Sensex returns to winning ways as dismal IIP sparks rate cut hopes

After a day’s consolidation, stock markets in India returned back to their winning ways with the frontline equity indices staging an exuberant performance and closing in the positive terrain for the sixth time in last seven sessions.

The benchmark gauges fervently rallied over a percentage points and re-captured the important psychological 5,100 (Nifty) and 16,800 (Sensex) bastions. The day’s performance looked even more prominent since it came on a day when equity indices across Asia settled with notable losses while European counterparts traded on a positive note, but failed to match the fervor with which the Indian bourses rallied.

Domestic markets got off to a weak start as they carried forward the pessimism from the previous session while sentiments across global space too remained discouraging. After trading on a subdued note for most part of morning trades, the local benchmarks showed renewed strength in afternoon trades as supportive cues from the European markets propelled the domestic markets to higher levels.

On the domestic front, market participants went on to overlook the disappointing industrial production numbers for April that showed IIP expanded at a frustratingly slow pace of 0.1% in the month of April, indicating gloomy economic growth prospects. Sentiments got support from speculations that the Reserve Bank of India in its mid-quarter policy review on June 18 will be compelled to cut key interest rates irrespective of what the headline inflation number may show on June 13, in order to bring Asia’s largest economy out of the doldrums.

Meanwhile, the beleaguered rupee, which extended its streak of appreciation in morning, came off the highs of the day and eased investors’ concerns to some extent. On the BSE sectoral space, investors added hefty positions in the high beta Realty and rate sensitive Bankex counters, which surged by two percent amid rising hopes that RBI, would resort to monetary easing measures to prop up the flagging economic growth.

The capital goods pocket too amassed close to two percent gains in the session despite the IIP data showing frustratingly slow growth. Though largely across the board buying was evident, investors exerted some selling pressure on the defensive Healthcare pockets, which went home with moderate cut of around half a percent.

On the global front, markets across the Asian region traded on a somber note to settle with notable losses as the euphoria over EU’s Spanish bank bailout evaporated completely. Investors remained worried amid qualms over the EU’s aid package and focused on other troubled euro zone nations, like Greece where election are due later this week.

The European markets got a positive start and major equity indices are trading with around half a percent gains. However, investors were nervous over lack of details of the agreement of Spain aid and the growing realization that Italy may be the next in line to seek even larger bailout.

Back home, the NSE’s 50-share broadly followed index Nifty, jumped over a percent to settle just above the psychological 5,100 support level while Bombay Stock Exchange’s Sensitive Index - Sensex amassed close to two hundred points to finish above the crucial 16,850 mark. Moreover, the broader markets too remained in positive territory but the Small Cap index went on to underperform all its larger peers and closed with gains of around a quarter percent.

The markets surged on larger volumes of over Rs 1.55 lakh crore while the turnover for NSE F&O segment also remained on the higher side as compared to that on Monday, at over Rs 1.18 lakh crore. The market breadth turned optimistic by the end as there were 1,361 shares on the gaining side against 1,312 shares on the losing side while 149 shares remained unchanged.

Finally, the BSE Sensex gained 194.79 points or 1.17% to settle at 16,862.80, while the S&P CNX Nifty rose by 61.80 points or 1.22% to close at 5,115.90.

The BSE Sensex touched a high and a low of 16,897.42 and 16,553.47 respectively. The BSE Mid cap index was up by 0.62% and Small cap index up by 0.28%.

Maruti Suzuki up 3.48%, Tata Motors up 3.14%, L&T up 2.53%, Sterlite Industries up 2.51% and Hindalco Industries up 2.16% were the major gainers on the Sensex, while Dr Reddys down 1.81%, Wipro down 1.71%, Hindustan Unilever down 0.57%, Sun Pharma down 0.20% and Tata Power down 0.10% were the losers on the index.

The top gainers on the BSE sectoral space were, Realty up 2.01%, Bankex up 1.90%, Capital Goods up 1.84%, Auto up 1.76% and Consumer Durables up 1.52%, while Health Care down 0.40% was the only loser on the BSE sectoral space. 

Meanwhile, after March month’s shocking industrial production numbers, India's index of industrial production (IIP) expanded at a frustratingly slow pace in the month of April, indicating that Asia’s third largest economy is still struggling to return to a high growth trajectory. According to the data released by Central Statistics Office, the gauge of industrial production in the country grew at a worse than expected rate of merely 0.1 percent in the month of April 2012 as against 5.3 percent growth in the corresponding month of the previous year and (-3.5) percent in March 2012.

The IIP numbers upset market participants and economist as it was widely expected that manufacturing activity would expand at the rate of around 1.5 percent in the month of April. Moreover, the CSO data also showed that cumulative growth for the period April-March 2011-12 stood at 2.8 percent over the corresponding period of the previous year.

The industrial output has remained fragile in the past few months as growth in all three sectors viz. mining, manufacturing and electricity got dampened. Growth in electricity sector, the most resilient of the three, too has tapered as it expanded by 4.6 percent in April as against 6.5 percent in April last year. However, the performance of manufacturing sector, which accounts for about 76 percent of industrial output, once again remained the reason for disappointment as it remained almost flat with a growth rate of just 0.1 percent compared to 5.7% in the same month last year.

The mining sector, which has been hit by series of bans in various states after scandals involving illegal extractions were uncovered, too continued its declining momentum as it decelerated by 3.1 percent in April as against growth of 1.6 percent in the same period last year. As per-use based classification, the growth rates in April 2012 over April 2011 was 2.3% in Basic goods, -16.3% in Capital Goods and -1.4% in Intermediate goods. The Consumer durables and Consumer non-durables recorded growth of 5.0% and 5.4% respectively, with the overall growth in Consumer goods being 5.2%.

Thus, the April factory activity numbers clearly indicate that industrial growth remains extremely fragile, and it is in clear need of monetary as well as fiscal support. Experts are also of the belief that the Reserve Bank of India in its mid-quarter policy review on June 18 must cut key interest rates irrespective of what the headline inflation number shows on June 13, in order to bring Asia’s largest economy out of the doldrums.

The S&P CNX Nifty touched a high and low 5,128.90 and 5,015.15 respectively.

The top gainers on the Nifty were Ambuja Cement up 5.81%, PNB up 4.06%, ACC up 3.18%, Tata Motors up 3.14% and DLF up 3.03%. On the flipside, Wipro down 1.84%, Dr Reddy down 1.74%, Ranbaxy down 1.13%, HUL down 0.95% and JP Associates down 0.51% were the top losers on the index.

The European markets were trading on a positive note, as France's CAC 40 up 0.35%, Germany's DAX up 0.66% and United Kingdom’s FTSE 100 up 0.46%.

Sentiment in the Asian region turned bearish and all the Asian markets barring Straits Times ended the day’s trade in the red on Tuesday as investors booked their profit amid fears over Europe’s debt crisis resurfaced after the yield on Spain’s 10-year bond rose to 6.48 percent on Monday, higher than Friday’s close, after Fitch downgraded Spain’s two largest banks. Moreover, investors remained unconvinced that the bailout for debt-stricken Spanish banks will halt Europe’s spreading debt crisis. In addition, attention is turning to problems in Italy and worries grew over this weekend’s elections in Greece.

Hong Kong shares fell 0.43 percent while, Japan's Nikkei share average declined over a percent, as a promised bailout for Spanish banks left investors unconvinced that financial contagion would be contained, and doubts about the euro-zone’s future crept back. Moreover, KOSPI Composite dipped over half a percent over creeping doubts about the effectiveness of Spain’s bank bailout; although the index cut back some of its earlier losses on institutional buying.