Disappointing June IIP drag benchmarks lower

Key domestic benchmarks witnessed a turnaround in the trade on Thursday, snapping the session with modest losses. The frontline indices surrendered all of their intraday gains in the wake of government data showing a drop in industrial production for June as against expectations of a marginal increase. India’s annual industrial output growth measured by index of industrial production (IIP) disappointed the street, by registering a negative growth of 1.8% at 168.3 for the month of June 2012 against the growth figure of 2.4% in May, which later was revised a bit to 2.5%. The cumulative growth for the period April-June 2012-13 recorded de-growth of 0.1% over the corresponding period of the previous year. The indices of industrial production for the Mining, Manufacturing and Electricity sectors for the month of June 2012 stood at 124.3, 178.1 and 157.0 respectively, with the corresponding growth rates of 0.6%, -3.2% and 8.8% as compared to June 2011.

The Sensex retreated more than 100 points from the session’s peak while the Nifty erased about 40 points from the day’s high. Selling pressure came in, after mobile carrier Bharti Airtel and drug maker Ranbaxy were routed after poor quarterly earnings. Meanwhile, shares of power equipment manufacturer BHEL and engineering & construction firm L&T too saw selling pressure after a sharp decline in capital goods production.

The turnaround mainly followed the European markets trend. European counters entered into negative terrain after opening in the green. Though, Asian stock indices snapped the trade mostly higher amid mounting hopes of policy intervention by the world’s leading central banks in order to revive economic growth and ward off the threat emanating from the long-running European credit crisis. China’s consumer inflation fell to a 30-month low in July, stoking hopes of further monetary easing by the central bank as it looks to avoid a hard landing amid lingering concern about the ongoing euro-zone debt crisis. Moreover, the Bank of Japan (BOJ) on Thursday left its monetary policy unchanged amid nagging concern about the adverse fallout of the euro-zone debt crisis and a stronger yen on the world's third-largest economy.

Back home, the investors remain worried after some private research agencies slashed India’s FY13 GDP growth forecast to 5.5 percent for financial year 2012-13 from 6.5 percent earlier. Moreover, failed southwest monsoon also added to the long list of macro-economic problems. Data on credit off-take, deposit mobilization and overseas borrowings is pretty bleak and continuously dampening the market sentiments. Moreover, the sentiments were also dampened by retail stocks, which lowered as government’s claims of securing a consensus on opening up multi-brand retail to foreign direct investment (FDI) went flat, as only one state and 3 UTs up till now have given their written affirmation for it.

Oil and gas remained the top loser on the BSE sectoral space led by index heavyweight Reliance Industries as it slashed natural gas reserves in its main production gas fields in the Krishna Godavari basin D6 block by 70% to 3.10 Trillion cubic feet (Tcf) due to 'unforeseen geological surprises.’ However, losses remain capped supported by Metal stocks, which edged higher after the latest data showed lower-than expected growth in China’s retail sales and industrial production in July 2012. China is the world’s largest consumer of copper and aluminum. Sterlite Industries, JSW Steel, Hindustan Zinc and Hindalco Industries all traded jubilantly in the trade.

The NSE’s 50-share broadly followed index Nifty, ended lower by just fifteen points but, settled well above its psychological 5,300 support level moreover, Bombay Stock Exchange’s Sensitive Index -Sensex- declined by around 40 points and snapped the session below psychological 17,600 mark. Moreover, broader markets too ended marginally in the red after trading in the positive terrain for most part of the day’s trade while, the market breadth remained in favor of declines as there were 1,165 shares on the gaining side against 1,613 shares on the losing side while 138 shares remained unchanged.

The BSE Sensex lost 39.69 points or 0.23% to settle at 17,560.87, while the S&P CNX Nifty declined by 15.05 points or 0.28% to close at 5,322.95.

The BSE Sensex touched a high and a low of 17,702.98 and 17,516.99 respectively. However, the BSE Mid cap and Small cap index ended down by 0.26% and 0.41% respectively.

Sterlite Industries up by 3.36%, Mahindra & Mahindra up by 2.87%, Tata Power up by 2.55%, Hindustan Unilever up by 2.38% and Coal India up by 2.03% were top gainers on the Sensex, while Bharti Airtel down by 6.40%, SBI down by 4.33%, HDFC down by 3.63%, Reliance down by 1.31% and Wipro down by 1.24% were top losers on the index.

The major gainers on the BSE sectoral space were, FMCG up by 1.42%, Metal up by 0.64%, Auto up by 0.44%, Power up 0.26% and Capital Goods up 0.22%, while Oil & Gas down by 1.05%, TECk down 0.88%, Bankex down 0.70%, PSU down 0.66% and Consumer Durables down by 0.34% were major losers on the BSE sectoral space.  

Meanwhile, putting up a pathetic show, India’s index of industrial production (IIP), a key measure of industrial output shockingly registered a negative growth of 1.8% in June 2012 at 168.3, from the same period in the past fiscal, as against the expectations of 1% and also lower than 2.4% growth figure for the month of May, which was later revised a tad to 2.5%. Moreover, the cumulative growth for the period April-June 2012-13 contracted by 0.1% 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. However, this time slump in the manufacturing output mainly triggered contraction of June industrial production, as Manufacturing, which constitutes about 76% of industrial production, shrank 3.2% in the month of June versus a growth of 2.5% in May. On the flip side, mining sector exhibited a growth of 0.6% versus a negative growth of 0.9% in May. Additionally, electricity sector too grew at a robust 8.8% versus 5.9% in May.

However, Capital goods output, a key investment indicator, clearly emerged as significant driver in terms of taking the growth in negative territory, as capital goods production, sharply contracted by 27.9% on y-o-y basis, highlighting that companies are still wary of making investments in high-interest and uncertain economic climate. Consumer goods, on the other hand, grew at 3.5%, driven by robust growth of 9.1% in consumer durables, despite a negative growth of 1% in non-durables.

Industrial output, which accounts for a little over 15% of gross domestic product (GDP), highlights more weakness ahead for the Indian economy, which has registered its lowest annual rate in almost a decade, which is just at 5.3% in the March quarter. However, this dreary industrial out numbers may provide some policy direction to India’s most aggressive central Bank, which furthering its fight against inflation, has maintained a status quo stance in the past two policy meetings.

The S&P CNX Nifty touched a high and low of 5,368.20 and 5,312.10 respectively.

The top gainers on the Nifty were M&M up by 3.09%, Sterlite Industries up by 3.07%, HUL up by 2.64%, Tata Power up by 2.60% and Coal India up by 2.27%. On the flip side, Bharti Airtel down by 6.25%, SBI down by 4.31%, HDFC down by 4.08%, BPCL down by 3.24%, and Ranbaxy down by 2.51% were the major losers.

The European markets were trading in red, France's CAC 40 down up 0.21%, Germany's DAX was down 0.63% and United Kingdom’s FTSE 100 was down 0.03%.

Asian markets went home with green mark on Thursday, as Chinese CPI inflation released overnight dropped to 1.8% y/y in July from 2.2% y/y in June, slightly higher than consensus expectations. But decline in inflation is likely to overlay the way for a cut in the reserve requirement soon. However, Bank of Japan ended its two-day meeting this morning as it decided to keep its asset-purchase programme unchanged at JPY45trl and its key interest rate between zero and 0.1%. Meanwhile, Bank of Korea, also left its key policy interest rate unchanged on Thursday, after a surprise cut last month. South Korea's financial watchdog announced that it will investigate whether the local units of HSBC Holdings PLC and Standard Chartered were involved in money laundering.