Sensex rallies as Survey says worst for eco over; Jet soars

Equity benchmarks rallied Wednesday after the Economic Survey said that the current economic downturn may have run its course, and things were looking up. Midcap shares continued to be under pressure as cash-strapped traders unwound their positions, unable to pay the margins required to hold them.

The Economic Survey 2012-13 projects a gloomy picture of the economy, except for a sliver of hope that the current downturn may have run its course. The solutions it has recommended for fixing the problems are only too well-known by now. But any possible recovery will depend on whether or not the Government can take the tough decisions, with elections barely a year away.

But most importantly, the Survey has said that the government will have figure out ways of increasing tax revenues, rather than just scrimping on expenditure to balance its account books.

On the positive side, the Survey view the medium term fiscal consolidation plan as credible, and the Government will be able to achieve its fiscal deficit target of 5.3 percent for the current year. It sees mixed signals of industrial growth having bottomed out, and that GDP is likely to grow 6.1-6.7 percent next year. Wholesale price inflation is seen between 6.2-6.7 percent by March this year, and that lower inflation would give more elbow room for the RBI to cut interest rates.

But there are a host of concerns, most prominent one being the widening trade deficit and consequently the current account deficit, which is seen at 4.6 percent for this fiscal. Revenue collection target for FY13 is likely to be significantly below target, and industry growth is still vulnerable to local and global factors. And while there is an urgent need to cut down on subsidies, food subsidy bill is set to rise because of the Food Security Bill.

The Survey sees oil subsidies as a key fiscal risk, and that the government needs to raise diesel and LPG prices in line with global rates. On the flipside, higher diesel prices could push up inflation.

There is limited room to grow exports, given adverse local and global factors. That being the case, the only way current account deficit can be kept in check is by reducing imports of gold and oil.

"Given soaring energy and transportation needs, since there seems to be little we can do to temper oil imports, gold is the component that needs to be contained to bring the CAD back to a comfort zone,'' the Survey says.

And the Survey says that focusing largely on expenditure cutback may not be the right way to achieve fiscal consolidation.

"It is better to acheive fiscal consolidation partly through a higher tax-GDP ratio than merely through reduction in the expenditure to GDP ratio, in view of large unmet development needs. It is much better to achieve a higher tax-GDP ratio by broadening the base which is taxed rather than increasing marginal tax rates significantly--higher and higher tax rates impinge more and more on incentives to undertake taxable activity, while encouraging tax evasion,'' the Survey says.

The Survey says revival of investment in infrastructure is one of the key challenges before the government.

"Policies to remove investment bottlenecks as well as structural reforms to encourage productive investment and its financing are essential, as is more accommodative monetary policy (lower interest rates), as inflation abates," the Survey notes.

The Sensex rose 137.27 points to close at 19152.41 and the Nifty ended at  5796.90, up 35.55 points over the previous close.

Brokers say stocks would have also got a leg up due to short covering of positions after Tuesday's crash when the Sensex shed over 300 points.

But they said today's rise notwithstanding, near term outlook on the market had soured, unless the Finance Minister had some solid positive surprises in the Budget. The Economic Survey too raised plenty of red flags even as it provided a glimmer of hope.

Jet Airways led gainers in the Sensex, climbing as much as 20 percent intra-day after Etihad Airways said it had paid USD 70 million for three slots of Jet at London's Heathrow airport. The stock closed at Rs 534.85, up 19.3 percent over its previous close. The latest development raised hope among investors that Etihad is on track to buy a stake in Jet. The stock had fallen sharply on Tuesday on concerns that the deal may not materialize.

Larsen & Toubro, ONGC, Bajaj Auto, Mahindra & Mahindra and BHEL were the other key gainers, rising between 2-3 percent.

Core Education was the biggest loser among midcaps, falling 46 percent to close at Rs 60, even as the management maintained that the company was doing fine operationally.

In the last three sessions, the stock has fallen nearly 80 percent.

