Benchmarks butchered below crucial levels on intense selling pressure

It turned to be a tumultuous last day of the week for the Indian stock markets which got thrashed for the fourth straight session of trade to end on an extremely abysmal note. Investors were trapped amid a pandemonium in the late hours of trade as the frontline indices treaded towards their longest losing streak in six weeks, after the Reserve Bank of India's deputy governor expressed his concerns over the towering food inflation stating that it currently is at a "worryingly high" level. The NSE's 50-share broadly followed index, Nifty tanked around two and half a percent to settle a tad above the psychological 5,900 level while the Bombay Stock Exchange's Sensitive Index, Sensex plummeted close to five hundred points to close around the crucial 19,700 mark. The broader markets too have continued their dreadful run of underperformance after they witnessed tremendous selling pressure as the BSE's midcap and smallcap indices ended in the red territory for the fourth consecutive day. Rate-sensitive's like banking and financial institutions, realty and auto counters sulked for another day amid growing apprehensions that the hike in interest rates is around the corner seeing that the surging food inflation numbers will pressurize the Reserve Bank of India (RBI) to tighten the stance of monetary policy further in the forthcoming policy review scheduled for January 25. Amid extreme caution ahead of quarterly results from India Inc, investors continued to hit the sell button through the day over metal counter which remained the biggest laggard today. Hindalco Industries and Sterlite Industries were the chief losers in the metal counter with losses of 7.02% and 5.52% respectively. The BSE Auto index, which has lost 6.20% in last five sessions from a recent high of 10,235.41 on 31 December 2010, remained in despair today as it lost about over three percent with heavyweights like Tata Motors and Mahindra & Mahindra sinking 5.52% and 4.07%. While Information technology shares which have recently witnessed a strong rally, took a deep cut of around three percent as investors opted to take profits off the table seeing that the index has outperformed the market over the past one month till January 6, 2011, gaining 9.71% compared with the Sensex's meager 1.02% rise. While there were only a handful of stocks on the gainers chart, no heavyweight managed to enlist its name in the list.

On the global front, cues remained somber from the Asian counterparts which closed on a mixed note as investors remained cautious ahead of US nonfarm payrolls data later in the day. All key benchmark indices in Europe were trading in the negative region with FTSE 100 being the biggest laggard in the space after shedding around half a percent point. The screen trading for US index futures also indicates that the Dow could open in the red at the opening bell.

Earlier on the Dalal Street, the index got off to a tepid start tracking Asian markets which exhibited mixed trend following overnight US stocks that receded on soft retail sales and a sharp rise in the greenback that left investors edgy ahead of December's US employment report. The frontline indices could not gain any kind of impetus thereafter and continued to sulk as investors' exerted heavy selling pressure across the board. The benchmarks kept on tumbling through the day's trade even as they tested the crucial 19,700 and 5,900 levels. The bloodbath in the second half ensured that the bourses go home with hefty losses of around two and half a percent. Volumes in the local markets picked up substantially to around Rs 1.75 lakh crore while the turnover for NSE F&O segment too remained on the higher side compared to Thursday at over Rs 1.58 lakh crore. The market breadth on the BSE was awfully negative as there were merely 620 shares on the gaining side against a massive 2330 shares on the losing side while 97 shares remained unchanged.

Meanwhile, the International Monetary Fund (IMF) said on Thursday that India and China would continue to lead the economic growth story in Asia. IMF expects India to grow at 8.75% in current fiscal and slowdown to 8% in next one. IMF Head for Asia-Pacific Anoop Singh however also pointed out some of the downside risks, many of which emerge from global factors. 'Despite this positive outlook, there are still downside risks, but these mainly come from the external environment, like the risk that global growth could come down significantly" he said.

On charts: The S&P CNX Nifty was unable to settle above the crucial 5964 mark in trade today and took a support around 5883.60 level during the session.The Nifty has broken crucial levels. Going forward, the index may find strong resistance around 5964 and 5994 while on the downside 5880 and 5840, 5759 and 5643 will be the important support levels to watch.

Finally, the BSE Sensex plunged 492.93 points or 2.44% to settle at 19,691.81 while the S&P CNX Nifty plummeted 143.65 points or 2.38% to end at 5904.60.

The BSE Sensex touched a high and a low of 20,210.62 and 19,629.22, respectively.

The major losers on the Sensex were Hindalco Inds down 7.02%, Tata Motors down 5.52%, Bharti Airtel down 4.12%, M&M down 4.07% and Sterlite Inds down 4.06%, while there were no gainers on the index.

The BSE Mid-cap and Small-cap indices dived 2.49% and 2.86%, respectively.

Meanwhile, global rating agency Fitch has downgraded the cement sector outlook to 'negative to stable' for the current calendar year in wake of continued margin pressures and potential over capacity staring at the industry. The industry which performed above expectations in last fiscal lost its way somewhat following the start of monsoon season in 2010 and has remained rather week since then.

