Indian equities off day’s lows; overlook inflation data

After witnessing a knee-jerk reaction on getting the worse than expected monthly WPI inflation data for November, the benchmark indices are showing signs of recovery in early afternoon trades. Some stability was evident in the markets as the selling pressure in rate sensitive counters like Banking and Auto and IT index got arrested which helped the frontline indices to stage a mild rebound from the lowest point in the session. The psychological 15,900 (Sensex) and 4,750 (Nifty) levels proved as firm supports as the key gauges bounced back before drifting to those levels. Despite the repeated measures from the government and RBI to curtail the inflationary pressure on the economy, India’s WPI inflation slowed to the lowest level in a year but remained stubbornly high above the uncomfortable 9% levels for the twelfth straight month. Meanwhile the rupee, which tanked 16% this year and became Asia’s worst performing currency, continued its streak of depreciation against the US dollar and slipped further. The upside for the local bourses also was limited amid worries over economic growth after reports that rating agency Fitch has revised downward its real GDP growth forecast for India to 7% in current financial year from 7.5%. On the global front, pessimistic sentiments prevailed across the Asian region while the European futures too showed that the markets there would start in the red terrain. Back home, on the BSE sectoral space, Power counter bore the maximum brunt of selling pressure and remained the top laggards in the space with over a percent cuts followed by the Metal pocket which too traded with similar amount of losses. On the flipside, the defensive FMCG pocket remained the only gainer in the space with around half a percent gains.

Moreover, the broader markets traded on a quiet note around the neutral line, performing in tandem with their larger peers. The bourses eased on strong volumes of over Rs 0.60 lakh core. The market breadth on BSE was in favor of advances in the ratio of 1180:1169 while 133 scrips remained unchanged.

The BSE Sensex is currently trading at 15,951.08 down by 51.43 points or 0.32% after trading as high as 16,133.41 and as low as 15,912.91. There were 7 stocks advancing against 23 declines on the index.

The broader indices were trading on a flat note; the BSE Mid cap index eased 0.19% and Small cap added 0.11%.

On the BSE sectoral space, the FMCG up 0.45% was the only gainer while Power down 1.17%, Metal down 1.07%, Consumer Durables down 1%, Realty down 0.80%, and PSU down 0.63% were the losers in the space.

Sun Pharma up 2.06%, JP Associates up 1.16%, ITC up 0.96%, SBI up 0.61% and Bharti Airtel up 0.51% were the major gainers on the Sensex, while Tata Steel down 1.98%, HDFC down 1.72%, Sterlite down 1.66%, Coal India down 1.59% and Hindalco down 1.51% were the major losers in the index.

Meanwhile, the global rating agency Fitch, has revised downward its real Gross Domestic Product (GDP) growth forecast for India to 7% in current financial year from 7.5%. It has also revised down its forecast for Fiscal year 2013 from 8% and 2014 from 8.5% to 7.5 and 8% respectively.

The Indian economy is likely to remain weighed down by a combination of the weaker global economy and higher domestic interest rates. India has already experienced a sharp slowdown this year and is expected to regain some of the lost momentum by 2013, Fitch said in its Global Economic Outlook.

India has been experiencing decline in economic growth, on the back of high interest rates, high inflation and slowdown in global economy affecting the capital inflow and exports of the country. In the second quarter of current financial year, India’s economic growth stood at 6.9% compared to 7.7% in April-June 2011, as a result India’s economic growth in the first six months of 2011-12 stood at 7.3% compared to 8.85% in the same period of last fiscal year.

However, despite the decline in economic growth, headline inflation measured by Wholesale Price Index (WPI) has been hovering close to two digit mark from last 11 months. On the other side, the Reserve Bank of India (RBI), since March 2010, in order to control inflation has increased its repo rates and reverse repo rates by 13 times. However, non-stop hike in key policy rates have increased the cost of capital, which has adversely affected the investment rate in the economy. 

“Although the combination of slower economic growth and higher interest rates could eventually reduce demand driven pressure (as evident from 5.1 %y-o-y contraction in index of industrial production in October 2011), supply-side pressures may not ease so quickly,’’ Fitch said.

The recent weakening in the rupee, which has fallen roughly 15%in the past three months, coupled with elevated commodity prices, notably oil, suggests that it will take time before headline WPI displays significant improvement, the report said.

The S&P CNX Nifty is currently trading at 4,791.35, lower by 9.25 points or 0.19% after trading as high as 4,839.55 and as low as 4,771.20. There were 14 stocks advancing against 36 declines on the index.

The top gainers on the Nifty were Sun Pharma up 2.15%, JP Associates up 1.66%, Cairn up 1.61%, ITC up 1.34% and IDFC up 0.99%.

BPCL down 2.62%, Power Grid down 2.12%, Siemens down 1.98%, Tata Steel down 1.96% and Ranbaxy down 1.51% were the major losers on the index.

Asian markets largely traded on a pessimistic note, Shanghai Composite plunged 0.96%, Hang Seng eased 0.19%, Jakarta Composite shed 0.31%, Nikkei 225 declined 0.39%, Straits Times fell 0.13% and Seoul Composite dropped 0.34%.

On the flipside only Taiwan Weighted rose 0.38%.