Sensex ends at 18300, RBI policy meet awaited

MUMBAI - Indian markets ended a rangebound session on in the green even as the WPI May inflation surprised on the higher side at 9.06 per cent against 8.66 per cent in April. According to analysts, the Reserve Bank of India is likely to raise the interest rates by 25 basis points in it policy review meet as it is focusing on to rein inflation at the cost of growth. 

"Sticky trends in inflation, coupled with the RBI's recent stance of bringing down inflation at the cost of growth, prompt us to maintain our view of a further 75bps of tightening in 2011. This would take policy rates to 8% by end-2011, with a hike likely in the 16 June meeting this week. 

However, as mentioned in our India Macro View, we re-iterate our view that given underlying consumption dynamics and the fact that 60% of the rise in inflation is commodity led and thus beyond the control of the RBI , the need of the hour is a pick-up in the investment cycle, productivity enhancements particularly in food processing, warehousing," said Rohini Malkani, Economist, Citi India. 

National Stock Exchange's Nifty ended at 5500.50, up 17.70 points or 0.32 per cent. The broader index touched a high of 5520.15 and low of 5484.20 intraday. 

Bombay Stock Exchange's Sensex was at 18308.66, up 42.63 points or 0.23 per cent. The 30-share index hit a high of 18380.19 and low of 18261.11 in trade today. 

"Hourly chart for the index suggests that short term bullish reversals could be round the corner, as long as yesterday's low at 5436 is not breached. A likely bullish H&S formation seems under way with neckline placed around the 5600 levels, the pattern would confirm once 5600 is broken out of. 

Momentum signature though point at the likelihood of a reversal as the indicator KST has formed a positive divergence and has also given a bullish crossover on its signal line. Expect the index to trade with the positive bias for the next few sessions," said Sarvendra Srivastava, technical strategist, Emkay Global Financial Services . 

BSE Midcap Index was up 0.60 per cent and BSE Smallcap Index moved 0.37 per cent higher. 

Amongst sectoral indices, BSE Capital Goods Index was up 1.03 per cent, BSE Power Index gained 0.96 per cent and BSE FMCG Index moved 0.86 per cent higher. BSE Oil&gas Index was down 0.77 per cent and BSE Auto Index slipped 0.19 per cent lower. 

Reliance Infrastructure (2.35%), Bajaj Auto (2.26%), Jindal Steel (1.97%), ICICI Bank (1.53%) and ITC (1.52%) were amongst the top Sensex gainers. 

Tata Motors (-2.84%), Hindalco (-2%), HDFC (-1.42%), Reliance Industries (-1.41%) and Cipla (-1.09%) were the major losers. 

Shares of Housing Development Finance Corp were down on profit booking after Citigroup reduce its 11.4 per cent stake in the firm by 1.5 per cent to 9.9 per cent. Reducing the holding is part of Citigroup's mitigation efforts ahead of adoption of Basel III capital rules. 

Market breadth was positive on the BSE with 1625 gainers against 1204 losers. ..

Economists, bankers predict 25 bps hike in policy rates by RBI

Fitch Rating's Devendra Kumar Pant says: "A 25 bps hike is pretty likely, but a lot will depend on the May inflation data. I think RBI will continue to monitor prices closely." He is of the opinion that RBI will effect more hikes during the year, to the tune of 50-75 bps, depending on the inflationary expectations. On the inflation front, Pant says non-food inflation is the core and if it comes down, one can expect some breather from the Mint Street. But food inflation will remain high due to the recent MSP (minimum support price) hike and the increasing demand due to the rising income levels, he says. "High food inflation is the new norm," Pant said, adding that past 6-7 years' average GDP growth of 8 percent has resulted in over 15 percent spike in national income levels. Standard Chartered Bank India economist and head of research, Samiran Chakraborty, too foresees a 25 bps hike in the repo rate, as inflation remains the primary issue. On the poor April IIP data, he said it is only a slowing and not a collapsing, hence nothing to worry about. He sees Q1 economic numbers to be under 8 percent and May inflation at 8.5 percent. Axis Bank economist Saugata Bhattacharya too forecasts a 25 percent spike, so does Yes Bank chief economist Shubhada Rao. Rao said the central bank had already indicated on May 3 that its medium term focus will be battening down inflation. However, she sees no incremental threat to core inflation as commodity prices are more or less stabilised, though high. But she pegs inflation closer to 9 percent till November. On growth numbers, she said, "The April data only shows that growth is moderating and not collapsing."....