Shares of Educomp Solutions, Opto Circuits, Pipavav Defence, Welspun Corp and Delta Corp were down between 4-8 percent.

Bulls have dug in their heels on the eve of Budget, with lot of hopes riding on Finance Minister P Chidambaram. Although the bloodbath in markets confirms that the last few sessions belonged to bears, the pullback today has once again ignited talks of a Budget rally. Experts say the turnaround is a result of short covering and not the magic of Economic Survey which pegged growth of Indian economy at 6.1-6.6 percent for FY14.

At 14.39 PM, the 30-share BSE Sensex touched high point of the day rising 194.56 points or 1.02% at 19209.70, and the Nifty climbing 54.35 points or 0.94% at 5815.70. The benchmarks were supported by Capital Goods, Telecom, Oil and Gas, Auto and Realty. Europe market too has opened mixed and appears stable. Specifically, Larsen, Bharti, ONGC, Mahindra and Mahindra, BHEL, DLF and JP Associates rose between 2.6 percent to 5.4 percent.

Interestingly, Cigarette major ITC was trading up 1.77% from its previous close which indicates traders are not too worried about any excise duty hike.

The midcap index too has been rising steadily in tandom with its largecap peers. Shares of Jet Airways climbed 17 percent to Rs 524.20 on media reports that its stake sale deal with Etihad may take off soon. According to CNBC-TV18 sources, Jet Air is learnt to have revised certain clauses like agreeing to give four seats to Etihad on its Board.

However, Core Education, Educomp, Kalindee Rail have continued their slide falling between 10 and 46 percent.

The 50-share NSE Nifty extended gains in afternoon trade, rising above 5800 level especially after announcement of Economic Survey for fiscal 2013-14. The index moved up 41.70 points to 5,803.05, helped by ICICI Bank, Reliance Industries and L&T.

Meanwhile, the 30-share BSE Sensex rose 153.40 points to 19,168.54.

According to Chief Economic Advisor Raghuram Rajan's first ever Economic Survey for the current fiscal, WPI inflation is seen declining to 6.2-6.6 percent by March, which could create more room for rate cuts going ahead. The economic Survey pointed out that Indian economy is likely to grow at 6.1-6.7% in FY14. However, oil subsidy is the key fiscal risk, which needs to be addressed, according to survey.

Country's largest private sector lender ICICI Bank jumped over 2 percent while its rival State Bank of India was up 1.2 percent.

Engineering and construction major Larsen & Toubro rallied more than 3 percent while state-owned BHEL moved up 2.5 percent.

Oil & gas exploration companies' shares too were on buyers' radar. Reliance Industries went up 1.5 percent and ONGC climbed nearly 3 percent.

Telecom major Bharti Airtel topped the buying list, rising 3.6 percent.

However, technology majors TCS and Infosys were under pressure, falling 0.8-1.3 percent. Private sector lender HDFC Bank slipped 0.7 percent.

European markets opened marginally higher. Britain's FTSE rose 0.23 percent while Germany's DAX and France's CAC gained 0.5 percent.

The market has seen a good amount of rebound in a short span. Experts say it is due to short covering and that investors are not emphatic about the Economic Survey . Nitin Jain of Edelweiss Securities say Union Budget may be a gamechanger. He advises to enter stocks that have fallen 30-35 percent.

At 12.55 PM, the Sensex was up 132.97 points or 0.70% at 19148.11, and the Nifty was up 34.80 points or 0.60% at 5796.15.

There have been fresh talks that Jet Airways is trying to once agin woo Etihad after the deal between them remained inconclusive. The stock moved up 11 percent to touch an intraday high of Rs 498.70. It was trading with volumes of 1,117,869 shares.

The market has recovered from the low point of the day after the economic Survey pointed out that Indian economy is likely to grow at 6.1-6.7% in FY14. It hints at monetary easing that will pushpedal growth.

