After a positive start in the morning, the indices saw no respite to selling pressure towards the end of the day. Every index saw declines with realty, FMCG and IT stocks under the most pressure. There were more than 2 stocks declining for every one that advanced. While the BSE-Sensex closed lower by around 441 points (down 2.4%), the NSE-Nifty closed lower by around 131 points (down 2.4%). Large caps faced more pressure versus the other indices. The BSE Midcap and the BSE Small cap faced comparatively less pressure and saw declines of around 1.5% each.
As regards global markets, most Asian indices were closed today while European indices opened on a positive note. The rupee was trading at Rs 45.68 to the dollar at the time of writing.
India seems to be fighting a losing battle with food inflation. Prime Minister, Manmohan Singh warned that the high price levels in our country are threatening growth momentum. He stated that it needs to be brought down with great urgency. Latest data showed that food inflation stood at 17.1% on higher food prices and surging oil prices. The central bank has already hiked rates 7 times, but to no avail. Instead of culling inflation, these rate hikes are instead stymieing growth. Supply chains need to be strengthened and farm produce needs to be distributed across the country without any roadblocks. It will be interesting to see what the budget has in store for these initiatives to improve production and distribution of food supplies.
Non banking finance companies were mainly trading in the red with auto financiers Shriram Transport and Mahindra Finance being some of the few stocks seeing some gains. Infrastructure financing institutions, are gearing up to sell bonds which will help provide an extra Rs 20,000 of tax-saving in your pocket. This is in addition to the Rs 100,000 tax savings that individuals have access to. In the next 2 months these infrastructure financing companies plan to raise around Rs 50 bn IIFC is opening its bond issue programme today to raise Rs 12 bn and IDFC on the other hand is closing its issue to raise Rs 29 bn from Indian public. REC has also been in the fray, and its issue is expected to close towards the end of March. L&T Infra Finance and PTC Finance also plan to issue bonds towards the end of Feb. They plan to raise Rs 4 bn and 1 bn respectively. Coupons of these bonds are between 8-8.3%, but the tax adjusted returns are much higher.
According to a recent report by PricewaterhouseCoopers, India's retail sector is expected to grow to US$ 900 bn by 2014. Current retail sales in the country are estimated at US$ 500 bn. Increased disposable incomes, expansion of stores (including international brands) and economic growth are all strong reasons for the same. However, inflation at high double digit rates is expected to eat into the customers' wallet for this year. But, thereafter volumes are expected to grow at an average of 4% between 2010 and 2014. Another weakness according to the report is the restrictions on foreign investment (FDI in multi brand retail). Modern retail in India accounts for only 5% of total retail sales. However, it accounts for 65% in the US, 55% in Malaysia and 10% in China. Incidentally, the retail sector in China is expected to grow to US$ 4.5 trillion in 2014.