Indian equities continue to trade on cautious note

Indian equities trim losses but continued its weak trade in red in the late afternoon session as investors lacked conviction to pile up fresh positions. Traders were seen piling up position in Auto and FMCG sector while selling was witnessed in Realty, Consumer Durables and PSU sector. 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 by slashing its economic outlook to negative from stable, citing slow progress on its fiscal situation, as well as deteriorating economic indicators. Sentiments went awry after 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.

The market may remain volatile this week as traders roll over positions from the near-month April 2012 series to next-month May 2012 series. The April 2012 derivatives contracts expire on Thursday, April 26, 2012. Also, IT bellwether Wipro was seen trading weak with a cut of around seven percent on posting disappointing quarterly earnings numbers, exerting pressure on the market. DLF from Realty counter was seen trading weak in red with cut of around more than one percent pulling the markets lower. However, Hero MotoCorp, Maruti Suzuki, Tata Motors and Bajaj Auto from Auto counters were seen trading firm driving the markets higher.

On the global front, Asian markets were trading on a mix note while the European markets were trading in green on optimistic note. On the home turf, the NSE Nifty and BSE Sensex were trading below their psychological 5,200 and 17,200 levels respectively. The market breadth on BSE was negative in the ratio of 908:1671 while 125 scrips remained unchanged.

The BSE Sensex is currently trading at 17,120.50 down by 86.79 points or 0.50% after trading as high as 17,249.61 and as low as 17,019.24. There were 10 stocks advancing against 20 declines on the index.

The broader indices were trading on a negative note; the BSE Mid cap index sank 0.83% while Small cap shed 0.77%.

On the BSE sectoral space, Auto up 0.15% and FMCG up 0.13% were the only gainers, while Realty down 1.75%, Consumer Durables down 1.58%, PSU down 1.45%, Power down 1.36% and Capital Goods down 1.24% were the major laggards in the space.

Bharti Airtel up 1.73%, Hero Motocorp up 1.21%, Sterlite Industries up 1.13%, Maruti Suzuki up 0.88% and Jindal Steel up 0.75% were the major gainers on the Sensex, while Wipro down 6.85%, GAIL India down 2.81%, BHEL down 1.85%, Coal India down 1.71% and ICICI Bank down 1.55% were the major losers in the index.

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 is currently trading at 5,192.45, lower by 30.20 points or 0.58% after trading as high as 5,236.10 and as low as 5,160.65. There were 14 stocks advancing against 35 declines while 1 stock remained unchanged on the index.

The top gainers on the Nifty were Cairn India up 1.65%, Sesa Goa up 1.45%, Hero MotoCorp up 1.40%, Bharti Airtel up 1.40% and Sterlite Industries up 1.04%.

Wipro down 6.63%, Reliance Power down 4.23%, GAIL India down 2.85%, Reliance Communications down 2.55% and Reliance Infrastructure down 2.44% were the major losers on the index.

In the Asian space, Shanghai Composite climbed 0.75%, Nikkei 225 surged 0.98%, Straits Times added 0.14% and Taiwan Weighted climbed 0.86%. On the other hand, Hang Seng eased 0.15%, Jakarta Composite fell 0.39%, KLSE Composite shed 0.19%, and Seoul Composite lost 0.07%.

The European markets were trading in green with, France’s CAC 40 added 1.36%, Germany’s DAX gained 1.35% and Britain’s FTSE 100 rose 0.60%.