At 12.14 PM, the Sensex was up 88.28 points or 0.46% at 19103.42, and the Nifty moved up 19.50 points or 0.34% at 5780.85.

Bharti, ONGC, ICICI Bank, BHEL, Larsen and JP Associates were the top gainers on the indices. These stocks were up between 1.5-2.9 percent with Bharti seeing the biggest rise.

ALthough Economic Survey has shown concern on economic slowdown and current account deficit, it has pegged growth at 6.2 and 6.7 percent and believes inflation can be brought down to 6.2-6.6 percent in March. But Sajid Chinoy of JP Morgan finds it a tall expectation. Samiran Chakraborty of StanChart says there is no specific plan that will drive growth. Although the suirey hints at monetary easing, it may not be sizeable to kick-start capex cycle.

The sell-off in midcap shares intensified on Wednesday, with rumours swirling that the promoters of some of these companies could be teetering on the edge of bankruptcy. Dealers said the steep fall in prices could spell trouble for some large traders and brokerages as well.

Core Education is the biggest loser among the battered stocks, down around 36 percent over its previous close to Rs 71.40. The stock which had closed at Rs 295 last Friday has shed 75 percent in the last three sessions alone. On Monday, the management had denied that the fall had to do with sale of shares pledged by the promoters. Brokers tracking the stock said such a steep fall in the stock without any fundamental change in the company's business points to fire sale of pledged shares pledged by either the promoter or some big trader.

Other big losers at this hour include ABG Shipyard, Gravita India, Titagarh Wagons,  

Educomp Solutions, Opto Circuits, PG Electroplast, Rushil Décor and Plethico Pharma, down between 11-20 percent. Trading in many of these stocks have been frozen at the lower end of the intra-day circuit filter for want of buyers.

In the past many promoters have come close to losing control of their firms, or in some cases, even lost control, after their shareholding dropped sharply because of sale of pledged shares.

Brokers say a large number of stocks which have been hammered in the last couple of weeks are characterized by weak fundamentals, dodgy accounting practices, and operator interest.

Sebi has already ordered a probe in to the crash, and given the magnitude of the crisis, is likely to come up with a preliminary report shortly. There was a similar sell-off in midcaps last July. The regulator identified the 19 entities alleged to have hammered the stocks, in less than a month and took action against them.

Serious damages have begun to unfold in the broader markets, serving as a grim reminder to bloody Tuesday and threatening to spill over to largecaps. At 10.36 AM, the Sensex was down 2.61 points at 19012.53, and the Nifty fell 6.30 points to 5755.05.

The first hour of trade looked promising as global cues were positive. US stocks had rebounded from their worst decline in last 3 months on Fed chairman's comments defending bond-buying stimulus. New home sales in US too hit a 4 1/2-year high.

But the momentum seen in the first trades ceased after an hour and the midcaps crashed half a percent. Core Education resumed its terrble journey downwards and fell 36 percent. other losers include Opto Circuit, ABG Shipyard, Educomp Sol, and Jain Irrigation; all these stocks were down between 7 and 10 percent.

With global markets moving up, Indian equity benchmarks too entered the reconstruction mode. The 317 points massacre on the Sensex, a pull back was expected. Most of the stocks that lost 2-3 percent have bounced back 1-1.5 percent. Bharti shot up 2.5 percent; investors have got bullish on the telecom giant post failure of spectrum auction. Top largecap gainers on the indices were Sterlite, BHEL, Jindal Steel, HDFC, DLF, JP Associates and Sesa Goa.

At 09.17 AM, the Sensex was up 89.13 points at 19104.27, and the Nifty gained up 32.65 points at 5794.00.

Saurabh Mukherjee of Ambit is of the view that the pre-Budget sell-off was due to funding crisis in local market leading to liquidating of pledged funds.

In the midcap space, Suzlon was the champion with 8 percent gains. Core and Educomp which collapsed have picked up mome.