Benchmarks consolidate ahead of F&O expiry; manages a flat end

Indian equity indices went through consolidation on Wednesday as investors kept their positions on the penultimate day of May series futures & options (F&O) expiry. Benchmark indices moved in a narrow range for the major part of the day with bouts of volatility witnessed during the trade. Earlier, markets made a positive start supported by firm global cues, but profit taking played spoilsport and the domestic bourses plunged into the negative territory. Investors also remained cautious after Finance Ministry said that it has to be watchful of the Current Account Deficit (CAD) as well as the rupee because global markets are still volatile. Sentiments further dampened on report that foreign institutional investors (FIIs) sold shares worth a net Rs 202.61 crore on May 27, 2014, as per provisional data from the stock exchanges.

However, markets managed to keep their head above water and eked out slender gains, as investors continued to buy beaten down but fundamentally strong stocks after previous session’s drubbing. Meanwhile, the Indian rupee recovered from early losses and was trading higher at Rs 58.86 at the time of equity markets closing as compared to the previous close of Rs 59 on the back of demand for dollar from oil importers.

On the global front, strong economic data in the United States shored up Asian stocks to one-year highs on Wednesday; with another record close for the S&P 500 underpinning risk appetite and sending safe-haven gold to three and a half month lows. Sentiments also remained up-beat in the region after China reported industrial profits increased by 10 percent this year through April from the same period in 2013. European markets too were trading slightly in the green in early deals on Wednesday.

Back home, Software and technology continued to trade higher for second day in a row on good US economic data. Select stocks from realty counter moved up on a report that government is likely to grant infrastructure tag to low-cost housing segment, which will enable real-estate developers to get finance from banks and for longer tenures. Additionally, fertilizer stocks, namely Chambal fertilizers, National fertilizers, Zuari Agro gained after Fertilizer Minister underscored that government will take steps to revive closed urea plants. On the flip side, stocks related to aviation sector declined after Jet Airways posted its highest-ever net loss of Rs 2,154 crore in the fourth quarter ended March 31, impacted by higher operating expenditure and exceptional costs.

The NSE’s 50-share broadly followed index Nifty rose by over ten points and managed to hold its psychological 7,300 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex increased marginally by around seven points to end above its crucial 24,550 mark. However, the broader markets outperformed benchmarks with mid cap gaining around half a percent, while small cap surged over one and a half percent. The market breadth remained in favour of decliners, as there were 1,903 shares on the gaining side against 1,055 shares on the losing side while 92 shares remain unchanged.

Finally, the BSE Sensex added 6.58 points or 0.03%, to 24556.09, while the CNX Nifty was up by 11.65 points or 0.16%, to 7,329.65.

The BSE Sensex touched a high and a low of 24643.33 and 24488.81, respectively. The BSE Mid cap index was up by 0.40%, while the Small cap index rose by 1.63%.

The top gainers on the Sensex were Tata Power up by 3.70%, HDFC Bank up by 2.30%, Hero MotoCorp up by 2.08%, Bharti Airtel up by 1.80% and Dr Reddys Lab up by 1.53%. While Coal India down by 3.23%, ONGC down by 2.73%, Mahindra & Mahindra down by 2.70%, Gail India down by 1.95% and NTPC down by 1.88% were the top losers in the index.

On the BSE Sectoral front, IT up by 1.52%, Teck up by 1.42%, Realty up by 1.40%, Bankex up by 0.56% and Capital Goods up by 0.45% were the top gainers, while Metal down by 1.62%, PSU down by 1.20%, Consumer Durables down by 0.99%, Oil & Gas down by 0.88% and Auto down by 0.75% were the top losers in the space.

Meanwhile, the RBI committee report to review the country's bank board governance standards, has found acceptance with yet another global rating agency, Fitch Rating, which hinted at an upward revision of state-run banks' credit ratings if key suggestions of P J Nayak panel report, which it termed as wider sectoral reform push by the central bank, were implemented. Earlier, Moody’s had termed Nayak report credit-positive for state-run banks.

Fitch, in its note highlighted that should the PJ Nayak report recommendations lead to a greater separation between the state and bank, it could necessitate a reassessment of its current assumptions on the propensity for extraordinary support for these banks, which has been an important factor underpinning the capitalization of many PSUs as this reassessment may have a potential impact on their issuer default ratings.

However, it highlighted that the implementation of the specific recommendations, which require reduction in state ownership would be not be easy as this would be surrounded with significant political and legislative hurdles, to remain highly uncertain in the near-term due to lack of political support necessary for its passage. On the flip side, the global credit rating agency noting that many of the recommendations not requiring legislation, will have a much higher possibility of implementation, which could help strengthen corporate governance standard, particularly at the state-owned banks.

Principal recommendations of PJ Nayak’s report focuses on eliminating various constraints on public sector banks as a result of their state control, which have a bearing on the quality of their governance. The report also calls for creation of a bank investment company to hold state equity stakes, moving to a uniform bank licensing regime for all banks irrespective of ownership, creation of a dedicated bank boards bureau made up of experienced, retired bankers to select the board and management team for start-run banks among other things.

The CNX Nifty touched a high and low of 7,344.75 and 7,302.60 respectively.

The top gainers of the Nifty were UltraTech Cement up by 5.67%, Ambuja Cements up by 5.49%, Tata Power Company up by 4.71%, ACC up by 4.32% and HCL Technologies up by 4.15%. On the other hand, Coal India down by 3.07%, ONGC down by 3.00%, Asian Paints down by 2.86%, Mahindra & Mahindra down by 2.71% and Jindal Steel & Power down by 2.51% were the top losers.

The European markets were trading in green, France's CAC 40 was up by 0.06%, Germany's DAX was up by 0.07% and United Kingdom's FTSE 100 was up 0.04%.

The Asian markets concluded Wednesday’s trade mostly in green, as China reported industrial profits and US data added to signs a recovery in the world’s largest economy is intact. Profits earned by Chinese industrial firms rose 9.6% in April to 468.6 billion yuan ($75 billion) from a year earlier, slower than the annual growth of 10.7% in March. For the first four months of 2014, profits rose 10% to 1.8 trillion yuan, little changed from the 10.1% for the first quarter. Consumer confidence in China in the first quarter climbed 3 points from a year ago but remained at the same level as in the prior three-month period. The Chinese Consumer Confidence Index stood at 111 points in the first quarter, higher than the global average of 96, boosted by healthy growth of disposable income for both rural and urban residents. Land sales in Shanghai registered their feeblest showing in 26 months in May, with only two parcels hitting the market. Excluding plots designated for public purposes, the area of sites sold dropped 90% from April to 35,000 square meters, with the aggregate value of sales falling 51% to 3.24 billion yuan ($519 million). Thai Industrial Production rose to a seasonally adjusted -3.9%, from -10.4% in the preceding month.