Markets suffer sharp correction on looming uncertainty over policy reforms

Markets gave the glimpse of volatility of the F&O series expiry week and after surging to their fresh record highs suffered severe profit booking on Tuesday with benchmarks losing over half a percent for the day. In the very early hours sharp selling dragged the Nifty and Sensex below their crucial 8500 and 28500 mark respectively and after that there was no revival. The early enthusiasm generated by report that US investors have been moving money into exchange-traded funds that focus solely on India, backed by the optimism about India's economy and booming stock market, faded  with traders largely concentrating on domestic developments where the government’s plan to get important legislations passed in the winter session of Parliament seemed running into trouble with opposition getting united. Meanwhile, deadline of submitting report by select committee of Rajya Sabha, which was expected to submit its recommendations early enough for the government to get parliamentary approval, was extended till December 12  from November 28.

The global cues too were not very supportive and despite a flat but positive close of the US markets, the Asian markets remained cautious and some of the major indices even ended in red, though the Japanese stocks rallying after a holiday gained about half a percent for the day. The mixed signals from the European markets opening, too weighed on the domestic markets, though they recovered after Germany avoided recession with economy growing in last quarter backed by rise in household spending

Back home, market also seemed reacting negatively to SEBI’s alignment of norms for issue of Offshore Derivative Instruments or P-Notes with foreign portfolio investors regime amid concerns about possible misuse. Traders even ignored the recovery in rupee which after initial fall moved higher in second half. There was sharp selling pressure in the second half taking the major indices to their intraday low, though final hour witnessed some recovery that helped the markets to cover up some of their losses. On sectoral front, Telecom, IT and media stocks were under pressure as the Centre finalised the broad outline for appointing a new super-regulator governing these sectors. The cigarette and tobacco stocks witnessed sudden slump after the Ministry of Health & Family Welfare said that an expert panel constituted by it had, inter alia, recommended prohibition on sale of loose or single sticks of cigarettes. It had also recommended an increase in the minimum legal age for the sale of tobacco products, increasing the fine or penalty amounts of violation of certain provisions of the Cigarettes and Other Tobacco Products. The Ministry has accepted the recommendations of the committee and a draft note for Cabinet has been circulated for inter-Ministerial consultation. Reacting to the news ITC lost around 5%, Godfrey Phillips slumped by 9% and Golden Tobacco was lower by over 6%. All the sectoral indices on the BSE ended in red, except IT and oil & gas which ended with modest gains.

Finally, the BSE Sensex plunged by 161.49 points or 0.57%, to 28338.05, while the CNX Nifty dropped by 67.05 points or 0.79% 8,463.10.

The BSE Sensex touched a high and a low of 28541.22 and 28217.50, respectively. The BSE Mid cap index was down by 1.43%, while the Small cap index was down by 2.32%.

The top gainers on the Sensex were BHEL up by 2.95%, Hindustan Unilever up by 1.97%, ONGC up by 1.34%, Dr. Reddys Lab up by 1.24% and Bharti Airtel up by 1.13%.

On the flip side, ITC down by 4.99%, Tata Steel down by 2.56%, ICICI Bank down by 2.02%, NTPC down by 1.96% and Larsen & Toubro down by 1.93% were the top losers in the index.

On the BSE Sectoral front Oil & Gas up by 0.57% and Healthcare up by 0.23% were the only gainers, while Realty down by 3.35%, FMCG down by 2.53%, Power down by 1.62%, Infrastructure down by 1.60%, Consumer Durables down by 1.45% were the top losers in the space.

Meanwhile, the government will soon decide on the number of coal blocks to be auctioned or allotted over and above the 74 mines that will be put up for sale in the first lot of bidding on February 11. The government had recently announced auctioning of 74 blocks in the first phase, including 42 blocks, which are already into production and 32 which are ready for production. The government wants enough number of coal blocks to be made available for power firms because 74 mines are seen as insufficient for the sector.

As per Coal Secretary Anil Swarup, the government is in the process of finalising the exact number of additional mines on the basis of the nature of the blocks. He further added that the allotment will be for government entities, while auction will be held for private entities.

Meanwhile, there will tighter monitoring norms for mine developers in the auctions and the government intends to cap the number of coal blocks applicable for public as well as private sector entities. Also, the developers will have to furnish a performance bank guarantee, which can be encashed if they fail to meet work commitments. However, the draft rules propose to allow a successful bidder or allottee to use the coal mined from a particular area in other similar end-use plants owned by it, after prior intimation to the Union Government.

The CNX Nifty touched a high and low of 8,535.35 and 8,429.45 respectively.

The top gainers on Nifty were BHEL up by 3.05%, ZEEL up by 2.19%, Hindustan Unilever up by 2.05%, Cipla up by 1.67% and Dr. Reddy's Laboratories up by 1.64%. On the flip side, ITC down by 5.01%, DLF down by 3.93%, NMDC down by 3.77%, Kotak Mahindra Bank down by 3.40% and IDFC down by 3.04% were the top losers.

European markets were trading in green, France’s CAC 40 was up by 0.54%, Germany’s DAX was up by 1.09% and United Kingdom’s FTSE 100 was up by 0.19%.

Asian markets ended mostly in green on Tuesday, with Japanese stocks rising amid optimism global central banks will take more steps to support growth. Moreover, Central bank governor Haruhiko Kuroda said in a speech that policy makers are committed to achieving its 2 percent inflation target as well as ample liquidity also aiding sentiments. The Chinese Shanghai Composite climbed on speculation that the government will extend cuts in interest rates and accelerate state-owned enterprise reform to support the economy. PBOC Governor Zhou Xiaochuan has overseen two tightening and two easing cycles for a total of 22 moves to the one-year lending rate and 20 to the one-year deposit rate.