Benchmarks slide further; weak IIP numbers weigh

The Benchmark equity markets continue to slide further in the late-morning session on the back of disappointing Index of Industrial Production (IIP) data. India's industrial output in November rose a slower-than-expected 2.7% from a year earlier, well below the previous month's revised annual growth of 11.3%. The global cues remain mixed for the markets as though, the majority of the regional peers were trading positive the Dow future was showing down tick in the screen trade.  Back home, on the sectoral front, Bankex, Consumer Durables and IT were the top gainers in trade; on the other hand Capital Goods (CG), Health Care (HC) , Oil &Gas , Reality and Power counters were the major losers on the BSE. Reliance communication which has surged from last 3 sessions, is witnessing some profit booking from investors, it was down by 3.19%.On the other hand Tata Motors was among the top gainers on the Sensex on reports that company's slew of recent measures will help revive sagging volumes. The broader indices were also trading in negative terrain. The market breadth on the BSE was negative; there were 1426 shares on the loser's side against 1157 shares on the gainers side, while 113 shares were unchanged. The S&P CNX Nifty may face resistance around 5748 levels whereas support will be around 5680 and 5640 mark for the day.

The BSE Sensex shed 107.82 points or 0.56% at 19088.52. The index touched a high and a low of 19379.55 and 19056.39 respectively.

The BSE Mid-cap index and Small-cap index were down by 0.22% and 0.27% respectively.

The main losers in the BSE sectoral space were Capital Goods (CG) down 1.59%, Health Care (HC) down 1.57%, Oil &Gas  down  0.95%, Reality down 0.94% and Power was down 0.92% .

On the other hand, Bankex up 0.50%, IT up 0.16%, Consumer  Durables (CD) up 0.26% and TECk up 0.05% were the only gainers in the BSE sectoral space.

The major gainers on the Sensex were Tata Motors up 2.99% , ICICI Bank up 1.89%, TCS up 1.77% ,Sterlite up 1.60% and SBI up 0.93%.

On the flip side, Reliance Communication down 3.19%,Tata Steel  down 2.95%, L&T down 2.85% Bajaj Auto down 2.53% and ONGC down 2.36% were the major losers on the Sensex .

India's industrial production slumped sharply in the month of November, raising concerns on the near term growth outlook of economy. The index of industrial production (IIP) expanded at a miserable pace of 2.7% against a robust 10.3% in the previous month. While markets were expecting some slowdown, the actual number was way below consensus expectation of around 6-6.5% expansion.

The downside came from a sharp slowdown in the manufacturing sector even as other constituents managed reasonable expansion. Manufacturing sector grew at just 2.5% against 12.3% in the previous month. Electricity production however showed improved performance at 4.8% against 1.6%. Mining also did reasonably well at 6%, though slower than year-ago figure of 10.7%.

Looking at the use based classification, the slowdown was most visible in the consumer goods space. Growth in the consumer durable goods, like electronics and autos, which has been the mainstay of IIP in recent months, came down to meager 4.3%  from over 36% growth seen in Nov 2009. The non-durable consumer goods showed even worse performance with a contraction of nearly 6% against growth of little over 2% in same month last year. Capital goods on the other hand continued to do very well with a growth of 12.8% against 11% a year ago.

Economists however are pointing out that the slowdown in November IIP numbers might not be a very good indication of growth momentum in the economy. This is because the IIP numbers have been so volatile in recent months, that even the RBI has had difficulty in gauging underlying growth momentum from it. There is a possibility of revision in figures at a later stage. Also, the year-on-year growth figure also came on a very strong base.

The key question here is how the RBI will read the figure and will it impact the decision on January 25, when the next monetary policy review is due. The answer is that while the very poor number does raise some concerns on growth side, greater probability is that the central bank may not factor it much into its decision. There are a couple of reasons for this. First, given that the RBI itself had raised doubts on credibility of out of date index, it is likely to take some other data like the purchasing manager index (PMI), which had shown improvement in November, into account as well.

Secondly, inflation is becoming a far more serious problem, particularly following the recent reversal in decline of food inflation. The RBI will therefore have to give more weight to checking inflation that promoting growth at this stage.  Whether the central bank does tighten the policy is a different question though as it would depend on how much benefit the RBI thinks it can have from a rate hike in terms of reducing food inflation and checking surging inflationary expectations. 

The S&P CNX Nifty trimmed 26.15 points or 0.45% to 5,727.95. The index touched a high and a low of 5,815.75 and 5,715.35, respectively.

The top gainers on the Nifty were Tata Motors up 3.05%, Suzlon up 2.53%,Sterlite Industries up 2.28%, Cairn India up 2.24% and TCS was up by 1.68%.

The top losers on the index were  Reliance Communication down by 3.67%,Tata Steel down by 2.85% Bajaj Auto down by 2.73% Dr Reddy down by 0.74% and SunPharma down by 2.57%.

Majority of the  regional peers were trading in green; Hang Seng surged  0.81%, Jakarta Composite zoomed 2.21 %, KLSE Composite increaed 0.05%, Nikkei 225 advanced by 0.02%, Seoul Composite inched up  0.32% and Taiwan Weighted climbed 0.38%, while  Straits Times declined  by 0.24%.

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