Markets drift lower ahead of F&O expiry on profit booking

Indian benchmarks have witnessed yet another volatile day of trade and snapped the third straight session in the negative zone as investors opted to take profits off the table ahead of the April series F&O expiry. Though, the indices seemed reluctant to die down to the selling pressure but the cautiousness got translated into position squaring in the second half of trade which dragged the indices by around half a percentage point. Sentiments largely got pounded by in line result announcement by IT bellwether Wipro and its muted guidance which prompted the investors to punish the stock by over two and half a percent. While below expectations fourth quarter numbers by Ambuja Cements and FMCG major Dabur India too showed the downward direction to the local markets. Another disappointment remained the index heavyweight RIL which shaved off around one and half a percent after reports that oil minister ordered Reliance Industries to supply gas from Krishna Godavari (KG) D6 only to priority users like fertilizer and power plants. However, the reports proved supportive for the fertilizer and power stocks which reacted positively to the oil minister's statement. Meanwhile, the markets across the globe traded with some conviction as most Asian indices settled on a positive note while the European counterparts too traded with a positive bias after the subdued opening. Back home, the NSE's 50-share broadly followed index Nifty, settled with over half a percent losses, below the crucial 5,850 support level , while Bombay Stock Exchange's Sensitive Index, Sensex took a triple digit cut to end around the psychological 19,450 mark. By the end of trade, the broader markets caught up with the weakness that was evident in larger peers and snapped the session on flat note. On the sectoral front, the PSU index, grabbed the top gainers position after climbing by 0.49% due to rally in stocks like Coal India and ONGC which surged 2.19% and 2.57% respectively. While the FMCG pocket which got pounded in Tuesday's session too remained amid the thick of things as it gained 0.49% on the back of 1.09% and 0.86% gains in majors like Nestle India and ITC respectively. On the other hand, the high beta Realty pocket languished at the bottom of the table with 1.55% losses as investors heavily pummeled major stocks like DLF, Unitech and HDIL. GMR Infra which nosedived by 3.16% on Tuesday, surged by 1.57% in the session after Supreme Court allowed GMR Group to continue to charge Airport Development Fee (ADF )as per the approval granted to DIAL by the Airport Economic Regulatory Authority (AERA). On the result front, stocks like Kirloskar Brothers, Bosch, Mahindra Composites, Blue Dart Express and Clariant Chemicals were commended by the investors through the session while shares of companies like Wipro, Dabur India, Ambuja Cement's and Swaraj Engines got punished badly.

On the global front, majority of Asian equity indices settled in the green zone with Japanese benchmark grabbing the top gainer's position after gaining over one and a quarter percent point as stocks in the country's export sector climbed amid signs that the yen was ceding to the dollar. The European equities, after starting on quiet note, are trading mostly in the green as France's CAC advanced 0.52%, Britain's FTSE 100 eased 0.02% and Germany's DAX climbed 0.62%. On the other hand, the screen trading for US index futures too indicated that the Dow could open with gains of around a quarter percentage point ahead of the Federal Reserve's policy announcement and Fed Chairman Ben Bernanke's press conference due later on Wednesday.

Earlier on Dalal Street, the benchmark got off to a positive opening as leads in early trade remained supportive from the Asian markets, underpinned by overnight Wall Street rally, supported by good earnings number and better than expected US consumer confidence data. The frontline indices tried hard to keep their head above the water but constant disappointing result announcements by major companies weighed down sentiments. The indices drifted deeper into the red terrain as position squaring in Realty and Banking stocks intensified in the afternoon trade. The persistent weakness on heavyweight counters such as Reliance Industries and ICICI Bank soon dragged the markets to intraday low levels and all attempts to pull back from those levels went in vain. The bourses eventually snapped the session on a pessimistic note and extended the declining streak for the third straight session. On expected lines, markets registered strong volumes of over Rs 1.98 lakh crore a day ahead of April series F&O expiry. The turnover for NSE F&O segment remained on the lower side compared to Tuesday at over 1.83 lakh crore. Market breadth remained negative as there were 1317 shares on the gaining side against 1558 shares on the losing side while 112 shares remained unchanged.

Finally, the BSE Sensex declined by 96.66 points or 0.49% to settle at 19,448.69  while the S&P CNX Nifty lost 34.50 points or 0.59% to end at 5,833.90.

The BSE Sensex touched a high and a low of 19,633.63 and 19,412.79 respectively. The BSE Mid-cap index declined by 0.01% while Small-cap index remained unchanged. 

ONGC up 2.57%, Mahindra & Mahindra up 1.61%, Maruti Suzuki up 1.10%, ITC up 0.86% and Bharti Airtel up 0.77% were the major gainers on the Sensex.

On the flip side, Wipro down 2.86%, Jaiprakash Associates down 2.66%, BHEL down 2.30%, Reliance Infrastructure down 2.22% and Hero Honda down 1.67% were the  losers on the index.

