Indian equities plunge on multiple domestic headwinds, euro-zone woes

Indian stock markets wrapped Wednesday’s trading session on a distressing note as the benchmark indices went to undo all the good work done in the previous session by shaving off about three fourth of a percentage points and drifting below the psychological 15,900 (Sensex)and 4,800 (Nifty) levels. The frontline gauges got pummeled in the dying hours of trade as sentiments went awry tracking discouraging developments from the Euro-zone where equity indices traded on a pessimistic note. The lower levels proved came as the only supports levels. Local investors’ mood also got hit as despite the repeated measures from the government and RBI to curtail the inflationary pressure on the economy, country’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 to touch a fresh record low level. The upside for the local bourses was also capped amid worries over economic growth after reports that rating agency Fitch revised downward its real GDP growth forecast for India to 7% in current financial year from previous estimate of 7.5%. On the global front, pessimistic sentiments prevailed across the Asian region while the European shares too remained weak. Besides, Industrial activity in the European region showed an unexpected decline in the month of October, falling for the second straight month and highlighting the fact that the region is entering into recession.

Earlier on Dalal Street, the benchmark got off to a sluggish opening tracking the pessimistic sentiments prevailing in Asian markets on reports that German Chancellor Angela Merkel rejected the idea of raising the upper limit of the European Stability Mechanism (ESM), which is currently at 500 billion euro. The key indices soon clawed back into the green zone and even capitalized on the momentum to touch the highest point in the session in late morning trades ahead of the monthly WPI inflation data announcement. However, investors showed knee-jerk reaction on getting the worse than expected November inflation numbers, dragging the gauges into the red terrain. Though, the benchmarks showed some resilience and rebounded into the green terrain, the short rally got sold into as investors chose to take profits off the table amid the heightened uncertainties surrounding the local as well as global markets. Eventually, the NSE’s 50-share broadly followed index - Nifty, suffered losses of over three fourth of a percent to settle above the crucial 4,750 support level while Bombay Stock Exchange’s Sensitive Index -Sensex- took a triple digit cut and closed below the psychological 15,900 mark. Moreover, the broader markets closed on a pessimistic note with cuts of under a percent and underperformed their larger peers. On the BSE sectoral space, the high beta Realty pocket bore the maximum brunt of selling and plunged around two and half a percent followed by the metal index which sank by over two percent. On the flipside, the defensive FMCG pocket remained the only gainer in the space, adding around a quarter percent. The markets slipped on weaker volumes of over Rs 1.44 lakh crore while the turnover for NSE F&O segment too remained on the lower side as compared to Tuesday at over 1.30 lakh crore. The market breadth remained pessimistic as there were 1080 shares on the gaining side against 1626 shares on the losing side while 160 shares remained unchanged.

Finally, the BSE Sensex lost 121.37 points or 0.76% to settle at 15,881.14, while the S&P CNX Nifty declined by 37.35 points or 0.78% to close at 4,763.25.

The BSE Sensex touched a high and a low of 16,133.41 and 15,855.12 respectively. The BSE Mid cap and Small cap indices were down by 0.95% and 0.81% respectively.

The top gainers on the Sensex were Sun Pharma up 1.68%, ITC up 1.17%, Bharti Airtel up 0.71%, JP Associate up 0.25% and Wipro up 0.08%. While, Tata Power down 3.98%, Tata Steel down 3.94%, DLF down 3.58%, M&M down 3.53% and Coal India down 2.76% were the top losers on the index.

The only gainer on the BSE sectoral space was FMCG up 0.23%, while Realty down by 2.42%, Metal down 2.16%, Power down 2.09%, PSU down 1.63% and Consumer Durables (CD) down 1.44% were the top gainer on the BSE sectoral space. 

Meanwhile, India’s headline inflation measured by the Wholesale Price Index (WPI) for the month of November 2011 fell to its lowest level in last 12 months, stood at 9.11% as compared to 9.73% in last month. The decline in headline inflation is on the back of the sharp decline in prices of primary articles and food articles. However, in the month of November, manufactured products and fuel and power article, showed surge in prices, it increased to 7.7% and 15.48% as compared to 7.66% and 14.79% respectively.

According to the data released by the ministry of commerce and industry, the WPI for 'All Commodities' for the month November, 2011 rose by 0.1% to 156.9 (Provisional) from 156.8 (Provisional) for the previous month. Build up inflation in the financial year so far was 4.95% compared to a buildup of 5.50% in the corresponding period of the previous year.

