Benchmarks end lower on caution of less room for rate-cuts in future

Tuesday turned out to be a disappointing session of trade for the Indian stock markets, as key equity benchmarks snapped the session with a cut of over half a percent as market participants resorted to profit booking after Reserve Bank of India (RBI) signaled that there were less room for aggressive cuts in future due to concerns over inflation. Though, both the frontline gauges re-conquered their crucial 6,100 (Nifty) and 20,100 (Sensex) levels after the RBI reduced its policy rate by a widely expected 25 basis points, taking comfort from cooling inflation as it made the first cut in nine months to support an economy headed for its slowest growth in a decade. Also, RBI unexpectedly reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank by 25 bps to 4.00 percent, which will infuse an additional Rs 18,000 crore into the banking system. But, both the domestic gauges failed to hold on to intraday gains and slipped in the negative territory on Tuesday as traders, who had already factored in a 25 basis points cut in the repo rate, booked profits near higher levels.

Weakness in European counters too dampened sentiment, dragging Indian frontline indices below 6,050 (Nifty) and 20,000 (Sensex) levels. European markets traded mostly lower in the early deals as investors remained sideways ahead of Federal Reserve policy decision later in the week. However, most of the Asian equity indices ended the session in the green. South Korean shares edged up about 0.90 per cent after touching an 8-week low the day before on report of rise in business confidence in South Korea.

Back home, sentiments also remain subdued after the RBI lowered its growth projection for the Indian economy as new investment demand continues to remain muted. The banking regulator now expects the domestic gross domestic product (GDP) growth at 5.5% in the current financial year. It had earlier projected 6.5% growth in July, 2012. But lowered it to 5.8% three months later as investment demand slowed, consumption spending moderated and export performance eroded. Selling got intensified after rate sensitive counters like banking, realty and auto all turned into red after RBI despite lowering its key policy rate, struck a cautious note on further easing as it waits to see how the government controls its fiscal deficit.

Moreover, disappointment from third quarter corporate earnings front too added fuel to the fire. Dabur India lost over a percent on reporting mixed results for the third quarter, with consolidated net profit up slightly above street expectations at 22.15 percent year-on-year to Rs 211.11 crore. Additionally, Tata Teleservices (Maharashtra) too took a knock of over 2 percent on reporting net loss of Rs 197.16 crore for the quarter ended December 31, 2012 as compared to a net loss of Rs 144.62 crore for the same quarter in the previous year.

The NSE’s 50-share broadly followed index Nifty lost about twenty five points to end tad below its psychological 6,050 support level, while Bombay Stock Exchange’s Sensitive Index - Sensex dropped by over one hundred and ten points, ending below its psychological 20,000 mark. Moreover, the broader markets too traded in the negative trajectory during the trade and ended the session with a cut of over half a percent.

The overall volumes stood at over Rs 3.10 lakh crore, which remained on the higher side as compared to that on Monday. The market breadth remained in favor of declines as there were 786 shares on the gaining side against 960 shares on the losing side while 1,230 shares remain unchanged.

Finally, the BSE Sensex lost 112.45 points or 0.56% to settle at 19,990.90, while the S&P CNX Nifty declined by 24.90 points or 0.41% to end at 6,049.90.

The BSE Sensex touched a high and a low of 20,203.66 and 19,970.05, respectively. The BSE Mid cap index down by 0.57% and Small cap index was down by 0.91%.

The top gainers on the Sensex were, ITC up by 1.73%, Coal India up by 1.62%, ICICI Bank up by 0.87%, Hero MotoCorp up by 0.76% and HDFC up by 0.52%, while Hindalco down by 2.70%, Bajaj Auto down by 2.62%, HDFC Bank down by 2.61%, Bharti Airtel down 2.43% and BHEL down by 2.12% were the top losers on the index.

The only gainer on the BSE Sectoral space was FMCG up by 0.70%, while Realty down 2.07%, Oil & Gas down 1.35%, Auto down 1.12%, TECk down 0.85% and PSU down 0.69% were top losers on the sectoral space.

Meanwhile, in a move to contain the fiscal deficit for the current fiscal, the finance ministry wants to change the way petrol and diesel are priced by excluding the element of import duties to save about Rs 18,000 crore in subsidy bills. However, this move by the government will hit oil PSUs hard. Further, the finance ministry has informed the petroleum ministry that auto fuel need to be priced at export parity rather than import parity as the 2.5% customs duty was adding to the under-recoveries of the state-run oil marketing companies without contributing any revenue to the exchequer.

The finance ministry wants to cut its cash outgo by about Rs 18,000 crore in the current fiscal by changing the pricing methodology for calculating the under-recoveries. The imported price of petrol and diesel, which includes customs duty, is used by the refineries to calculate the prices charged from retailers.

Indian Oil, Hindustan Petroleum and Bharat Petroleum together are projected to end the fiscal with close to Rs 1,60,000 crore of under-recoveries or revenue loss on selling diesel, domestic LPG and kerosene below cost. Further, the upstream oil companies like ONGC are to meet about Rs 60,000 crore of this and the rest Rs 100,000 crore was to come from the government as cash subsidy.

The government had deregulated the petrol prices and diesel continues to be subsidised. There is no import duty on kerosene and LPG, the other two subsidized fuel. At 2.5 per cent, its net effect is an increase of Rs 1.13 per litre on the ex-refinery price of diesel. This translates into an under-recovery of Rs 18,000 crore. On petrol, the customs duty impact is about Re 1 but it is passed on to the consumers and there is no impact of government's subsidy bill.

The S&P CNX Nifty touched a high and a low of 6,111.80 and 6,042.45 respectively.

The top gainers on the Nifty were Axis Bank up by 4.27%, JP Associates up by 1.83%, Coal India up by 1.69%, ITC up by 1.10% and Asian Paints up by 0.90%.

The top losers of the index were Bank of Baroda down by 2.89%, Hindalco down by 2.87%, HDFC Bank down by 2.65%, Bajaj Auto down by 2.43% and Reliance Infra down by 2.33%.

The European markets were trading mixed, France’s CAC 40 down by 0.36%, United Kingdom’s FTSE 100 up by 0.23 points and Germany’s DAX down by 0.17%.

Asian shares ended mostly higher on Tuesday as investors indulged in some selective buying ahead of more U.S. economic data and a Federal Reserve policy decision later in the week that may offer clues to the Fed's stimulus plans. Regional markets went home with green mark ahead of official release of manufacturing data for January at the end of the week. However, Hong Kong closed lower, weighed by a fall in Industrial and Commercial Bank of China. Japan’s Nikkei ended in positive territory, as Japanese construction machinery companies were higher on Tuesday, while South Korea's Kospi closed higher, ending a four-day losing streak.