Benchmarks trade under pressure as US fiscal cliff optimism fades

Pressurized by weak global cues, Indian equity indices have made a gap-down opening with frontline indices losing their crucial 5,900 (Nifty) and 19,400 (Sensex) level. US stocks sold off late in the day to close at session’s low overnight as talks to avert a year-end fiscal crisis turned sour, even as investors still expect a deal. Moreover, all the Asian equity indices were trading in the red at this point of time after Republicans scrapped a vote on putting in place a back-up plan if talks on averting the US fiscal cliff end in failure.

Back home, the sentiments remain dampened on weak economic report that retail inflation, based on Consumer Price Index (CPI) for agricultural and rural labourers, increased in November due to increase in prices of food items. Weakness in Indian rupee too dampening the sentiments as rupee lost 35 paise to trade at nearly one-month low of 55.20 against the US dollar in early trade today at the Interbank Foreign Exchange market on continued demand for the American currency from importers. However, some relief came from Planning Commission Deputy Chairman Montek Singh Ahluwalia’s comment that government is doing a lot to push growth but the impact of its efforts will be felt in the second half of the fiscal when the expansion rate will show some improvement.

On the sectoral front, software and technology remained the only gainers on the index while, software, power and bankex remained the top losers on the BSE sectoral space. The broader indices too were struggling to get some traction while, the market breadth on the BSE was negative; there were 657 shares on the gaining side against 984 shares on the losing side while 66 shares remain unchanged.

The BSE Sensex opened at 19,394.55; about 59 points lower compared to its previous closing of 19,453.92, and has touched a high and a low of 19,394.55 and 19,318.15 respectively.

The index is currently trading at 19,332.56, down by 121.36 points or 0.62%. There were 5 stocks advancing against 25 declines on the index.

The overall market breadth has made a negative start with 38.63% stocks advancing against 57.36% declines. The broader indices too were trading in-line with benchmarks; the BSE Mid cap and Small cap indices declined 0.43% and 0.33% respectively.

The top gaining sectoral indices on the BSE were, IT up by 0.35% and TECk up by 0.15%. While, Metal down by 0.94%, Oil and Gas down by 0.93%, PSU down by 0.88%, FMGC down by 0.86% and CD down by 0.84% were the few losers on the index.

The top gainers on the Sensex were Cipla up by 0.81%, Infosys up by 0.45%, Hindustan Unilever up by 0.39%, TCS up by 0.37% and Wipro up by 0.16%.

On the flip side, ITC was down by 1.82%, Jindal Steel was down by 1.70%, BHEL was down by 1.40%, Bharti Airtel was down by 1.38% and Coal India was down by 1.35% were the top losers on the Sensex.

Meanwhile, as per former chief economic advisor and now World Bank chief economist Kaushik Basu, a 5-6 percent inflation is not 'too high' for India economy and if it would be maintained at that level then it would be 'worth it'. Basu said, in current time Indian economy is growing and the inflation of 5-6% is not high for the growing economy. He added that when you are growing rapidly, you have to live with some inflation. Citing examples of developed country, Basu said during periods of very high growth, like we saw in South Korea in 1970, the inflation rate was high.

Further expressing his views on inflation, Basu said the recent moves by the government to implement the direct cash transfer scheme might create inflationary pressure on the economy. Since the scheme will give more money to the poor people through their bank account as a subsidy, so there is the risk of higher inflation as more money will be pumped into the system.

By adding further he said, the DTC scheme should be indexed to adjust with the inflation, so that the poor will not get affected with the rise in inflation and will continue to have the same buying power in future. 

However, in an anti-inflationary stance RBI kept its policy interest rates unchanged on December 18 meeting, and ignored the growing demands from India. Inflation rate, as measured by the Wholesale Price Index, dropped to a ten-month low of 7.24 percent during November from 7.45 percent a month ago and 9.46 percent in the corresponding month a year ago.

The S&P CNX Nifty opened at 5,888.00; about 28 points lower compared to its previous closing of 5,916.40, and has touched a high and a low of 5,888.00 and 5,870.10 respectively.

The index is currently trading at 5,872.35, down by 44.05 points or 0.74%. There were 6 stocks advancing against 44 declines on the index.

The top gainers of the Nifty were Cipla up by 0.74%, Infosys up by 0.41%, Wipro up by 0.22%, Axis Bank up by 0.11% and TCS up by 0.08%.

On the flip side, Cairn down by 2.67%, IDFC down by 1.80%, ITC down by 1.60%, PNB down by 1.55% and BHEL down by 1.49%, were the major losers on the index.

All the Asian equity indices were trading in red; Shanghai Composite declined 11.21 points or 0.52% to 2,157.15, Hang Seng dropped 173.06 points or 0.76% to 22,486.72, Jakarta Composite slipped 0.08 points to 4,254.74, KLSE Composite contracted 7.41 points or 0.44% to 1,663.19, Nikkei 225 dipped 58.99 points or 0.59% to 9,980.34, KOSPI Composite crumbled 20.27 points or 1.01% to 1,979.23, Taiwan Weighted slumped 85.77 points or 1.13% to 7,509.69 and Straits Times was down by 6.57 points or 0.21% to 3,168.95.