Sensex plunges about 1% from day’s highs as govt measures fall short of expectations

It turned out to be a disappointing performance from the stock markets in India on the first day of June series futures and options expiry week as the benchmark equity indices failed to snap the session in the green territory and settled with over half a percent cuts.

The frontline equity indices traded on a sanguine note for most part of the day amid growing optimism that the government would unveil measures to boost Asia’s third largest economy and shore up the falling rupee. The frontline gauges even looked set to breach the psychological 17,150 (Sensex) and 5,200 (Nifty) levels in the session as investors continued to show across the board buying interest.

However, the domestic markets took a turn for the worse in late hours of trade as investors started to square off hefty positions across the board after Reserve Bank of India (RBI) announced various steps to bolster the beleaguered rupee, including increasing the limit on foreign investment in government bonds by $5 billion to $20 billion, which would allow companies to borrow more from overseas to pay back their high cost rupee loans.

Market participants expressed disappointment over the measures announced by RBI as most believed that the measures would be beneficial for the bond markets in the long run however they doubted the measures’ sustainable impact on the rupee. Traders also eyed the movement of rupee, which after appreciating to 56.4 against a dollar, retreated to previous closing levels and undermined market sentiments.

Meanwhile the reports that global rating agency Moody's retained outlook on India's sovereign credit rating at ‘stable’ despite slowdown in GDP growth rate saying that it is unlikely to be even a medium-term feature, largely went unnoticed as it failed to prop up investors’ morale.

On the BSE sectoral space, the rate sensitive Bankex counter, which at one point in time traded as top gainer eventually settled with over a percent cuts, being the top laggard in the space. The Power and PSU pockets too got pummeled by close to a percent and pressured the benchmarks. Amid the across the board profit booking the consumer Durables index was the only counter, which managed to keep its head above the water and settle with marginal gains.

On the global front, the Asian markets are largely exhibiting weak trends and barring the Chinese benchmark which plunged over one and half a percent, most indices settled with about half a percent cuts. On the other hand, European counterparts too traded with grave losses as they sank by over a percent following the rising Spanish borrowing costs amid persistent worries over Europe's onerous debt crisis along with fresh concerns about global economic growth.

Back home, the NSE’s 50-share broadly followed index Nifty, dropped by over half a percent to settle above the psychological 5,100 support level while Bombay Stock Exchange’s Sensitive Index - Sensex shed ninety points to finish below the crucial 16,900 mark. However, the broader markets showed some resilience as they managed to consolidate their position around previous closing levels while the small cap index closed with around a quarter percent gains, outperforming all its larger peers.

The markets eased on large volumes of over Rs 2 lakh crore while the turnover for NSE F&O segment also remained on the lower side as compared to that on Friday. The market breadth remained in favor of advances as there were 1,420 shares on the gaining side against 1,334 shares on the losing side while 125 shares remained unchanged.

Finally, the BSE Sensex lost 90.35 points or 0.53% to settle at 16,882.16, while the S&P CNX Nifty declined by 31.40 points or 0.61% to close at 5,114.65.

The BSE Sensex touched a high and a low of 17,131.15 and 16,853.05 respectively. The BSE Mid cap index was down by 0.03% and Small cap index up by 0.24%.

Maruti Suzuki up 1.14%, Gail India up 0.76%, Reliance up 0.72%, HDFC up 0.54% and Bajaj Auto up 0.31% were the major gainers on the Sensex, while Hero MotoCorp down 2.72%, Hindalco Industries down 2.35%, ONGC down 2.31%, Cipla down 2.26% and SBI down 1.94% were major losers on the index.

The only gainer on the BSE sectoral space was Consumer Durables up 0.16%, while Bankex down 1.02%, Power down 0.94%, PSU down 0.85%, Metal down 0.72% and Realty down 0.71% were top losers on the BSE sectoral space. 

Meanwhile, global rating agency, Moody’s Investor Services has maintained a ‘Stable’ outlook on India’s sovereign debt rating of Baa3 in spite of problems such as high inflation, slowing economic growth, weak fiscal performance and feeble investment scenario, which are hurting the economic growth of the country. The global rating agency, however, voiced its concern by stating that the global and domestic factors coupled with low agricultural production could negatively impact India’s growth and keep it below trends in the next few quarters.

At the same time, Moody’s said the negative trends like low growth and slowing investment will neither be permanent nor will it be there in the medium term features of the Indian economy. Although the impact of India’s lower growth and high inflation will deteriorate the credit metrics in the short term but it will not become irreconcilable with India’s current rating.

The rating agency’s decision will give the government a much needed relief as it has come in the face of a cut in outlook from Fitch from ‘stable’ to ‘negative’.  While, Standard and Poor's warning that India could become the first ‘fallen angel’ among the BRIC countries, if it lost its investment grade rating, mainly on the back of slowing GDP growth and political roadblocks in policymaking.

India’s widening fiscal deficit has sharply increased its current account deficit and has sent the rupee to its fresh all time lows against the dollar. Moody’s also highlighted that India’s limited foreign currency debt will protect the government from any external increase in its debt burden due to sharp fall in rupee.

India’s economic growth slowed to 6.5% in 2011-12, while growth for the March quarter registered 5.3%, the lowest in 9-years. Further, the fiscal deficit for the current financial has been pegged at 5.1% of GDP, after having climbed to 5.9% in FY-12 from a estimated 4.6%.

The S&P CNX Nifty touched a high and low 5,194.60 and 5,105.65 respectively.

The top gainers on the Nifty were Cairn up 1.35%, GAIL up 1.32%, Reliance up 1.32%, Ambuja Cement up 0.75% and Maruti Suzuki up 0.72%. On the flipside, Hero MotoCorp down 2.69%, Siemens down 2.66%, Grasim down 2.58%, Cipla down 2.45% and JP Associates down 2.38% were the top losers on the index.

The European markets were trading in red, as France's CAC 40 down 1.66%, Germany's DAX down 1.66% and United Kingdom’s FTSE 100 down 0.86%.

All the Asian markets ended day’s trade in negative territory due to low global growth prospect  and increasing tension of the Euro zone debt crisis that is spreading across  southern Europe. The demand for the US dollar raised against the other major currencies as investor’s rushed to invest their money in the safe heaven. Demand for Commodities increased as oil, grain and corn outperform.

The MSCI across the Asia Pacific fell to 0.6 percent MSCIs broadest index of Asia-Pacific shares outside Japan fell 0.6 percent, while Kospi losing more than 1 percent .Mainland China's Shanghai Composite Index fell as did benchmarks in Singapore and Taiwan.

The only index in green was KLSA Composite which was up to 0.05 per cent at the time of the close.