Markets end lower as rise in WPI inflation fades rate cut hopes

Tuesday’s trading session turned out to be a daunting one for stock markets in India and benchmarks ended below their crucial 6750 (Nifty) and 22,500 (Sensex) levels. Sentiments were weighed down after whole-sale-price inflation in March hit 3-month high, which could lead to delay in policy rate cuts by the central bank in the near to medium term. Earlier, markets made a positive start with Infosys heralding the result season with a decent set of numbers. The company posted a rise of 25.07% in its net profit at Rs 2883 crore for the quarter ended March 31, 2014 as compared to Rs 2305 crore for the same quarter in the previous year. However, the gains were short-lived as weakness on the financial counters negated the gains on the IT counters. Traders also reacted negatively to different macro data, starting with the IIP numbers announced late Friday, which slipped to its 9-month low, showing de-growth of 1.9% in February as compared to marginal expansion of 0.1% in January.

Sentiments also remained dampened after the wholesale price index (WPI) based inflation rose to 5.70% in March from a nine-month low of 4.68% in February. The inflation stood higher in all the three broad categories -- primary articles (unprocessed items), fuel and power and manufactured goods. Food inflation went up to 9.90% in March from 8.12% in February. With fears of El Nino hitting the monsoon, food inflation may see further rise in the coming months. Meanwhile, foreign investors turned net sellers on Friday. As per the provisional data on the stock exchanges, FIIs were net sellers in Indian equities to the tune of Rs 362 crore on Friday.

On the global front, Asian markets ended mostly in the green led by Japanese Nikkei which rebounded from six-month lows on Tuesday after strong US retail sales data helped calm nerves amid the backdrop of an escalating crisis in Ukraine, pulling the yen down and supporting exporters. However, European markets trades mostly in the red in early deals as fresh tension in Ukraine prompted investors to shun cyclical sectors such as travel, autos and technology.

Back home, shares related to metal and mining space like Hindalco, Sesa Sterlite, Tata Steel etc edged lower as China’s broadest measure of new credit fell 19% in March from a year earlier and money supply grew at the slowest pace since 2001. Moreover, bank stocks declined after the latest data showed the rate of inflation based on wholesale price index (WPI) accelerated in March 2014. On the flip side, shares of information technology companies remained on buyers’ radar after Infosys surprised the Street with a 4.1% q-o-q rise in its net profit for the fourth quarter ended March 2014 (Q4) at Rs 2,992 crore.

The NSE’s 50-share broadly followed index Nifty declined by over forty points to end below the psychological 6,750 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex declined by over one hundred and forty points to end below its crucial 22,500 mark. Broader markets too struggled to get any traction during the trade and ended the session with a cut of over quarter of a percent. The market breadth remained in favor of decliners, as there were 1,323 shares on the gaining side against 1,458 shares on the losing side while 130 shares remain unchanged.

Finally, the BSE Sensex plunged by 144.03 points or 0.64%, to settle at 22484.93, while the CNX Nifty declined by 43.20 points or 0.64% to settle at 6,733.10.

The BSE Sensex touched a high and a low of 22737.31and 22416.24, respectively. The BSE Mid cap index was down by 0.36%, while the Small cap index lost 0.29%.

The top gainers on the Sensex were TCS up by 4.06%, Wipro up by 3.71%, Hero MotoCorp up by 2.34%, Infosys up by 0.76% and NTPC up by 0.72%, while Hindalco Inds down by 4.48%, Axis Bank down by 3.32%, HDFC down by 3.25%, SSLT down by 3.14% and Tata Steel down by 2.79% were the top losers in the index.

On the BSE Sectoral front, IT up by 2.16%, Teck up by 1.62% and FMCG up by 0.27% were the only gainers, while Realty down by 2.99%, Metal down by 2.81%, Bankex down by 2.07%, Consumer Durables down by 1.31% and PSU down by 0.98% were the top losers in the space.

Meanwhile, with an aim to accelerate exploration and production of oil and gas in the country for enhancing energy security, Oil Ministry has introduced a proposal to simplify exploration norms. The Ministry’s draft note seeks to revise the policy guidelines for exploration in the mining lease area after the expiry of the exploration period. Further, the draft also proposes to recognise such exploration activity for the purpose of cost recovery as well. Currently, production-sharing contract between the oil exploration company and the Government does not recognize such activities for the purpose of cost recovery. The proposal was circulated amid concerns about some clauses in the existing policy which has been restricting investments in the industry. Meanwhile, if Ministry’s proposal is accepted, it would be beneficial to a lot of domestic players such as Reliance Industries and Cairn as they can search for hydrocarbons without any hassles and even after expiry of the exploration period.

As per the proposal, cost recovery will be provided to contractors after resultant discovery is proved commercially and techno-economically viable with requisite computation of cash flows and profit. Further, the draft also proposed existing contractors to continue to apply for development and production relating to such discoveries. However, the approval for further exploration, development and production will not confer any right on the contractors for further extension in the tenure of the contract, except as provided. Further, the contractors will also be permitted to develop and monetise existing discoveries in the mining lease area which have not been monetized or developed earlier. The draft also noted that the contractors will have to get the Management Committee’s approval for quarterly allocation of cost petroleum and profit petroleum. Till now, the Government has signed 254 PSCs under nine rounds of the New Exploration Licensing Policy (NELP).

Meanwhile, Oil Ministry has formulated a roadmap for cutting India's dependence on imports to meet its oil needs. India currently imports around 80 percent of its oil needs and the Ministry wants this to be cut to 50 percent by 2020 and by 25 percent in 2025 through intensive exploration and exploitation of untapped reserves. Presently, only 0.93 million sq km area in India is held under exploration and production in 19 basins as compared to total estimated sedimentary area of 3.14 million square kilometres, comprising 26 sedimentary basins.The CNX Nifty touched a high and low of 6,813.40 and 6,711.75 respectively.

The top gainers of the Nifty were United Spirits up by 11.62%, TCS up by 4.18%, Wipro up by 3.94%, Hero MotoCorp up by 2.39% and Tech Mahindra up by 1.74%. On the other hand, DLF down by 6.41%, Hindalco Industries down by 5.26%, Jindal Steel & Power down by 4.48%, Bank of Baroda down by 3.68% and IDFC down by 3.44% were the top losers.

The European markets were trading in red, France's CAC 40 was down by 0.18%, Germany's DAX was down by 0.60% and United Kingdom's FTSE 100 was down by 0.24%.

The Asian markets concluded Tuesday’s trade mostly in green with major indexes following the US gains while Hong Kong and Shanghai are the standouts, taking a slam from the latest liquidity draining of China’s central bank. China’s foreign exchange reserves rose by $129 billion in the first quarter to $3.95 trillion at the end of March. Shanghai’s Consumer Price Index rose 2.5 percent from a year earlier in March, down from the 2.7 percent gain in February. Food costs remained the biggest contributor as they rose 4.3 percent in March while prices of transport, healthcare and clothing all dropped. The confidence of Chinese households continued to be strong despite China’s economy softening. The China Wealth Index to gauge sentiment among Chinese households remained flat at 130 in April, a similar reading to that in January but it was up from 127 in November of last year. Shanghai’s new home sales fell for the second consecutive week as buyers and developers adopted a wait-and-see stance. The purchases of new homes, excluding government-subsidized affordable housing, shrank 28.7 percent week on week to 146,900 square meters. In Hong Kong, the Exchange Fund’s foreign assets increased by $6.4 billion in March to $2.6308 trillion. The Monetary Base amounted to $1.2557 trillion.