur bench of the Bombay High Court had stayed the execution after accepting the plea of Tamil Nadu- based company Rare (H) minerals.
"Controller General, Indian Bureau of Mines has issued a notification dated 7 June, 2010 inviting applications for the grant of Exploration Licence in the offshore areas of the country. About 377 applications have been received in IBM for grant of exploration licence," the Ministry of Mines had said in a statement last year.
The sources said that each block measuring about 800 sq km is estimated to have huge unexplored mineral wealth in the sea bed of Bay of Bengal and Arabian Sea.
A similar case is also going on in the Andhra Pradesh High Court after a company, Trimex Sands, challenged the award of exploration licence.