Markets suffer profit booking on election anxiety

Indian markets after two days of mild upmove, succumbed to profit booking on Wednesday and the Nifty slipped to its 6 week low. Though, the start was comparatively good and bourses bucking the negative global cues moved higher, but at the high point of the day profit booking started and gradually took the markets into red, afterwards there was hardly any serious attempt of recovery. Traders apart from the global worries, remained concerned about the growing uncertainty about the election results, as the poll entered the second last eighth phase.

The global cues remained sluggish, adding pressure to the movement of the local markets on the lower side; while the US markets ended lower on Ukraine concern, the Asian markets followed the suite with some of the indices suffering sharp cuts after China’s services industry expanded at a slower pace in April and Japanese yen strengthened against dollar. Further the European markets too made a gap down start and weighed on the sentiments of the local markets.

Back home, markets that have been trading cautiously for last couple of days witnessed profit booking, and while the volume again remained low, the drag in IT and technology stocks led the markets lower. At one point of time all the IT components of CNX IT were in red with heavyweights like Infosys and HCL Tech, Wipro and Tech Mahindra slumping to multi month low. Earlier, there was some strength in the markets after Reserve Bank of India (RBI) Governor Raghuram Rajan expressed optimism on India’s growth rate going beyond the 5 percent mark soon.  Also, the Paris-based think-tank, Organisation for Economic Cooperation and Development (OECD) in its estimates for 2014 said that India's economic growth is poised to inch up 4.9 percent in 2014 and is expected to gain momentum with a decline in “political uncertainty” after the general elections. However, after the initial gains markets lost their momentum and started slipping with benchmarks losing their psychological levels of 22400 (Sensex) and 6700 (Nifty).In late trade selling aggravated with profit booking in some healthcare stocks despite good set of numbers from Lupin. Barring consumer durables and power all other sectoral indices in red, with IT and Tech suffering cut of over two percent. Broader indices too ended modestly in red.

Finally, the BSE Sensex plunged by 184.52 points or 0.82%, to 22323.90, while the CNX Nifty declined by 62.75 points or 0.93% to 6,652.55.

The BSE Sensex touched a high and a low of 22532.82 and 22286.26, respectively. The BSE Mid cap index was down by 0.14%, while the Small cap index lost 0.08%.

The top gainers on the Sensex were NTPC up by 1.27%, SBI up by 1.06%, Sun Pharma up by 0.99%, Axis Bank up by 0.19% and Hindustan Unilever up by 0.14%. While Infosys down by 3.15%, HDFC down by 2.75%, Hindalco Inds down by 2.20%, Cipla down by 2.07% and Gail India down by 1.80% were the top losers in the index.

On the BSE Sectoral front, Consumer Durables up by 0.77% and Power up by 0.20% were the only gainers, while IT down by 2.59%, Teck down by 2.23%, Realty down by 1.11%, Metal down by 0.71% and Auto down by 0.70% were the top losers in the space.

Meanwhile, the government has sought Reserve Bank (RBI)’s assistance to form a committee to look into the insurance regulator's concerns of some instruments issued by banks for raising tier-II capital being perpetual and illiquid in nature. The Insurance Regulatory & Development Authority (IRDA) has alleged that some of these instruments are breaching its investment norms.

As per Basel-III norms, banks can cancel interest or dividends on instruments raised under tier-II capital or write off such investments in times of stress. So, the committee being formed by Apex Bank would look into issue of and subscription to tier-II instruments under the new Basel-III capitalization guidelines.

Life Insurance Corporation (LIC), the country's biggest insurer, has invested around Rs 10,000 crore in Tier-II bonds of public sector banks, which are typically unsecured and cannot be converted into equity. In view of the substantial need for raising additional capital by banks to meet the new regulatory norms, insurance regulator though allowed certain instruments, but found them violating investment norms.

According to RBI's estimate, public and private sector banks will together need an additional capital of Rs 5 lakh crore to comply with the Basel-III regulations. Of this, equity capital requirement will be of Rs 1.75 lakh crore and non-equity capital of Rs 3.25 lakh crore. However, the government is backing significantly on the insurers and is hoping to channelize pension and insurance funds in banks to meet the huge capital requirements. Meanwhile, government has allocated Rs 11,200 crore towards bank capitalization this fiscal, which is substantially less than the amount infused in the last few years.

The CNX Nifty touched a high and low of 6,718.75 and 6,642.90 respectively.

The top gainers of the Nifty were NTPC up by 1.57%, State Bank of India up by 1.14%, Sun Pharmaceuticals Industries up by 0.69%, Kotak Mahindra Bank up by 0.60% and BPCL up by 0.53%. On the other hand, HCL Technologies down by 4.51%, Tech Mahindra down by 3.63%, Infosys down by 3.11%, HDFC down by 2.88% and Hindalco Industries down by 2.56% 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 0.21% and UK’s FTSE 100 was down by 0.42%.

The Asian markets concluded Wednesday’s trade mostly in red, amid worries about Ukraine and mounting concern that China’s economy is slowing. The Bank of Japan board minutes noted that the current recovery is exerting more upward pressure on prices than it is boosting economic growth. The minutes showed that wage increases and price rises resulting from supply-side constrains might not be enough to bring 2% sustained inflation by 2015. A leading international organization is warning that the global economy will grow by less than expected this year after it cut forecasts for the United States and China. The OECD, a think tank for the world’s most developed countries, blamed slower growth in large developing economies like China for the downgrade. It cut China’s growth forecast this year to 7.4% from 8.2% in November. Malaysian Trade Balance fell to 9.60B, from 10.40B in the preceding month.