Flimsy local markets relinquish all the intraday gains; settle largely unchanged

All hopes of an extension of Tuesday’s relief rally got shattered for the increasingly vulnerable Indian stock markets on Wednesday as most heavyweight stocks that gained solid ground earlier in the day lost direction in the second half of trade.

Benchmark indices commenced the session on a promising note with a gap up opening, as sentiments remained sanguine across the globe. However, the psychological 18,000 (Sensex) and 5,450 (Nifty) proved as stern resistances which the frontline indices failed to break despite repeated attempts.

The key indices also failed to capitalize on the early momentum as sentiments got undermined by the disappointing third quarter GDP growth numbers. Economic activity in the country expanded at its weakest annual pace in more than two years in the three months to December, largely because high interest rates and rising input costs constrained investment and manufacturing.

Profit booking in Capital Goods, defensive - FMCG and rate sensitive - Banking counters capped the gains for the bourses. Besides, the poor core sector growth numbers which showed output of key infrastructure industries grew at its slowest pace in three months too underscored that a quick revival in industrial production is a distant dream.

However, hefty gains in Oil and Gas heavyweights like ONGC and Reliance which also have significant weightage on the benchmark indices, capped the downside chances for the equity gauges. ONGC shares got filliped after government gave approval for divesting 5 percent holding in the company through stock auction mechanism.

The position build up was prominent in broader markets as the indices showed resilience and refused to go down to the pressure evident on their larger peers to eventually outperform their larger peers by a fat margin.

The local markets, which comprehensively outperformed the global markets in last session, slipped into consolidation mode by the end and were largely outclassed by most equity indices across Asia and Europe in the session.

On the global front, cues remained encouraging through the day as most Asian indices finished the day’s trade in the positive terrain as apart from upbeat US consumer confidence data encouraging Japanese industrial production which expanded at a better than expected pace of 2 percent in January along with South Korea’s factory output data which grew 3.3 percent exceeding estimates, underpinned sentiments.

While, markets in Europe too exhibited optimistic trends as investors associated high hopes with European Central Bank's second 3-year long-term refinancing operation (LTRO) which more than offset the lingering European debt worries.

Back home, the NSE’s 50-share broadly followed index Nifty, went home with single digit gains and settled below the psychological 5,400 support level while Bombay Stock Exchange’s Sensitive Index - Sensex added only twenty two points to close above the psychological 17,750 mark.

The markets consolidated on good volumes of over Rs 1 lakh core while the turnover for NSE F&O segment also remained on the lower side as compared to that on Tuesday. The market breadth remained optimistic as there were 1593 shares on the gaining side against 1295 shares on the losing side while 137 shares remained unchanged.

Finally, the BSE Sensex gained 21.56 points or 0.12% to settle at 17,752.68, while the S&P CNX Nifty rose by 9.70 points or 0.18% to close at 5,385.20.

The BSE Sensex touched a high and a low of 18,001.35 and 17,677.97 respectively. The BSE Mid cap and Small cap indices were up by 1.10% and 0.62% respectively.

The major gainers on the Sensex were ONGC up 3.46%, Sterlite Industries up 2.98%, Tata Steel up 2.90%, Reliance up 2.84% and Wipro up 2.72%, while, L&T down 2.91%, HDFC Bank down 2.34%, Jindal Steel down 1.81%, ITC down 1.35% and Hero MotoCorp down 1.07% were the major losers on the index.

The top gainers on the BSE sectoral space were Oil & Gas up 2.53%, PSU up 1.51%, Metal up 1.45%, Realty up 1.10% and Consumer Durables (CD) up 0.66% while Capital Goods (CG) down 1.59%, FMCG down 0.72% and Bankex down 0.59% were the top losers on the BSE sectoral space.

