Benchmarks trade weak; Nifty below 5,500 mark

Indian equity indices are trading weak hovering around the neutral line in a narrow range with negative bias as investors are having conservative approach, cautiously piling up the positions in Power, Consumer Durables and Capital Goods while, selling was witnessed among Metal, Oil & Gas and Realty. The sentiments were dampen as fears are looming over market that RBI would further its hawkish stance against the towering inflation and raise key policy rates for the tenth time. Reliance Industries (RIL), a heavyweight of the Index is down on reports that oil regulator DGH has refused to accredit three natural gas discoveries made by the company at its KG-D6 block. As per reports, the Directorate General of Hydrocarbons (DGH) has rejected D-30, D-31 and D-34 finds in the KGDWN-98/3 or KG-D 6 block as commercially exploitable discoveries on account of low reserves they may hold. Majority of Asian markets were trading in red barring Hang Seng and Seoul Composite while the European markets too were trading in red spilling pessimism in the local market. Back home, the NSE Nifty and BSE Sensex were trading below their psychological 5,500 and 18,300 levels, respectively. The market breadth on the BSE was in favor of declines in the ratio of 1302:1401 while 102 scrips remained unchanged.

Moreover, country's largest car maker Maruti Suzuki India's (MSI) Manesar plant workers' strike entered tenth day and facility continues to be completely shut down. Though talks are going on, the production at the plant is stopped. The company had sacked 11 employees at the plant for allegedly inciting others to strike work. Since June 04, around 2,000 workers at the plant have been on strike, resulting in a loss of about Rs 390 crore for the company on account of a 7,800-unit hit in output till Saturday. The striking workers are also demanding the recognition of a new union -- Maruti Suzuki Employees Union -- formed by those working at the Manesar plant, among other things. The company is willing to recognize the new union but the workers are willing to end the stir provided all 11 of their sacked colleagues are reinstated. Meanwhile, unions of various firms in the Gurgaon-Manesar industrial belt, who have been supporting their colleagues at the Maruti facility, will hold public meetings at the gates of 60-65 factories today to raise awareness among workers in the region about the issues at the car-maker's plant. The All-India Trade Union Congress, which is leading the agitation along with other unions such as the Centre of Indian Trade Unions, stated that workers in the region will hold a two-hour tool-down strike tomorrow in support of the strike. 

The BSE Sensex was marginally down by 3.99 points or 0.02% at 18,264.55. The index touched a high and a low of 18,313.21 and 18,120.76 respectively.

The BSE midcap index was up by 0.16%, while the smallcap index added 0.07%.

From the BSE sectoral space Power was up 0.69%, Consumer Durables up 0.57%, Capital Goods up 0.53%, Health Care up by 0.21% and Auto up by0.17% were the top gainers. While, Metal down 0.87%, Oil & Gas down 0.71%, Realty down 0.39%, FMCG down 0.26% and IT was down 0.03% were the only laggards in the BSE sectoral space. 

The top gainers on the Sensex were NTPC up by 2.39%, Cipla up by 2.08%, JP Associates up by 2.08%, RCom up 1.73% and Bajaj Auto was up by 1.17%. On the flip side, Hindalco Industries down by 1.95%, RIL down by 1.75%, SBI down by 1.07%, Tata Steel down by 0.83% and TCS down by 0.77% were the major losers on the index.

Meanwhile, the central bank is most likely to adopt calibrated approach to fight inflation, to maintain a vital balance between inflation and economic growth. This return to calibrated approach is mainly because of the slow expansion in economic growth in last few quarters. On May 3, the apex bank had gone for an unexpected 50 basis point hike in repo and reverse repo rate to 7.25 and 6.25% respectively, economist and analyst are expecting another hike of 25 basis points in key policy rates as inflation remains at elevated level.

The Reserve Bank of India has increased its key policy rates nine times from March 2010. However, this repeated increase in key policy rates has failed to reduce the consumption demand in the economy. Country's private consumption demand grew at 8% in 2010-11 although the average inflation rate stood at 8.6%, this strong growth in the consumption demand despite of raising prices and interest rates don't matches with by the central bank's estimates and shows that continued increase in interest rate has failed to tame inflation and had adverse impact on the investment scenario of the country affecting the industrial growth.

As per the new series, the Index for Industrial Production (IIP) stood at 6.3% for April as against 13.3% in the corresponding month of last year, this sharp fall in the Industrial growth was mainly because of decline in manufacturing and mining sector. Analyst and economist believe another hike in RBI's key policy rates will have adverse impact on the Industrial growth. The interest rates are already at high level because of liquidity shortage in the system resulting high borrowing cost and on the other hand operating margins of corporate are under pressure because of increased input cost, further the much anticipated fuel price hike due to increase in global crude oil price, will make situation more worse.

As the food inflation and headline inflation remain at the elevated level central bank is likely to continue with anti-inflationary stance. The headline inflation for April was 8.66% and food inflation measured by Wholesale Price Index stood to 9.01%, two month high for week ended May 28. However, the last nine consecutive hikes in key policy rate had failed to reduce the inflation and could be seen as partial failure of monetary policy to control inflation. A fresh policy approach is required to make balance between Inflation and economic growth and apart from the monetary, non-monetary policy measures too are required to make balance between growth and inflation.

The S&P CNX Nifty was marginally down by 3.35 points or 0.06% at 5,482.45. The index touched high and low of 5,496.70 and 5,436.95 respectively.

The top gainers on the Nifty were JP Associates up by 2.58%, NTPC up by 2.47%, Cipla up by 2.12%, RCom up by 1.84% and PowerGrid was up by 1.63%. On the other hand, Hindalco Inds down by 2.19%, Reliance Inds down by 1.90%, Dr Reddy's down by 1.80%, Sesa Goa down by 1.68% and Ambuja Cement down by 1.25% were the major losers on the index.

On the Asian front, Shanghai Composite was down by 0.16%, Jakarta Composite plunged by 1.03%, KLSE Composite lost 0.66%, Nikkei 225 was down by 0.70%, Strait Times slipped 0.50% and Taiwan Weighted plummeted 1.41%. On the flip side, Hang Seng gained by 0.39% and Seoul Composite up 0.10%.

The European markets are trading in red with, the France's CAC 40 was down by 0.11%, Germany's DAX dropped 0.23%, while London's FTSE plummeted by 1.44%.

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