The equity indices in India have been smashed to smithereens for the second straight day of trade as dreadful December inflation numbers continued to torment the local equity indices after a tepid IIP numbers. Volatility surged to higher levels as profit booking remained the flavor of the day not only on Dalal Street but also on global front as most markets in Asian and Europe too lost traction. Intense sell-off in rate sensitives, commodities and infrastructure related shares ensured that the frontline indices go home with losses of over one and half a percent points for the third time in the week. The NSE's 50-share broadly followed index, Nifty sulk around triple digit for the third time in the week, to breach the psychological 5,700 support level while the Bombay Stock Exchange's Sensitive Index or Sensex too shrank by over three hundred points to infringe way below the crucial 19,000 mark. In the broader markets, though the BSE's midcap and smallcap indices ended the day with cuts of around a percent, still they were comparatively better than their larger peers. In the meantime, the government released India's headline inflation numbers which rose significantly in the month of December, increasing the trouble of policy makers who have been forecasting a steady decline in the pace of prices rise over the second half of the fiscal. The development will put the Reserve Bank of India (RBI) into a tight corner as it gets ready to issue last quarterly review of monetary policy for current fiscal. The high beta Real Estate pack got hammered 2.77% in today's trade, being the biggest laggard in the BSE sectoral space, fears of a hike in key interest rates by the RBI loomed which pulled heavyweights like Godrej Properties and Unitech by 3.83% and 3.84% respectively. The banking counter too remained under immense pressure with majors like Axis Bank and HDFC Bank plunging 5.35% and 4.16%. The scrips of SAIL and Zee Entertainment tanked after posting disappointing numbers for the third quarter. While there were no sectoral indices that closed on a positive note, select shares like Tata Power and Wipro showed a great amount of traction to end the day with around two percent gain.
On the global front, Asian equity indices traded in the negative terrain through the day's trade to end mostly in the red as investors lost conviction after disappointing jobless claims data from the US and decline in mining stocks as oil and metal prices retreated. While key benchmark indices in Europe continued to trade with a negative bias with FTSE 100 being the biggest loser in the space after shedding over half a percent point. The screen trading for US index futures also indicates that the Dow could drift 0.12% at the opening.
Earlier on the Dalal Street, the benchmarks indices failed to gain any kind of momentum initially as global cues remained weak given that Asian bourses traded in the red zone as investors opted to take profits off the table tracking the weak close in overnight US markets. The frontline indices remained range bound in the morning session but in the late morning trade the indices erased all the losses and managed to break in to the green as IT stocks supported the pull back. After trading in the positive territory for a couple of hours, selling pressure re-emerged as investors lacked conviction and they squared off positions. Eventually, the bourses succumbed to the pressure and tumbled like a house of cards to settle with deep cuts of over one and half percent as there was no short covering. Volumes were substantially higher than yesterday at around Rs 2.26 lakh crore while the turnover for NSE F&O segment too remained on the higher side at over Rs 2.10 lakh crore. The market breadth on the BSE was extremely negative as there were 879 shares on the gaining side against a 1956 shares on the losing side while 151 shares remained unchanged.
Finally, the BSE Sensex plunged 322.38 points or 1.68% to settle at 18,860.44 while the S&P CNX Nifty plummeted 97.35 points or 1.69% to end at 5654.55.
The BSE Sensex touched a high and a low of 19,447.82 and 18,811.96, respectively.
Tata Power up 2.11%, Wipro up 1.77%, Jindal Steel up 0.31%, M&M up 0.13% and Hindustan Unilever (HUL) up 0.07% were the only gainers on the Sensex.
On the other hand, Tata Motors down 4.62%, HDFC Bank down 4.16%, HDFC down 3.95%, Sterlite Inds down 3.45% and Bajaj Auto down 3.09% were the major laggards on the index.
The BSE Mid-cap and Small-cap indices trimmed 1.18% and 1.04%, respectively.
Meanwhile, India's headline inflation rose significantly in the month of December, increasing the trouble of policy makers who have been forecasting a steady decline in the pace of prices rise over the second half of the fiscal. The development will put the Reserve Bank of India (RBI) into a tight corner as it gets ready to issue last quarterly review of monetary policy for current fiscal.
According to the data released by the government on Friday, headline inflation as measured by the wholesale price index (WPI) in the month of December surged to 8.43% compared with 7.48% for the previous month. The 'All Commodities' index (Base 2004-05=100) for the month of December rose by 1.3% to 144.1 from 142.3 for the previous month. Over the current fiscal so far, the index has risen by 6.11%. In other words, prices have increased more than 6% in the fiscal so far compared with RBI's preference of 5% inflation over a full fiscal.
Looking at the sub segments, it becomes clear that major contribution on the upside has come from the food and primary commodities, which have been key reason for high inflation for over a year. Annual inflation in the primary commodities rose to 16.46% in December compared with 13.0% in the previous month. The index for this broader group was up 1.26 over the last month and has risen 8.26% over the current fiscal so far.