Meanwhile, India's pace of economic growth slowed to its weakest in almost 3 years in the October-December quarter at 6.1%, as high interest rates and rising input costs constrained investment and manufacturing. Growth in GDP at factor cost during Q3, 2011-12, at 2004-05 prices, is estimated at 6.1% as compared to the growth rate of 8.3% in Q3, 2010-11. The growth rate is lesser than the widely expected number of around 6.3-6.4%.

The growth in GDP at factor cost during Q3, 2011-12, at 2004-05 prices, is estimated at 2.7% in ‘agriculture, forestry and fishing’ sector, 2.6% in industry and 8.9% in services sector, year-on-year. Growth in mining and quarrying is expected to decline to (-) 3.1% whereas manufacturing is estimated to grow at a dismal 0.4% during Q3, 2011-12 as compared to the same quarter last year. The numbers in manufacturing have come as quite a shocker given the recent IIP numbers. The electricity sector is estimated to grow at 9% during Q3, 2011-12.

The all important gross fixed capital formation (GFCF), an indicator of the level of investment in the economy, is expected to contract to (-) 1.2% at constant prices in Q3. Private final consumption expenditure (PFCE), the driver of growth, is expected to grow by 6.2%. The GDP estimates for the third quarter have come in as a disappointment.

Given these numbers, the estimated growth of 7.1% for FY’12, looks difficult. The growth for the period April- December 2011 has been revised to 6.9% and maintaining the same for the fiscal could also be a challenge given the drop in investments. As per economists, the growth numbers per say may not be a big concern as is the composition of this growth. With investments declining and consumption expenditures on the rise, the economy could face inflationary pressures in coming times.

Further, this could also limit the extent of measures that the Reserve Bank could take to stimulate growth. Growth in FY’13 too looks a little dismal with most believing that a rate of 7% will be achieved only by the second half of the fiscal. For the first half of FY’13, the growth rate is expected to be sub 7% unless the government takes some drastic steps in the upcoming Budget. Meanwhile, the Central Statistical Organization has pegged the GDP growth for 2011-12 at 6.9%, while the Prime Minister's Economic Advisory Council (PMEAC) expects that it would be 7.1%.

With the Indian economy slowing down to almost a rate which is close to the rates it saw post the Lehman Brothers crisis, all eyes are now on the government. Raising of capital expenditure, a decline in fiscal deficit, specific incentives for the infrastructure and a concrete plan for fiscal consolidation are some of the areas that need to be worked on to improve the sentiment of the economy. Economists are also of the opinion that a visionary budget with the government’s commitment to growth and fiscal consolidation in the coming years could help provide the necessary boost to the economy.

The S&P CNX Nifty touched a high and low of 5,458.80 and 5,352.25 respectively.

The top gainers on the Nifty were SAIL up 3.76%, ONGC up 3.46%, Wipro up 3.18%, Sesa Goa up 3.12% and Tata Power up 2.99%.

On the flip side, L&T down 3.28%, HDFC Bank down 2.81%, Siemens down 2.28%, Jindal Steel down 1.62% and Reliance Infra down 1.50% were the top losers on the index.

The European markets were trading in green as France's CAC 40 up 0.36%, Britain’s FTSE 100 up 0.04% and Germany's DAX up by 0.66%.

Sentiments remained bullish across the Asian region and most of the Asian counterparts ended the session in the positive terrain on Wednesday on optimism ahead of another ECB refinancing operation while US stocks provided a strong cue after closing at a near four-year high. Meanwhile, Seoul Composite posted their highest close in seven months, up by over a percentage point on Wednesday, tracking overnight gains in Wall Street as large caps rallied across the board. In addition, Taiwan stocks closed up 2.04 percent at an almost seven-month closing high, with HTC Corp jumping after it announced a new line up of phones. While, Nikkei share average failed to hold above 9,800, paring gains to end flat as investors took profits ahead of an ECB liquidity operation. However, Chinese Shanghai Composite ended with a cut of about a percent, weighed down by a slump in property shares after Shanghai reaffirmed its commitment to real estate curbs.