Benchmarks end lower due to inflation, growth concerns

Indian equity benchmarks ended lower with losses of over half percent on Thursday, following heavy selling in Capital Goods, Banking and Financial Services stocks due to inflation and growth concerns. A weak rupee and rising crude prices also impacted the market sentiment. Key gauges made a negative start and stayed in red for whole day, as weak set of macro-economic data dampened sentiments. India's retail inflation spiked to 7.41% in September, mainly due to costlier food items. For the ninth month in a row, retail inflation has remained above the Reserve Bank of India's tolerance level of 6%. Also, India's industrial growth, as per the Index of Industrial Production (IIP), slid to an 18-month low of -0.8% in August from 2.2% in July. Some pessimism also came with rating agency Crisil's research wing stating that India Inc is expected to report a three per cent year-on-year decline in profits for the July-September period. It added that this fall in profitability will be the fourth straight quarter of the decline in profits for the listed companies.

Sentiments remained weak in late afternoon deals, amid SBI Research in its latest 'Ecowrap' report said that the unseasonal rains in different parts of India, particularly in cereal-producing states, could have a 'significantly large impact' on cereal and vegetable prices. It also said India's retail inflation surged to 7.41 per cent in September, remaining above the Reserve Bank of India's mandated range of 2-6 per cent for the third straight quarter - nine straight months - largely due to a rise in food prices. Traders took note of Global rating agency S&P said India is facing a “mixture of factors that may shake its sovereign credit metrics”. Nevertheless, it conceded that strong economic growth and external balance sheet are expected to offset risks inherent in the growing external headwinds. But if the economy witnesses a prolonged downturn in real and nominal GDP growth, “material downward pressure on the sovereign ratings could emerge, especially if large government deficits are left unchecked. Besides, sustained foreign capital outflows also weighed on investor sentiments. As per exchange data, foreign institutional investors (FIIs) remained net sellers in the Indian capital market on Wednesday as they sold shares worth Rs 542.36 crore.

On the global front, European markets were trading higher, as investors await U.S. consumer price inflation data later in the day that could offer more clarity on whether the Federal Reserve needs restrictive monetary policy to lower inflation that is at multi-decade highs. Asian markets settled down on Thursday as concerns about inflation continue to rise after overnight data showed U.S. producer price inflation rose more than expected in September.

Back home, coal industry stocks were in watch as Union Minister Pralhad Joshi said Coal India, accounts for over 80 per cent of the domestic coal output, will achieve 1 billion tonne coal production target by 2025-26 as against the earlier timeline of 2023-24 in view of the COVID-19 pandemic. Sugar industry stocks were in focus the Directorate General of Foreign Trade (DGFT) said the validity for export of raw sugar to the US under Tariff-Rate Quota (TRQ) has been extended from September 30, 2022 to December 31, 2022. There were some reaction in banking stocks as Moody's Investors Service said the Reserve Bank of India's slew of rate hikes this year to combat surging inflation will help lift banks' net interest margins, but the increase will be limited as funding costs will rise faster than loan rates.

Finally, the BSE Sensex fell 390.58 points or 0.68% to 57,235.33 and the CNX Nifty was down by 109.25 points or 0.64% to 17,014.35.

The BSE Sensex touched high and low of 57,568.14 and 57,055.75, respectively. There were 7 stocks advancing against 22 stocks declining, while 1 stock remains unchanged on the index.

The broader indices ended in red; the BSE Mid cap index fell 0.73%, while Small cap index was down by 0.45%.

The few gaining sectoral indices on the BSE were Healthcare up by 0.17%, Metal up by 0.13%, while Capital Goods down by 1.22%, Bankex down by 1.21%, Financial Services down by 1.13%, Realty down by 1.08% and Industrials down by 0.98% were the top losing indices on BSE.

The top gainers on the Sensex were HCL Technologies up by 3.19%, Sun Pharma up by 1.36%, Reliance Industries up by 0.37%, Dr. Reddy's Lab up by 0.23% and Ultratech Cement up by 0.08%. On the flip side, Wipro down by 7.03%, SBI down by 2.36%, Larsen & Toubro down by 1.85%, ICICI Bank down by 1.60% and Asian Paints down by 1.12% were the top losers.

Meanwhile, rating agency Crisil's research wing in its latest report has said that India Inc is likely to report a three per cent year-on-year fall in profits for the July-September period (Q2FY23). This fall in profitability will be the fourth straight quarter of the decline in profits for the listed companies. Profitability is seen declining 300 basis points (bps) due to elevated commodity prices.

The report, based on research of 300 companies from 47 sectors, said that rising revenue momentum is not translating into profit margin proportionately. The revenues are expected to rise by 15 per cent during the quarter when compared to the year-ago period, attributing it to moderate price hikes and steadily rising volumes. It can be noted that starting earlier this week, major companies have been reporting their earnings for the July-September period. On a sequential basis, that is when compared with the performance in Q1, the corporate revenue has declined by 3 per cent.

The report said nearly half of the 47 sectors have outpaced overall revenue growth during the quarter, with key sectors within consumer discretionary services logging maximum year-on-year growth. The underperforming sectors include construction-linked, consumer staples and industrial commodities verticals. Consumer discretionary services, which accounted for 8 per cent of overall revenue, are estimated to have grown 35 per cent year-on-year, largely due to revenue more than doubling in sectors, such as airline services on account of a rise in passenger traffic and high fares and hotels due to the increase in occupancy and room tariff.

It further said the IT services sector will report a 15-17 per cent rise in revenues, aided by the rapid adoption of digital platforms across the world. It said the construction-linked sectors, which accounted for 16 per cent of overall revenue, grew only 5 per cent on-year in the September quarter, adding that the largest contributor steel products likely to de-grew by 3 per cent after a continued run-up in revenue growth over the past eight quarters.

The CNX Nifty traded in a range of 17,112.35 and 16,956.95. There were 12 stocks advancing against 36 stocks declining, while 2 stocks remains unchanged on the index.

The top gainers on Nifty were HCL Technologies up by 3.05%, Sun Pharma up by 1.30%, Coal India up by 0.84%, Dr. Reddy's Lab up by 0.66% and Tata Motors up by 0.62%. On the flip side, Wipro down by 6.95%, Adani Ports &SEZ down by 2.29%, SBI down by 2.23%, SBI Life Insuran down by 2.08% and ICICI Bank down by 1.65% were the top losers.

European markets were trading higher; UK’s FTSE 100 increased 2.54 points or 0.04% to 6,828.69, France’s CAC increased 16.94 points or 0.29% to 5,835.41 and Germany’s DAX increased 103.99 points or 0.85% to 12,276.25.

Asian markets settled down on Thursday ahead of US consumer price inflation data due later in the day, which could offer more clarity on the Federal Reserve's rate-hike plans to combat soaring inflation. Meanwhile, the US Producer Price Index (PPI) rose at an annual pace of 8.5% in September, down slightly from the 8.7% rise in August. US PPI rose 0.4% month-over-month, the largest rise since May, the Bureau of Labour Statistics said. Further, recession fears and rising Covid-19 cases in China also adding more pressure in market sentiments. Chinese shares dropped ahead of a key Party congress where Xi Jinping is expected to extend his leadership for another term.