Astounding IIP fails to boost Indian shares, dampens rate cut prospects

It turned out to be a positive start for Indian stocks markets for a data heavy week filled with lot of important events like announcement of monthly IIP and WPI numbers, RBI monetary policy review meet, Indian Economic Survey, Rail budget and the Federal budget.

The markets got off to a gap-up opening in morning trades and remained in fine fettle until the surprisingly encouraging IIP numbers which rose at the fastest pace in seven months in January. The unexpectedly strong expansion in India’s industrial production may have stunned one and all but not the domestic stock markets which plunged into the negative territory and touched the lowest point in the day immediately after the data came to the fore, as the resilience in factory output dimmed the prospects of monetary easing by Indian central bank.The market participants exerted hefty selling pressure on the markets and dragged the frontline indices even below the previous closing levels but the key gauges found some support around the psychological 17,500 (Sensex) and 5,300 (Nifty) levels and showed signs of recovery since early noon trades.

Market participants still showed conviction and piled up positions in rate sensitive counters like Banking, Automobile and Realty as they reacted to RBI’s earlier than expected cash reserve ratio cut by 75 basis points late on Friday. The Capital Goods counter witnessed hefty buying and topped the BSE sectoral chart with over 2.5% gains after showing an improved performance in January.

Meanwhile, sentiments got support from India’s President Pratibha Patil’s comments on Indian economy which she said will slow down to 7% this fiscal from 8.4% last fiscal but soon revert to the 8-9% growth trajectory on the back of strong fundamentals and favorable domestic factors.

Automobile sector shares climbed close to a percent after an industry body - SIAM data showed car sales in India rose an annual 13.1 percent in February, with automakers posting a fourth straight monthly increase as they continue to recover from record falls in late 2011. Sales of trucks and buses, a key indicator of economic activity, rose 18.7 percent in February from a year previous to 76,891 vehicles. Besides, selling was largely evident in Information technology pocket which plunged around a percent while the defensive Healthcare counter too ended with marginal losses.

In the meantime, Indian bourses despite the volatility managed to outperform their Asian counterparts which reeled under selling pressure after the worse than expected Chinese trade data highlighted that the nation’s trade deficit widened to the highest levels seen in at least a decade in February. While European markets too traded on a weak note and halted the three straight sessions upmove on fresh jitters of a slowdown in world’s second largest Chinese economy and as investors took a wait and watch approach ahead of Tuesday's Federal Open Market Committee (FOMC) meeting.

Back home, the NSE’s 50-share broadly followed index Nifty, settled with about half a percent gains above the psychological 5,350 support level while Bombay Stock Exchange’s Sensitive Index - Sensex amassed eighty four points and closed below the psychological 17,600 mark. Moreover, the broader markets showed resilience and staged a far better performance than their larger peers by climbing around a percent in the session.

The markets gained on good volumes of over Rs 1.17 lakh core while the turnover for NSE F&O segment remained on the lower side as compared to that on Friday at over Rs 0.92 lakh crore. The market breadth remained optimistic as there were 1599 shares on the gaining side against 1246 shares on the losing side while 121 shares remained unchanged.

Finally, the BSE Sensex gained 84.43 points or 0.48% to settle at 17,587.67, while the S&P CNX Nifty rose by 26.00 points or 0.49% to close at 5,359.55.

The BSE Sensex touched a high and a low of 17,772.10 and 17,494.65 respectively. The BSE Mid cap and Small cap indices were up by 1.06% and 0.70% respectively.

The major gainers on the Sensex were SBI up 3.96%, L&T up by 3.54%, Reliance up by 3.02%, Jindal Steel up by 2.69%, BHEL up by 2.32%. While M&M down by 1.88%, Cipla down by 1.83%, ONGC down by 1.71%, Infosys down by 1.51% and TCS down by 1.35 were the major losers on the index.

On the BSE sectoral the gaining indices were Capital Goods up by 2.56%, Consumer Durable up by 1.90%, Realty up by 1.33%, Oil & Gas up by 1.24%, Bankex up by 1.22% while IT down by 1.06%, TECk down by 0.75% and Health Care down by 0.15% remained the top losers.

Meanwhile, quick estimates data released by the government of India has shown that Index of Industrial Production (IIP) surged by 6.8% in January 2012 as compared to the same month last year and a meagre 1.8% (provisional) in the month of December. The number is more in line with the HSBC Purchasing Manager's Index (PMI) which estimated an expansion to 57.7 in January with new orders touching a 10-month high. It is however much higher than the widely expected number of 2.1% by economists.

The manufacturing and electricity sectors have expectedly grown by 8.5% and 3.2% respectively whereas mining has contracted by (-) 2.7%. Capital goods, an indicator of investment activity, has fallen by (-) 1.5% in January and Consumer durables also showed a decline of 6.8%, whereas consumer non durables showed a growth of whopping 42.1% and Basic commodities grew by 1.6%.

For the period April-January 2011-12, IIP has shown a growth of 4% over the corresponding period last year, whereas cumulative growth in Mining, Manufacturing and Electricity has been (-)2.6%, 4.4% and 8.8% respectively.

The IIP growth number for December has been revised to 2.5% from the estimated 1.8%.

As per the Chairman of the Prime Minister’s Economic Advisory Council (PMEAC), C Rangarajan, the IIP number is encouraging but the composition of it is worrisome as the upswing has mainly come from the rise in consumer non durables. The RBI has already cut the Cash Reserve Ratio by 75 basis points on 9 March which is expected to spur investment activity by infusing Rs 4,800 crore of liquidity in the economy.

The S&P CNX Nifty touched a high and low of 5,421.90 and 5,327.30 respectively.

The top gainers on the Nifty were SBI up 3.72%, L&T up by 3.36%, Reliance up by 3.00%, Siemens up by 2.90%, RPower up by 2.75%. On the flip side, M&M down by 2.12%, ONGC down by 1.96%, TCS down by 1.90%, Cipla down by 1.61%, HDFC down by 1.49% were the top losers on the index.

The European markets were trading mixed, as France's CAC 40 was down 0.14%, Britain’s FTSE 100 down 0.07%, while Germany's DAX was up by 0.18%.

All the Asian equity indices barring Hang Seng snapped the day’s trade in negative territory on Monday as investors continued to fret over Chinese growth outlook and Greece’s debt situation, keeping financials and most resource stocks on the back foot, though a weaker yen lifted exporters in Japan. Data released on Saturday showed China’s trade deficit in February hit $31.5 billion as exports dropped, stoking concerns about slowing global demand and sluggish growth in the world’s second largest economy. Moreover, Greece also remained on the radar after the International Swaps and Derivatives Association, known as ISDA, declared Friday that a ‘credit event’ -- essentially a default -- occurred in Greece's debt, which will likely trigger a net $3.2 billion in payouts between buyers and sellers of credit default swaps on Greek sovereign credit. Meanwhile, official data released Monday showed Japanese core machinery orders rose a better-than-expected 3.4% in January.

Shanghai Composite ended 0.2 percent lower, led by property developers, after the head of Chinese central bank said that government was not using bank reserve requirement ratio (RRR) cuts to help stock market and property sector. Moreover, Japanese Nikkei share average dipped after breaking above 10,000 to a fresh seven-month high as hedge funds locked in profits following a 3.7 percent rally in the previous two sessions and 17 percent so far this year.