The Fitch said that cement industry is likely to suffer from over capacity as the demand is expected to expand at around 10% in the year 2011 while the total capacity addition will be significantly higher in the same period. The industry already has a lot of spare capacity. As such, the agency concluded the 'overcapacity of 125.8 million tonne by 2013 in the cement sector, which will result in pricing and margin pressure.'

Margins of cement companies have been in pressure for quite some time owing to weaker prices and rising cost of production and Fitch expects that profitability will continue to remain under pressure in the year 2011. It expects little change in both prices and costs from current levels, which pre-empts any room for near term improvement. 'Fitch expects further pricing pressure in the wake of lower capacity utilization, and notes that regional variations will continue to play a significant role,' it said.

The widening demand-supply gap is expected to affect the capacity utilization levels of the cement companies further. Fitch expects continued pricing pressure in the wake of lower capacity utilization, and noted that regional variations will continue to play a significant role. The south region with a large demand/supply gap, which is expected to widen further, is likely to witness particularly heavy pricing pressure, followed by the west and east regions.

Cement dispatches had shown buoyant increase in October when growth reached close to 18%, raising hopes that industry may bottom-out soon. But growth slipped into negative zone again in November when dispatches contracted by 3% on annual basis and close to 20% on sequential basis, hitting the prospects of the cement companies. Most analysts feel that the industry will continue to face pressure in wake of oversupply as well as rising cost of production.

All the sectoral indices were trading in the negative territory. Metal was down 4.03%, Auto was down 3.26%, Consumer Durables (CD) down 3.18%, TECk was down 2.89% and Information Technology (IT) down 2.83% were the major losers in the BSE sectoral space.

The International Monetary Fund (IMF) said on Thursday that India and China would continue to lead the economic growth story in Asia. 'We expect growth to remain strong. We expect it to settle at a more sustainable rate of about 7% for Asia as a whole, slightly down from 8% in 2010. We see China and India continuing to lead Asia's growth,' IMF Head for Asia-Pacific Anoop Singh said. IMF expects India to grow at 8.75% in current fiscal and slowdown to 8% in next one. 

Singh however also pointed out some of the downside risks, many of which emerge from global factors. 'Despite this positive outlook, there are still downside risks, but these mainly come from the external environment, like the risk that global growth could come down significantly" he said. The ongoing financial troubles, particularly the sovereign debt crisis in euro-zone, were another key external risk. On the domestic front, inflation is fast emerging as the biggest challenge to growth.

Separately the Fund also accepted that capital control amidst a surge in inflows are relevant tool for a country like India and can be used to help choke the flow of investments threatening to damage the economy. The IMF spokeswoman Caroline Atkinson said there were a range of measures emerging countries could consider to slow detrimentally-large capital inflows, including exchange rate appreciation, reserves accumulation, and fiscal contraction.

The IMF accepted that if the Indian currency was to become too strong, in a way that it can hit exports and impact overall macro environment, the country could intervene in its foreign exchange market or take what it called 'macroprudential' measures. This is a significant change from IMF's earlier stand when criticized capital controls as distortionary. Now the multilateral agency is quick to accept that capital controls are a legitimate part of tool-kits of central banks.

The S&P CNX Nifty touched a high and a low of 6051.20 and 5883.60, respectively.

The top losers on the Nifty were Hindalco Inds down 7.42%, Tata Motors down 6.26%, Suzlon Energy down 4.67%, Sterlite Inds down 4.60% and Reliance Infra down 4.53%.

On the other hand, IDFC up 0.03% was the lone gainer on the index.

On the global front, European markets were trading in the red on Friday. France's CAC 40 shed 0.66%, Germany's DAX slipped 0.25% and Britain's FTSE 100 lost 0.57%.

Asian equity indices finished on a mixed note on the last trading day of the week tracking the weakness in the resources sector and investors remained cautious ahead of US nonfarm payrolls data later in the day. Japanese Nikkei edged up in the trade and snapped the session near its fresh eight-month high. Among Asian indices, Shanghai Composite, Seoul Composite and Hang Seng closed in green while Jakarta Composite and Straits Times edged lower in trade.

Asian Indices	Last Trade	Change in Points	Change in %
Shanghai Composite	2,383.80	14.60	0.52
Hang Seng	23,686.63	-99.67	-0.42
Jakarta Composite	3,631.45	-104.80	-2.81
KLSE Composite	1,572.21	3.84	0.24
Nikkei 225	10,541.04	11.28	0.11
Straits Times	3,261.35	-18.35	-0.56
Seoul Composite	2,086.20	8.59	0.41
Taiwan Weighted	8,782.72	-100.49	-1.13

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