Wednesday, 5 October 2011

Indian equities turn sanguine post encouraging European opening

Indian frontline equity indices got filliped in afternoon trades and are now trading with around a percent gain after showing a sluggish trend all this while on Wednesday. Sentiments got a tentative boost following a sanguine European market opening where markets opened with hefty gains of over two percent. Investors added positions amid expectations that Euro-zone policy makers are working on ways to help banks with recapitalization in order to protect them from the region's sovereign debt crisis. However, the upside for domestic bourses was limited as the banking pocket continued to sulk for the second straight session after reports of a downgrade by global rating agency Moody's. Apart from SBI, majors like ICICI Bank and HDFC too are bearing the brunt of hefty selling pressure. Meanwhile investors also lacked conviction to take higher bets as India's services PMI contracted for the first time in more than two years due to fall in new business. On the sectoral front, buying interests were largely evident in the high beta - Realty and defensive FMCG counters which climbed on the back of hefty bottom fishing in heavyweights. Sectors like Metal and Capital Goods too traded with strong gains. On the other hand, only the rate sensitive - Bankex and Consumer Durables sectors traded with a negative bias. Moreover, the broader markets traded on a flat note around the neutral line and were outperformed by their larger peers. The bourses gained on weak volumes of over Rs 0.50 lakh core, while the market breadth on BSE was in favor of advances in the ratio of 1275:1139 while 118 scrips remained unchanged.

The BSE Sensex is currently trading at 16,027.17 up by 162.31 points or 1.02% after trading as high as 16,028.55 and as low as 15,877.65. There were 25 stocks advancing against 5 declines on the index.

The broader indices were trading on a quiet note; the BSE Mid cap index advanced 0.19% and Small cap eased 0.03%.

On the BSE sectoral space, Realty up 1.95%, FMCG up 1.71%, Metal up 1.46%, Capital Goods up 1.24% and Auto up 1.21% were the major gainers while Bankex down 0.73% and Consumer Durables down 0.05% were the only losers in the space.

JP Associates up 4.73%, DLF up 3.36%, Sterlite up 3.08%, Tata Motors up 2.72% and ITC up 2.69% were the major gainers on the Sensex, while SBI down 2.49%, ICICI Bank down 1.50%, Maruti down 0.51%, HDFC Bank down 0.49% and RIL down 0.10% were the major losers on the index.

Meanwhile, India's service sector growth declined to its two year lowest level because of decline in new business orders and expectations weakened on the back of the sluggish global economic environment, a survey showed on October 5.

The HSBC India Composite Index, which include the manufacturing and service sectors, declined to 50.2 in September compare to 54.5 in August, which is lowest level of headline index since November 2008. Meanwhile, the seasonally adjusted Service Sector Business Activity Index also declined to the below 50 mark, to 49.8 in September compare to 53.8 in August. The below 50 level of service sector activity indicate a broad stagnation in the sector's activity.

Commenting on the India's Service PMI survey, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said, "The slowdown in growth has continued to broaden with the service sector seeing a further slowdown in economic momentum, especially for financial intermediation. Business activity was broadly unchanged from the previous month and new business is growing at a slower pace. Backlogs of work are still rising, however pace is slow and employment fell in response to the deceleration in new order growth as well as staff leaving because of unmet wage demands."

The slowdown in global economy and increased cost of capital along with inflation have affected the pace of the new business orders in the manufacturing and service sectors, thus the growth rate of composite index is easing to the slowest from April 2009.

As per the survey, the employment during the month of September declined in both the sectors because of the weaker growth in output and new business orders. Input prices also surged in month of September. However, the rate of cost inflation was slowest compared to August. But the overall output prices surged for 28 successive months, while the rate of charge inflation slowed slightly, it was the second-strongest in over three years. The increase in service sector charges outpaced the rise in costs for the first time in the series history, survey showed.

The headline inflation measured by wholesale price index (WPI), has been hovering around the two digit mark, and for the month of August it surged to 9.78% compare to 9.22% in July. The current level of inflation is almost twice the comfort level of the Reserve Bank of India (RBI). To bring inflation back into its comfort zone, the RBI, have increased its key policy rates for 12 times since March 2010, as a result, the cost of capital have increased which is adversely affecting the pace of investment in economy.

However, inflation pressures remain firmly in place. While both input prices and prices charged grew at a slower pace, they stayed above the historical standards. "We are getting close to the end of RBI's tightening cycle, but we are not quite there yet", Leif Eskesen added.

The S&P CNX Nifty is currently trading at 4,812.50, higher by 40.35 points or 0.85% after trading as high as 4,827.80 and as low as 4,774.45. There were 38 stocks advancing against 12 decline on the index.

The top gainers on the Nifty were JP Associates up 3.45%, DLF up 3.67%, Sterlite up 3.33%, Tata Motors up 3% and HDFC up 2.92%.

SBI down 2.37%, ICICI Bank down 1.95%, PNB down 1.23%, R Capital down 1.13% and BPCL down 0.80% were the major losers on the index.

Asian markets traded on a mixed note, Jakarta Composite gained 0.44%, KLSE Composite surged 0.1.20% and Straits Times rose 0.37%

On the other hand, Nikkei 225 plunged 0.86%, Seoul Composite slumped 2.33% and Taiwan Weighted shed 0.83%.

Stock markets in China remained closed on Wednesday in observance of Golden Week holiday while bourses in Hong Kong too were shut for national holiday.

The European markets traded on an optimistic note as France's CAC 40 surged 2.85%, Germany's DAX soared 2.40% and Britain's FTSE 100 rallied 2.58%. 

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