Benchmarks extend previous session's jubilation on Tuesday

Extending their previous session’s jubilation, Indian equity benchmarks ended the volatile day of trade with a gain of 3/4 of a percent on Tuesday. Earlier, markets made a positive opening but entered into red terrain after the central bank has kept the short-term lending rate or repo rate unchanged at 8 per cent and the cash reserve ratio static at 4 per cent. Though, the RBI has slashed the statutory liquidity ratio (SLR) by 0.5 per cent to unlock about Rs 40,000 crore into the system. Sentiments also remained dampened after the activity in Indian services sector, which accounts for around 60% of Indian GDP, slightly eased in the month of July due to slowdown in new business orders. The HSBC services Purchasing Managers’ Index (PMI), based on the survey of around 350 private service sector companies, fell to 52.2 in July from17-month high at 54.4 in June.

But markets staged a smart bounce-back from day’s low point after Raghuram Rajan, post the release of policy document, assured investors that short-term risks are more balanced currently and RBI has room to cut rates if disinflation continues. Raghuram Rajan further added that RBI will not hold rates high longer than necessary, which has remain an overhang on markets for quite some time now. Moreover, a slight cut in interest rates is important as it will help revive investment cycle and push GDP growth.

Buying got intensified in last leg of trade after European markets edged higher in early deals, following better-than-expected results from BMW and Credit Agricole for the second quarter. However, Asian markets shut shop mostly in the red on Tuesday as sentiments remained dampened after a HSBC report showed the performance of China’s service sector fell to a record low in July. The Chinese services PMI in July slipped to 50.0, the dividing line between expansion and contraction, from 53.1 in June.

Back home, there was broad based buying witnessed in the markets and apart from the blue chips, the broader markets too equally participated in the rally. Frontline indices managed to settle near intraday high levels with Sensex surpassing its crucial 25,900 bastion and Nifty ended above its crucial 7,700 mark. Appreciation in Indian rupee against dollar too aided the sentiments. The rupee was trading at 60.74/75 at the time of equity markets closing versus Monday’s close of 60.93/94 on the back of custodian and corporate dollar sales.

Rally in real estate and automobile counters too aided sentiments after the RBI lowered the SLR by 0.50 basis points half to 22% to free up more money for lending. Additionally, Cement stocks like, Ambja Cement, ACC and Ultratech cement edged higher on report that the aggregate net profit of seven cement companies that have reported June quarter results so far, posted 11.5% year-on-year (yoy) growth in net profit at Rs 1,430 crore. The combined net sales of these companies grew 14.6% yoy at Rs 15,641 crore. On the flip side, select sugar stocks continued to smash for second day in a row as the UP sugar crisis intensified with mill owners serving suspension notice to state government.

The NSE’s 50-share broadly followed index Nifty rose by over sixty points and ended near the psychological 7,750 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex rose by over one hundred and eighty points to finish above the psychological 25,900 mark. Broader markets traded with traction and ended the session with a gain of around a percentage point. The market breadth remained in favour of advances, as there were 1,778 shares on the gaining side against 1,142 shares on the losing side while 123 shares remain unchanged.

Finally, the BSE Sensex surged by 184.85 points or 0.72%, to 25908.01, while the CNX Nifty soared by 62.90 points or 0.82%, to 7,746.55.

The BSE Sensex touched a high and a low of 25928.32 and 25562.36, respectively. The BSE Mid cap index was up by 0.82%, while Small cap index gained 1.12%.

The top gainers on the Sensex were Mahindra & Mahindra up by 3.83%, ONGC up by 3.18%, Bajaj Auto up by 2.71%, Hindalco Inds up by 2.68% and Tata Motors up by 2.20%. On the flip side, the key losers were Hero MotoCorp down by 0.86%, Bharti Airtel down by 0.62%, NTPC down by 0.42%, ICICI Bank down by 0.39% and BHEL down by 0.37%.

On the BSE sectoral front, Realty up by 2.65%, Auto up by 2.11%, Metal up by 1.33%, Consumer Durables up by 0.99% and PSU up by 0.76% were the top gainers, while Capital Goods down by 0.15% was the only loser in the space.

Meanwhile, the activity in Indian services sector, which accounts for around 60% of Indian GDP, slightly eased in the month of July due to slowdown in new business orders. The HSBC services Purchasing Managers’ Index (PMI), based on the survey of around 350 private service sector companies, fell to 52.2 in July from17-month high at 54.4 in June. Though the pace of output slowed from June, the latest reading stood above 50 mark indicating third successive monthly expansion in Indian services sector. Among the six monitored sub-sectors, only Hotels & Restaurants and Transport & Storage companies registered reductions in services activity.

The HSBC Survey indicated that new business in the service sector rose for a third month in a row in July, indicating improvement in demand. The rate of expansion was reduced from the previous month but remained solid. Amid reports of stronger demand and delayed payments from clients, levels of outstanding business rose in July, extending the current sequence of growth to five months. The HSBC India Composite Output Index, which measures activity in both the manufacturing and services sector, declined from June’s16-month high of 53.8 to 53 in July.

The survey signaled a steady inflation reading with input costs faced by Indian services firms increased for a sixty-fourth consecutive month in July owing to higher prices of oil and food products. However, the rate of cost inflation slowed from June and was weaker than the series average. Accordingly, services firms passed increased cost burden to consumers, marking a 62-month period of charge inflation. The survey highlighted that staffing levels in the Indian service sector fell fractionally in the reported month. Indian services companies also maintained their positive outlook for output growth over the next 12 months on the back of supportive factors such as forecasts of stronger demand, new government policies and the introduction of new marketing initiatives.

The CNX Nifty touched a high and low of 7,752.45 and 7,638.05 respectively.

The major gainers of the Nifty were UltraTech Cement up by 5.32%, ACC up by 4.71%, Ambuja Cements up by 4.21%, Grasim Industries up by 3.98% and Mahindra & Mahindra up by 3.76%. On the flip side, the key losers were BPCL down by 1.07%, HCL Technologies down by 0.96%, Bharti Airtel down by 0.77%, Hero MotoCorp down by 0.57% and United Spirits down by 0.56%.

European markets were trading in green; UK’s FTSE 100 was up by 0.39%, Germany’s DAX was up by 0.62% and France’s CAC 40 was up by 0.65%.

Asian equity indices ended mostly in the red on Tuesday as investors remained on sidelines ahead of the U.S. jobs report for May. Sentiments also remained down-beat after a HSBC report showed the performance of China’s service sector fell to a record low in July. The Chinese services Purchasing Managers’ Index (PMI) in July slipped to 50.0, the dividing line between expansion and contraction, from 53.1 in June. The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities, as property-related activity, such as agencies and residential services, see less business.

Ongoing concerns about the situation in Ukraine and the Middle East as well as fears over the health of the European banking sector following the bailout of Portugal's Banco Espirito Santo also kept investors nervous. Bucking the trend, Hong Kong’s benchmarks edged higher as the country’s private sector activity expanded in July as output improved. The HSBC PMI for the private sector rose marginally to 50.4, its highest reading in five months, from 50.1 in June.