Rate sensitives drag Sensex after inflation nos dent hopes of aggressive rate cut

Stock markets in India witnessed a disappointing session of trade on Thursday as the benchmark equity indices suffered a nasty blow of over a percent after selling pressure aggravated in the second half of trade. The psychological 5,100 (Nifty) and 16,900 (Sensex) levels proved as stern resistances as the key gauges tumbled lower from those levels and the southbound journey only halted with the close of trade.

Domestic markets got off to a quiet start as sentiments across global space remained uninspiring. Markets across the Asian region traded on a pessimistic note as investors were influenced by overnight fall in US markets pressured by disappointing US economic reports like May retail sales data, which once again declined and wholesale price numbers which too fell the most in three years.

Moreover, lingering uncertainties over Europe's financial turmoil too kept investors away from riskier asset classes as Greek banks saw elevated levels of withdrawals ahead of the country's crucial general elections this weekend and weak domestic economic news.

On the domestic front, a government data showed India’s headline inflation rose largely on the expected lines in May to 7.55% as compared to 7.23% for the previous month. However, core inflation number came in at 4.9%, slightly below the 5 percent threshold which is likely to compel Reserve Bank of India to resort to monetary easing.

But market participants went on to overlook the only silver lining that emerged from May inflation data amid growing concerns that the central bank may not go about cutting rates as aggressively as previously expected. Some degree of political uncertainty too had its toll on sentiments after seeing the latest developments in the political circle on presidential election.

Meanwhile, cues from the money market too remained somber as the beleaguered rupee has resumed its streak of deprecation and is gradually inching towards 56 levels against the US dollar and undermined sentiments.

Besides, stocks from the fertilizer counter, which traded on a sanguine note since morning trades on the buzz that government may raise urea price by 10 percent with an aim to cut up to Rs 2,000 crore on the total subsidy outgo on urea, too came off the day’s highs and even plunged in to the negative terrain after reports that government deferred the Fertilizer Ministry's proposal.

On the BSE sectoral space, rate sensitive Realty and Bankex counters remained top laggards with hefty cuts of close to three percent. Though across the board selling pressure was evident, investors showed some buying interests in IT and TECk counters which ended with moderate gains.

On the global front, markets across the Asian showed pessimistic trends as investors took to risk aversion ahead of crucial Greek polls at the weekend and fears of spreading debt crisis contagion in the Euro-zone. The European markets got a negative start with the major equity indices slipping to lower levels after Spain's 10-year bond yields hit a euro-era record of 7%.

Back home, the NSE’s 50-share broadly followed index Nifty, got pounded by over one and a quarter percent to settle above the psychological 5,050 support level while Bombay Stock Exchange’s Sensitive Index - Sensex suffered a two hundred point laceration to finish below the crucial 16,700 mark. Moreover, the broader markets too settled on a pessimistic note but the Small Cap index showed some resilience as it went home with cuts of over half a percent, performing relatively better than its larger peers.

The markets fell on larger volumes of over Rs 1.43 lakh crore while the turnover for NSE F&O segment also remained on the higher side as compared to that on Wednesday, at over Rs 1.05 lakh crore. The market breadth remained pessimistic as there were 1,011 shares on the gaining side against 1,701 shares on the losing side while 119 shares remained unchanged.

Finally, the BSE Sensex shaved off 202.63 points or 1.20% to settle at 16,677.88, while the S&P CNX Nifty plunged by 66.70 points or 1.30% to close at 5,054.75.

The BSE Sensex touched a high and a low of 16,921.49 and 16,658.98 respectively. The BSE Mid cap index was down by 1.27% and Small cap index down by 0.67%.

Infosys up 1.09%, Cipla up 0.58%, ITC up 0.29% and Sterlite Industries up 0.29% were the major gainers on the Sensex, while Tata Motors down 4.56%, L&T down 3.92%, NTPC down 3.76%, ICICI Bank down 3.50% and SBI down 3.06% were top losers on the index.

The top gainers on the BSE sectoral space were IT up 0.33% and TECk up 0.13%, while Realty down 2.91%, Bankex down 2.82%, Capital Goods down 2.79%, Power down 2.16% and Auto down 1.99% were the top losers on the BSE sectoral space. 

Meanwhile, the annual rate of inflation, based on the wholesale prices index (WPI) in India, inched up in the month of May to 7.55% as compared to 7.23% for the previous month, while it was lower than 9.56% during the corresponding month of the previous year. Though the rise in headline inflation was largely on the expected lines, the markets participants now are likely to turn their focus towards the Reserve Bank of India’s (RBI) mid quarter monetary policy review meeting on June 18.

According to the data released by the ministry of commerce and industry, the annual rate of inflation, based on monthly WPI, rose to 7.55% for the month of May, 2012 while build up inflation in the financial year so far was 1.80% compared to a buildup of 1.94% in the corresponding period of the previous year. The index for primary articles group, which has a weightage of 20.12% in overall WPI, rose 0.1 percent to 216.1 from 215.9 for the previous month largely because of 1.7 percent jump in index of non-food articles.

The index for fuel and power group with a weightage of 14.91% in WPI rose by 0.1 percent to 178.9 from 177.1 for the previous month due to higher prices of petrol (3%), bitumen (2%) and lubricants (1%).  However, the prices of light diesel oil (4%) and furnace oil, aviation turbine fuel and naphtha (1% each) declined. The index for Manufactured Products, which has weight of almost 65% in the WPI, rose by 0.5 percent to 144.3 from 143.6 for the previous month.

After the disappointing industrial production data, market participants were eagerly awaiting the monthly WPI inflation data for May, which has come largely in line with consensus estimates. However, the investors focused more closely on the core inflation number, which has come in at 4.99%, slightly below the 5 percent threshold, and is likely to compel RBI to resort to monetary easing policies. Moreover, connoisseurs were also of the belief that the RBI would cut key interest rates irrespective of the headline inflation number, in order to bring Asia’s third largest economy, which hit a 9-year low of 5.3 percent in the quarter that ended in March, out of the doldrums.

The S&P CNX Nifty touched a high and low 5,130.00 and 5,047.60 respectively.

The top gainers on the Nifty were Infosys up 1.15%, ACC up 0.83%, Cipla up 0.82%, Sesa Goa up 0.77% and Cairn up 0.75%. On the flipside, PNB down 5.71%, Tata Motors down 4.47%, IDFC down 4.29%, L&T down 4.07% and NTPC down 3.89% were the top losers on the index.

The European markets were trading in red, as France's CAC 40 down 0.29%, Germany's DAX down 0.32% and United Kingdom’s FTSE 100 down 0.52%.

All the Asian equity indices barring KOSPI Composite snapped the day’s trade in the negative terrain on Thursday following losses on Wall Street while, selling was also triggered by nervousness ahead of crucial Greek polls at the weekend and fears over Spain. Sentiments also remained dampened after Moody's rating for Spain's government bonds dropped three notches to Baa3 from A3, one step above junk status, which is considered a ‘highly speculative’ investment. Meanwhile, Japanese Nikkei edged lower on Thursday as investors continued to cut their exposure to risky assets, hedging against the potentially disruptive consequences of Greece’s election at the weekend and Federal Reserve and G20 meetings next week. However, Seoul shares rose over half a percent after a range-bound session, showing a small spike in late business on arbitrage trading triggered by expiring futures.