Indian equities continue to trade in red; May IIP registers 2.4% growth

Indian equities continued to trade in red in the late morning session. On the global front, all the Asian markets are trading in red due to lack of clarity from the minutes of US Federal Reserve's June policy meeting on future easing measures from the Fed. The traders are also cautious ahead of the Chinese economic growth report that may signal a deeper slowdown in the second largest economy growth. Traders were seen piling up position in Oil &Gas, and FMCG sector while selling was witnessed in IT, TECk and Realty sector. Infosys, Wipro, HCL Tech, and TCS from IT pack were seen trading weak in red dragging the markets lower. Meanwhile, India's annual industrial output growth measured by index of industrial production (IIP), showed better than expected growth of 2.4% at 170.2 for the month of May 2012 versus a negligible growth figure of 0.1% in April, which later was revised to show a contraction of 0.9%. The cumulative growth for the period April-May 2012-13 stands at 0.8% over the corresponding period of the previous year .The indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of May 2012 stand at 129.7, 178.9 and 162.3 respectively, with the corresponding growth rates of (0.9%), 2.5% and 5.9% as compared to May 2011. Meanwhile, the NSE Nifty and BSE Sensex were trading above their psychological 5200 and 17,200 levels respectively. The market breadth on BSE was negative in the ratio of 695:1292 while 84 scrips remained unchanged.

The BSE Sensex is currently trading at 17,293.51 down by 195.63 points or 1.12% after trading as high as 17,329.46 and as low as 17,244.09. There were 8 stocks advancing against 22 declines on the index.

The broader indices were trading on a negative note; the BSE Mid cap index down 0.54% while Small cap index was down 0.64%.

On the BSE sectoral space, Oil &Gas up by 0.38%, FMCG up by 0.09%. While, IT down by 5.40%, TECk down by 4.42%, Realty down by 1.42, CD down by 0.87 and Power down by 0.66% were the only losers on the index.

BHEL up by 0.80%, Cipla up by 0.77%, Hindustan Unilever up by 0.70%, Maruti Suzuki up by 0.58% and ONGC up by 0.56% were the major gainers on the Sensex, while Infosys down by 8.81%, Wipro down by 4.52%, Bharti Airtel down by 1.80%, Mahindra & Mahindra down by 1.63% and TCS down by 1.53% were the major losers in the index.

Meanwhile , Placing another hurdle in the way of goods and services tax (GST) implementation, different state governments have threatened that they might adopt anti-tax reform measures if compensation for phasing out central sales tax (CST) is not paid. In a letter to Prime Minister Manmohan Singh, states have said that the Centre’s refusal to compensate them for revenue losses because of a reduction in CST rate can derail the introduction of GST.

Sushil Kumar Modi, chairman of the empowered committee of state finance ministers, said that states would suffer substantial revenue losses if they were not given CST compensation. He further stated that ‘I am afraid that the unilateral decision of the Government of India regarding CST compensation, without even giving an opportunity to the States to put forward their point of view as requested by them, is likely to adversely affect the process of tax reforms in the country, including the introduction of Goods and Services Tax in India.’

CST, levied on goods traded across States, has been reduced from 4 per cent to 2 per cent. As a precursor to the implementation of the GST, it was decided to phase out CST for which compensation was to be paid to the States. Earlier, the Central Government, in consultation with States, had decided to phase out CST beginning April 2007 over a period of three years. Guidelines for compensation were framed in 2007 and were revised in 2008. However, the States claim that the revised guidelines do not envisage any further non-monetary steps by them and further the Union Finance Secretary informed the Empowered Committee in February this year that 2010-11 was the last year of compensation.

Now the State governments are threatening to increase taxes or levy fresh ones if the Centre fails to compensate them for the reduction in central sales. And have said that if states are not given compensation till GST is introduced, they will suffer substantial revenue losses and may be forced to adopt tax measures that may not be in the interest of tax reform. 

The S&P CNX Nifty is currently trading at 5,252.10, down  by 54.20 points or 1.02% after trading as high as 5,261.65 and as low as 5,234.30. There were 16 stocks advancing against 34 declines on the index.

The top gainers on the Nifty were Cairn up by 1.03%, BHEL up by 0.93%, Hero Moto Co up by 0.86%, ONGC by 0.77% and BPCL up by 0.73%. Infosys down by 9.06%, Wipro down by 4.88%, HCL Tech down by 2.04%, Bharti Airtel down by 1.82% and Sesa Goa down by 1.70% were the major losers on the index.

All the Asian equity indices were trading in the red; Shanghai Composite was down 0.28%, Hang Seng index down by 1.71%, Nikkei 225 down 1.35%, Kospi Composite Index down 1.18%, Taiwan Weighted down 1.56%, Strait Times down 0.38%, Jakarta Composite down 1.08% and KLSE Composite down 0.10%.