Benchmarks open lower on weak corporate earnings and high inflation

The Indian equity markets have made a negative start extending its three-day losing streak as funds and retail investors succumbed to selling pressure driven by weak corporate earnings and high inflation. Moreover, weakening trend on other Asian bourses also had a negative impact on the trading sentiment. All the Asian peers were trading in the red at this point of time while, the US markets suffered a setback with the start of the new week. The BSE’s Sensex lost its crucial 17,100 mark in early trade as sentiment remained bearish as funds and retail investors engaged in offloading stocks following weak second quarter earnings posted by Tata Motors, Unitech and Tata Power. Stocks of the realty, power and fast moving consumer durables sectors bore the brunt of the selling pressure, dragging the markets lower. Moreover, stocks of Bajaj Hindustan and Balrampur Chini fell on concern that a rise in prices of raw material sugarcane in Uttar Pradesh will dent margins and profitability of companies. However, markets pared most of their earlier losses and trading flat at this point of time with Sensex reclaiming its psychological 17,100 mark as consumer durables, auto and healthcare spare were providing some strength to the Sensex. The broader indices were struggling to get some traction. The market breadth on the BSE was negative; there were 652 shares on the gaining side against 937 shares on the losing side while 61 shares remained unchanged.

The BSE Sensex opened at 17,081.62; about 37 points lower compared to its previous closing of 17,118.74, and has touched a high and a low of 17,158.27 and 17,034.07 respectively.

The index is currently trading at 17,114.04, down by 4.70 points or 0.03%. There were 17 stocks advancing against 13 declines on the index.

The overall market breadth has made a negative start with 39.52% stocks advancing against 56.79% declines. The broader indices were struggling to get some traction; the BSE Mid cap and Small cap indices declined 0.45% and 0.33% respectively.

The top gaining sectoral indices on the BSE were, CD up by 0.27%, Auto up by 0.21%, HC up by 0.19%, Metal up by 0.18% and TECk was up by 0.15%. While, Realty down by 1.20%, Power down by 0.46%, FMCG down by 0.18%, Bankex down by 0.13% and PSU down by 0.11% were the only losers on the index.

The top gainers on the Sensex were Cipla up by 4.13%, Hindalco up by 1.27%, Jindal Steel up by 0.82%, Tata Motors up by 0.82% and Bharti Airtel was up by 0.60%.

On the flip side, Tata Power was down by 4.68%, DLF was down by 1.88%, Tata Steel was down by 0.86%, M&M was down by 0.77% and HDFC was down by 0.63% were the top losers on the Sensex.

Meanwhile, Finance Minister Pranab Mukherjee expects India’s gross domestic product (GDP) growth for the June-September 2011 to be lower than the growth achieved in April-June quarter. He said, with the worldwide financial crisis, he did not expect the GDP growth rate to improve in this quarter, although some improvement might be possible in the third quarter.

On the back of unfavorable economic condition in the global economy, high inflation along with high interest rates regime in the first quarter of 2011-12, country’s economic growth fell to 7.7%, the slowest in the last 6 quarters.

Mukherjee further admitted that private sector investment has declined, because of the negative sentiments. However, he tried to lift the moral of Indian corporates and top bankers by saying, 'the global financial crisis may have some adverse impact on the economy, but my appeal to you is don't indulge in any sort of despondency or frustration.' By adding further he urged the corporate sector to make more fresh investment and boost growth. 'The government is with you. Sometimes we have to move carefully, but we are cautious about the pitfalls.'

On the financial health of the government, Mukherjee accepted that in the current economic environment, it would be difficult to meet the fiscal deficit target of 4.6% in the 2011-12. However, finance minister made it clear that the government would not hesitate to take difficult decisions to correct fiscal parameters, if needed.

On inflation, Mukherjee said that the government was taking every possible step to bring down inflation, from double digits. Headline inflation measured by Wholesale Price Index (WPI), for August stood at 9.72%, inflation has been hovering above 9% mark for almost a year. 

On the liquidity situation in the Indian banking system, State Bank of India chairman Pratip Chaudhuri said that there was ample liquidity in the banking system and no dearth of capital for lending. 'We are waiting for projects to come.'

On this issue finance minister said bank lending needs to grow at 20-21% to achieve a 9% GDP growth. By adding he said that the government has infused Rs 1,000 crore in banks this fiscal so far and will inject another Rs 5,000 crore over the next five months. Banks would need fresh funds to support their lending growth as Basel III regime is imminent from January 2013, and this would increase the requirement of capital.

The S&P CNX Nifty opened at 5,131.20; about 17 points lower compared to its previous closing of 5,148.35, and has touched a high and a low of 5,154.75 and 5,120.70 respectively.

The index is currently trading at 5,143.80, down by 4.55 points or 0.09%. There were 21 stocks advancing against 29 declines on the index.

The top gainers of the Nifty were Cipla up by 4.17%, Reliance Infra up by 1.62%, Tata Motors up by 1.32%, Hindalco up by 1.03% and Jindal Steel up by 0.93%.

On the flip side, Tata Power down by 5.43%, DLF down by 1.84%, BPCL down by 1.73%, Reliance Power down by 1.47% and Ranbaxy down by 1.38%, were the major losers on the index.

All the Asian peers were trading in the red; Shanghai Composite was down 1.22 points or 0.05% to 2,527.50, Hang Seng was down 212.65 points or 1.09% to 19,295.53, Jakarta Composite was down 19.79 points or 0.52% to 3,813.25, KLSE Composite was down 0.12 points or 0.01% to 1,478.75, Nikkei 225 was down 42.19 points or 0.49% to 8,561.51, Straits Times was down 5.75 points or 0.20% to 2,824.39, Seoul Composite was down 12.40 points or 0.65% to 1,890.41 and Taiwan Weighted was down 43.35 points or 0.58% to 7,482.30.