Sensex weathers ugly inflation, bleak global cues to settle with moderate cut

Stock markets in India recovered notable ground from the day’s lowest point in dying moments of trade as the frontline equity indices, which once traded with over a percent cut in late trades, settled with less than half a percent cut.

The volatile session was also marred by some technical glitches as traders complained about problems placing orders on the NSE's futures and options platforms. Though the issue was resolved and problems involving the confirmation of orders had been addressed, it led to aberrations in the mid noon trades.

By the end, the frontline gauges not only held on to important psychological levels of 4,900 (Nifty) and 16,200 (Sensex) but also managed to outperform the European counterparts which got thrashed by around two percentage points. Markets had got off to a reasonable opening after registering the three and half a percent laceration in the week gone by.

But the bargain hunting that was evident for most part of the morning session faded away immediately after commerce ministry released India’s widely tracked WPI inflation numbers which accelerated to 7.23% for the month of April, worse than consensus estimates of 6.7%. Investors resorted to largely across the board risk aversion in late morning trades as they were expecting that a moderation in inflation reading would give some leeway to the RBI to further employ liquidity easing measures at a time when the industrial activity is in doldrums.

However, with the rise in WPI index, the Indian Reserve Bank remains in a tight spot as it finds itself trapped between curbing inflation and trying to shore up economic growth. The interest rate sensitive Baking and Real Estate counters on the BSE suffered the maximum brunt of selling pressure after the disappointing inflation print came to the fore and plummeted over a percent each.

Sentiments also were dampened by the disappointing cues from money market where anemic rupee depreciated against the US dollar despite the Reserve Bank’s recent efforts to check outflow of forex. Apart from the rate sensitive counters, investors were also seen squaring off positions from the Oil & Gas pocket which sank over one and half a percent.

However, defensive -Healthcare and IT sectors too went home with gains of around half a percent and helped the benchmarks in capping the losses. Moreover, amid a series of disappointing fourth quarter earnings announcement, index heavyweight L&T’s earnings lifted sentiments to a certain extent as it surged close to two percent in the session.

Another silver lining amid this gloomy environment was the sharp plunge in international crude oil prices as Brent crude which is a major component of India’s oil basket sank under $110 a barrel, not only giving some respite to OMCs but also to the government.

Meanwhile, global cues too were dissuading investors from opening fresh positions as most Asian markets drifted lower despite encouraging reports from China where the People's Bank of China in order to spur growth in world’s second largest economy announced cut in bank reserve ratio, the amount of cash banks must set aside as reserves.

Moreover, the European markets too got off to a somber opening and traded with large cuts as talks to form a new government failed in Greece, intensifying fears that the debt laden nation would exit from the single currency union. Also, output at factories in the Euro-zone unexpectedly fell in March, signaling that the bloc's recession may not be as mild as policymakers hope.

The NSE’s 50-share broadly followed index Nifty declined by about half a percent to settle above the psychological 4,900 support level while Bombay Stock Exchange’s Sensitive Index - Sensex shed seventy seven points to finish above the crucial 16,200 mark. Moreover, the broader markets finished on a negative note with hefty cuts of over a percent, underperforming their larger peers by a fat margin.

The markets sank on weaker volumes as compared to that on Friday as turnover was impacted since trades in Nifty Futures were halted for a brief period in the session due to some technical snag. The market breadth remained pessimistic as there were 1,047 shares on the gaining side against 1,657 shares on the losing side while 117 shares remained unchanged.

Finally, the BSE Sensex lost 77.14 points or 0.47% to settle at 16,215.84, while the S&P CNX Nifty declined by 21.10 points or 0.43% to close at 4,907.80.

The BSE Sensex touched a high and a low of 16,390.33 and 16,124.82 respectively. The BSE Mid cap and Small cap indices were down by 1.00% and 1.26% respectively.

The major gainers on the Sensex were L&T up by 1.84%, Bajaj Auto up by 1.80%, Tata Power up by 1.51%, Sun Pharma up by 1.26%, and Infosys up by 1.13% while DLF down by 2.64%, Tata Motors down by 2.42%, Reliance down by 2.32%, HDFC Bank down by 2.02% and BHEL down by 1.99% were the major losers on the index.

