Benchmarks snap three-day winning streak on Fed’s tapering concern

Indian equity benchmarks, snapping three days winning streak, ended the session slightly in the red on Tuesday with investors turning cautious after robust US manufacturing data yet again fuelled fears that the US Federal Reserve may scale back its stimulus sooner than anticipated. Markets exhibited lack luster trade during the day as sentiments remained dampened after the output of eight core sector industries contracted by 0.6 percent in October due to poor showing by coal, oil and gas sectors. The output of eight infrastructure industries in April-October was a mere 2.6 percent against 6.8 percent in the same period of the last fiscal.

However, losses remain capped as some support came in from good economic data of trade deficit. India’s current-account deficit shrank to a four-year low to $5.2 billion or 1.2% of gross domestic product (GDP), in the September quarter, sharply lower from the $21 billion deficit recorded a year ago period. Meanwhile, Finance minister P Chidambaram said that the economy is expected to grow by 5% in 2013-14 and the fiscal and current account deficits would be contained.

Meanwhile, global cues remained choppy with European markets trading lower in early deals, CAC, DAX and FTSE declined significantly by around a percentage point. Moreover, most of the Asian equity benchmarks ended the session in the red, as better than economic reports raised speculation the Federal Reserve will soon tighten its monetary policy. Meanwhile, Shanghai Composite edged lower on expectations that China will restart initial public offerings in the new year, raising fears of a share glut.

Back home, stocks related to auto space witnessed selling as after showing some signs of revival in September and October during the festive season, auto sales dipped again in November. Moreover, shares related to banking counter too hit rock bottom after RBI proposed increased capital requirements and intense regulation for ‘too  big to fail’ kind of banks. Further, RBI also issued updated guidelines for stress-testing of banks which will be effective from April. Telecom stocks viz. Bharti Airtel, Idea Cellular and RCom too edged lower after EGoM meeting scheduled to discuss the much-awaited M&A guidelines in the telecom sector was reportedly postponed.

Bucking the trend, metal stocks extended Monday’s gains triggered by data showing that manufacturing activity in China continued to grow last month. Moreover, capital goods stocks too edged higher led by L&T which gained after its construction division secured orders valued at Rs 1471 crore across various business segments in November and December 2013.

The NSE’s 50-share broadly followed index Nifty declined by over fifteen points, but managed to hold its psychological 6,200 level, while Bombay Stock Exchange’s Sensitive Index -- Sensex dropped by over forty points to end significantly below the psychological 20,900 mark.

However, broader markets outperformed benchmarks, exhibiting some traction and ended the session with a gain of around a quarter percent. The market breadth remained in favour of advances, as there were 1,255 shares on the gaining side against 1,233 shares on the losing side, while 166 shares remained unchanged.

Finally, the BSE Sensex lost 43.09 points or 0.21%, to settle at 20854.92, while the CNX Nifty declined by 16.00 points or 0.26% to settle at 6,201.85.

The BSE Sensex touched a high and a low of 20927.05 and 20817.75, respectively. The BSE Mid cap index was up by 0.23%, while the Small cap index gained 0.27%.

The top gainers on the Sensex were Gail India up 2.97%, Jindal Steel up 2.70%, BHEL up 2.57%, Hindalco Inds up 1.64%, and RIL up 0.82%, on the flip side Dr Reddys Lab down 1.39%, SSLT down 1.36%, L&T down 1.10%, NTPC down 1.09%, and Coal India down 1.02%, were the top losers on the index.

On the BSE Sectoral front, Realty up by 1.24%, Oil & Gas up by 0.51%, Metal up by 0.24%, Power up by 0.21%, and Teck up by 0.14%, were the top gainers, while, FMCG down by 0.83%, Consumer Durables down by 0.58%, Bankex down by 0.56%, Auto down by 0.43%, and Capital Goods down by 0.32%, were the top loser on the sectoral front.

Meanwhile, in order to avoid 2008-crisis kind of situation, the Reserve Bank of India (RBI) will soon announce a separate category of domestic systemically important banks (D-SIBs), which will have to set aside more capital to cover risks and be subject to more intense regulations by the banking regulator. It will mainly cover banks having multiple financial services like insurance, broking and asset management and the list of banks falling under this category will be released by August 2015.

According to the draft guidelines floated for D-SIBs, these banks, which will be selected based on a pre-determined formula, will be required to maintain higher core tier-I capital ranging from 0.20 to 0.80% of their risk weighted assets.

Further, this classification system will be based upon the BCBS (Basel Committee for Banking Supervision) framework for global systematically important banks (G-SIBs) and will involve computation of composite systemic importance score for banks, which will be arrived at post-considering a bank’s size, interconnectedness, substitutability and complexity among other things. Based on their systemic importance scores, banks will be plotted into different buckets. Meanwhile, the higher capital requirements will be applicable in phased manner from Apr 1, 2016 and will become fully effective from Apr 1, 2019. D-SIBs will also be subjected to differentiated supervisory requirements and higher intensity of supervision based on the risks they pose to the financial system. Lastly, the RBI has invited comments on the draft guidelines till December 31.

The CNX Nifty touched a high and low of 6,225.40 and 6,191.40 respectively.

The top gainers on the Nifty were GAIL (India) up by 3.06%, BHEL up by 2.76%, DLF up by 2.59%, Jindal Steel & Power up by 2.46%, and NMDC up by 2.31%, On the other hand, IndusInd Bank down by 1.82%, Kotak Mahindra Bank down by 1.63%, Dr. Reddy's Laboratories down by 1.42%, HCL Technologies down by 1.32%, and Larsen & Toubro down by 1.27%, were the top losers.

The European markets were trading in red, France's CAC 40 was down by 1.40%, Germany's DAX was down by 0.86%, and United Kingdom's FTSE 100 was down by 0.95%.

The Asian markets concluded Tuesday’s trade mostly in red, Japanese stocks got a boost from a weaker yen. The purchasing managers index (PMI) for China’s non-manufacturing sector stood at 56 in November, down from 56.3 for October. A PMI reading above 50 indicates expansion, while a reading below 50 indicates contraction. The monthly indicator is released by the National Bureau of Statistics and the China Federation of Logistics and Purchasing. Meanwhile, Japan’s monetary base rose more-than-expected last month to 52.5%, from 45.8% in the preceding month.

Indonesia’s annual inflation accelerated slightly in November on the back of rising costs of electricity, processed foods and health care, but the modest increase was not expected to compel Bank Indonesia to take any mitigating action. The consumer price index rose 8.37% last month from a year earlier, compared to an 8.32% rise in October. That brings year-to-date inflation to 7.79% year-on-year, which would still be in line with Bank Indonesia and the government’s estimate that this year’s inflation will be less than 9%.