Pessimism spills into first day of fresh F&O series; Sensex dives 1%

The glumness of February series F&O contract expiry session got spilled over into the first day of a fresh futures and options series as Indian stock markets plunged by around a percent on Friday and completed a hat-trick of negative closes. The sell-off in local markets appeared even more discouraging because the fall came on a day when markets across the global largely exhibited positive trends. The frontline indices after the positive opening failed to capitalize on the momentum and slipped below the psychological 5,450 (Nifty) and 18,000 (Sensex) levels. However, the key gauges found support around the crucial 5,400 (Nifty) and 17,900 (Sensex) marks and spent the whole session consolidating their positions around those levels. Stocks from the rate sensitive Banking and Realty sectors continued to bear the brunt of hefty selling pressure while the Capital Goods and Oil & Gas pockets too suffered severe pounding. However, Metal sector stocks bucked the pessimistic trend and gained some traction after stocks like Sterlite and Sesa Goa rebounded a session after nose-diving on reports of a possible merger of the two companies as part of a group restructuring exercise. While stocks from the Information Technology counters too climbed over half a percent, helping the markets in trimming losses. Meanwhile, in view of a sharp drop in output from RIL's eastern offshore KG-D6 block, an Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee is scheduled to meet later in the day to consider changes in the natural gas allocation policy. Besides, private power producers have raised concerns over the Government’s proposed move to make it compulsory to source equipment from indigenous manufacturers by companies setting up ultra mega power projects in the country.

On the global front, Asian markets are largely trading on an optimistic note while European markets too moved higher on the back of encouraging quarterly earnings announcement by heavyweight companies. The NSE’s 50-share broadly followed index Nifty, plunged by a percent and settled below the psychological 5,450 support level while Bombay Stock Exchange’s Sensitive Index - Sensex sank over one hundred fifty points to close above the psychological 17,900 mark. The broader markets which showed some resilience early in the day finally settled with over half a percent loss but outperformed their larger peers after two straight sessions of underperformance. Considering the fact that this was the first day of a fresh F&O contract, the markets settled on good volumes of over Rs 1.46 lakh core while the turnover for NSE F&O segment also remained on the higher side as compared to that on Thursday at over Rs 0.86 lakh core mainly due to the bulk deal in the HDFC. The market breadth remained pessimistic as there were 1085 shares on the gaining side against 1820 shares on the losing side while 123 shares remained unchanged.

Finally, the BSE Sensex lost 154.93 points or 0.86% to settle at 17,923.57, while the S&P CNX Nifty declined by 54.00 points or 0.98% to close at 5,429.30.

The BSE Sensex touched a high and a low of 18,198.15 and 17,848.93 respectively. The BSE Mid cap and Small cap indices were down by 0.64% and 0.71% respectively.

The major gainers on the Sensex were Sterlite Industries up 3.17%, Tata Power up 1.52%, Coal India up 1.43%, Bharti Airtel up 1.17% and Tata Steel up 0.89%, while, L&T down 3.60%, HDFC down 3.45%, DLF down 3.18%, BHEL down 2.55% and SBI down 2.41% were the major losers on the index.

The top gainers on the BSE sectoral space were Metal up 1.08%, TECk up 0.56%, IT up 0.55%, Consumer Durables (CD) up 0.31% and FMCG up 0.28% while Capital Goods (CG) down 2.96%, Realty down 2.28%, Bankex down 1.95%, Oil & Gas down 1.71% and PSU down 1.22% were the top losers on the BSE sectoral space.

Meanwhile, in view of a sharp drop in output from RIL's eastern offshore KG-D6 block, an Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee is likely to meet today on February 24 to consider changes in the natural gas allocation policy. The panel, which is meeting for the first time in more than 18 months, is also likely to consider the Saumitra Chaudhuri report that has recommended reserving or preferential allotment of domestically produced natural gas only to fertiliser and power plants.

