Sensex surrenders 0.75% after late hour damage and control

Indian benchmark indices failed to keep the gaining momentum going for the fifth straight session on Friday as the markets witnessed sharp kneejerk selling pressure in the dying hours of trade. Though some damage control in dying moments ensured that the key bourses recover some part of the ground lost, however, it was not enough to pull the frontline indices back into the positive terrain.

The sharp drag down in stock markets in mid noon trades was suspected to be the result of a trading error after National Stock Exchange opined that they are examining the issue and declined to give further details. The 50-share Nifty plunged around one and a quarter percent within seven seconds starting 2.20 pm, to trade at 5,246.30 as the loss was triggered by a decline in Nifty futures, and was echoed in the 30-share Sensex which also fell by similar quantum. Both Nifty and Sensex recovered part of their losses shortly thereafter.

Earlier, markets showed lackadaisical movements as investors lacked conviction to pile up fresh positions amid uncertain market conditions. The key equity gauges moved sideways in an extremely narrow range around the psychological 5,350 (Nifty) and 17,500 (Sensex) levels, lacking any significant upside triggers as investors indulged only in stock specific activities.

The benchmark gauges were pressured by continued profit booking in the Capital Goods and Power counters, which remained among the top laggards after heavyweight BHEL once again suffered severe pounding, falling over two percent amid concerns that slack demand led India from an under-supplied to an over-supplied market for power equipment.

Sentiments also were grim ahead of the earnings announcement by Sensex’ heaviest component Reliance Industries, which plunged over a percent amid expectations that the company is likely to report quarterly figures that would disappoint the Street. The drop in rate sensitive Banking and Realty pockets too hurt sentiments.

On the other hand, the downside in local bourses was limited as Automobile counter gained some traction with BSE auto index rising for a seventh straight session to a new all-time high on expectations that sales will improve after the RBI’s 50 basis points cut in repo rate. The defensive FMCG index too saw some buying interest and did its bit in preventing the frontline indices from drifting to lower levels.

On the global front, cues from Asia remained unsupportive as most markets in the region settled on a negative note after disappointing economic reports from world’s largest economy and renewed concerns over the financial situation in Euro-zone offset the positive cues from encouraging earnings announcement by blue-chip firms.

However, the European markets on the other hand, rebounded from intraday lows hit in early hours of trade after the leading Ifo survey showed a surprise improvement in German business sentiment in April.

Back home, the NSE’s 50-share broadly followed index Nifty, sank by over three fourth of a percent to settle just below the psychological 5,300 support level while Bombay Stock Exchange’s Sensitive Index - Sensex shed a hundred and thirty points to finish above the crucial 17,350 mark. Moreover, the broader markets too went home with losses in the session with the Mid-cap index underperforming all its peers as it plunge by a percent.

The markets fell on strong volumes of over Rs 1.70 lakh crore while the turnover for NSE F&O segment remained on the higher side as compared to that on Thursday at over Rs 1.3 lakh crore. The market breadth turned pessimistic by the end as there were 1,180 shares on the gaining side against 1,621 shares on the losing side while 117 shares remained unchanged.

Finally, the BSE Sensex lost 129.87 points or 0.74% to settle at 17,373.84, while the S&P CNX Nifty declined by 41.55 points or 0.78% to close at 5,290.85.

The BSE Sensex touched a high and a low of 17,519.88 and 17,231.34 respectively. The BSE Mid cap and Small cap index were down by 0.98% and 0.47% respectively.

The major gainers on the Sensex were Mahindra & Mahindra up by 2.89%, Wipro up by 0.75%, Tata Steel up by 0.73%, Cipla up by 0.64%, and Coal India up by 0.35% while Hindalco down by 2.46%, Tata Power down by 2.28%, ONGC down by 2.24%, BHEL down by 2.05% and L&T down by 2.02% were the major losers on the index.

The top gainers on the BSE sectoral space were FMCG up by 0.11% and Auto up by 0.08%, while Capital Goods (CG) down by 1.84%, Power down by 1.72%, Realty down by 1.68%, Oil & Gas down by 1.30% and Bankex down by 1.07% were major losers on the BSE sectoral space.

Meanwhile, the recent amendment of the Income Tax Act, which allows India to tax foreign takeovers retroactively to 1962, has raised concerns in the US corporate sector. US is of the view that such steps dampen enthusiasm about India's investment climate. The US Treasury Secretary Timothy Geithner has reportedly told his Indian counterpart that US businesses have become worried about changes in India's tax regime for foreign companies. Also Washington is examining India's proposed tax provisions to determine how they will impact on the US-India bilateral income tax treaty and overall economic relations.

Timothy has reportedly encouraged Finance Minister Pranab Mukherjee to reassure foreign investors that India will continue to welcome foreign capital. The Finance Minister in this year’s Union Budget came up with a proposal to amend the IT Act with retrospective effect to bring into the tax net Vodafone-type merger and acquisition deals involving assets in India. The UK-based Vodafone, which in 2007 bought Hong Kong-based Hutchison’s telecom business that included Indian assets for around $11 billion, has attracted tax of Rs 11,000 crore.

However, Vodafone has refused to pay the tax arguing that since both companies are not based in India, the tax rule does not apply on them. The Supreme Court has given its judgment in favour of Vodafone. Nevertheless, the amendment to the law itself and the ability of the IT department to tax companies retrospectively has drawn flak from investors domestically and internationally.

In recent months, foreign investors have begun to sour on India due to these major policy swings. In a letter to Premier Manmohan Singh earlier this month, seven global business groups, including the Confederation of British Industry and the US Business Roundtable, warned of a 'widespread reconsideration of the costs and benefits of investing in India.'

The S&P CNX Nifty touched a high and low of 5,336.15 and 5,245.45 respectively.

The top gainers on the Nifty were M&M up by 2.75%, Wipro up by 1.01%, Cipla up by 0.70%, ITC up by 0.64% and Tata Steel up by 0.62%.

On the flip side, IDFC down by 3.30%, JP Associates down by 2.87%, Siemens down by 2.52%, Hindalco down by 2.50%, and Jindal Steel down by 2.42% were the top losers on the index.

The European markets were trading in green, as France's CAC 40 up 0.53%, Britain’s FTSE 100 up 0.27%, while Germany's DAX was up by 0.98%.

Sentiments in the Asian region continued to remain bearish for second consecutive day and most of the Asian equity indices snapped the last trading day of the week in the negative terrain on Friday as downbeat US housing, jobless claims and manufacturing data raised anxiety about the outlook for the world's largest economy, eclipsing stronger-than-expected U.S. earnings, a positive Spanish bond auction and improved prospects for the International Monetary Fund's resources to expand. The Labor Department said weekly applications for unemployment benefits were down 2,000 to 386,000 but anything above 375,000 is generally taken as a sign that hiring is not strong enough to lower the unemployment rate.

On the regional turf, Korean and Japanese exporters underperformed on concerns over the global growth outlook. Meanwhile, Japanese Nikkei edged lower to post its third straight weekly loss after a Spanish bond auction failed to extinguish fears of a renewed euro zone debt crisis, but a weaker yen offered support. While, Chinese Shanghai Composite ended with a gain of over a percentage point, boosted by expectations of further policy easing after a senior government economist said China's economic growth may rebound in the third quarter of this year and that there is room to adjust the country's macroeconomic policy.