Euphoric benchmarks shrug GDP data; stage enthralling performance

Indian frontline indices have vivaciously rallied around one and half a percent points on the last trading day of the month, almost attaining the three week highs and conquered the psychological 5,550 and 18,500 levels on their northbound journey. Bullishness seemed to be returning to the markets as investors aggressively piled up positions not only in heavyweight stocks but in broader markets as well despite the bit of disappointment coming from the economy front. Confirming fears of a slowdown, nation's economy grew by just 7.8% in the fourth quarter ending March this year, mainly due to poor performance of the manufacturing sector. However, economic growth for the full fiscal year ended March 31, improved to 8.5% in 2010-11 from 8% in 2009-10 due to better farm output and construction activities and financial services performance. Domestic benchmarks traced sanguine sentiments across the globe as the Asian markets settled after a strong rally while the European markets too appeared cheerful through the session. The bourses also advanced on the back of speculations that the peak of domestic interest rate cycle is in the offing while expectations that the sharp correction in dollar post QE2 would be strong positive for the markets in India too buoyed local sentiments. The NSE's 50-share broadly followed index Nifty, shut shop with over one and half a percent gains after recapturing the crucial 5,550 support level while Bombay Stock Exchange's Sensitive Index, or Sensex accumulated over two hundred and fifty points and closed above the psychological 18,500 mark. By the end of trade, the broader markets managed rub their shoulders with larger peers as the midcap index surged 1.80% while the smallcap index closed with 0.99% gains. On the sectoral front, the high beta Realty stocks garnered maximum traction and settled after spurting by 2.53% after majors like DLF and HDIL accumulated 3.27%, and 3.07% respectively. The FMCG counter too remained amid the thick of things as it zoomed 2.25% after majors like ITC and Marico soared by 3.07% and 8.38% respectively. While Index heavyweight Reliance Industries too made its presence felt as it amassed around one and a quarter percent points. All stocks from the ADAG pack too bounced sharply in the session with Reliance Communication surging by over one and half a percent points after posting quarterly earnings numbers.

On the global front, all the Asian equity indices settled in the positive zone with the South Korean benchmark garnering over two and a quarter percent points as foreign investors turned net buyers, with rallies in automakers and shipyards such as Kia Motors and Hyundai Heavy Industries lending support. The European equities are trading on a cheerful note as France's CAC advanced 1.54%, and Germany's DAX rose 2.02%. On the other hand, the screen trading for US index futures indicated that the Dow could open on a strong note.

Earlier on Dalal Street, the benchmark got off to an optimistic opening in line with the sanguine trends that prevailed in most Asian markets as investors in the region were largely were influenced by the better than expected economic data from Japan and South Korea. After the positive opening, the frontline indices managed to capitalize on the initial momentum and break the psychological 8,500 and 18,400 levels. However, the indices soon came off the highs after a knee-jerk reaction by investors on getting slightly lower than expected fourth quarterly GDP numbers. But the market participants overlooked the GDP figures and showed renewed vigor soon. Buying gathered greater momentum in the afternoon session of trade as the key indices went on to capture the 5,550 and 18,500 levels. However, mild profit booking in the late hours of trade ensured that the frontline indices go home off the day's high levels with around one and half a percent gains. The key indices soared on larger market volumes of over Rs 1.14 lakh crore on the last day of the May month. The turnover for NSE F&O segment also remained on the higher side compared to Monday at over 0.96 lakh crore. Market breadth remained positive as there were 1831 shares on the gaining side against 1001 shares on the losing side while 111 shares remained unchanged.

Finally, the BSE Sensex surged by 271.22 points or 1.49% to settle at 18,503.28 while the S&P CNX Nifty jumped 87.05 points or 1.59% to settle at 5,560.15.

The BSE Sensex touched a high and a low of 18,526.80 and 18,266.61, respectively. The BSE Mid cap and Small cap index up 1.80% and 0.99% respectively.

The top gainers on the Sensex were Jaiprakash Associate up 4.59%, HDFC Bank up 3.47%, DLF up 3.27%, ITC up 3.07% and SBI up 2.76%.

On the flip side, Cipla down 1.05% was the only loser on the index.

Meanwhile, Indian economic expansion slowed in the January-March quarter mainly on account of weak performance by mining and quarrying, manufacturing, contraction and trade, hotels, transport, and communication. However, for the fiscal year ending March 2011, the gross domestic product (GDP) maintained a robust growth rate, reassuring policy makers that the economy is in good shape despite sustained monetary tightening over the past year.

According to the data released by Central Statistics Office (CSO), India's GDP at factor cost at constant (2004-05) prices for the full fiscal year ended March 31 showed a growth rate of 8.5% over the 8% GDP growth for the year 2009-10. While the quarterly estimates of GDP for the fourth quarter showed a growth rate of 7.8% against 9.4% year-on-year and 8.3% quarter on quarter.

