Markets slump after release of five months high WPI data; Nifty drifts below 7500 level

After reacting sharply to five months high headline inflation numbers, Indian equity markets continued languishing at the bottom with colossal losses of over half a percent, which dragged both Sensex and Nifty below the psychologically crucial 25,100 and 7,500 levels respectively. On the macro-front, in a nasty surprise for the policy makers and the new government, the annual rate of inflation, based on monthly WPI, came in at highest level since December 2013, at 6.01% for month of May, 2014, as compared to 5.20% and 4.58% during corresponding month in the previous year

Further, sustained selling by market-participants on boiling price of oil, which has threatened to put pressure on headline inflation and aggravate Current Account Deficit (CAD), also is weighing on the sentiment, with broader indices too collapsing like house of cards and trading lower with cut of over 3/ 4 of a percent.

On the global front, most Asian share markets struggled on Monday, as crude extended gains and tested nine-month highs on fears the insurgency in Iraq could spread - disrupting oil exports. Meanwhile, European stocks slipped in early trade on Monday, adding to last week's retreat as mounting violence in Iraq prompted investors to further book profits on recent lofty equity market gains.

Closer home, stocks from Information technology, Healthcare and Fast Moving Consumer Goods counters were restricting further downside of the markets, while those from Capital Goods, Power and Banking counters were endorsing the underlying weakness of the market. The overall market breadth on BSE was in the favour of declines which thumped advances in the ratio of 1768:923; while 102 shares remained unchanged.

The BSE Sensex is currently trading at 25093.90, down by 134.23 points or 0.53% after trading in a range of 25063.93 and 25268.4. There were 10 stocks advancing against 20 stocks declining on the index.   

The broader indices were trading in red; the BSE Mid cap index was down by 0.88%, while Small cap index down by 1%.   

The gaining sectoral indices on the BSE were IT up by 1.7%, TECK up by 1.26%, Healthcare up by 0.23% and FMCG up by 0.16% while, Capital Goods down by 2.13%, Power down by 1.94%, Bankex down by 1.4%, PSU down by 1.17%, Metal down by 1.11% and Auto down by 0.89% were the losing indices on BSE.   

The top gainers on the Sensex were TCS up by 2.36%, Gail India up by 2.32%, Infosys up by 2.15%, Sun Pharma up by 1.47% and Wipro up by 1.33%. On the flip side, Axis Bank down by 3.56%, L&T down by 2.63%, Mahindra & Mahindra down by 2.09%, RIL down by 1.94% and Tata Steel down by 1.89% were the top losers.   

Meanwhile, In a nasty surprise for the policy makers and the new government, the annual rate of inflation, based on monthly WPI, came in at highest level since December 2013, at 6.01% for month of May, 2014, as compared to 5.20% in April and 4.58% during corresponding month in the previous year. Meanwhile, build up inflation rate in the financial year so far was 0.78% compared to a build up rate of 0.76% in the corresponding period of the previous year. Additionally, March inflation figures were revised upwards to 6% against 5.07% earlier.

The sharp uptick in headline inflation was mainly on account of higher food and fuel price. The manufactured products’ inflation too jumped to thirteen-month high level, with the index, which occupies the majority 64.97% weight in the overall index, inching up by 0.5% to 154.6 (provisional) from 153.8 (provisional) for the previous month.

 Meanwhile, pressure also came in from inflation of Primary Articles, which occupies 20.12% weight in the headline inflation index, edged higher to 1.8% to 246.8 (provisional) in May from 242.5 (provisional) in April on the back of rising food inflation, which grew by 2.3% at 244.3 for the month under review against 238.8 in April. The rise in food inflation was due to higher prices of coffee (23%), poultry chicken (7%), fish-inland (6%), tea and fruits & vegetables (4% each), condiments & spices, fish-marine, urad and masur (3% each), rice and moong (2% each) and milk, barley, pork, mutton and arhar (1% each).

Additionally, index for ‘Fuel & Power’ group also rose by 0.5% to 212.1 (provisional) from 211.0 (provisional) for the previous month due to higher price of electricity (agricultural) and electricity (railway traction) (3% each), electricity (commercial), electricity (domestic), light diesel oil and electricity (industry) (2% each) and high speed diesel (1%). 

In yet another disconcerting sign, core inflation too edged higher to 3.08% v/s 3.04% in April. This data definitely expected to act as party-pooper for the new government and policy makers who expects inflation to go southwards. Also, this is in complete divergence to retail inflation data, which eased to three-month low level of 8.28% in May, sending out signals that RBI could consider slashing rates in its upcoming monetary policy in August

The CNX Nifty is currently trading at 7493.75, down by 48.35 points or 0.64% after trading in a range of 7487.55 and 7548.6. There were 11 stocks advancing against 39 stocks declining on the index.   

The top gainers on Nifty were Gail India up by 2.71%, TCS up by 2.45%, Infosys up by 2.17%, Sun Pharma up by 1.27% and Wipro up by 1.18%. On the flip side, Axis Bank down by 3.59%, L&T down by 2.73%, Power Grid down by 2.66%, PNB down by 2.34% and Mahindra &Mahindra down by 2.18% were the top losers.   

Most of the Asian equity indices were trading in red; Hang Seng down by 0.06% to 23,305.13, Nikkei down by 1.09% to 14,933.29, Straits Times down by 0.02% to 3,292.45 and Jakarta Stock Index down by 0.65% to 4,894.59. While, Taiwan Weighted up by 0.07% to 9,202.93 and Shanghai Composite up by 0.74% to 2,085.98.

European shares got off to a negative start; with Germany’s DAX sliding by 0.22.41%, France’s CAC 40 losing 0.29.00% and United Kingdom’s FTSE 100 sliding by 0.08%.