Lower food inflation aids recovery

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The Indian stock market started off on a weak note, mirroring a dismal performance in the Asian markets. However they managed to recover from the day's lows towards the latter half of the session. This was on account of a sharp drop in food inflation numbers. While the BSE-Sensex closed lower by around 45 points (down 0.3%), the NSE-Nifty closed lower by around 17 points (down 0.4%). The smaller indices saw a worse performance today. The BSE Mid Cap and BSE Small Cap also lost around 1.1% and 1.5% respectively. Stocks from the engineering and consumer durables space were the top losers. However FMCG and power stocks were in the positive today.

As regards global markets, Asian indices closed in the red today while the European indices have opened in the green. The rupee was trading at Rs 53.86 to the dollar at the time of writing.

The recovery in the indices in today's trade was mostly on the back of lower food inflation numbers. Food inflation eased to 4.35% in the year to December 3. This is the country's lowest reading since February 2008, according to government data. This is also a sharp fall from the 6.6% reading seen last week. This fall in inflation leads to hope that the RBI will maintain a dovish stance with regards to its interest rate policy in its meeting tomorrow.

Coal mining major Coal India Limited's (CIL) board has approved a proposal for it to acquire stakes in unlisted overseas firms. This development has come in post the Finance Ministry approval for the company to go-ahead with a buyout of unlisted firms overseas. The company is expected to take up three offers - in Australia, Indonesia and the United States. The PSU major has put together a cash hoard of Rs 60 bn for the acquisition of mines in these countries.

Mahindra & Mahindra recently announced that it will raise prices of its entire range of vehicles by up to 3% from the beginning of the calendar year 2012 to protect itself from rising input costs. Besides higher raw material costs, the company's margins are also under downward pressure due to the sharp depreciation of the rupee against the US dollar. The rupee once again breached another all time high today, briefly touching the Rs 54 to a dollar mark. To mitigate the similar impact, other car-makers such as Renault, Nissan Motor, Hyundai Motor, Ford, General Motors and Toyota Kirloskar have also announced price hikes by up to 3% from January 1, according to a leading business daily.

Other Indian car manufacturers, including Maruti Suzuki, are also contemplating a price increase. Domestic car sales grew for the first time in four months in November, according to data from Society of Indian Automobile Manufacturers (SIAM). But, this could still not revive car sales for the year. In the current fiscal year till November, car sales are down 3.5% to 1.2 m units. A further hike in car prices may not help sales this year.