Benchmarks slip in red zone as bears take control

Dilly-dallying in the early session, benchmarks have now slid in red terrain as bears are actively running around the space. Downgrade on India’s outlook by top rating agencies is mainly eating into investor’s risk appetite for risky asset class such as equities. However, even the trader’s roll-over positions from one month contract to another on account of April month’s F&O expiry series, is weighing on the markers. Barometer 30 share index, Sensex, on BSE is currently off its 17200 bastion. Meanwhile, the widely followed 50 share index, Nifty, on NSE, gyrating in a thin band is currently oscillating near its neutral line, which is below 5200 bastion. Imitating the pattern of front line indices, the broader indices, too have slid early in trade.

Negative global leads also continued to somber investor’s sentiment. Asian shares failed to retain positive momentum even as the Federal Reserve reassured markets that it will keep its very accommodative stance to support growth, as the earnings season continued to have a mixed impact across the region. The US future indices, meanwhile, continued to exhibit mixed trend.

Back on the home turf, stocks from Technology, Consumer Durable and Information Technology were leading the pack of gainers on BSE sectoral front, however, stocks from Capital Goods, Auto and Realty counters remained the top laggards. The overall market breadth on BSE was in the favor of declines which thumped advances in the ratio of 1053:909, while 102 shares remained unchanged.

The BSE Sensex is currently trading at 17,124.37, down by 26.92 points or 0.16%. The index has touched a high and low of 17,193.25 and 17,123.64 respectively.  There were 11 stocks advancing against 19 declining one’s on the index.

The broader indices too slipped along with the frontline indices; the BSE Mid cap and Small cap indices were down by 0.12% and 0.04% respectively.

The top gaining sectoral indices on the BSE were, TECk and CD were up by 0.32%, Information Technology up by 0.23%, Metal up by 0.02%. While, Capital Goods down by 0.63%, Auto Down by 0.59%, Realty down by 0.50%, PSU down by 0.46% and Bankex down by 0.30% were the top losers on the index.

The top gainers on the Sensex were M&M up by 0.87%, Infosys up by 0.69%, Cipla up by 0.54%, Bharti Airtel up by 0.43% and Jindal Steel up by 0.43%.

On the flip side, Hero MotoCorp down by 2.19%, Gail India down by 2.09%, DLF down by 1.53%, HUL down by 1.13% and BHEL down by 1.10% were the top losers on the Sensex.

Meanwhile, Moody's Analytics, a division of Moody’s Corporation that provides expertise in economic and consumer credit analysis, credit research and risk measurement etc has stated that the Indian government is single biggest factor weighing on the Indian economy and is keeping it short of achieving its true potential. The report said that India was growing but below its potential as politics was weighing on the economy. The report termed the UPA Government at the Centre as the “single biggest drag” on business activity. As per the agency, the United Progressive Alliance (UPA) coalition government has lost all momentum and it is unlikely that any substantial progress will be seen on existing bills that cover pressing issues like land reform, fuel subsidies, labour rights, and the much-discussed supermarket reforms, between now and the next national election in 2014.

It also criticized the government for being too populist with the budget which contained various investor-damaging proposals. It is of the opinion that the UPA doesn’t have the numbers or the leaders to push through tough-minded reforms needed to drive the next wave of growth. Other political risks include possible tensions with China, as highlighted by India’s recent missile launch, and the Maoist insurgency spread across nine Indian states. It has predicted that the economy is likely to remain weak through the June quarter before demand sees a modest pickup in second-half. However growth will reach its true potential only after the economy is well into 2013.

As per the report, all sectors of the economy are vulnerable right now with particular weakness in manufacturing and mining, along with a worrying contraction in private investment. Softer global conditions, weak investor and business confidence, government paralysis, and tight monetary conditions are all weighing on demand. Industrial growth has slowed to 2.6% y-o-y across January and February, with sluggishness in the all important capital goods production. Further exports have slowed down due to weak global demand, mirroring weak production. On the other hand, imports have risen by a good 20% (y-o-y). However the rise has been due to higher oil and commodity prices, rather than a strong domestic economy.

Given the situation it is likely that the current account deficit reaches 4% of GDP later this year. As per the report this is a manageable number and looks sustainable, especially with an economy growing at 6%. However it will continue to exert downward pressure on the rupee. It is expected that India’s external imbalance and elevated inflation will drag the rupee steadily lower through 2012 and a sudden bout of global investor risk aversion could prove to be negative for the currency.

There is however still two reasons of optimism for the economy. First, the rate cut announced by the Reserve Bank of India which has confirmed its focus on growth rather than inflation. Secondly the predicted average rainfall in 2012 which is crucial in determining India’s agricultural output, with knock-on effects for rural incomes and consumption. Given the conditions it is expected that the Indian economy will grow solidly but the growth will hover around the 6-6.5% levels. Its potential of 7.5% will however be reached in the second half of 2013.

The S&P CNX Nifty is currently trading at 5,193.25, down by 8.75 points or 0.17%. The index has touched a high and low of 5,215.60 and 5,190.80 respectively. There were 18 stocks advancing against 31 declines on the index, while 1 stock remained unchanged.

The top gainers of the Nifty were Ambuja Cement up by 1.33%, Grasim up by 1.17%, M&M up by 0.90%, Power Grid Corporation up by 0.88% and ACC up by 0.77%.

On the flip side, JP Associate down by 2.51%, Hero MotoCorp down by 2.44%, IDFC down by 2.19%, Gail India down by 2.01% and DLF down by 1.88% were the major losers on the index.

Most of the Asian equity indices were trading in the red; Shanghai Composite declined 0.28%, KLSE Composite slid 0.04%, Nikkei 225 slipped 0.20%, Straits Times descended 0.12%, Taiwan Weighted lost 0.47% and Seoul Composite was down by 0.20%.On the flip side, Hang Seng gained 0.20%, and Jakarta Composite added 0.68%.