Markets pare some losses; weakness persist

Indian equity markets though have pared some of its losses are still trading in the negative territory as India's industrial production for the month of December, which stood at 1.6% seems to have further pulled the carpet off underneath them. Both the benchmark indices, Nifty and Sensex are trading around their psychological levels of 5,200 and 17,400 respectively. Sustained selling in several blue chips from across various sectors is also weighed on the sentiments on the last trading day of the week. Other Asian markets were trading on a cautious note as investors were wary of rising uncertainty due to the political turmoil in Egypt after President Hosni Mubarak refused to quit despite continued mass protests. Back home, on the sectoral front, only banking and consumer durables segments are trading in the positive territory, while the other sectoral indices are down in the red at present. Metal, technology and realty stocks are among the most prominent losers. Information technology and oil & gas stocks are also mostly trading weak. Broader markets were, however, trading in the green, with the BSE Mid-Cap and Small-Cap indices outperforming the Sensex, advanced 0.16% and 0.22%, respectively. The market breadth on the BSE was in favour of declines; the losers thrashed the gainers in the ratio of 1354:1247 while 79 shares remained unchanged.

The BSE Sensex sank 61.91 points or 0.35% at 17,401.13. The index touched a high and a low of 17,526.64 and 17,295.62, respectively.

The BSE Mid-cap and Small-cap indices advanced 0.16% and 0.22%, respectively.

In BSE sectoral space, Metal down 2.14%, TECk down 1.12%, Realty down by 1.11%, Information Technology (IT) down 0.90% and Oil and Gas down 0.85% were the major losers.

On the other hand, Bankex up 0.54% and Consumer Durables (CD) up 0.35% were the only gainers in the BSE sectoral space.

Meanwhile, India's industrial production slowed down sharply in the month of December to touch 1.6%, even lower than the 2.7% seen in the previous month. While a lot of base effect is involved in the figure, as there was a very sharp jump in IIP in the same month of last year, the figure still is somewhat below the market expectations, particularly after the infrastructure industries had registered over 6% growth for the month under review.

The sharp downside was mainly because of the slowdown in manufacturing activity that slumped to just 1% growth compared with over 19% growth seen in the year-ago period. The electricity production grew by 6% in Dec 2010 against 5.4% in the same month a year ago. Mining sector on the other hand slowed down to 3.8% from a high base of 11.1% growth seen in the year-ago period.

Looking at the used based classification, growth in the consumer durables, which have been a major contributor to the IIP rally in early 2010, slowed down to 18.5% compared with 41% seen in the year ago period. Consumer non-durables on the other hand contracted by 1.1% compared with a growth of 3% seen in the same month last year. Basic goods registered reasonable growth at 5.2% against 8.4% in the year-ago period. Intermediate goods recorded 6.6% expansion against 23.5% in Dec 2009.

The cumulative growth in industrial production over the April-December period of current fiscal stood at 8.6%, unchanged compared with the growth seen in the same period of last year. The only difference is cumulative growth was on rising trajectory in last fiscal and is on a downhill journey this fiscal. The only consolation perhaps is that the industrial growth for the last month has been increased to 3.6% against 2.7% a year ago.

While the slowdown looks very sharp in the year-on-year numbers, the same is unlikely to be the case with month-on-month basis. Since there was a record high jump in the IIP in December last year, it is quite natural that the year-on-year growth would look tepid even if the industrial production improves significantly on a sequential or a month-on-month basis.

Economists feel that the seasonally adjusted figures would show significantly better growth on sequential basis. Also, the 1993-94 based index itself is out of touch with the currently realities and probably has not been able to reflect the actual industry momentum with a lot of accuracy over the recent period. Given these factors, it would be reasonable not to read too much in the IIP, particularly in the year-on-year numbers, and rather stress on reasonable month-on-month growth and good performance seen in other indicators like the purchasing managers' index.

The top gainers on the Sensex were HDFC up 1.29%, Sterlite Inds up 1.12%, NTPC up 1.09%, ICICI Bank up 0.88% and L&T up 0.69%.

Hindalco Inds down 5.23, RCom down 4.66%, Tata Steel down 3.30%, Bharti Airtel down 2.49% and Rel Infra down 2.43% were the top losers on the index.

Paper industry has urged the government to scrape the customs duty on import of waste paper, wood pulp and coal. The Federation of Indian Export Organizations (FIEO) contends that since the paper production in India was very low, the industry depended largely on imported paper for various purposes and reducing the duty on inputs will improve the efficiency of the industry.

The Indian paper industry, which is widely populated by SMEs, is currently passing through a very difficult phase due to high input cost of raw materials. Since the industry is highly fragmented in nature, it has not been able to take advantages of scale economies as has been the case with its counterparts in global economy. As a result, production has remained low and cost of production has remained high.

There are, at present, about 700 units, mostly small and medium enterprises (SMEs), engaged in the manufacture of paper and paperboards in the country. Out of that about 125 units have been already closed and the industry expects that more units will be closed if the government does not come to help the industry immediately.

The S&P CNX Nifty fell 23.80 points or 0.46% to 5202. The index touched a high and a low of 5248.10 and 5177.70, respectively. 

The top gainers of the Nifty were IDFC up 5.64%, Cairn India up 2.87%, HDFC up 1.67%, NTPC up 1.53% and Sterlite Inds up by 1.41%.

The top losers of the index were BPCL down by 5.22%, Hindalco Inds down 5.14, RCom down 4.50%, Ambuja Cement down 4.39%, and Sesa Goa down 3.99%.

Most of the Asian markets were trading in the red; Jakarta Composite declined 0.70%, KLSE Composite slipped 0.59%, Straits Times shed 0.91%, Seoul Composite sank 1.56% and Taiwan Weighted plunged 2.57%; while Shanghai composite increased 0.34% and Hang Seng added 0.03%.

Share markets in Japan remained closed today on account of a public holiday.

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