Benchmarks snap three-day gaining streak; IIP and CPI data eyed

Snapping a three-day gaining streak, Indian equity benchmarks ended the session in the red with a cut of around half a percent with frontline indices tumbling below their crucial 6,350 (Nifty) and 21,300 (Sensex) levels as investors opted to book profits after recent gains. Moreover, investors remained sidelines from taking positions in risky assets ahead of Index of Industrial Production (IIP) data for the month of October and CPI data for the month of November to be announced on December 12. CPI inflation is expected to be at 10%, while IIP is also likely to decline 1% in October.

Sentiments remained down-beat since morning after foreign lender HSBC said it sees government breaching its FY14 fiscal deficit target of 4.8% on account of slower revenue and higher expenditure in the first half of the fiscal. Even as Finance Minister P Chidambaram has been reiterating of not breaching the red line on fiscal deficit target, HSBC expects spending-revenue gap to overshoot to 5.1%.

Global cues too remained sluggish with most of the Asian equity benchmarks ended the session in the red on heightened speculation that the Federal Reserve may be about to start cutting back on its stimulus program. Moreover, European markets too struggled for direction in early deals after data out of China painted a mixed picture of the country’s economy and French industrial production unexpectedly declined.

Back home, sentiments also got dampened after Indian rupee weakened due to dollar demand from oil importers and defense related payments. The rupee was trading at Rs 61.21 at the time of equity markets closing as compared with previous close of Rs 61.14 per dollar. Sentiments also got dampened as shares of power generation and distribution firms declined after the Central Electricity Regulatory Commission (CERC) released draft regulations which will decide power tariffs for a period of five years from April 1, 2014. Moreover, stocks related to auto counter too declined after data from Society of Indian Automobile Manufacturers (Siam) showed that domestic passenger car sales declined 8.15% to 142,849 units in November this year compared with 155,535 units sold in the same month last year.

The NSE’s 50-share broadly followed index Nifty declined by over thirty points to breach its psychological 6,350 level, while Bombay Stock Exchange’s sensitive Index -- Sensex dropped by over seventy points to end below the psychological 21,300 mark.

Broader markets too struggled to get some traction and ended the session in the red with a cut of around half a percent. Moreover, the market breadth remained in favour of decliners, as there were 988 shares on the gaining side against 1,458 shares on the losing side, while 172 shares remained unchanged.

Finally, the BSE Sensex declined by 71.16 points or 0.33%, to settle at 21255.26, while the CNX Nifty lost 31.05 points or 0.49% to settle at 6,332.85.

The BSE Sensex touched a high and a low of 21327.75 and 21175.08, respectively. The BSE Mid cap index was down by 0.26%, while the Small cap index lost 0.72%.

The top gainers on the Sensex were TCS up 3.95%, Hero MotoCorp up 3.83%, SSLT up 2.32%, Wipro up 1.84%, and ITC up 1.52%, on the flip side NTPC down 11.26%, L&T down 4.00%, BHEL down 3.52%, ICICI Bank down 3.49%, and SBI down 2.36%, were the top losers on the index.

On the BSE Sectoral front, IT up by 2.07%, Teck up by 1.47%, Metal up by 0.92%, FMCG up by 0.87% and Healthcare up by 0.40%, were the top gainers, while, Power down by 4.12%, Capital Goods down by 2.98%, PSU down by 2.56%, Bankex down by 1.78%, and Realty down by 1.48%, were the top losers on the sectoral front.

Meanwhile, the Reserve Bank of India (RBI) governor Raghuram Rajan has attributed the current economic woes to stimulus provided by the Government to tide over the global crisis of 2008, which eventually led to an overheated economy, high inflation and uncomfortable fiscal and current account deficits. Rajan added that Indian economy has slowed to below 5 percent from an average of 8 percent between 2002-2012, mainly on account of domestic factors like institutional weakness, withdrawal of stimulus and partially due to global factors.

By adding further, the RBI governor said that in order to combat the impact of global financial meltdown of 2008, Finance Minister Pranab Mukherjee gave three stimulus packages to the industry. As a result, the current account deficit (CAD), which is the difference between inflow and outflow of foreign exchange, rose to a record high of 4.8 percent of GDP in FY13, from 2.8 percent in FY11. Meanwhile, the governor has expressed optimism that country’s CAD is likely to come down at around 3 percent of GDP for the current fiscal on the back of measures taken by the Indian authorities. Owing to the measures taken by the government and the RBI to increase inflow and restrict gold imports, the CAD moderated to 3.1 percent of the GDP in first half of current fiscal as compared to 4.5 percent of GDP in the same period of previous fiscal.

Further, Rajan hoped that on a more long-term basis, inflation indexed bonds would help reduce gold demand, a major factor for widening CAD. On fiscal deficit front, Raghuram Rajan expressed optimism that country’s fiscal deficit is likely to meet the budget target of 4.8 percent of GDP in current fiscal, but could result in a contraction in spending, depending on the extent of revenue shortfall. The fiscal deficit of the country stood at 4.9 percent of GDP in the previous financial year. The governor has also expressed the need to improve the financial system by clarifying monetary policy framework, strengthening the banking structure through new entry or bank expansion and broadening financial markets, among others.

The CNX Nifty touched a high and low of 6,362.25 and 6,307.55 respectively.

The top gainers on the Nifty were TCS up by 4.10%, Hero MotoCorp up by 3.81%, SSLT up by 2.42%, Lupin up by 2.36%, and ITC up by 1.58%, On the other hand, NTPC down by 11.37%, Larsen & Toubro down by 4.11%, Power Grid Corporation of India down by 3.85%, ICICI Bank down by 3.55%, and BHEL down by 3.21%, were the top losers.

The European markets were trading in green, France's CAC 40 was up by 0.14%, Germany's DAX was up by 0.12%, and United Kingdom's FTSE 100 was up by 0.13%.

The Asian markets barring Jakarta Composite and KLSE Composite concluded Tuesday’s trade in red as a slate of data from China offered a mixed view of economic activity. A series of Chinese data out painted a mixed picture of the economy, with industry moderating its strong growth but retail sales picking up their already robust pace. Industrial output for November rose 10% from a year earlier, slowing from the previous month's 10.3% increase but matching the expectations. Chinese retail sales in November climbed 13.7% from a year earlier, up from the 13.3% rise in October. Today’s data also included urban fixed-asset investment, which was up an annualized 19.9% in the January-November period, slowing from a 20.1% gain for January-October. Fixed-asset investment is seen as an indicator of construction activity in China.

Indonesia outlined new fiscal policies, including an increase in taxes on goods ranging from smartphones to jewelry, in a bid to curb imports and raise revenue as a way to reduce its swelling current account deficit by as much as $4 billion next year.  Japanese Household Confidence rose to a seasonally adjusted annual rate of 42.5, from 41.2 in the preceding month.