On sectoral basis, farm sector recorded smart growth of 7.5% against 1.1% registered in the same period a year ago, boosted by a good winter harvest, but manufacturing growth figures disappointed as they came in at 5.5% in the three months through March from a year earlier, compared with a 6% gain in the previous quarter and 15.2% year-on-year. The manufacturing activity has been slowed by nine interest rate hikes in the past 15 months to tackle the rampant inflation.

Nonetheless, the GDP figures reflect the resilience of Asia's third-largest economy which has expanded at a swift pace despite the odds that emerged not only from the domestic macro-economic front but also from the global front including turbulences like civil upheaval in the Middle East and North African nations and the Euro-zone debt crisis. Continued domestic demand on the back of rising income levels helped the Indian economy to clock the robust growth, second only to neighboring China among major economies. But the steady growth is expected to give the Reserve Bank of India more confidence to continue raising interest rates to rein in uncomfortably high inflation.

The top gainers on the BSE sectoral space were Realty up 2.53%, FMCG up 2.25%, Bankex up 2.13%, Health Care (HC) up 1.87%, and Metal up 1.75%. There is no loser in the BSE sectoral space.

The RBI governor ignored the recommendation made by the majority of central banks technical advisory committee (TAC) and went ahead with the 50 basis point hike in RBI's annual monetary policy. The majority of TAC was in favour of 25 basis point hike for the annual monetary policy; only 2 out of 6 members were in favour of 50 basis point hike, this was disclosed in the minutes of meetings (MoM) of its twenty-fourth meeting of the TAC on Monetary Policy held on April 27.

According to the MoM, while four members of the committee were of the view that the repo and reverse repo rates be raised by 25 basis points each, two members suggested a 50-basis point increase each in the repo rate and the reverse repo rate". 'In addition to increase in the policy rates by 25 basis points each, one member was of the view that the statutory liquidity ratio (SLR) could be increased by 100 basis points and the repo facility of the Reserve Bank be limited up to 2 per cent of excess SLR securities held by banks.

Earlier D Subbarao, Governor and Chairman of the TAC had gone by the suggestions made by TAC to ensure growth and fight inflation, but this time governor went against the recommendation despite the fear of slowing down the industrial growth. At annual monetary policy review, RBI had raised the repo and reverse repo rate by 50 basis points to 7.25% and 6.25% respectively. This was the 9th policy rate hike from March 2010.

RBI governor was highly criticized by the economist and analyst for this unexpected hike in policy rate to control inflation. According to experts, this 50 basis point hike in policy rates will have adverse effect on the economic growth and investment scenario.

Inflation, calculated by Wholesale Price Index showed moderation to 8.66% in April from 9.04% in March, which is much above the RBI's comfort level of 5 to 6%. In the monetary policy statement on May 3 governor had said, 'Inflation is inimical to sustained growth as it harms investment by creating uncertainty. Current elevated rates of inflation pose significant risks to future growth. Bringing them down, therefore, even at the cost of some growth in the short run, should take precedence.'

The S&P CNX Nifty touched high and low of 5,571.60 and 5,489.70, respectively.

The top gainers of the Nifty were JP Associate up 4.97%, Ambuja Cement up 3.81%, DLF up 3.52%, ACC up 3.50% and Grasim up 3.31%.

On the flip side, Cipla down 1.26% and SAIL down 0.25% were the only losers on the index.

European markets were trading in green. France's CAC 40 soared by 1.49%, Britain's FTSE 100 up 0.96%, and Germany's DAX surged 1.96%.

All the Asian equity indices ended the day's trade in the positive terrain on Tuesday led by Japanese shares which surged about two percent today on report that country's factory output rebounded from a record drop following the devastating earthquake and tsunami. Seoul Composite remained the major gainer among the Asian peers ended with a gain of over 2.3 percent on Tuesday as foreign investors turned net buyers, with rallies in automakers and shipyards such as Kia Motors and Hyundai Heavy Industries lending support. Moreover, Taiwan stocks too rose about two percent tracking gains in regional bourses, with tech firms like HTC higher amid optimism over new models launched at the Computex computer show in Taipei this week.

Asian Indices	Last Trade	Change in Points	Change in %
Shanghai Composite	2,743.72	37.35	1.38
Hang Seng	23,684.13	499.81	2.16
Jakarta Composite	3,836.97	10.83	0.28
KLSE Composite	1,558.29	15.45	1.00
Nikkei 225	9,693.73	188.76	1.99
Straits Times	3,159.93	19.33	0.62
Seoul Composite	2,142.47	48.68	2.32
Taiwan Weighted	8,988.84	165.16	1.87

 

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