Distressed markets collapse like a house of cards; Realty, Power do bulk of damage

What started as a choppy session eventually turned out to be a nightmare for the Indian stock markets. After spending most part of the session consolidating around the neutral line, the benchmark equity indices took a turn for the worse in late hours of Thursday’s session as investors at large resorted to hefty profit booking after witnessing over three hundred points rally on the Dalal Street in two previous trading sessions.

A combination of domestic as well as global factors led to the brutal butchery across the board. After touching the day’s highs in mid morning trades, markets kept drifting lower in afternoon trades as the newly appointed Railway minister Mukul Roy rolled back most fare hikes proposed by his predecessor. However, the markets did not showed a knee-jerk reaction to the development as it was largely on the expected lines after the sacking of former rail minister Dinesh Trivedi.

But the move has reignited worries amongst the market participants over the decision making power of the ruling Congress as they fear any decision by the government relating to hike in prices of petroleum products is likely to meet with similar fortune. The benchmark equity indices witnessed panic selling in mid noon trades as sentiments remained dismal amid a series of negative cues.

The scam ridden UPA government was reportedly caught in another scandal related to allotment of coal blocks, as a report by Comptroller & Auditor General (CAG) opined that the government extended undue benefits, totaling a mind-boggling Rs 10.67 lakh crore to commercial entities by giving them 155 coal acreages without auction between 2004 and 2009.

Meanwhile, RBI rendered a big jolt to gold finance companies like Manappuram Finance and Muthoot Finance by restricting loans by these firms to 60% of the value of gold jewellery pledged as collateral. Currently gold loan companies are said to be lending as much as 75% of the gold value. Meanwhile the rupee plummeted sharply to over two month lows while bond yields went up, undermining sentiments.

On the BSE, there appeared no sectoral index which could holds its head above the water while among individual heavyweights only Coal India and Hero Moto went home with gains. Position squaring was largely evident in the high beta Realty index which got clobbered by over four percent after rallying in the previous session followed by Power counter which too dived over three and half a percent.

Besides, Indian bourses also got pummeled as sentiments across the globe remained pessimistic as the encouraging economic report from world’s third largest economy - Japan, showed an unexpected trade surplus of 32.9 billion yen in February, the first surplus in five months, however it was offset by reports of fifth consecutive decline in manufacturing activity in March in world’s second largest economy China.

Sentiment also got dampened after the discouraging Euro-zone manufacturing and service sector data. The domestic markets underperformed their global peers by a fat margin as Asian markets closed on a mixed note while European stock markets traded with sharp cuts of over a percent.

Back home, the NSE’s 50-share broadly followed index Nifty, got clobbered by close to one hundred and fifty points to settle above the psychological 5,200 support level while Bombay Stock Exchange’s Sensitive Index - Sensex nosedived by over four hundred points to finish below the psychological 17,200 mark. Moreover, the broader markets too settled on a bleak note and ended with around two percent cuts.

The markets got butchered on extremely large volumes of over Rs 2 lakh crore. The market breadth remained abysmal as there were 879 shares on the gaining side against 2019 shares on the losing side while 105 shares remained unchanged.

Finally, the BSE Sensex shaved off 405.24 points or 2.30% to settle at 17,196.47, while the S&P CNX Nifty plunged by 136.50 points or 2.54% to close at 5,228.45.

The BSE Sensex touched a high and a low of 17,687.01 and 17,136.50 respectively. The BSE Mid cap and Small cap index down by 2.27% and 1.68% respectively.

The only gainers on the Sensex were Coal India up 2.40%, Hero MotoCorp up 0.48, While Jindal Steel down 7.26%, DLF down 5.01%, Tata Steel down by 4.55%, Tata Power down by 4.42% and Reliance down by 4.15% were the major losers on the index.

The top losers on the BSE sectoral space were Realty down 4.25%, Power down 3.62% Bankex down 3.41%, Capital Goods down 3.37% and Metal down 3.29%, while there was no gainer on the BSE sectoral space.

Meanwhile, Indian industry body, Associated Chambers of Commerce and Industry of India (ASSOCHAM) has called for a hike in import duty on all steel products to 10%. Taking cognizance of the recently raised import duty on non alloy flat steel products (from 5% to 7.5%), it has stated that this does not include the alloy steel category and hence fails to address the issue holistically.

Domestic steel producers have been facing stiff competition from Chinese imports which have grown by 120% from October 2011 to February 2012 (as compared to the same period previous year). China is the world’s largest producer of steel and has an excess capacity of 135 million tonnes (mt). This is almost twice the annual of steel production of India which stands at 70 mt.

Moreover, it exports a large quantity of boron-treated hot-rolled coils, sheets and plates that conform to the alloy steel category and hence has been left out in the budget. Additionally, China also offers an export incentive at 9% of export value to its manufacturers. Hence, as per ASSOCHAM, it is necessary that the government address the issue in a holistic manner and raise the import duty on all steel products by at least 10%.

China is the world's largest steel exporter, forming about 50 mt, or about 20% of the global steel trade. In addition, China exports almost 70% of the quantity to its neighboring countries across east, south and central Asia and Australia.

The S&P CNX Nifty touched a high and low of 5,385.95 and 5,205.65 respectively.

The top gainers on the Nifty were Coal India up 2.07%, Hero MotoCorp up 0.57%. On the flip side, JP Association down by 7.18%, Jindal Steel down 7.15%, RPower down 6.56%, Reliance Infra down 6.53% and IDFC down 6.03% were the top losers on the index.

The European markets were trading in red, as France's CAC 40 was down 1.58%, Britain’s FTSE 100 down 0.92%, while Germany's DAX was down by 1.46%.

Most of the Asian equity indices ended the day’s trade in the positive terrain on Thursday shrugging off data showing China’s manufacturing activity shrank for a fifth straight month in March, with market participants seeing Japanese equities as a buy. The world’s third largest economy Japan registered an unexpected trade surplus of 32.9 billion yen in February, the first surplus in five months, against a forecast for a 120 billion yen deficit, sending the yen against the dollar to an intraday low. However, gains were capped by weak Chinese purchasing managers index (PMI).

The Chinese Shanghai Composite edged lower by 0.10 percent as data showing the country’s factory activity shrank renewed concerns about global growth. The HSBC flash PMI, the earliest indicator of China’s industrial activity, fell to 48.1 in March from February’s four-month high of 49.6, with new orders sinking to a four-month low.