Issues that are expected to come up for discussion in the EGoM are the requirement of 13.22 mmcmd of gas for urea plant beyond 15.7 mmcmd, which has already been allocated from KG-D6, the requirement of 31.81 mmcmd gas for 14 power plants with a total capacity of 7,219.5 MW (that are to be commissioned in the Eleventh Five-Year Plan period ending March 31), the quantum of marketing margin charged by RIL on sale of KG-D6 and the Oil Ministry's decision to ask the Petroleum & Natural Gas Regulatory Board (PNGRB) to regulate the marketing margins. 

The power ministry’s proposal to ask RIL to sign an agreement to supply 2.16 mmcmd of gas to NTPC may also figure in the EGoM meeting. RIL had not signed the pact for supply of 2.74 mmcmd of gas out of the 4.46 mmcmd allocated to five power projects. Gas output from KG-D6 has fallen to about 35 million cubic meters per day after touching a peak of 60 mmcmd in March 2010, prompting the ministry to suggest changes in the allocation policy.

Further suggestions made by the oil ministry on fuel/gas allocations are also likely to be discussed by the Ministerial panel. The oil ministry has proposed to halt gas supplies to power producers that do not sell electricity at regulated tariffs. It has also recommended cancellation of gas allocation to those merchant power plants in Andhra Pradesh that currently sell electricity above the tariff determined by the regulator. The ministry has also proposed allocating gas to only urea fertiliser plants in the future. On the other hand, it has suggested stopping fuel supply to phosphates and potassium fertiliser producers.

The Association of Oil and Gas Operators (AOGO), whose members also includes BP plc of UK, Cairn, BG Group and BHP Billiton, has written to Pulok Chatterji, Principal Secretary to the Prime Minister, saying the recommendation contradicts the contractual commitments of the Government made in the Production Sharing Contracts (PSC) and New Exploration Licensing Policy (NELP)' for market discovery of price of gas. Once gas is reserved for certain sectors, they are not likely to quote optimal price for gas and instead would under price the scarce fuel. Pre-allocation of gas, AOGO said, 'distorts demand supply equation and eliminates the possibility of discovering free market price of gas.'

'Discovery of free market price of gas is a fundamental feature of PSC signed under NELP... there has been a huge escalation in costs for developing oil and gas fields over the last few years. An incorrectly specified domestic gas price will retard domestic gas development,' it added. Reliance Industries has also opposed pre-allocation of the scarce fuel saying it distorts demand-supply equation and eliminates possibility of discovering free market price of gas.

The S&P CNX Nifty touched a high and low of 5,521.40 and 5,405.90 respectively.

The top gainers on the Nifty were Sterlite Industries up 3.78%, Tata Power up 2.15%, Coal India up 1.46%, Powergrid up 1.38% and Jindal Steel up 1.20%.

On the flip side, IDFC down 4.48%, DLF down 3.66%, Reliance Infra down 3.63%, HDFC down 3.62% and Kotak Bank down 3.30% were the top losers on the index.

The European markets were trading mixed as France's CAC 40 up 0.42%, Britain’s FTSE 100 down 0.01% and Germany's DAX up by 0.80%.

Stocks in the Asian region ended mostly in the positive terrain on the last trading day of the week on the back of solid US data which boosted investors’ sentiment, but gains remained capped over concerns that rising oil prices could deal a further blow to the fragile euro zone economy and moves to take profits after recent rallies. Oil extended gains on heightening concerns about escalating tension between Iran and the West and risks of oil supply disruptions.

Meanwhile, Chinese shares ended up 1.3 percent, recording their sixth-straight weekly gains this week, with the property sector strong on renewed speculation that sales could be supported by anticipated reforms in household registration policy. While, Japanese Nikkei share average broke above 9,600 to its highest closing level in seven months and brought the month’s rally to 9.6 percent, keeping it on track for its best February performance in two decades. In addition, South Korean shares finished higher on Friday, with foreign buying resuming following positive US data.