Indian markets remain hostage to depreciating rupee, Euro-zone woes

Indian stock markets wrapped up Wednesday’s trading session on a subdued note as the benchmark indices went on to undo most part of the good work done on Monday by shaving off about three fourth of a percentage points and drifting around the psychological 16,300 (Sensex) and 4,950 (Nifty) levels.

Market participants remained cautious a day ahead of May series futures and options expiry session and announcement of fourth quarter economic growth numbers. The frontline gauges got pummeled in the dying hours of trade as sentiments went awry tracking the depreciation in rupee and discouraging developments from the Euro-zone where equity indices traded on a pessimistic note.

The psychological 16,400 (Sensex) and 5,000 (Nifty) levels proved as stern resistances as the key gauges failed to sail beyond those levels. Local investors’ mood also got hit as despite the repeated measures by the RBI to rein in the downslide in rupee, the beleaguered currency extended its streak of depreciation and looked set to breach the historical lows hit recently amid increased end of month demand for the greenback from oil importers.

Apart from the global reasons, the rupee was also being weighed down by deep concerns about India's fiscal and economic challenges, and doubts about slowing policy reforms. On the BSE sectoral front, investors were seen squaring off hefty positions from the rate sensitive Automobile counter, which got battered by close to four percent, being the top laggard in the space.

Bellwether Tata Motors remained the main culprit as it got brutally slaughtered by about twelve percent post announcing disappointing quarterly earnings. Other rate sensitive pockets like Bankex and Realty too got pounded by around two percent. Though largely across the board selling was evident, investors showed some buying interest in IT and TECk sectors, which provided some support to the benchmarks.

On the global front, the Asian markets exhibited somber trends with the benchmark in Hong Kong getting battered by close to two percent after reports from China indicated that the government would not employ stimulus measures on the scale of its 2008 stimulus plan to achieve a high growth.

The markets in Europe too traded with significant losses of around a percent as the major cause of concern remained growing debt restructuring challenges in Europe while the third downgrade of Spain's credit rating in less than a month by Egan-Jones Ratings also prompted investors to take profits off the table. The move raised more doubts over Spain's ability to fund bank bailouts that could reach as much as 100 billion euro.

The NSE’s 50-share broadly followed index - Nifty shunned around three fourth of a percent to settle at the psychological 4,950 support level while Bombay Stock Exchange’s Sensitive Index - Sensex shed a hundred and twenty six points to finish above the crucial 16,300 mark. Moreover, the broader markets went through a somber session plunging around one and a quarter percent and underperforming their larger peers.

The markets sank on large volumes of over Rs 2.15 lakh crore while the turnover for NSE F&O segment remained on the higher side as compared to that on Tuesday, at over Rs 1.48 lakh crore. The market breadth remained pessimistic as there were 1,046 shares on the gaining side against 1,654 shares on the losing side while 128 shares remained unchanged.

Finally, the BSE Sensex lost 126.43 points or 0.77% to settle at 16,312.15, while the S&P CNX Nifty declined by 39.35 points or 0.79% to close at 4,950.75.

The BSE Sensex touched a high and a low of 16,428.74 and 16,295.31 respectively. The BSE Mid cap index was down by 1.28% and Small cap index up by 1.21%.

The major gainers on the Sensex were Sun Pharma up by 2.76%, Maruti Suzuki up by 2.12%, Tata Power up by 1.51%, Hindustan Unilever up by 1.10% and Infosys up by 0.64%, while Tata Motors down by 11.80%, BHEL down by 3.05%, ICICI Bank down by 2.62%, DLF down by 2.53% and Sterlite Industries down by 2.06% were the major losers on the index.

The top gainers on the BSE sectoral space were IT up by 0.38% and TECk up by 0.33%, while Auto down by 3.97%, Consumer Durables (CD) down by 2.25%, Realty down by 2.18%, Bankex down by 1.77% and Capital Goods (CG) down by 1.49% were top losers on the BSE sectoral space.

Meanwhile, a substantial fall in the non-oil imports of India will lead to a decline in current account deficit, stated a report by financial services firm - Nomura. This is expected due to the depreciation of the rupee which will make imports costlier, slumping commodity prices and subdued investment inflows.

India’s current account deficit stood at an uncomfortable 4% of GDP. This was mainly due to the high prices of global crude oil whose imports totaled to $150 billion and diminishing exports. Also the non oil imports like gold, capital goods, coal, fertilisers and other metals contributed to the CAD significantly. Infact imports of gold stood at $55 billion. The government in an attempt to discourage its imports of gold increased the import duty on it. As a result gold import is set to fall further with rising prices and taxes.

In FY12 the non oil imports grew by 24% and by 31% in FY11. However now as per Nomura, it is expected that this number will come down to a single digit. Infact the report cited that the non-oil commodity price growth will remain flat in FY13. Further the rising rupee will make imports costlier leading to greater focus on domestic production. A subdued investment demand is further expected to reduce the imports of non oil commodities.

The S&P CNX Nifty touched a high and low 4,982.25 and 4,944.90 respectively.

The top gainers on the Nifty were Ambuja Cement up by 4.88%, ACC up by 2.57%, Maruti up by 1.65%, Sun Pharma up by 1.63% and HUL up by 1.57%.

On the flipside, ACC down by 2.44%, BPCL down by 2.26%, IDFC down by 1.93%, SAIL down by 1.61% and Grasim down by 1.54% were the top losers on the index.

The European markets were trading in red, as France's CAC 40 down by 1.22%, Britain’s FTSE 100 down by 1.85%, while Germany's DAX down by 1.44%.

After witnessing two days of rally in previous two sessions, sentiments in the Asian region again turned bearish and most of the Asian counters snapped the day’s trade in the negative terrain on Wednesday on increasing worries that Spain could be forced into seeking a bailout. Moreover, third downgrade of Spain’s credit rating in less than a month by Egan-Jones Ratings also prompted investors to take profits off the table. Adding fuel to the fire, Chinese benchmark edged lower after some of the media reports indicated that Beijing will not provide another massive stimulus.

Meanwhile, Seoul benchmark edged lower on to snap its three-day winning streak while, Japanese Nikkei too edged down, pressured by mounting worries over Spain’s ailing banks. Moreover, Hong Kong shares fell nearly two percent, dragged lower by sectors most sensitive to the Chinese economy on speculation that, China government dashed earlier hopes of introducing fresh stimulus measures to boost its economy.