On the month-on-month basis the primary articles declined by 1.6% to 201.1 (Provisional) from 204.3 (Provisional) for the previous month. The index for ‘Food Articles’ group declined by 2.0% to 196.9 (Provisional) from 200.9 (Provisional) for the previous month due to lower prices of fruits and vegetables (7%), poultry chicken (6%), fish-inland and moong (4% each), urad (3%), masur (2%) and condiments and spices, rice and wheat (1% each).  However, the prices of tea (5%), fish-marine and egg (4% each), gram and coffee (3% each) and pork, jowar, mutton and ragi (1% each) moved up.

The index for ‘Non-Food Articles’ group declined by 1.5% to 176.3 (Provisional) from 178.9 (Provisional) for the previous month due to lower prices of logs and timber (17%), mesta (11%), raw rubber (9%), raw silk and raw jute (5% each), groundnut seed (4%), niger seed and raw cotton (3% each) and coir fibre (2%). However, the prices of gingelly seed (5%), soyabean (4%), flowers, fodder and gaur seed (3% each) moved up.

The index for ‘Minerals’ group rose by 1.1% to 310.5 (Provisional) from 307.0 (Provisional) for the previous month due to higher prices of barytes (8%), bauxite (4%), crude petroleum (3%), chromite (1%). However, the prices of zinc concentrate (6%), sillimanite and copper ore (3%) and dolomite, manganese ore and iron ore (1% each) declined.

The index for the Fuel and Power, which has weight of almost 15% in the WPI, rose by 0.9% to 171.6 (Provisional) from 170.0 (Provisional) for the previous month due to higher prices of aviation turbine fuel, furnace oil and naphtha (6% each) and bitumen and petrol (1% each).  However, the prices of light diesel oil (1%) declined.

The index for Manufactured Products, which has weight of almost 65% in the WPI, rose by 0.5% to 139.8 (Provisional) from 139.1 (Provisional) for the previous month. Under this segment, the index for Beverages, Tobacco & Tobacco Products, Textiles, Paper & Paper Products, Leather & Leather Products, and Chemicals & Chemical Products saw increase in prices in November 2011. However, the index for Food Products, Wood & Wood Products, and Rubber & Plastic Products registered decline in prices in November compared to month of October.

Despite the marginal decline in headline inflation, it has remained above 9% mark for straight 12 months, which indicates that the Reserve Bank of India (RBI) has failed to control inflation by its anti-inflationary stance. The government also has done upward revision of inflation for the month of September, which stood at 10% as compared to 9.72%. The data further revealed that moderating prices of essential food items like onions, potatoes and milk have pulled down inflation marginally to 9.11% in November, a development that may prompt the RBI to halt its monetary tightening strategy at its policy review on December 16.

Since March 2010, the RBI has increased its key policy rates for 13 times, this non-stop increase in key policy rates has increased the interest rates, which have affected the investment in the industrial sector. India’s industrial production in the month of October declined to -5.1%, which is its lowest level in last two years. However, the high inflation, weak economic growth, decline in industrial production and declining rupee, has left RBI with difficult policy choices.

The S&P CNX Nifty touched a high and low of 4,839.55 and 4,750.40 respectively.

The top gainers on the Nifty were Sun Pharma up 1.55%, ITC up 1.44%, Ambuja Cement up 0.86%, Bharti Airtel up 0.84% and JP Associates up 0.75%. On the flip side, Tata Steel down 4.46%, Reliance Infra down 4.19%, Tata Power down 4.14%, M&M down 3.94% and BPCL down 3.88% were the top losers on the index.

The European markets were trading in red. France's CAC 40 plunged 1.31%, Britain's FTSE 100 up by 0.57% and Germany's DAX lost by 0.47%.

Continuing their southbound journey Asian stocks once again made a dismal closing after the Federal Reserve failed to take any new steps to stimulate growth and offset the chilling effects of Europe’s still-unresolved debt crisis. Adding to the poor sentiment was Germany’s opposition to raising the limit for Europe’s bailout fund, highlighting cracks in the region’s leadership. Moreover, fears of mass downgrades by credit rating agencies for European sovereigns too pressured equity markets. Japanese benchmark Nikkei declined about 0.40 percent as export shares remained under pressure as the yen strengthened against a shaky euro. Sharp Corp. dropped 3 percent, Toshiba Corp. lost 1.7 percent while, Honda Motor Corp. slid 2.6 percent on Wednesday. Moreover, Chinese property shares dropped after the government signaled that it would maintain price curbs on real estate.