Uphill Struggle

Index heavyweight Bharti Airtel’s decline, surge in inflation and China’s surprise move to restrict bank lending weighed heavily on Indian markets

Indian markets remained highly volatile during the day following index heavyweight Bharti Airtel’s massive slump and a jump in inflation. China’s surprise move to restrict bank lending to cool its surging economy weighed on market sentiments as worries rose about the impact of monetary tightening on global growth. The Sensex declined 114 points from Thursday’s (11th February) close, ending the day at 16,038 while the Nifty declined 25 points to close at 4,802.

Currently, Indian bourses are struggling to continue their uptrend and are likely to hover between the 15,900–16,200 levels. The Sensex from here on has to breach the 16,200 level to see a serious upward movement.

At 12:00 hrs IST, the Sensex was trading at 16,057, down 96 points from Thursday’s close, but at 14:00 hrs IST, the Sensex was trading down 66 points at 16,086.

At the end of the day, Bharti Airtel fell 9% on reports that the company is in talks to buy the African assets of Kuwaiti telecom player Zain for $10.70 billion. Bharti said in a statement that it has entered into exclusive talks with Zain over the assets, which exclude operations in Morocco and Sudan.

Hitachi Home & Life Solutions (India) rose 3% on reports that the company is reducing prices of air-conditioners to boost its market share.

Transgene Biotek shot up 5% after the company recently said that a novel drug for liver cancer developed by its scientists has cleared some latest tests.

Castrol India rose 3%, on reports that the company board will meet on 18 February 2010 to consider issue of bonus shares.

Tube Investments of India has acquired a controlling stake in Sedis Group, France, through acquisition of 77% equity in its holding company, Financiere C10. The stock was up 4%.

MBL Infrastructures Ltd has bagged orders worth Rs100 crore from Reliance Infrastructure Limited for its 6x660 MW Ultra Mega Power Project. The stock was up 2%.

Ruchi Soya Industries Ltd has acquired Palm Tech India Ltd, the largest palm oil unit in Andhra Pradesh, which is engaged in the business of development and extraction of palm oil. The stock plunged 3%.

During trading hours, government data showed that the wholesale price index (WPI) rose 8.56% in January 2010 from a year earlier, driven by higher food prices. The latest WPI reading was the highest since November 2008. It was higher than an annual 7.3% rise in December 2009. The rise was driven by a 17.4% jump in food prices, which rose on weak monsoon rains and flooding from last year. Inflation in manufacturing picked up to 6.55% from about 5% in December 2009, a sign that inflationary pressures were spreading to other sectors of the economy. Meanwhile, the government revised upwards WPI inflation for November 2009 to 5.55% from 4.78% earlier.

Meanwhile, D Subbarao, Reserve Bank of India (RBI) governor, said over the weekend that large government borrowing influences monetary policy. The government completed its market borrowing of Rs4.51 lakh crore ($97 billion) for the current fiscal year to end-March early this month and the RBI expects its gross market borrowing next year to be slightly higher than this year. As per the data released on Friday, 12 February 2010, industrial output grew 16.8% in December from a year earlier, up from a revised annual rise of 11.8% in November. The RBI has already started to unwind stimulus, and is widely expected to tighten rates at its April meeting.

As per media reports, finance minister Pranab Mukherjee will not present any major tax reform to bring down corporate tax and simplify income-tax rules this month. The Direct Taxes Code bill was expected to be presented in the budget session of Parliament beginning on 22 February 2010, with the aim of coming into effect from April next year. There are several complications in the Direct Taxes Code in its present form, and it required further scrutiny. The reports also added that the government may delay the major tax reform bill to the next session of Parliament, which starts in July.

EPFR Global, the Massachusetts-based research firm that tracks global fund flows said that investors took $2.90 billion out of all emerging-market equity funds in the first week of February 2010, the highest weekly decline since 9 July 2008. EPFR further added that global funds in particular were hurt as investors pulled out $1.76 billion, a 60-week high.

During the day, Asia’s key benchmark indices in Japan and Indonesia fell 0.64% and 0.78% respectively. Most Asian markets will remain closed today and tomorrow for the Lunar New Year holidays.

As per reports, Japan’s economic growth accelerated at an annual 4.6% in the three months ended 31 December 2010 as a global trade revival fuelled demand for the nation’s exports. China ordered banks on 12 February 2010 to set aside more deposits as reserves for the second time in a month, as loan growth quickened and property prices surged. The reserve requirement will increase 50 basis points effective 25 February 2010.

On Friday, 12 February 2010, the Dow Jones Industrial Average fell 45 points whereas the Nasdaq Composite was up 6 points. US markets are closed on Monday for the Presidents’ Day holiday.

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