Geo-political worries drag benchmarks lower for third straight session

Friday turned out to be a disappointing session for the Indian equity indices which got pounded by over a percentage point as investors sold stocks across sectors amid escalating geopolitical tensions in Ukraine and Iraq. After a negative opening, the domestic bourses never looked in recovery mood and ended the trade near two week lows, breaching their crucial support levels of 25,400 (Sensex) and 7,600 (Nifty). Selling was both brutal and wide-based, as barring healthcare and FMGC none of sectoral indices on BSE could manage a green close. Counters which featured in the list of worst performers included realty metal and power.

Increase in crude oil prices triggered by unrest in Iraq dampened sentiment on the bourses. Some pessimism also came after domestic rating agency India Ratings said that the government will not be able to meet its ambitious fiscal deficit target of 4.1 percent. However, the rating agency has increased its FY15 GDP growth estimate marginally to 5.7 percent from the earlier 5.6 percent, largely on the back of an expected improvement in the industrial activity.

Global cues too remained sluggish on speculation about the Federal Reserve raising interest sooner than anticipated. European markets made a disappointing start on geopolitical worries as investors grappled with the prospect of US air strikes in Iraq. Asian markets too ended mostly in the red with some of the indices witnessing cut in excess to one-two percent on growing fears that geopolitical tensions in Ukraine and the Middle East would sap global growth. Japanese market led the losers pack ahead of the nation’s central bank concluding a policy meeting on August 8.

Back home, depreciation in Indian rupee too dampened the sentiments. The rupee was at 61.32 per dollar at the time of equity markets closing as compared to 61.22 per dollar level on Thursday. Sentiments also remained down-beat on report that foreign funds were net sellers to the tune of Rs 73 crore on August 7, 2014.

Meanwhile, public oil marketing companies (OMCs) declined as crude oil prices advanced amid escalating geopolitical tensions. Higher crude oil prices usually increase under-recoveries of state-run oil marketing companies on domestic sale of diesel, LPG and kerosene at controlled prices. Auto sector too edged lower even after Vishnu Mathur, director general of the Society of Indian Automobile Manufacturers (SIAM) underscored that he expects car sales to grow between 5% and 10% this fiscal year.

The NSE’s 50-share broadly followed index Nifty tumbled by over eighty points to end below the psychological 7,600 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex declined by around two hundred and sixty points to finish below its psychological 25,400 mark. Broader markets too witnessed selling pressure and ended the session with a cut of over two percentage points. The market breadth remained in favor of decliners, as there were 826 shares on the gaining side against 2,074 shares on the losing side while 99 shares remain unchanged.

Finally, the BSE Sensex plunged by 259.87 points or 1.02%, to 25329.14, while the CNX Nifty declined by 80.70 points or 1.06% to 7,568.55.

The BSE Sensex touched a high and a low of 25406.87 and 25232.82, respectively. The BSE Mid cap index was down by 2.06%, while the Small cap index was down by 2.14%.

The top gainers on the Sensex were Bharti Airtel up by 2.09%, Dr Reddys Lab up by 0.89%, ITC up by 0.72%, Cipla up by 0.32% and TCS up by 0.23%. While SSLT down by 5.71%, Tata Power down by 3.79%, BHEL down by 3.74%, Tata Steel down by 3.22% and Gail India down by 2.85% were the top losers in the index.

On the BSE Sectoral front, FMCG up by 0.09% and Healthcare up by 0.05% were the only gainers, while Realty down by 3.86%, Metal down by 3.15%, Power down by2.92%, Capital Goods down by 2.50% and PSU down by 2.24% were the top losers in the space.

Meanwhile, a day after approving the long-delayed proposal for raising the foreign direct investment limit (FDI) in railway sector, the government stated that foreign investment in railways will help in strengthening infrastructure without affecting security.

Commerce and Industry Minister Nirmala Sitharaman asserted that the government had taken the decision to ease the FDI policy in those areas of railways which will not affect security and sovereign authority of the sector. Further, the Minister added that all security-related concerns raised by the Home Ministry have been taken care of by the policy draft and essential operations being kept within the railways. Home Ministry had raised concerns over foreign investments in rail infrastructure in border areas, particularly from China. India and China are likely to sign a memorandum of understanding (MoU) for cooperation in Railways during the forthcoming visit of Chinese President Xi Jinping in September 2014. China had already sent an advance team for cooperation in the construction and overhaul of the existing railway system across India.

Railways is an important sector for India and has the potential to raise India's economic growth by over one percent. The government has approved the proposal for raising 100 percent FDI in railway infrastructure. Foreign investors can now invest in setting up of high-speed corridors, suburban rail networks, signaling projects, logistic hubs and in creating links to industrial parks. The move is likely to help in modernisation and expansion of the Railways which is facing a cash-crunch of around Rs 29,000 crore. Currently, there is a complete restriction on any kind of FDI in the Railways sector except mass rapid transport systems.

The CNX Nifty touched a high and low of 7,592.45 and 7,540.10 respectively.

The top gainers of the Nifty were Bharti Airtel up by 2.52%, Dr. Reddy's Laboratories up by 0.90%, ITC up by 0.85%, HCL Technologies up by 0.80% and Hero MotoCorp up by 0.70%. On the other hand, SSLT down by 5.78%, BHEL down by 4.64%, DLF down by 4.31%, Tata Power Company down by 3.37% and Tata Steel down by 3.22% were the top losers.

The European markets were trading in red, France's CAC 40 was down by 0.21%, Germany's DAX was down by 0.74% and United Kingdom's FTSE 100 was down by 0.52%.

Asian equity indices ended mostly in red on Friday, as US President Barack Obama authorized air strikes in Iraq. China’s buoyant exports pushed its trade surplus to a record in July, fuelling optimism global demand will help counter pressure on the domestic economy from a weakening property sector. Chinese Trade Balance rose to 47.30B, from 31.60B in the preceding month. Exports in July jumped 14.5% from a year earlier - the fastest pace in 15 months, doubling from 7.2% in June and roundly beating market expectations. While manufacturing appears to have picked up in the world’s second-largest economy, unexpected weakness in the services sector this week has renewed concerns about the growth outlook. The weak housing market remains China’s biggest risk, posing a drag on the broader economy and investor confidence.

The Bank of Japan maintained record stimulus after recent production and export data highlighted weakness that could challenge Governor Haruhiko Kuroda’s push to stoke faster inflation. The central bank stuck with a pledge to increase the monetary base at an annual pace of 60 trillion yen to 70 trillion yen ($687 billion). Japan’s Economy Watchers Current Index rose to a seasonally adjusted 51.3, from 47.7 in the preceding month. Japan’s Current Account rose to a seasonally adjusted 0.13T.