Dimmed hopes of rate cut sends Indian equity markets to day’s low

The underlying weakness of Indian equity markets has expanded post the release of May industrial output data, which despite marking improvement, dimmed hopes of rate cut in Reserve Bank of India(RBI)’s upcoming policy review on July 31, in light of prevailing dim global economic climate. 30 scrip sensitive index, Sensex, after knocking down over massive 200  points, is currently languishing near its intra-day’s low level, which is below the 17300 level, while the widely followed index, Nifty, after getting pummeled close to a percent and half points, is trading sub 5250 bastion. Meanwhile, broader indices, too have enticed additional weakness.

The sentiment at Dalal Street took a hit after the release of Q1 earnings of IT bellwether, Infosys, which despite reporting 33% growth in its net profit, slashed its revenue guidance for the full year to 5%, the rub-off effect of which was sensed across the entire IT space. Negative opening of European markets, too were seen as deterring the sentiment. European stocks edged lower as investor’s remained wary of opening fresh positions ahead of the release of minutes from the latest Federal Reserve meeting amid signs that the U.S. Federal Reserve won't be rushing into another round of quantitative easing any time soon. Meanwhile, Asian pacific shares slid on Thursday as a surprise rate cut from South Korea and an unexpected slump in Australian employment deepening worries about global economic growth, sapped into investor’s risk appetite.

Closer home, stocks from Oil & Gas and Fast moving Consumer Goods counters were the only sector which showcased resilience, while stocks from Technology, Realty and Consumer Durable counters emerged as the laggards of the sector. The overall market breadth on BSE remained in the favour of declines which thumped advances in the ratio of 1542:860, while 105 shares remained unchanged.

The BSE Sensex is currently trading at 17,256.93, down by 232.21 points or 1.33% after trading as high as 17,329.46 and as low as 17,244.09. There were 7 stocks advancing against 23 declining ones on the index.

The broader indices were added weakness; the BSE Mid cap index down 0.71% while Small cap index was down 0.75%.

The only gainers on the BSE sectoral space were, Oil &Gas up by 0.33%, Fast Moving Consumer Goods up by 0.20%. While, Information Technology down by 5.86%, TECk down by 4.78%, Realty down by 1.41%, Consumer Durable down by 1.05% and Capital Goods down by 0.96% were the top losers on the index.

Hindustan Unilever up by 1.35%, ONGC up by 1.01%, Hero MotoCorp up by 0.66%, Cipla up by 0.46% and Gail India up by 0.38% and were the major gainers on the Sensex, while Infosys down by 9.06%, Wipro down by 4.17%, TCS down by 2.34%, Bharti Airtel down by 1.84% and Mahindra & Mahindra down by 1.60% were the major losers on the index.

Meanwhile, registering a better than expected pace of growth, India’s index of industrial production (IIP), a key measure of industrial output, grew by 2.4% in May 2012 at 170.2, from the same period in the past fiscal, against the expectations of 1.8%. Moreover, the cumulative growth for the period April-May 2012-13 stood at 0.8% over the corresponding period of the previous year.

Mainly driven by the manufacturing output, although the May industrial production marks some improvement, but the reliability of the series remains in question after negligible yet positive growth of 0.1% in April was revised down to contraction of 0.9%.

The industrial output has remained fragile in the past few months as growth in all three sectors viz. mining, manufacturing and electricity got dampened. However, this time around, the manufacturing sector, which accounts for about 76% of industrial output, emerged as the factor for delight. The IIP for 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.

However, Capital goods output, a key investment indicator, contracted to 7.7%, highlighting that companies are still wary of making investments in high-interest, uncertain economic climate. Capital goods, so far, have managed to show growth only once in the last eight months. Consumer goods, on the other hand, grew at a more robust 4.3%, driven by a 9.3% surge in durables, despite a meager 0.1% growth in non-durables.

The Reserve Bank of India (RBI) is unlikely to draw some sense of comfort from this indicator, as things might turn around, particularly due to monsoon cycle. Further, with both global and domestic parameters remaining largely unchanged since its last meeting on June 18, 2012, the central bank has limited room for rate cuts, since the slowdown remains supply-driven. However, besides this, June wholesale price inflation (WPI), scheduled for July 16, the notoriously volatile IIP data would be helpful for the RBI to take a call on the rate cuts at a policy review on July 31.

The S&P CNX Nifty is currently trading at 5,230.50, down  by 75.80 points or 1.43% after trading as high as 5,261.75 and as low as 5,227.45. There were 11 stocks advancing against 38 declines on the index and one remained unchanged.

The top gainers on the Nifty were BPCL up by 1.18%, ONGC up by 1.01%, Cairn India up by 0.95%, Hindustan Unilever up by 0.92% and Hero MotoCorp up by 0.81%. On the flip side, Infosys down by 9.30%, Wipro down by 4.22%, HCL Tech down by 2.69%, TCS down by 2.45% and Bharti Airtel down by 2.20% was the major losers on the index.

Most of the Asian equity indices were trading in the red; Hang Seng index plunged 2.05, Nikkei 225 declined 1.48%, Kospi Composite Index plummeted 2.24%, Taiwan Weighted plunged 1.75%, Strait Times surrendered 0.25%, Jakarta Composite lost 1.10%.  On the flip side, Shanghai Composite up 0.58% was the lone gainer on the index.

European markets got off to a sluggish start; DAX down by 0.92%, CAC 40 declined 0.54% and FTSE 100 slid 0.73%