Benchmarks end lower on Fed rate hike comments

Wednesday’s session turned out to be a choppy day of trade for Indian equity markets with frontline gauges ending the session with cut of two tenth of a percent, as investors remained cautious after an influential US Federal Reserve official said interest rates could rise as soon as September. Markets made a flat start but managed to remain in green terrain in first half, as traders took some encouragement with report that Indirect tax collection rose by about 31 percent during April-June to Rs 1,99,970 crore, from Rs 1,52,740 crore collected in the year-ago period. Some support also came with the private report stating that the strong consumption and public investments have kept India's growth recovery on track this year. According to the report, the present recovery is not accompanied by current account and fiscal excesses or strong core inflationary impulses, unlike previous instances of high growth.

However, markets reversed direction after hitting intraday high in afternoon session, as traders opted to book profits, as sentiment got affected with the discouraging macroeconomic data of wholesale inflation soared to a 23-month high of 3.55 per cent in July. Meanwhile, industry body Assocham said that the rise in Wholesale Price Index (WPI)-based inflation is in line with the industry’s expectation, but added that the government must take “strong action” to address the structural issues of demand and supply within the industry.

Weakness in global markets too dampened sentiments with European counterparts making sluggish start ahead of the closely-watched release of the US Federal Reserve’s latest minutes. Asian markets ended mostly in red on Wednesday after New York Fed President William Dudley said the Federal Reserve could raise interest rates as soon as September, prompting investors to pause after rallies in recent weeks.

Closer home, markets extended their southward journey in later part of the day’s trade and the indices even went on to test important psychological 28,000 (Sensex) and 8,600 (Nifty) levels, but the key gauges got some support near those intraday low levels, as they trim some of their losses from thereon as investors continued hunt for fundamentally strong stocks. Buying in steel stocks too added some support to the markets after Moody’s Investors Service said that Indian steel companies are expected to do better from now on as demand for steel will buck the global trend and is set to increase. However, banking shares ended mixed, as the outgoing RBI governor Raghuram  Rajan called for a level playing field between public and private sector banks, besides expressing concern over the rush into retail credit at the expense of project finance at a time when India needs massive infrastructure funding.

The NSE’s 50-share broadly followed index Nifty slipped by around twenty points to end below the psychological 8,650 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex declined by around sixty points but managed to hold its psychological 28,000 mark. Broader markets, however, outperformed benchmarks and traded with traction to end the session with a gain of over half a percent.

Finally, the BSE Sensex declined by 59.24 points or 0.21% to 28005.37, while the CNX Nifty slipped 18.50 points or 0.21% to 8,624.05. 

The BSE Sensex touched a high and a low 28174.30 and 27960.14, respectively. There were 15 stocks advancing against 15 stocks declining on the index.

The broader indices ended in green; the BSE Mid cap index gained 0.69%, while Small cap index was up by 0.55%.

The top gaining sectoral indices on the BSE were Metal up by 2.06%, Basic Materials up by 1.01%, Auto up by 0.84%, PSU up by 0.78% and Healthcare up by 0.52, while IT down by 1.67%, TECK down by 1.35%, FMCG down by 0.31%, Oil & Gas down by 0.25% and Power down by 0.13% were the losing indices on BSE.

The top gainers on the Sensex were Tata Steel up by 3.20%, Coal India up by 2.90%, Bajaj Auto up by 1.99%, Hero MotoCorp up by 1.98% and Axis Bank up by 1.14%. On the flip side, TCS down by 2.51%, Adani Ports &Special down by 2.34%, Power Grid down by 1.69%, Infosys down by 1.67% and Asian Paints down by 1.41% were the top losers.

Meanwhile, after the Wholesale Price Index (WPI) inflation increased for the fourth straight month and shot up to 3.55 per cent in July 2016, industry body, Associated Chambers of Commerce & Industry of India (Assocham) has said that the rise in WPI based inflation is in line with the industry’s expectation as it got some upward movements through increase in prices of crude oil and other commodities globally and policy measures introduced by Reserve Bank of India (RBI) in its bi-monthly policy in April 2016, but it also said that the government must take strong action to address the structural issues of demand and supply within the industry.

Assocham further pointed that WPI figures for July 2016 may give some relief to manufacturers and producers, since earlier it was hampering their pricing power and profitability and limiting their potential to increase capital expenditure. However, the increase in WPI may result in increase in Consumer Price Index (CPI) which may affect the households and final consumers badly. Therefore, policy makers should take concrete steps to minimise the transition of price rise from WPI to CPI.

In its recent comprehensive study on vegetables, the industry body had stated that prices of most of vegetables like potato, cabbage, chilly, tomato, cauliflower, brinjal and okra have seen a price rise between 20 and 100 per cent, hit by low arrivals of the harvest in the mandis during the April-July period of 2016 and what is most worrying is that the trend is visible during the peak season of production

DS Rawat, Secretary General of the Assocham said the prices of products which are of national interest has been continuously rising at industry level are pulses, vegetables, potato, fruits, fibres, food articles and sugar which policy makers should check and address through supply side responses, though it is good that prices of onions have been managed well.

The CNX Nifty traded in a range of 8667.10 and 8603.60. There were 25 stocks advancing against 26 decliners on the index.

The top gainers on Nifty were Tata Steel up by 3.35%, Coal India up by 2.96%, Aurobindo Pharma up by 2.07%, Hero MotoCorp up by 2.05% and Bajaj Auto up by 1.96%. On the flip side, TCS down by 2.49%, Adani Ports &Special down by 2.16%, Infosys down by 1.76%, Tech Mahindra down by 1.72% and Wipro down by 1.62% were the top losers.

European markets were trading in red; Germany’s DAX decreased 87.08 points or 0.82% to 10,589.57, France’s CAC dropped 26.48 points or 0.59% to 4,433.96 and UK’s FTSE 100 was down by 9.32 points or 0.14% to 6,884.60.

Asian equity markets ended mostly lower on Wednesday, as oil prices retreated in Asian deals on doubts over potential OPEC action to support prices amid a supply glut. Chinese shares ended lower showing little reaction to the formal announcement of a long-awaited stock trading link between Shenzhen and Hong Kong. Chinese authorities on Tuesday approved the launch of the stock trading link between Hong Kong and Shenzhen, the tech-heavy bourse. But, the market reaction was calm as the approval had been expected. The Indonesian market was closed for Independence Day. While, Japanese stocks bounced after sliding the previous day, though the recovery was contained by a backdrop of cautious trading after hawkish comments from US Federal Reserve officials sent the yen to a seven-week high.