Disappointing Q1 numbers drag benchmarks lower; Nifty ends below 8600 mark

Stock markets in India capitulated by around half a percent on Tuesday after showing signs of consolidation in early trade, as discouraging Q1 numbers spooked investors’ sentiments in the dying hours of trade. Dr Reddy's Laboratories, one of India's largest and most respected global pharmaceutical companies, missed the street’s expectations on all counts with consolidated profit falling sharply by 76.3% year-on-year (Y-o-Y) to Rs 153.5 crore in Q1FY16, hit largely by US business and weak operational performance. Further, TVS Motor also slid after the company reported profit growth, which lagged street estimates. The company reported 21.15% rise in its net profit at Rs 121.25 crore for the quarter ended June 30, 2016, as compared to Rs 100.08 crore for the same quarter in the previous year.

Sentiments remained subdued with the report that sectors like construction, iron & steel, chemicals continued to face financial stress with dip in margins and profitability leading to higher number of credit rating downgrades in the June quarter. Further upside risks to price rise still prevails, largely owing to increasing international commodity prices and implementation of the seventh pay commission awards, while CPI inflation is likely to be in the range of 5.7-5.9% in July. According to a private report, structural issues in the inflation dynamics continue to prevail as rural CPI inflation on average remains above the urban CPI inflation.

Meanwhile, investors remained uncertainties about the much-delayed goods and services tax (GST) bill would be cleared as state finance ministers meet to discuss it ahead of a debate in the Rajya Sabha, the upper house of Parliament.  The GST Bill, which intends to convert 29 states into a single market through a new indirect tax regime, was earlier planned to be introduced from April 1 this year, but the deadline was missed as the legislation to roll it out remains in limbo in the Opposition-dominated Rajya Sabha.

On the global front, Asian markets ended mostly in green on Tuesday, with Chinese stocks gaining traction as US stocks pulled back after suffering energy stock losses.  However, Japanese shares suffered heavy losses on the back of a stronger yen while caution ahead of policy meet from central banks in US and Japan and weakness in crude oil prices dampened sentiment. According to reports, Japanese government will inject 6 trillion yen ($57 billion) in direct fiscal outlays into the economy over the next few years, double the amount initially planned. However, the spending will come over several years, which means the initial impact will be less than hoped. Meanwhile, European stocks were little changed, erasing earlier declines, as gains in commodity producers offset losses in banks and energy shares.

Back home, after starting the session on cautious note, Indian benchmark indices traded near neutral line, altering between positive and negative territory, for most part of the session, but saw a heavy flow of selling in final hour of trade on account of disappointing quarterly numbers by some blue-chip firms. Finally the NSE’s 50-share broadly followed index Nifty, took a cut of over half percent to settle below the crucial 8,600 support level while Bombay Stock Exchange’s Sensitive Index Sensex slipped by over hundred points and closed below the psychological 28,000 mark. On the BSE sectoral space, Realty and Auto pockets remained among top laggards in the space as they got lacerated by 1.32% and 1.12% respectively. While sectors like PSU and Banking too got pounded heavily in the session. On the flipside, IT, Teck and Power pockets managed to go home with moderate gains.

The market breadth remained pessimistic as there were 1038 shares on the gaining side against 1660 shares on the losing side while 200 shares remained unchanged.

Finally, the BSE Sensex ended lower by 118.82 points or 0.42% to 27976.52, while the CNX Nifty dropped 45 points or 0.52% to 8,590.65. 

The BSE Sensex touched a high and a low 28149.53 and 27927.13, respectively. The broader indices made a mixed closing; the BSE Mid cap index ended up by 0.17%, while Small cap index was down by 0.69%.

The top gaining sectoral indices on the BSE were IT up by 0.38%, TECK up by 0.26% and Power up by 0.08%, while Realty down by 1.32%, Auto down by 1.12%, PSU down by 0.78%, Bankex down by 0.73% and Oil & Gas down by 0.65% were the top losing indices on BSE.

The top gainers on the Sensex were Axis Bank up by 2.85%, Power Grid Corpn. up by 1.63%, Tata Steel up by 1.06%, Wipro up by 0.77% and Infosys up by 0.77%. On the flip side, Dr. Reddys Lab down by 4.37%, ICICI Bank down by 2.64%, Hero MotoCorp down by 2.12%, SBI down by 1.46% and Maruti Suzuki down by 1.44% were the top losers.

Meanwhile, to boost the road sector, government has planned to spend Rs 7 lakh crore to develop around 50,000 kilometres of national highways over the next five years. Union Minister Nitin Gadkari has said that during the current financial year, the government has set a target of constructing 10,000 kilometres of greenfield highways, for which a budgetary allocation of Rs 46,834 crores has been made including cess and toll remittance for 2016-17.In addition, internal and extra budgetary resources of Rs 59.279 crores have also been allowed to be raised for highways in 2016-17.

The country at present has 96,000 km of national highways, which the Ministry wants to expand to 1,50,000 km over this period. The Minister noted that it was necessary to bring down the cost of construction and the government was taking various initiatives to ensure India becomes competitive globally. He added that the ministry was studying the construction codes of countries like US and Germany and create a code for India which will help reduce the cost of construction by almost 15-20 per cent.

Initially government has set a target of constructing Rs 5 lakh crore worth projects in five years. But considering the pace at which India is progressing, Gadkari said that there is a proposal to spend around Rs 7 lakh crores to develop National Highways of around 50,000 kilometres in the next five years. Acknowledging that road safety is a big problem in India, minister had earlier said that safe roads are of the highest priority for the government and that the US had assured full co-operation in meeting the challenge. The United States has promised technical help for the construction of roads, bridges, flyovers and also shares expertise in road safety and traffic management.

The CNX Nifty traded in a range of 8,644.90 and 8,577.15. There were 13 stocks advancing against 38 decliners on the index.

The top gainers on Nifty were Axis Bank up by 2.58%, Power Grid up by 2.22%, Yes Bank up by 1.42%, Tata Steel up by 1.03% and HCL Tech up by 0.84%. On the flip side, Dr. Reddys Lab down by 5.10%, ICICI Bank down by 2.68%, Hindalco down by 2.63%, Hero MotoCorp down by 2.39% and Aurobindo Pharma down by 2.21% were the top losers.

The European markets were trading mostly in red, UK’s FTSE 100 was marginally up by10.64 points or 0.16% to 6,720.77, France’s CAC declined by 18.15 points or 0.41% to 4,369.85 and Germany’s DAX was down by 8.37 points or 0.08% to 10,189.87.

Asian equity markets ended mostly higher on Tuesday, with Chinese stocks gaining traction as US stocks pulled back after suffering energy stock losses. However, Japanese shares suffered heavy losses amid a rally in the yen after a local media report suggested the government's highly anticipated stimulus package may not live up to expectations. Investors awaited policy meetings by the Federal Reserve and Bank of Japan this week to see how policymakers will respond to increasing global uncertainty in the wake of last month's Brexit vote. While the Fed is not expected to raise rates at the end of its two-day policy meeting on Wednesday, the Bank of Japan is widely expected to add at stimulus at the end of its two-day policy meeting on July 29.