Indian equities declines for fourth straight session despite optimism in Europe

Indian frontline indices commenced the September series F&O expiry week with an unenthusiastic performance by extending the losing streak for the fourth consecutive session and this on a day when European counterparts staged a remarkable bounce back and traded with gains in the range of 1-4%. However, the benchmark indices managed to recover a great deal from the lowest levels in the session and settled with moderate losses of over half a percent. Investors remained highly apprehensive in early part of trade amid the distressing uncertainties over the eurozone as leaders of the debt-troubled region struggled to find a plan to solve the crisis. The reports that rating agency Moody’s downgraded ratings of eight Greek banks by two notches weighed on sentiments while the assurances from G20 finance leaders that they would take strong, co-ordinated action to avoid another global financial crisis, too failed to pacify marketmen. However, there appeared some tentative recovery in investors’ sentiments in afternoon trades as the key indices tracked European equity markets which swiftly recuperated and surged after a somber opening with large cuts of around one and half a percent. The local benchmarks too regained the psychological 4,800 (Nifty) and 16,000 (Sensex) levels despite the bleak leads that Asian peers exhibited which was evident from the fact that most benchmarks in the region suffered nasty cuts especially Indonesia which got bludgeoned by over 3%. On the domestic front, sentiments also got some support from reports that the finance ministry may consider a cut in securities transaction tax (STT) and propose a concession on stamp duty on equities. Meanwhile, optimists were of the belief that a good monsoon and the dramatic decline in commodity prices may bode well of the markets in the time to come as it may ease inflationary pressure on Asia’s third largest economy which would be followed by a peaking of the interest rate cycle.

Earlier on Dalal Street, the benchmark got off to a flat but positive opening, shrugging the somber sentiments prevailing in Asian markets. However, the indices slipped into the negative territory and even went on to test important psychological 15,800 (Sensex) and 4,750 (Nifty) levels. The key gauges got solid support around those intraday low levels as they convalesced from thereon. The indices tried hard to move back into the positive territory and even got there but only for a brief period as investors took the opportunity to cash in on the bounce back. The bourses finally extended the declining run for the fourth session but finished way above the session’s lows. Eventually the NSE’s 50-share broadly followed index Nifty, suffered over half a percent cut to settle below the crucial 4,850 support level while Bombay Stock Exchange’s Sensitive Index, Sensex slipped by over a hundred points and closed above the psychological 16,050 mark. Moreover, the broader markets too failed to show any kind of fervor and settled with large cuts of around a percent. On the BSE sectoral space, barring the information technology counters, all the gauges closed in the negative territory with indices like Consumer Durables and Metal suffering nasty lacerations of 4.95% and 2.87% respectively. Though there were no other sectoral gainers, there were some among individual gainers like Jaiprakash Associates, Bharti Airtel and ICICI Bank which gained some traction in the session. The markets receded on extremely large volumes of over Rs 2.07 lakh crore while the turnover for NSE F&O segment too remained higher as compared to Friday at over 1.93 lakh crore. The market breadth remained awful as there were 786 shares on the gaining side against 1966 shares on the losing side while 109 shares remained unchanged.

Finally, the BSE Sensex lost 110.96 points or 0.69% to settle at 16,051.10, while the S&P CNX Nifty declined by 32.35 points or 0.66% to close at 4,835.40.

The BSE Sensex touched a high and a low of 16,209.19 and 15,801.01 respectively. The BSE Mid cap and Small cap index were down by 1.47% and 1.67% respectively.

The major gainers on the Sensex were Jaiprakash Associate up 2.37%, Bharti Airtel up 1.48%, ICICI Bank up 1.40%, DLF up 1.21% and Cipla up 0.97%. While, Coal India down 5.46%, Sterlite Industries down by 4.40%, Hindalco Industries down by 3.80%, Hero Motocorp down by 2.84% and Jindal Steel down 2.61% were the major losers on the index.

The top gainers on the BSE sectoral space was TECk up 0.50% and IT up 0.42%. While, the top losers were Consumer Durables (CD) down 4.95%, Metal down 2.87%, PSU down 1.77%, Oil & Gas down 1.56% and Capital Goods (CG) down 1.39%.

Meanwhile, the depreciating value of rupee has raised concern over the profitability of the Indian Inc, which has tapped abroad loan in US dollar, and the bottom lines this year are expected to take a hit by more than $2 billion this year. Because of the increased cost of capital in domestic market, the Indian companies have been increasingly tapping overseas loans mostly in US dollar. However, the recent fall in Indian rupee has negated the benefits of the cheap overseas funds. The Indian Rupee has depreciated by more than12% to close to Rs 50 per dollar mark from close to Rs 44 per dollar in the start of August.

The Indian rupee has been the worst performer among the major Asian currencies, which declined by a 5% in the past week and this declining trend increase the difficulties for companies who are looking for funds abroad. From January-July 2011, the Indian Inc has borrowed around $21 billion in the foreign currencies through ECB (External Commercial Borrowing) window compared to $18 billion in entire 2010. As per the Reserve Bank of India (RBI) data, Indian companies like Reliance Industries, NTPC, Mundra Port and SEZ, Indian Oil, Bharat Aluminium, Vodafone Essar, Air India, GAIL, Adani Power, JSW Steel, Aircel, Tata Tele, Idea Cellular, Suzlon, IDFC, RCOM, REC, Indian Railway Finance Corp, M&M and BPCL, have raise funds from overseas.

In July, around 100 domestic firms tapped abroad loans totaling around $4 billion, which includes Mukesh Ambani-led RIL raising $1.09 billion for refinancing its old loans, Mundra Port raised $150 million for ports business and Indian Oil raised $500 million for import of capital goods. Additionally, a number of domestic telecom firms have raised overseas loans in recent months to refinance earlier loans for payment of their 3G spectrum fees. Experts are of the view that the liquidity deficit and relative higher interest rates in domestic market were encouraging Indian Inc to explore cheap dollar loans for financing their domestic business activities, imports, overseas acquisitions and refinancing of the existing rupee loans.

However, the recent depreciation in the rupee has changed the situation drastically as many Indian firms do not hedge against the currency fluctuations because rupee was stable compared to present time. Hence, many Indian companies may have to book mark-to-market losses on their books for this year if the rupee reverses its downward trend. Last week, Finance Minister Pranab Mukherjee met the RBI governor D Subbarao to discuss the depreciation in rupee and RBI intervention in currency market. Finance Minister said that intervention in the currency market would be considered at an appropriate stage.

The S&P CNX Nifty touched high and low of 4,879.80 and 4,758.85, respectively.

The top gainers on the Nifty were DLF up 3.52%, JP Associate up 3.34%, Ranbaxy up 2.18%, Ambuja Cement up 1.80%, and Bharti Airtel up 1.33%. On the flip side, Tata Power down 5.82%, Sterlite Industries down 4.57%, Sesa Goa down 4.37%, Reliance Capital down 4.20% and Hindalco down 4.07% were the top losers on the index.

The European markets were trading in the green. France's CAC 40 climbed by 3.39%, Britain's FTSE lost by 1.20%, and Germany's DAX declined by 3.40%.