Indian equities fail to recover; test crucial 5,350 and 17,900 levels

Slippery Indian stock markets are trading on a subdued note this afternoon as investors remain reluctant to pile up hefty long positions amid daunting global as well as local macro-economic setup. The frontline indices, which showed some signs of recovery in the last hour, have drifted to low point of the session well below the important psychological 5,400 and 18,000 levels and are looking set to breach the crucial 5,350 and 17900 levels. Investors' morale got pounded by the bleak opening of European stock markets amid concern that a sovereign-debt default by Greece will derail the global economic recovery while the Asian counterparts too traded on a disappointing note, thereby giving no support to the local bourses. On the domestic front, the Finance minister stated that growth drivers broadly remain intact in economy and endorsing the Reserve Bank of India's hawkish tone affirmed that India needs to have price stability for sustaining growth in the medium term. On the BSE sectoral front, information technology counter witnessed maximum selling pressure as majors like Infosys, TCS and HCL nosedived on mounting apprehensions that the Greece will be forced to default on its debt, as the software exporters get at least 75% of their revenue from overseas. The oil and gas counter continued to decline for yet another session as index heavyweight Reliance Industries prolonged weakness for the fifth straight session. However, the gains in defensive FMCG counter and some metals names limited the losses.

Back home, the broader markets drifted in tandem with their larger peers, lacking any significant upside triggers. The markets eased on volumes of over Rs 0.50 lakh crore in the noon session while the turnover for the F&O segment was at over Rs 0.45 lakh crore. The market breadth on the BSE was in favor of declines in the ratio of 1116:1419 while 128 scrips remained unchanged.

The BSE Sensex is currently trading with moderate losses at 17,935.68 down by 50.20 points or 0.28% after trading as high as 18,064.76 and as low as 17,903.25. There were 17 stocks advancing against 13 declines on the index.

The broader indices were trading in line with the benchmark indices; the BSE Mid cap and Small cap indices declined by 0.28% and 0.21% respectively. 

On the BSE sectoral space, Consumer Durables up 1.34%, FMCG up 0.55%, Metal up 0.45%, Bankex up 0.20% and Realty up 0.03% were the major gainers, while IT down 1.67%, Oil & Gas down 0.92%, Teck down 0.89%, Healthcare down 0.36% and Capital Goods down by 0.29%, were the major losers on the index.

The top gainers on the Sensex were Tata Steel up by 2.72%, Bharti Airtel up by 2.32%, HUL up by 1.01%, Tata Power up by 0.97% and Bajaj Auto up by 0.84%.

On the flip side, Infosys down by 2.09%, TCS down by 1.71%, ONGC down by 1.45%, RIL down by 1% and M&M down by 0.95% were the top losers on the index.

In the mid-quarter policy review, Reserve Bank of India (RBI) maintained its anti-inflationary stance and raised its key policy rates for the tenth time in row from March 2010. The planning commission says RBI's hike in its policy rates by 25 basis points is the right move, and the tight monetary policy would not affect the growth which is estimated to be at 8.25 - 8.5% for the current financial year.

Montek Singh Ahluwalia said, "I think it is certainly the right move of RBI to contain inflation. This is a widely expected move. I don't think it will impact economic growth. I have already said it would not be 9 per cent this fiscal. It would be in the range of 8.25 to 8.5 per cent, which is a reasonable thing to plan for." From March 2010, RBI has increased its key repo rate and reverse repo rate by 25 basis points each to bring inflation in its comfort zone, the headline inflation for May was 9.06% and in its midterm policy review, RBI has said the inflation figures for April and May could be revised upward.

On the anxiety expressed by central bank, Montek Singh Ahluwalia said, "Inflation remains in the worrying area. Therefore, it is entirely right that both the monetary and fiscal policy should be supportive of containing inflation." This increase in the short term borrowing and lending rates will have adverse impact on the interest rate sensitive sectors like auto and real estate. On the impact of increase in key policy rates on economic growth, Montek Singh Ahluwalia said, "Keeping these (short-term) rates low would not help as the long-term interest rates would go up due to inflation."

Explaining the reasons for the reducing the growth target from 9% this fiscal to 8.25 - 8.5% Ahluwalia said, "The reason for lowering economic (growth) projection is that farm output growth would not be as high this fiscal as 6.6 per cent which was recorded in 2010-11." Last year, Indian economy has achieved a healthy growth of 8.5% due to a smart recovery in farm production which stood at 6.6%.

The S&P CNX Nifty is currently trading at 5,380.85, lower by 15.90 points or 0.29% after trading as high as 5,421.15 and as low as 5,373.75. There were 23 stocks advancing against 27 declines on the index.

The top gainers of the Nifty were Bhartio Airtel up by 2.92%, Tata Steel up by 2.75%, Ambuja Cement up by 2.12%, Axis Bank up by 1.33% and Bajaj Auto up by 1.03%.

Sun Pharma down by 2.30%, Infosys down by 2.15%, HCL Tech down by 2.05%, Grasim down by 1.96%, and TCS down 1.78% were the major losers on the index.

Majority of Asian markets got butchered in the session as Shanghai Composite declined 0.39%, Hang Seng shed 0.53%, Jakarta Composite shaved off 0.68%, Nikkei 225 decreased 1.70%, Straits Times slipped 0.13%, Seoul Composite eased 0.72% and Taiwan Weighted slithered 0.21%.

On the flipside only KLSE Composite advanced 0.37%.

The European markets have opened on a bleak note as the France's CAC 40 slipped 0.56%, Germany's DAX eased 0.43% and London's FTSE shed 0.50%.

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