The few gainers on the BSE sectoral space were Health Care (HC) up by 0.78%, IT up 0.41%, Consumer Durables (CD) up 0.36%, Capital Goods (CG) up 0.34% and FMCG up by 0.28%, while Oil & Gas down by 1.69%, Bankex down by 1.61%, Realty down 1.27%, PSU down by 0.91% and Power down by 0.79% were major losers on the BSE sectoral space.

Meanwhile, India’s headline inflation accelerated to 7.23% in the month of April as compared to 6.89% in March 2012. The increase has come in as a bit of surprise as most expected inflation to sober down to 6.7% levels. The increase in prices is bad news for the economy especially in a situation where factory output has significantly dipped. These numbers have certainly dimmed hopes of any further rate cuts by the RBI.

A look at the sub segments reveal that the major contribution to the price increase has come in from the food and primary commodities category. Annual inflation in the primary commodities stood at 9.7% in April compared with the previous month’s 9.6%. Within the primary goods segment, food inflation has surged substantially to 10.49% again compared with 9.94% in the last month.

Inflation in the manufacturing space has also gone up to 5.12% from the 4.8% of last month. The rise can be traced back to the increase in taxes by the government by 2% in its Union Budget on March 16. The current inflation number makes it clear that the hike has been passed on to the consumers given the still robust demand scenario in the country.

Fuel inflation has been at 11.03% with LPG (Liquefied petroleum gas) growing by 15.52% (m-o-m). This segment could see a further rise in prices if the government decides to put in practice its intention of bringing fuel prices in sync with global prices. 

It is noteworthy that the higher than expected inflation has come in at a time when the economy has been slowing down due to the high costs of credit as well as the global effect. Industrial output in the country has shrunk in March by a substantial -3.5% as per the IIP data. The now famous ‘policy paralysis’ has further hit business sentiment in the country.

Further, in its efforts to step up the rate of growth in the economy, RBI cut interest rates, for the first time since 2009, by an unexpected 50 basis points in its last monetary policy. However with the recent rise in inflation any further cuts look extremely unlikely.  Inflation in India has cooled from 2011, when it was above 9% for most of the year. But it is still the highest among its BRICS countries.

The S&P CNX Nifty touched a high and low of 4,957.20 and 4,874.50 respectively.

The top gainers on the Nifty were Asian Paints up by 3.06%, Ranbaxy up by 2.29%, Sesa Goa up by 1.87%, BPCL up by 1.87% and Bajaj Auto up by 1.80%.

On the flip side, Cairn down by 4.82%, Bank of Baroda down by 4.59%, SAIL down by 3.42%, Reliance Infra down by 3.20%, and PNB down by 3.07% were the top losers on the index.

The European markets were trading in red, as France's CAC 40 down by 2.53%, Britain’s FTSE 100 down 1.91%, while Germany's DAX was down by 2.12%.

Stock markets in the Asian region continued their southward journey and all the equity indices barring Nikkei 225 ended the day’s trade in the negative terrain on Monday amid fears over political uncertainty in Europe while, China’s move to boost liquidity in the slowing economy was unable to provide a lift. Chinese central bank cut the amount of cash that banks must hold as reserves on Saturday, freeing an estimated 400 billion yuan ($63.5 billion) for lending to head-off the risk of a sudden economic slowdown.

Meanwhile, Taiwan stocks closed down 0.33 percent at a four-month closing low, underperforming regional peers as tourism counters and car makers weighed, down 2.12 percent and 2.02 percent respectively. In addition, Chinese bank stocks in Hong Kong failed to rally after the reduction in the reserve ratio, as loan growth data for April released after the market closed on Friday, came in much lower than expected. However, Japan’s Nikkei share average inched higher on Monday to end a three-day losing streak as China's monetary easing countered unease ahead of Greece's last-ditch attempt to form a coalition government later in the day.