India's apparel exports have seen significant traction in last few months as the demand from key export destinations like the US and European Union improves. In the month of March 2010, total apparel shipments stood at $1209 million, recording a growth of nearly 18% when compared with same month a year ago.

On a full year basis, apparel exports during April-March 2011 increased by 4.23% at $11.16 billion as compared to $10.71 billion in the year-ago period, showed the data released by the Apparel Export Promotion Council (AEPC) of India. Apparel exports were weak in the initial months of the fiscal however significant traction was visible since the month of November 2010, which helped the industry end the year in green, said AEPC.

Apparel exports to the US, which is the most important market for India's garment makers, increased by 12.5% in the month of February to $586.9 million against $521.7 in Feb 2010. For the same period, overall US imports of apparels witnessed an increase of 16.9% from the corresponding period of previous year and amounted to $11.7 billion. Clearly, while Indians have been improving exports to the US, they are being outpaced by some other countries like China.

India's textile industry was one of the worst hit by impact of global slowdown which saw the demand from developed countries like the US and EU going down considerably. While the overall demand scenario has improved over last one year, apparel exporters have been facing increasing competition from countries like China and Bangladesh as all key exporters try to hold on to their market share. The industry wants the government to ensure that cotton and yarn prices come down from the elevated levels so that exporters can compete in global markets on price basis.

Public Sector Undertakings (PSU) up 0.49%, Fast Moving Consumer Goods (FMCG) up 0.49%, Consumer Durables (CD) up 0.26% and Health Care (HC) up 0.14% were the only gainers in the BSE sectoral space. Realty down 1.55%, Capital Goods (CG) down 1.20%, Metal down 0.81%, Power down 0.76% and Bankex down 0.72% were major losers in the BSE sectoral space.

The S&P CNX Nifty touched a high and a low of 5,892.35 and 5,819.95 respectively.

The top gainers on the Nifty were ONGC up 2.27%, M&M up 1.63%, Maruti up 1.35%, ITC up 1.20% and Cipla up 0.38%.

The top losers on the index were Ambuja cement down 4.63%, JP Associate down 3.16%, Wipro down 3.13%, Reliance Infrastructure down 2.73% and BHEL down 2.57%.

The continued monetary tightening by the Reserve Bank of India (RBI) over the last financial year has so far not had a major impact on credit growth in Indian economy, but if the central bank continues raising its policy rates aggressively in 2011, bankers feel credit demand will moderate slightly.

This however will not be unwarranted outcome from point of view of the central bank which has been worried over the sticky nature of inflation currently prevailing in the Indian economy.  Moderation in credit demand will have a cooling down impact on the manufacturing sector and hence will help taming the core inflation, which is fundamental objective of the RBI.

Analysts point out that credit growth was a key indicator of demand side inflationary tendencies and any moderation in loan disbursal will directly cool the aggregate demand in country. While this would mean somewhat lower growth as well, it will nonetheless also help bring down inflation. The Indian monetary authority has been saying that it would continue balancing inflation-growth concern, but at a subliminal level, its approach is getting a bit pro-inflation bias.

Bankers feel that with current stance of monetary policy, credit growth in 2011-12 could work out to be anywhere between 18-22%, against 21.4% seen in fiscal 2010-11. However, if the central bank continues monetary tightening in 2011, resulting in say another 100 bps of cumulative hike in repo rate, credit growth could be around  75-150 bps lower than what it would otherwise be. This would peg loan growth estimates for FY12 in 17-21% range which is not bad for expected growth of around 8% in GDP over the FY12.

Most of the banks have not passed a significant chunk of the tightening implemented by the RBI so far, despite the significant deficit in liquidity that prevailed for most of the second half of last financial year, this has boosted loan growth in FY11. However, as the central bank continues tightening in FY12, banks will begin facing pressure on interest margins and thereby will have no choice but to start significantly hiking rates. From central bank's side, it will cool aggregate demand and hence core inflation in the economy.

European markets were trading on mix note. France's CAC 40 was up by 0.60%, Germany's DAX gained 0.65% and Britain's FTSE 100 was trading higher by 0.08%.

Most of the Asian equity indices finished the day's trade in the positive terrain on Wednesday tracking the US markets which moved higher on good corporate earnings, boosting the outlook for Asian exporters. Japanese Nikkei surged about one and a half percent, shrugging off Standard & Poor's to revision of the outlook on its long-term rating on to negative from stable. Moreover, Taiwanese stocks closed with a gain of over a percent, lifted by surge in financial and semiconductor heavyweights as investors raised long positions in an increasingly optimistic environment.

Asian Indices	Last Trade	Change in Points	Change in %
Shanghai Composite	2,925.53	-13.46	-0.46
Hang Seng	23,892.84	-114.54	-0.48
Jakarta Composite	3,804.93	30.06	0.80
KLSE Composite	1,529.91	2.57	0.17
Nikkei 225	9,691.84	133.15	1.39
Straits Times	3,182.68	10.85	0.34
Seoul Composite	2,206.70	0.40	0.02
Taiwan Weighted	9,049.25	101.11	1.13

 

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