Local indices crack after BOJ decision; Sensex sank over 400 points

Thursday’s session turned out to be a big disappointment for the Indian equity indices which crumbled like a ‘house of cards’ and went on to breach various key technical levels in the over one and half percent freefall. Sentiments came under pressure as most Asian markets turned negative despite starting on an optimistic note after the Bank of Japan (BoJ) refrained from adding to its monetary policy stance when most economists were expecting further stimulus. The Bank kept its bond-buying programme at 80 trillion yen ($733 billion) a year and made no changes to its negative-interest rate or its programme for purchasing exchange-traded funds. On the domestic front, sentiments were undermined by the Fitch ratings’ report that indicate the rapid rise in private-sector debt in emerging markets (EMs), particularly in foreign currency, has increased risks to their economies at a time of heightened global uncertainty. Furthermore, with industrial recovery not yet on the horizon, India Ratings of the Fitch Group said it was lowering its growth forecast for the country to 7.7 percent from 7.9 percent.  According to the report, the industrial recovery continues to be weak and fragile and this is getting reflected in the monthly Index of Industrial Production (IIP) data. IIP in fiscal 2015-16 till February has grown by just 2.6 percent. Investors failed to get relief with the report that foreign direct investment (FDI) into the country increased 37 percent after the launch of 'Make in India' programme till February this year. The overseas inflows grew 29 percent during the period compared to the 15-month period prior to the launch.

On the global front, Asian markets gave up their early gains and ended lower with Japanese shares declining the most after the Bank of Japan at its policy meet lowered the GDP growth forecast to 1.2 percent compared to 1.5 percent higher. Besides, BOJ also failed to enthuse investors by deciding against any fresh market stimulus. Most of the positive momentum in markets this week has been based on expectations that the Bank of Japan would deliver some new stimulus. Its failure to do so showed stock markets reverse gains and the yen surge. Meanwhile, Chinese shares fell, dragged down by resource stocks, as commodity prices fell in response to a government crackdown on speculation in commodity markets. The selling pressure continued into the European session after the Bank of Japan unexpectedly held off from expanding monetary stimulus, while Spanish bank BBVA and Airbus fell on disappointing earnings updates. Furthermore, the screen trading for U.S. stock-index futures indicated a lower opening.

Back home, after getting sluggish start, the local benchmark indices showed some strength in early trades, but the sentiments turned pessimistic in late morning trades and indices started drifting lower,  on absence of positive triggers which could take the markets higher and profit booking in frontline blue-chip stocks amid weak cues from Asian markets. Thereafter, the frontline indices lost the plot and kept tumbling down the hill without any stoppage. The indices barely managed to show signs of stabilizing in the session as the downward drift halted only with the session’s close after suffering massive losses. Finally the NSE’s 50-share broadly followed index Nifty, suffered a nasty one hundred and thirty point laceration to settle below the crucial 7,850 support level, while Bombay Stock Exchange’s Sensitive Index Sensex got obliterated by over four hundred and fifty points and closed just above the psychological 25,600 mark. Moreover, the broader markets too failed to show any kind of fervor and settled with cuts of around a percent. On the sectoral front, the sectors like Oil & Gas, Metal and Power witnessed brutal assaults as they got clobbered by 2.18%, 2.16% and 2.01% respectively. While counters like Auto and FMCG too suffered severe pounding. However, Realty pocket showed some resilience and attracted buying interests on the report suggests that the BrihanMumbai Municipal Corporation (BMC) has recommended an increase in permissible floor space index (FSI) in Greater Mumbai. The market breadth remained awful as there were 832 shares on the gaining side against 1697 shares on the losing side while 167 shares remained unchanged.

Finally, the BSE Sensex plunged by 461.02 points or 1.77% to 25603.10, while the CNX Nifty dropped 132.65 points or 1.66% to 7,847.25. 

The BSE Sensex touched a high and a low 26100.54 and 25561.17, respectively. The broader indices made a negative closing; the BSE Mid cap index ended down by 0.78%, while Small cap index lost 1.05%.

The only gaining sectoral index on the BSE was Realty up by 1.68%, while Oil & Gas down by 2.18%, Metal down by 2.16%, Power down by 2.01%, Auto down by 1.99% and FMCG down by 1.95% were the top losing indices on BSE.

The top gainers on the Sensex were TCS up by 0.85%, Axis Bank up by 0.59% and Lupin up by 0.44%. On the flip side, HDFC down by 3.21%, ITC down by 3.00%, Mahindra & Mahindra down by 2.99%, Maruti Suzuki down by 2.94% and GAIL India down by 2.52% were the top losers.

Meanwhile, the European Union (EU) believes that India’s demand on market access for its professionals under the proposed Broad-based Trade and Investment Agreement (BTIA) will be politically difficult to concede. Since the talks started in 2007, India has been demanding data adequacy under services trade, mainly for its IT-ITeS professionals, as this is expected to boost the country’s IT offshore industry with free flow of data. It is doubtful that the EU will grant this demand as it will require a legislative change by the European Parliament.

European Commission’s Trade department has said that “India’s demand on getting more market access for its professionals is a bit too high. It will be difficult to accommodate their demand on services trade”.  However, talks on all these issues are underway at the technical level between both sides. There is no decision yet on when the two sides would have a formal round of talks.

Furthermore, for data adequacy the EU would have to recognise India as a “data secured” nation and this does not come under the ambit of the BTIA. Both sides have also set up a joint working group on this issue as the European Commission believes India’s cyber security laws have “huge gaps” and do not conform to European standards.

The CNX Nifty touched a high and low 7,992.00 and 7,834.45 respectively. 

The top gainers on Nifty were Yes Bank up by 3.66%, ACC up by 1.20%, Idea Cellular up by 0.89%, Aurobindo Pharma up by 0.95% and Eicher Motors up by 0.67%. On the flip side, Hindalco down by 4.86%, HCL Tech down by 4.57%, HDFC down by 3.12%, M&M down by 3.89% and Maruti Suzuki India down by 2.86% were the top losers.

European markets were trading in red; Germany’s DAX declined 128.83 points or 1.25% to 10,171.00, UK’s FTSE 100 dropped 69.22 points or 1.1% to 6,250.69 and France’s CAC was down by 64.51 points or 1.41% to 4,494.89.

Asian equity markets ended mostly lower on Thursday, as an overnight rally in oil prices and the Federal Reserve's decision to keep rates unchanged were overshadowed by the Bank of Japan's unchanged policy decision. The Bank of Japan shocked markets by keeping its monetary policy steady despite multiple headwinds plaguing the economy. The central bank maintained its negative 0.1 percent deposit rate and the size of its asset purchase program, while adopting a 300 billion yen ($2.75 billion) new lending program to aid regional banks operating in areas hit by this month's earthquake in southern Japan. Japanese shares reversed early gains to end sharply lower after the yen soared as much as 2.6 percent against the dollar in the wake of BoJ announcement. Sluggish inflation and spending data also weighed on markets. Chinese shares fell, dragged down by resource stocks, as commodity prices fell in response to a government crackdown on speculation in commodity markets.