Resilient Sensex negotiates moderate cut after S&P jolt

Stock markets in India went through a turbulent day of trade on Wednesday as the frontline equity indices settled on a negative note with cuts of around three fourth of a percent. After showing signs of consolidation for most part of the morning trades, despite the over seven percent collapse in IT bellwether Wipro post its disappointing quarterly earnings numbers, the markets took a turn for the worse in late morning trades.

The frontline equity indices suffered a sharp kneejerk reaction and plummeted over a percentage points to touch the lowest point in the day and looked set to breach the psychological 17,000 (Sensex) and 5,150 (Nifty) levels. The wave of selling pressure hit the shores of domestic markets after global credit rating agency S&P threatened to downgrade the sovereign bond rating of India and revised its economic outlook to negative from stable, citing slow progress on its fiscal situation, as well as deteriorating economic indicators.

Sentiments went awry after the reports surfaced as investors took to across the board position squaring as the lowered outlook jeopardizes India's long-term rating of BBB-, which is the lowest investment grade rating. However, the markets soon recovered after finance ministry officials reacted to the reports saying that the rating outlook change was not unanticipated and the revision will not impact capital inflows and India continues to remain an attractive investment destination.

On the other hand, the European markets opened on a positive note, providing the much needed support to local bourses. Market participants chose to play it safe and added positions in the defensive counters like FMCG and Healthcare, which prevented the downside for local markets while the rate sensitive Automobile index too did its bit by settling with marginal gains.

However, the IT pocket remained one of the top laggards in the space with around one and half a percent cut after industry heavyweight Wipro announced quarterly earnings, which disappointed Dalal Street. The PSU and high beta Realty counters too got pounded over a percent and pressured the frontline gauges. Meanwhile sugar stocks like Shree Renuka Sugars and Balrampur Chini went home with strong gains amid reports that the EGoM is scheduled to meet later in the day to discuss allowing further exports of sugar.

On the global front, cues from Asian region remained mixed with major markets like the ones in China and Japan finishing on a positive note with notable gains, supported by positive overnight cues. Easing euro-zone woes, strong earnings from US manufacturers and the new US home sales data along with the Case-Shiller home price index showing slow but continuing improvement in the US housing market, supported sentiments.

The European markets on the other hand, rallied with over a percent ahead of the outcome of US Federal Reserve's meeting, which would divulge clues to future policy, including the probability of a third round of quantitative easing.

Back home, the NSE’s 50-share broadly followed index Nifty, eased by one third of a percent to settle just above the psychological 5,200 support level while Bombay Stock Exchange’s Sensitive Index - Sensex shed fifty six points to finish above the crucial 17,150 mark. Moreover, the broader markets too succumbed to the selling pressure that was being exerted on their larger peers, but gradually pared losses and settled with around half a percent loss.

The markets fell on strong volumes of over Rs 2.32 lakh crore while the turnover for NSE F&O segment remained on the higher side as compared to that on Tuesday at over Rs 1.98 lakh crore. The market breadth remained pessimistic as there were 972 shares on the gaining side against 1,444 shares on the losing side while 436 shares remained unchanged.

Finally, the BSE Sensex lost 56.00 points or 0.33% to settle at 17,151.29, while the S&P CNX Nifty declined by 20.65 points or 0.40% to close at 5,202.00.

The BSE Sensex touched a high and a low of 17,249.61 and 17,019.24 respectively. The BSE Mid cap and Small cap index were down by 0.55% and 0.53% respectively.

The major gainers on the Sensex were Bharti Airtel up by 2.25%, Hero MotoCorp up by 1.92%, Sterlite Industries up by 1.89%, Maruti Suzuki up by 1.23%, and HDFC Bank up by 0.96% while Wipro down by 7.29%, Gail India down by 3.35%, BHEL down by 2.32%, TCS down by 1.92% and Coal India down by 1.81% were the major losers on the index.

The major gainers on the BSE sectoral space were FMCG up by 0.48%, Auto up by 0.22% and Health Care (HC) up by 0.09%, while Consumer Durables (CD) down by 1.67%, IT down by 1.48%, PSU down by 1.42%, Realty down by 1.33% and Power down by 1.28% were major losers on the BSE sectoral space.

Meanwhile, credit ratings agency, Standard & Poor (S&P) has revised India’s economic outlook to negative. The reason cited for the downgrade is the large fiscal deficit, low expectations of economic reforms and a slowing down of GDP growth. The ratings agency has slashed its outlook on India’s long-term rating to negative from stable and affirmed its lowest investment grade rating of BBB (-). However, India was earlier rated at BBB levels by the agency.

S&P has further gone ahead and said that there is at least one-in-three likelihood of a ratings downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting (in the next two years). The reforms that the credit ratings agency is referring to is reducing fuel and fertiliser subsidies, introducing a nationwide goods and services tax, and easing of restrictions on foreign ownership of various sectors such as banking, insurance, and retail sectors.

S&P has also warned that government's policy reversals may diminish FIIs confidence. The rating agency has pegged India’s GDP growth at 5.3% in 2012-13 as compared to the Indian government’s expectation of over 7%. The agency is also not confident about the government achieving control over fiscal deficit. The fiscal deficit is targeted at 5.1% of GDP for the FY’13 and stood at 5.9% of GDP in FY’12, which is one of the highest amongst emerging economies.

On a slightly more positive note it has stated that India's favorable long-term growth prospects and high level of foreign exchange reserves support the ratings, but they are restrained by large fiscal deficits and debt, as well as its lower middle-income economy.

The government is of the opinion that the rating outlook change was not unanticipated and the good thing is that India's rating has not been downgraded. Moody's has a Baa3 rating on India, while Fitch rates India BBB (-). Both are also the minimum investment grade ratings, one step above so-called junk status. Moody's in December issued a stable outlook for India. 

The S&P CNX Nifty touched a high and low of 5,236.10 and 5,160.65 respectively.

The top gainers on the Nifty were Hero MotoCorp up by 5.04%, Sterlite Industries up by 2.22%, Sesa Goa up by 2.08%, Maruti Suzuki up by 1.76% and Bharti Airtel up by 1.71%.

On the flip side, Wipro down by 6.99%, RPower down by 3.95%, GAIL down by 3.43%, Siemens down by 2.64%, and IDFC down by 2.62% were the top losers on the index.

The European markets were trading in green, as France's CAC 40 up 1.73%, Britain’s FTSE 100 up 0.21%, while Germany's DAX was up by 1.23%.

Sentiments across the Asian region remained cautious and Asian counters snapped the day’s trade on the mixed note on Wednesday as investors awaited key policy meetings at the central banks of the United States and Japan this week. The US central bank is likely show that it is slightly more upbeat on the economy but in little hurry to raise borrowing costs, although investors wishing for clues on the prospect of a further monetary easing may be disappointed. While Japanese central bank will make its next rate decision on Friday, with market-players hoping for more easing measures to kick-start the stuttering economy, which is struggling to recover from last year's March 11 disasters. The BoJ has this year already pledged tens of billions of dollars to help businesses but economic growth remains anemic.

Meanwhile, Chinese benchmark garnered 0.75 percent, as property developers gained on expectations of further easing policies from the government while start-up companies listed on the ChiNext board rebounded after recent sharp losses while, Japanese Nikkei advanced about a percentage point, snapping recent losses, as investors cheered strong US corporate results from the likes of Apple.