Negative start of European markets get benchmarks back into tailspin

Benchmark equity indices momentarily turned green in reaction to better than estimated Augusts’ IIP numbers, but the same reversing the trend have lost ground with the negative opening of European markets. Further, Indian equity markets also lost out on steam after investors understood that India's industrial output, modest rise in August was not enough to end a long slump in Asia's third largest economy, which in turn got benchmarks into tailspin. 30 share barometer index, Sensex, after losing close to half a percent, is currently trading off its 18800 level, while the 50 share index, Nifty, too losing over similar magnitude, was oscillating below its 5700 bastion. However, broader indices continuing to showcase resilience were trading with gains of over 0.50% each.

On the global front, European stocks opened on somber note as expectations for a weak earnings season and lingering uncertainty about Spain's debt crisis kept investors on the back foot after healthy gains in the previous session. Meanwhile, Asian shares appearing set for a positive close, have limited the downside chances of Indian equity markets.

On the BSE sectoral front, Information Technology (IT), Capital Goods (CG) and Auto counters are the major spells of weak trade. On the flip side, Consumer Durable, Health Care and Metal counters showcasing some strength, have merged as the top performers. IT stocks have mainly the factor behind the downtrend of local equity markets, the pivotal was beaten out of shape after Infosys, India's second-ranked software services provider, disappointed investors with weaker-than-expected margins and took a conservative view on its full-year earnings, sending its shares down the most in six months. The overall market breadth on BSE is in the favour of advances which have thrashed declines in the ratio of 1398:1212, while 117 shares remained unchanged.  

The BSE Sensex is currently trading at 18678.63 down by 126.12 points or 0.67% after trading in a range of 18,844.35 and 18,677.10. There were 16 stocks advancing against 14 declines on the index.

The broader indices were trading in the green; the BSE Mid cap and Small cap index were up by 0.59% and 0.58% respectively.

The top gainers on the BSE sectoral space were, CD up by 0.95%, HC up by 0.33%, Metal up by 0.20%, Realty up by 0.10% and FMCG up by 0.05%. While IT down by 2.43%, TECk down by 1.89%, CG down by 0.87%, Auto down by 0.39% and Bankex down by 0.36% were the top losers on the sectoral space.

The top gainers on the Sensex were GAIL up by 1.17%, TCS up by 1.11%, Jindal Steel up by 0.88%, Cipla up by 0.76% and NTPC up by 0.63%. On the other hand, Infosys down by 5.00%, Wipro down by 1.62%, BHEL down by 1.43%, Bharti Airtel down by 1.18% and Tata Motors down by 1.10% were top losers on the Sensex.  

Meanwhile, in a positive surprise, India’s index of industrial production (IIP), a key measure of industrial output registered decent growth of 2.7 per cent in August 2012 at 165.7, lower than the growth rate of 3.4 percent in the corresponding period last year, but way above the consensus estimates of sub 1 percent growth figure. Further, the number was also higher than July month’s negligible growth figure of 0.1 per cent, which was later revised to -0.2 per cent. Meanwhile, the cumulative growth for the period April-August 2012-13 over the corresponding period of the previous year stands at 0.4 per cent.

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 around, exhibiting expansion, the manufacturing sector, which constitutes about 75.53 percent of industrial production, grew at 2.9 per cent as against a contraction of (-) 0.2per cent in July. Nevertheless, even mining sector, which constitutes about 14.6 percent of industrial production, grew at 2 per cent emerging from its contraction of (-) 0.7 per cent in July. However, growth in electricity sector dropped to 1.9 percent versus a growth figure of 2.8 percent in July. The cumulative growth in the three sectors during April-August 2012-13 over the corresponding period of 2011-12 has been (-) 0.6 per cent, 0.0 per cent and 4.8 per cent respectively.

However, Capital goods output, a key investment indicator, clearly continued to be a disappointment as capital goods production witnessed a decline of  1.7 percent 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 5 per cent, driven by robust growth of 4 percent and 5.8 per cent in consumer durables and non consumer-durables, respectively.

Industrial output, which accounts for a little over 15 percent of gross domestic product (GDP), despite beating street expectation, highlights continuing weakness for the economy, which languished near a three-year low of 5.5 percent annually in the three months to June. 

What comes as the disappointment is the September Consumer Price Index (CPI) inflation, which has risen to 9.73% year-on-year, up 10.03% month-on-month. Thus, with this inflation going high and industrial sector showing continued weakness, the economy seems to be well placed in a typical stagflationary situation, which reduces the chances of RBI reducing its key policy rates, viz, repo and reverse repo. Further, the RBI, in its Second Quarter Review of Monetary Policy 2012-13 on October 30, is expected to go ahead with its tried and tested method of reducing CRR (cash reserve ratio), that helps banks lower their cost of funds and increase lending.

The S&P CNX Nifty is currently trading at 5,680.90, up by 27.15 points or 0.48% after trading in a range of 5,725.00 and 5,659.35. There were 26 stocks advancing against 24 declines on the index.

The major gainers of the Nifty were ACC up by 3.66%, Ambuja Cement up by 2.82%, Lupin up by 2.79%, JP Associates up by 2.31% and Grasim up by 1.36%. While, Infosys down by 5.10%, IDFC down by 1.56%, BHEL down by 1.45%, Wipro down by 1.42% and Bharti Airtel down by 1.27% were major losers on the index.

Most of the Asian equity indices were trading positive; Kospi Composite was up by 0.01%, Shanghai Composite was up by 0.10%, Hang Seng was up by 0.53%, Straits Times was up by 0.49% and Jakarta Composite up by 0.41%. While, Nikkei 225 was down by 0.15%, KLSE Composite was down by 0.03% and Taiwan Weighted was down by 0.20% were the losers.

European markets have got off to a negative start; with CAC 40 declined by 0.23%, FTSE 100 slipped 0.26% and DAX lost 0.27%.