Inflation, fuel price hike hold key to growth

The stock markets started the week on a positive note. However, concerns on a slowing down in the economic growth rate and low Index of Industrial Production (IIP) number weighed heavy on the market sentiments, and they ended the week on a weaker note. Interest rate-sensitive stocks took a beating in the markets as analysts believe the Reserve Bank of India (RBI) will increase the key interest rates further in the coming mid-term monetary policy review.

The major factors to track in the short term include fuel price hike and its impact on the inflation rate, RBI's mid-term monetary policy review, and the progress of the monsoon. Analysts are also concerned about the slower-than-expected pace of growth in the developed economies once the stimulus packages and quantitative easing come to an end.

The domestic stock markets are expected to remain range-bound with significant resistance at higher levels.

These are some of the major developments that are expected to drive the markets in the short to medium terms:

Global factors

In the US, analysts are following the performance of the economy closely. There are concerns on the slowerthan-expected pace of economic growth after the end of the second phase of quantitative easing. Analysts believe the US Fed will not announce another round of quantitative easing after the end of this one. However, the Fed is expected to maintain the interest rates at a low level and track the developments before taking further actions.

In the Asian markets, the news of a sharp drop in exports in Japan hit the market sentiments. Although it was expected due to the calamity recently, there are concerns on the pace of recovery and the time it will take to get back to normalcy.

IIP data

In the month of April, industrial production grew at 4.4 percent according to the old series and 6.3 percent according to the new series. The central statistical organisation launched a new series of IIP that covers 45 percent more items than the old series.

Although the IIP number looks better according to the new series, the message is clear that industrial growth is slowing down. There are concerns on the slow growth rate in manufacturing, mining and capital goods.
Investors should remain cautious with their existing positions or new positions in these sectors.

Inflation

The food articles inflation rate has again registered a growth for the week ended May 28. The prices of animal products registered a rise and that resulted in a rise in the index of food articles. The headline inflation rate based on the Wholesale Price Index ( WPI )) is also going strong and not showing significant signs of cooling down.

Analysts feel the RBI will implement another round of monetary tightening. However, the traditional methods of monetary tightening are not yielding the expected results.

Investors should track the economic growth rate as the RBI is continuously increasing the key interest rates. They have gone up to an extent where the industrial sector is feeling the pinch.

Commodity prices

There has been a sharp correction in the commodity markets mainly on the back of weak signals from China and unwinding of speculative positions.

Investors here should track the price of crude oil closely as it is one of the most significant factors that can influence growth. The price of crude oil is already above 100 dollars per barrel and any significant upward movement from here can have a negative impact on economic growth...         

Planning Commission members demand grant of Rs 1 crore to employ consultants

NEW DELHI: Every member of the planning commission might get an annual grant of Rs 1 crore to employ consultants to further research projects taken by the commission. Some members of the planning commission have forwarded the proposal to the deputy chairman Montek Singh Ahluwalia as part of the exercise to restructure and reform the commission. 

"There is a proposal but it is still in the works and no decision has been taken," a planning commission member told ET. The current Planning Commission, which was constituted in 2009, had started with the aim of carrying out internal structural reform to make the commission more relevant. 

The exercise had been undertaken by planning commission member Arun Maira who was inducted into the commission from the Boston Consulting Group. "The move has been proposed to give members the flexibility to get qualified people for the work we do at the commission if the need arises," added the member. Primarily three members - Arun Maira, Syeeda Hameed and Abhijit Sen, are backing the proposal. 

However, given the monetary requirement, which will be around Rs 8 crore excluding ministerial members of the commission, the proposal is likely to be shelved for the time being. "The quantum of the grant is quite big for the purpose and it is unlikely to be passed in the current scenario," said another official at the planning commission. 

The Planning Commission has been criticised often as being monolithic, stagnant and hierarchical with lack of expert domain knowledge...