Global risk aversion, GAAR woes mallet Sensex to over three month lows

Global risk aversion seems to be taking its toll on stock markets in India in the Monday afternoon trades as the frontline equity indices got decimated by another close to two percentage points and extended the south bound journey for the fourth straight session. The 30-share Sensex has given up around six hundred points in last two session and is hovering around the psychological 16,500 levels. Sentiments in the session remained discouraging since the start of trade as investors largely remained influenced by the disconcerting leads from both sides of the Atlantic, where a weak US jobs data along with the success of anti-austerity leaders in European elections multiplied concerns over global economic outlook. The US markets went for sharp sell-off over the weekend on getting lower than expected jobs number, making it their worst weekly closing of the year so far. Concerns also exacerbated over the European debt crisis after French and Greek voters ousted respective incumbent parties in a backlash against austerity measures aimed at battling the euro zone crisis. On the domestic front, investors are looking forward to reassurance from Finance Minister Pranab Mukherjee on the road map for implementation of the feared General Anti-Avoidance Rules (GAAR), where investors are hoping for a one-year delay as well as transparent rules. While most investors may have reconciled to paying short term capital gains tax of 10%, Mukherjee will have to offer an explanation on the fate of the Mauritius treaty after his junior minister SS Palanimanickam reiterated in the Lok Sabha that the government proposes to review it. Meanwhile, there was some respite for market participants on the currency front, as the rupee recovered after initial losses against the US dollar in the late morning trade due to fresh selling of the American currency by banks and exporters. The rate sensitive banking and Realty pockets got bludgeoned by around three percent and remained the top laggards in the space while the Metal counter too bore the brutal brunt of hefty position squaring and plummeted by over two percent. Amid the across the board carnage, the PSU oil marketing companies like BPCL, HOCL and IOC bucked the somber trend and rallied in the range of 1-4% after international crude oil prices corrected over two percent after previous week’s over six percent sell-off.

Moreover, the broader markets traded on a bleak note with large cuts of around one and half a percent in the afternoon trades, largely performing in tandem with their larger peers. The bourses declined on higher volumes of over Rs 0.8 lakh crore while the market breadth on BSE was dominantly in favor of declines in the ratio of 1719:715 while 103 scrips remained unchanged.

The BSE Sensex is currently trading at 16,536.57 down by 294.51 points or 1.75% after trading as high as 16,620.44 and as low as 16,514.60. There were 2 stocks advancing against 28 declines on the index.

The broader indices were trading on a negative note; the BSE Mid cap index plunged 1.81% and Small cap sank 1.40%.

On the BSE sectoral space, there were no gainers, while Realty down 3.07%, Bankex down 2.86%, Metal down 2.02%, PSU down 1.83% and IT down 1.74% were the major laggards in the space.

BHEL up 0.89% and Cipla up 0.49% were the only gainers on the Sensex, while SBI down 3.68%, HDFC Bank down 3.44%, Hero Moto down 3.29%, Sterlite down 2.77% and ICICI Bank down 2.57% were the major losers in the index.

Meanwhile, despite a slowdown in demand from the western countries, India has set a target of $38 billion for textile exports this year. The target is 12% higher than that of last year’s $34 billion as India is expecting to tap newer markets of Africa and Latin America.

The US and European markets account for over 50% of India’s exports and are currently facing an economic slowdown. Hence India has resorted to exploring the markets of Africa and Latin America which it believes have tremendous potential.

India's textiles export performance has continued to lag its global competitors in the last few years. It has a meagre 4.3% share of the world market, compared to China's 28.3%. The Indian apparel industry is facing several challenges like labour, safety and health compliances in the global market which are affecting its competitiveness.

Moreover according to estimates, the share of textiles and clothing as a percentage of the country's overall export basket decreased from 15.97 percent in 2004-05 to 8.9 percent in 2010-11. The sector, which is the country's second largest employment generator after agriculture, employing 35 million people, was hit hard by the global economic slowdown.

The Economic Survey 2011-12 too had stated that India needs to diversify its export markets as its trading partners may resort to protectionist measures in the wake of global economic uncertainty.

The S&P CNX Nifty is currently trading at 4,997.25, lower by 89.60 points or 1.76% after trading as high as 5,021.15 and as low as 4,990.30. There were 6 stocks advancing against 44 declines on the index.

The top gainers on the Nifty were BPCL up 2.35%, BHEL up 1%, Ambuja Cement up 0.70%, Cipla up 0.25% and Sun Pharma up 0.16%.

JP Associates down 5.27%, Cairn down 4.94%, SBI down 3.64%, Bank of Baroda down 3.63% and SAIL down 3.36% were the major losers on the index.

In the Asian space, Shanghai Composite fell 0.17%, Hang Seng plummeted 2.56%, Jakarta Composite plunged 1.81%, KLSE Composite dropped 0.52%, Nikkei 225 got pounded by 2.78%, Straits Times Index got thrashed by 2.27%, KOSPI Composite slumped 1.64% and Taiwan Weighted dived 2.11%.

The European markets got off to a negative start as France’s CAC 40 sank 1.43% and Germany’s DAX shed 2.21%.

Stock markets in United Kingdom remained shut on Monday owing to Early May Bank Holiday.