Within the primary goods segment, food inflation surged sharply to 13.55% from single digit figure of 9.41% in the previous month. There was a lot of cheer in government circles after food inflation fell to a single digit figure last month, but that has clearly proved to be a short-lived development. The index for 'Food Articles' group rose by whopping 3.7% percent to 186.9 from 180.2 for the previous month. The build up since March shows even scarier picture at 14.24%. The index for 'Non-Food Articles' was not far behind and surged 2.3% to 171.6 from 167.7 for the previous month.
There was a mild deceleration in inflation in the manufacturing space which stood at 4.46% against 4.56% a month ago. However, the index for manufactured products also increased by 0.4% to 128.9 from 128.4 in the last month, which indicates that even in this group the downside in inflation has come just from base effect even as the prices are increasing on a month-on-month basis.
Finally, the index for fuel and power which has a weight of 14.91% in the overall WPI increased by 1.0% to 150.1 from 148.6 for the previous month due primarily to higher prices of light diesel oil and furnace oil (6% each), aviation turbine fuel, naphtha and bitumen (5% each) and petrol (3%). The annual inflation for this group remained nearly flat at 11.2%. Fuel inflation could have surged further had the government hiked diesel prices in line with rise in global crude prices.
All the sectoral indices closed in negative territory.Realty down 2.77%, Bankex down 2.62%, Metal down 2.44%, Auto down 2.31% and Capital Goods (CG) down 1.89% were the major losers in the BSE sectoral space.
The S&P CNX Nifty touched a high and a low of 5833.65 and 5639.65, respectively.
The top gainers on the Nifty were Wipro up 1.93%, HCL Technologies up 1.32%, Tata Power up 1.08%, Power Grid Corporation of India up 0.52% and Ranbaxy Lab up 0.44%.
On the other hand, SAIL down 6.41%, Axis Bank down 5.01%, HDFC down 4.31%, HDFC Bank down 4.29% and Ambuja Cement down 4.15% were the top losers on the index.
The World Bank has projected India's growth rate in 2012 ahead of China. Although most economists agree that somewhere in the current decade India should overtake China in growth as the latter was bound to slow due to its higher base. If it does turn out to be the case, it could be the defining trend for Indian economy going forward.
In its latest World Economic Outlook (WEO), the multilateral institution has projected India's growth at 8.7% in 2012 while that of China at 8.4%, giving a slight edge to the third-largest economy in Asia. At present, India is the second fastest growing large economy in world and has held this title for many years now. In the current financial year, India is expected to expand by around 8.5% while China's growth is likely to be around 9.5%.
Most economists expect that although China managed to handle the global financial crisis reasonably well, the Asian giant will have to face some moderation in coming days as it tries to check rising inflation by cooling down its red hot economy. Interest rates are also set to rise which will result in higher cost of capital and will thereby slowdown investment, the engine of Chinese growth. Also, rising wages is bound to increase cost of production in China which will also act as a dampener on very high growth. Finally, owing to its one-child policy, China is bound to witness decline in working population going forward and hence moderation in growth trajectory.
India on the other hand has a lot of head room to expand if it can manage its rising population well. The demographic dividend, which implies increasing working age population, will help propel the manufacturing as well as services sectors of Indian economy and can provide sustained high growth for couple of decades. This however would require business friendly reforms and improvement in governance.
Also, the race between India and China is not being held in isolation and the developments in Europe and US will impact both the Asian giants. Indian economy, though at lesser risk compared with China, will still face a significant slowdown if there is another dip in global economy. However, if global economic and geopolitical factors remain stable, the momentum that Indian economy has presently will automatically take it ahead of China in coming years.
European markets were trading in the red on Friday. France's CAC 40 lost 0.26%, Germany's DAX shed 0.30% and Britain's FTSE 100 slipped 0.44%.
Asian equity indices finished mostly in the negative terrain on last trading day of the week as US reported a disappointing jobless claims data which rose more than economists estimation. The sentiments were also weighed as mining companies fell after oil and metal prices retreated. Japan's Nikkei 225 stock average declined more than half a percent as Prime Minister Naoto Kan's Cabinet resigned en masse. However, Seoul shares rose about a percent today buoyed by firm gains in financials and auto issues including Hana Financial Group and Hyundai Motor.
| Asian Indices | Last Trade | Change in Points | Change in % |
| Shanghai Composite | 2,790.68 | -37.03 | -1.31 |
| Hang Seng | 24,283.23 | 44.25 | 0.18 |
| Jakarta Composite | 3,569.14 | 4.12 | 0.12 |
| KLSE Composite | 1,569.89 | -1.67 | -0.11 |
| Nikkei 225 | 10,499.04 | -90.72 | -0.86 |
| Straits Times | 3,245.96 | -9.91 | -0.30 |
| Seoul Composite | 2,108.17 | 18.69 | 0.89 |
| Taiwan Weighted | 8,972.51 | -3.07 | -0.03 |
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