Benchmarks off day’s high as Services growth eases to 6-month low in May

Key benchmark indices are trading off the day’s highs in afternoon trade as investors opted to take some of their profit at higher levels after Services growth cools sharply to 6-month low in May, due to a deceleration in new orders. However, markets still managed to trade above their crucial 8,200 (Nifty) and 26,900 (Sensex) bastions. Traders took some encouragement with India Meteorological Department (IMD) retaining its earlier ‘above normal’ forecast for this year’s southwest monsoon, at 106% of the Long Period Average (LPA).  Rally in Asian counters too were providing some strength to domestic markets with all the Asian equities were trading in green terrain at this point of time as markets awaited key US jobs data, which will offer a key indicator of whether the Federal Reserve will pull the trigger in June. Closer home, buying in auto space too were aiding sentiments. Auto counter gained around three fourth of a percent in noon deals after companies like Ashok Leyland, Bajaj Auto, TVS Motors etc. reported better-than-expected sales numbers for May 2016. FMCG stocks too remained on buyers’ radar as IMD forecasts above normal rains.

The BSE Sensex is currently trading at 26911.11, up by 67.97 points or 0.25% after trading in a range of 26893.35 and 27008.14. There were 15 stocks advancing against 15 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index was up by 0.40%, while Small cap index up by 0.26%.

The top gaining sectoral indices on the BSE were Bankex up by 0.94%, Auto up by 0.76%, Oil & Gas up by 0.76%, Energy up by 0.68% and Realty up by 0.66%, while Telecom down by 2.46%, Consumer Durables down by 0.72%, Capital Goods down by 0.42%, TECK down by 0.06% and Healthcare down by 0.32% were the top losing indices on BSE.

The top gainers on the Sensex were Axis Bank up by 3.33%, Hindustan Unilever up by 1.71%, Bajaj Auto up by 1.70%, Hero MotoCorp up by 1.62% and ICICI Bank up by 1.47%. On the flip side, Bharti Airtel down by 1.56%, Lupin down by 1.41%, BHEL down by 1.21%, GAIL India down by 0.96% and Adani Ports & Special down by 0.95% were the top losers.

Meanwhile, after the weak manufacturing activity, the growth of services activity in India too softened for the second straight month in May, as new business inflows expanded at the slowest rate since July 2015. The seasonally adjusted Nikkei Services Business Activity Index fell to 51.0 in May from 53.7 in April. Although service providers remained optimistic that output will expand in the year ahead, the level of confidence was the lowest recorded since February.

The seasonally adjusted Nikkei India Composite PMI Output Index, which measures both the manufacturing and the services sectors, fell to a six-month low of 50.9 in May, from 52.8 in April. As per the survey panellists growth of new work at services firms eased for the second month running in May. Where new business inflows expanded, aggressive marketing campaigns were reported. Nonetheless, there were mentions that growth was restricted by increased competition and the assembly elections in some regions. Manufacturing order books increased at a quicker pace that too was modest.

Although some firms took on additional staff, the overall pace of job creation was fractional. Services staffing levels increased in May, following a stagnation in the prior month. But with only 1% of survey participants signalling higher payroll numbers, the overall rate of job creation was fractional. A marginal increase in manufacturing employment was also registered.

Input costs rose again amid reports of higher petrol prices, average cost burdens facing service providers in India rose during May, leading to a further increase in prices charged. The latest increase in input prices was the eighth in as many months, but the rate of inflation eased since April and was lower than its long-run average.

Going forward, the Services companies expect output to increase over the coming 12 months; however the degree of optimism reportedly weakened to the lowest since February. As per the Markit’s survey exactly 15% of firms forecast activity growth, citing favourable government policies, improved marketing strategies, business expansion plans and hopes of better demand conditions.

The CNX Nifty is currently trading at 8237.80, up by 18.85 points or 0.23% after trading in a range of 8232.45 and 8262.00. There were 31 stocks advancing against 20 stocks declining on the index.

The top gainers on Nifty were Axis Bank up by 3.36%, BPCL up by 2.97%, Tata Motors - DVR up by 2.55%, Kotak Mahindra Bank up by 2.30% and Tata Power up by 2.28%. On the flip side, Idea Cellular down by 10.84%, Bharti Airtel down by 1.61%, Lupin down by 1.38%, BHEL down by 1.33% and Hindalco down by 1.18% were the top losers.

Asian markets were trading in green; KOSPI Index rose 0.73 points or 0.04% to 1,985.84, FTSE Bursa Malaysia KLCI gained 4.96 points or 0.3% to 1,635.49, Jakarta Composite increased 10.56 points or 0.22% to 4,843.79, Shanghai Composite strengthened 11.99 points or 0.41% to 2,937.22, Taiwan Weighted jumped 31.34 points or 0.37% to 8,587.36, Nikkei 225 added 79.68 points or 0.48% to 16,642.23 and Hang Seng was up by 103.39 points or 0.5% to 20,962.61.