Indian equities pare gains to trade above neutral line

Indian equities pare gains to trade in green above neutral line in the late afternoon session as investors settled down after yesterday's stellar rally, awaiting cues from the Reserve Bank. However investors hunted for badly beaten down but fundamentally strong bargains while the market kept hovering around the neutral line in a narrow range. Traders were seen piling up the positions in Realty, Metal and Oil & Gas sector while selling was witnessed in IT, TECk and FMCG sector. The next major trigger for the market is Q3 December 2011 corporate earnings, which will start trickling in from tomorrow. Infosys will kick off the earning season for the December quarter tomorrow on January 12, 2012 and data on industrial production for November 2011 will also be released tomorrow which will further determine the direction of stock market.

Industry heavyweights RIL is trading with gain of around more than one and half percent giving the much needed support. Also, BPCL and Gail from Oil & Gas sector were trading in green pulling the markets higher. Hindalco, Sterlite, Sesa Goa, Tata Steel and SAIL from Metal pack were seen trading in green giving the markets edge higher. DLF from Realty sector was trading with gain of around more than five percent. Interest rate sensitive realty stocks were in limelight on expectations that RBI will start cutting interest rates in the coming months to prop up slowing economy. However, TCS, Infosys and Wipro from IT pack were seen trading in red pulling the markets lower. ITC and HUL from FMCG counter were trading in red exerting pressure on the market. Also, M&M, Maruti and Tata Motors from Auto pack were trading in red driving the markets down.

In the scrip specific development, aviation stocks Jet Airways, SpiceJet and Kingfisher Airlines were trading firm in green on hopes of foreign direct investment in aviation sector. Retail stocks like Koutons Retail, Pantaloon Retail, Provogue, Shoppers Stop, Trent, S Kumars Nationwide and Vishal Retail were up after the government yesterday formally cleared the decks for 100% foreign direct investment in single-brand retail. On the global front, all Asian markets traded mix while the European markets were trading in red on pessimistic note. Back home, the NSE Nifty and BSE Sensex were trading above their psychological 4,850 and 16,200 levels, respectively. The market breadth on BSE was dominantly in favor of advances in the ratio of 1894:810 while 109 scrips remained unchanged.

The BSE Sensex is currently trading at 16,212.80 up by 47.71 points or 0.30% after trading as high as 16,244.70 and as low as 16,145.19. There were 17 stocks advancing against 13 declines on the index.

The broader indices were trading on a positive note; the BSE Mid cap index surged 1.31% while Small cap soared 1.75%.

On the BSE sectoral space, Realty up 4.84%, Metal up 2.20%, Oil & Gas up 1.18%, Power up 1.06% and Bankex up 0.95% were the major gainers while IT down 0.82%, TECk down 0.63%, FMCG down 0.28% and Auto down 0.04% were the only losers in the space.

Hindalco up 5.28%, Sterlite up 4.90%, DLF up 4.66%, Tata Steel up 2.78% and Hero MotoCorp up 1.96% were the major gainers on the Sensex, while M&M down 1.83%, TCS down 1.78%, Jindal Steel down 1.44%, Cipla down 1.26% and Bharti Airtel down 1.21% were the major losers in the index.

Meanwhile, ratings agency Fitch has assigned a stable outlook for the Indian auto industry in 2012, driven by the expectation that the credit metrics of most companies, though may weaken, will continue to be in line with values expected during a cyclical downturn. The rating agency said passenger vehicles volumes are expected to grow by 3-5% during the year, with car sales increasing by up to 4%. It, however, said that commercial vehicles (CVs) segment is likely to register a higher volume growth of 8-10%.

In its report - 'Outlook 2012: India Auto' the agency expects passenger vehicles (PVs) to register volume growth of 3-5% in 2012, contributed by growth of 2-4% in cars, 6-8% in utility vehicles and 8-10% in multi-purpose vehicles. As per the report, the sales volumes of cars will be mainly driven by growth in sales of diesel cars credited to the increased demand from 2011, which saw sales reduced due to demand-supply mismatches.

The agency said the auto sector will remain stable even as competition-led pricing pressure amid muted sales will lead to a drop in operating profitability and a subsequent weakening of coverage and leverage indicators. It further believes that a weakening of household finances and higher cost of ownership will continue to restrain the buying power of consumers in 2012, especially buyers of cars in small and mid-size segments, which contribute to the volume of PV sales. Moreover any reduction in interest rates this year is unlikely to boost auto sales significantly given negative sentiments of buyers with regard to general economic conditions, which is slowing on the back of high inflation.

For the CVs segment, Fitch said it is likely to record overall volume growth of 8-10% in 2012, driven largely by the sales of light commercial vehicles (LCVs). This high volume will come as CVs are more reliant on consumer non-discretionary activities and less on industrial activity. On the other hand, a continuation of the high interest rate environment or a downward revision in economic activity would also significantly affect the credit performance of companies, especially the Original Equipment Manufacturers (OEMs) in the medium and heavy commercial vehicle (MHCV) segment.

However, Fitch warned that structural changes in the Indian auto industry in terms of increased number of companies is likely to restrict any significant improvement in margins from current levels, even during future economic upturns. Further, price-based competition amid sluggish sales is expected to reduce industry operating margins by 250-300 basis points in 2012. It also said though credit profile of most companies would weaken in 2012, they would still be within a range commensurate with current rating levels.

The S&P CNX Nifty is currently trading at 4,868.60, higher by 19.05 points or 0.39% after trading as high as 4,877.20 and as low as 4,841.60. There were 30 stocks advancing against 20 declines on the index.

The top gainers on the Nifty were Hindalco up 5.40%, DLF up 5.14%, Sterlite up 5.01%, BPCL up 4.70% and Sesa Goa up 4.06%.

M&M down 1.84%, TCS down 1.64%, Jindal Steel down 1.63%, Power Grid down 1.41% and Cipla down 1.39% were the major losers on the index.

Asian markets were trading mixed; Seoul Composite was down 0.41%, Jakarta Composite was down 0.75% and Shanghai Composite was down by 0.42%.

On the flip side, Hang Seng up 0.78%, Nikkei 225 was up 0.30%, Straits Times was up 0.78% and Taiwan Weighted was up by 0.13%.

The European markets were trading in red with, France’s CAC 40 descended 0.06%, Germany’s DAX dropped 0.07% and Britain’s FTSE 100 edged lower 0.19%.