Sensex climbs to day’s highs tracking positive European market opening

Stock markets in India showed renewed strength in Tuesday afternoon trades with the benchmark equity indices climbing around half a percent to touch the day’s high levels. Supportive cues from the European markets were propelling the domestic markets to higher levels as the key gauges looked set to touch the psychological 5,100 (Nifty) and 16,800 (Sensex) levels. 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. Markets across the Asian region traded on a somber note 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. Investors were also 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.

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. However, the 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 Wednesday, in order to bring Asia’s third 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 rate sensitive Bankex counter amid rising hopes that RBI would resort to monetary easing measures to prop up the flagging growth. The high beta realty and capital goods pockets too amassed close to a percent gains in the session. Though largely across the board buying was evident, investors exerted some selling pressure on the defensive Healthcare and FMCG pockets which traded with moderate cuts.

Moreover, the broader markets too came off the day’s lows in afternoon trades however, the Small cap index traded on a weak note with slight losses, underperforming all its larger peers. The bourses climbed on good volumes of over Rs 0.7 lakh crore while the market breadth on BSE was in favor of declines in the ratio of 1234:1100 while 146 scrips remained unchanged.

The BSE Sensex is currently trading at 16,739.99 up by 71.98 points or 0.43% after trading as high as 16,742.97and as low as 16,553.47. There were 19 stocks advancing against 11 declines on the index.

The broader indices were trading on a mixed note; the BSE Mid cap index rose 0.18% and Small cap index eased 0.04%.

On the BSE sectoral space, Bankex up 1.36%, Consumer Durables up 1.18%, Realty up 0.81%, Capital Goods up 0.80% and PSU up 0.61% were the major gainers, while Healthcare down 0.41% and FMCG down 0.23% were the only laggards in the space.

Sterlite up 1.58%, HDFC Bank up 1.47%, L&T up 1.38%, SBI up 1.13% and ICICI Bank up 0.99% were the major gainers on the Sensex, while Dr Reddy’s down 2.17%, Wipro down 1.84%, ITC down 0.73%, HUL down 0.71% and Tata Power down 0.52% were the major losers in the index.

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 Wednesday, in order to bring Asia’s largest economy out of the doldrums.

The S&P CNX Nifty is currently trading at 5,078.20, higher by 24.10 points or 0.48% after trading as high as 5,079.15 and as low as 5,015.15. There were 35 stocks advancing against 15 declines on the index.

The top gainers on the Nifty were IDFC up 2.90%, BPCL up 2.35%, Ambuja Cement up 2.16%, PNB up 1.95% and Sterlite up 1.87%.

Dr Reddy’s down 2.11%, Wipro down 1.75%, HCL Tech down 1.43%, Ranbaxy down 1.18% and Siemens down 1.11% were the major losers on the index.

In the Asian space, Shanghai Composite declined 0.71%, Hang Seng fell 0.48%, Jakarta Composite shed 0.64%, KLSE Composite dropped 0.28%, Nikkei 225 plunged 1.02%, Straits Times Index eased 0.26%, KOSPI Composite Index sank 0.66% and Taiwan Weighted shrank 0.68%.

The European markets got off to a positive start as France’s CAC 40 advanced 0.46%, Germany’s DAX rose 0.21% and the United Kingdom’s FTSE 100 added 0.30%.