Benchmarks end lower for fourth straight session; Nifty breaches 8,400 mark

Extending their southward journey to fourth straight session, Indian equity benchmarks ended the Wednesday’s trade with a cut of over a percent. Sentiments remained down beat since morning as the domestic bourses, after a negative start, never looked in recovery mood and ended the trade near intraday lows, breaching their crucial support levels of 27,600 (Sensex) and 8,400 (Nifty). Sentiment was hit as China allowed the yuan to fall sharply for a second straight day, forcing investors to seek refuge in safe-haven government debt. Investors also remained worried ongoing logjam in the parliament over the GST Bill. Traders are of view that if the GST Bill is not cleared in the monsoon session then market could fall further.

Marketmen also remained on sidelines ahead of the June Index of Industrial Production (IIP) and July Consumer Price Index (CPI) numbers, which will be unveiled later today. Moreover, investors failed to get any sense of relief from report that the government is planning to raise import duty on base metals including iron and steel by 2.5% to protect the domestic industry from Chinese deluge. Traders also overlooked reports that indirect tax revenue jumped over 37 per cent to over Rs 2.1 lakh crore in April-July of the current fiscal on the back of higher excise duty mop-up.

Global cues too remained sluggish with European counters were trading with a deep cut in early deals amid concerns that financial-market volatility sparked by China’s currency devaluation will crimp global growth. All the Asian markets ended in red as China’s currency tumbled for a second day and raised concern that financial-market volatility in the world’s second-largest economy will curb global growth.

Back home, depreciation in Indian rupee too dampened the sentiments. Rupee hit two year lows and was trading at 64.82 per dollar at the time of equity markets closing compared with its previous close of 64.19 per dollar. Sentiments remained dampened on report that foreign portfolio investors (FPIs) sold shares worth a net Rs 736.81 crore on yesterday, as per provisional data released by the stock exchanges.

Metal companies have declined for the second straight day post the Chinese central bank's decision to devalue its tightly controlled currency as a devalued currency will make Chinese exports cheaper. Additionally, oil marketing companies (OMCs) have taken a hit on worries that gross refining margins (GRM) and inventory gains will come off in the July-September period. On the other hand, export-oriented sectors such as IT and pharma have surged on the back of weakness in rupee.

The NSE’s 50-share broadly followed index Nifty declined by over one hundred and ten points to end below the psychological 8,400 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex declined by over three hundred and fifty points to end below its crucial 27,600 mark. Broader markets too struggled to get any traction during the trade and ended the session with a cut of over two percentage point. The market breadth remained in favor of decliners, as there were 691 shares on the gaining side against 2,148 shares on the losing side while 122 shares remain unchanged.

Finally, the BSE Sensex plunged by 353.83 points or 1.27% to 27512.26, while the CNX Nifty declined by 112.90 points or 1.33% to 8349.45.

The BSE Sensex touched a high and a low 27883.33 and 27479.43, respectively. The BSE Mid cap index was down by 2.49%, while Small cap index was down by 2.13%.

The top gaining sectoral indices on the BSE were IT up by 2.59%, TECK up by 1.72%, Consumer Durables up by 0.83% and Healthcare up by 0.49%, while Realty down by 5.42%, Metal down by 4.37%, PSU down by 3.44%, Oil & Gas down by 3.42% and Bankex down by 3.02% were the losing indices on BSE.

The top gainers on the Sensex were Infosys up by 3.39%, Sun Pharma up by 2.90%, TCS up by 2.63%, Wipro up by 1.75% and Lupin up by 1.28%. On the flip side, Vedanta down by 8.03%, Hindalco down by 7.21%, Coal India down by 5.53%, SBI down by 4.77% and Tata Motors down by 3.92% were the top losers.

Meanwhile, China’s central bank decision to devaluate Yuan by 2 percent to boost their economy, will hit Indian exports and further trade deficit may also widen which is currently close to $50 billion as imports from China may increase particularly as China is having excessive capacity in diverse sectors of manufacturing. This devaluation is bound to raise the competitiveness of outbound shipments from the neighbouring country and will not just hurt India’s export to China but also to other countries with increasing competiveness of Chinese exports, said Ajay Sahai, Director general and CEO of the Federation of Indian Export Organizations (FIEO). The biggest losers are Indian tyre manufacturers who have already been hit by the rising demand for cheaper Chinese tyres in Indian markets.

Indian exporters are worried that this move from China will hit India’s exports at a time when they are already under pressure due to slow global demand where exports have contracted for seven straight months until June 2015. Chinese demand for Indian goods is likely to contract further due to the decline in the overall demand in the world’s second largest economy. Imports from China have jumped by one-fifth to $60 billion in 2014-15, compared with previous year, while exports have plunged to $12 billion, resulting in a huge trade gap between the two countries. There are worries that the yuan devaluation will tilt the balance further in China’s favour.

SC Ralhan, President, Federation of Indian Export Organisations (FIEO) said that this may also lead to a currency war as could be seen by huge depreciation in numerous currencies such as Euro, Japanese Yen, Brazalian Real and Turkish Lira. The devaluation of the Chinese yuan will boost the competitiveness of Chinese exports, however a further decline in the currency may make it difficult for India to maintain its pace of monthly exports at $22 billion.

Around 36 Indian companies have subsidiaries or representative offices for doing business in China. These include Reliance, Tata, Infosys, Satyam, Lupin, Ranbaxy, Aurobindo, SBI, Essel Packaging, Jindal Strips.

The CNX Nifty touched a high and low 8446.95 and 8337.95 respectively.

The top gainers on Nifty were HCL up by 3.36%, Tech Mahindra up by 3.31%, Sun Pharma up by 3.01%, Infosys up by 2.87% and TCS up by 2.53%. On the flip side, Hindalco down by 7.12%, Vedanta down by 7.08%, BPCL down by 6.19%, Coal India down by 5.12% and Cairn down by 5.05% were the top losers.

European Markets were trading in the red; France’s CAC was down by 2.56%, Germany’s DAX was down by 2.24% and UK's FTSE was down by 1.30%.

The Asian markets closed in red on Wednesday after Chinese authorities yesterday devalued its currency in a move that sparked fears of a global currency war and accusations that Beijing was unfairly supporting its struggling exporters. However, International Monetary Fund (IMF) stated that China’s new mechanism for determining the central parity of its currency appears a welcome step as it should allow market forces to have a greater role in determining the exchange rate. The global financial institution also asserted that China should aim to achieve an effectively floating exchange rate system within two to three years. Chinese Industrial Production fell to 6.0%, from 6.8% in the preceding month. Chinese Retail Sales fell to an annual rate of 10.5%, from 10.6% in the preceding month. Chinese Fixed Asset Investment fell to a seasonally adjusted 11.2%, from 11.4% in the preceding month. Japanese tertiary industry activity index rose to a seasonally adjusted 0.3%, from -0.7% in the preceding month. Japan’s industrial production rose to a seasonally adjusted 0.8%. South Korean Unemployment Rate fell to a seasonally adjusted annual rate of 3.7%, from 3.9% in the preceding month.