Indian equities slip for third straight session; register second successive weekly decline

A session after buckling under global weakness and the Reserve Bank of India's rate hike, Indian stock markets extended the sorrow of closing in the negative terrain for the third straight session and even went on to register second successive weekly decline. Investors chose to take profits off the table ahead of the weekend amid escalating political upheaval in Greece and as concerns grew that the European nations would struggle to avoid a debt default. 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. He also stated that continued monetary tightening by the RBI might moderate growth in the short term but the long term prospects remained buoyant. However, marketmen continued across the board positions squaring and dragged the frontline indices around the important psychological 5,350 and 17900 levels. Meanwhile the wilt in international crude prices too failed to enthuse local investors as the oil prices declined on the back of lower demand, confirming the fact that global economic recovery continues to remain in a limbo. But some buying in selective names from the metal, telecom, and power and banking counters limited downside for the local markets. Optimists were of the view that investors are waiting for a catalyst to buy in India since they sense that domestic markets have bottomed out for now.

The NSE's 50-share broadly followed index Nifty, once again settled in the red with around half a percent loss above the crucial 5,350 support level while Bombay Stock Exchange's Sensitive Index, Sensex dived over a hundred points and closed below the important psychological 17,900 level. The broader markets too succumbed to the selling pressure that was evident on the larger peers and shut shop with large cuts. The midcap index ended with 0.83% loss while the smallcap index declined by 0.92% point. On the sectoral front, it was the Information Technology counter which once again languished at the bottom of the table with 1.94% losses as majors like Infosys, TCS and HCL, which get at least 75% of their revenue from software exports, nosedived on mounting apprehensions that a sovereign-debt default by Greece will derail the global economic recovery. While the oil and gas counter sector too bore the brunt of selling pressure and shaved off 1.56% as heavyweight Reliance Industries plunged by over two percent point. Reliance Industries, which carries the heaviest weight on the Sensex, extended its decline for the sixth successive session to multi month low level after fresh reports by the Comptroller and Auditor General (CAG) opined that the Oil Ministry and its technical arm, the DGH, allegedly favored RIL by allowing it to double the development cost of its landmark KG-D6 gas field. Shares of India's largest passenger car maker Maruti Suzuki, which once rose by around 4%, on the back of report that 13-day strike by 2,000 workers demanding recognition of a new union came to an end. However, the share prices plummeted by the end of session on expectations of earnings downgrade as the strike is likely to impact delivery of diesel cars produced at the plant alongside some models for the export market. Amid the gloomy environment, Telecom service provider like Idea, RCom, Bharti Airtel hogged the limelight on bargain buying by institutional investors on expectations that operators could be considering a tariff hike following Tata DoCoMo's decision to hike headline pre-paid tariffs in Tamil Nadu circle. The tariff hike is the first in 12-18 months from any telecom operator in India. The markets declined on volumes of over Rs 1.12 lakh crore while the turnover for NSE F&O segment also remained on the lower side compared to Thursday at over 1 lakh crore. Market breadth remained negative as there were 1085 shares on the gaining side against 1744 shares on the losing side while 117 shares remained unchanged.

Finally, the BSE Sensex lost 115.35 points or 0.64% to settle at 17,870.53 while the S&P CNX Nifty dropped 30.35 points or 0.56% to settle at 5,366.40.

The BSE Sensex touched a high and a low of 18,064.76 and 17,844.09, respectively. The BSE Mid cap and Small cap index were down by 0.83% and 0.92% respectively.

The major gainers on the Sensex were Tata Steel up 3.45%, Bharti Airtel up 2.58%, Reliance Communication up 1.49%, Reliance Infra up 0.97% and NTPC up 0.93%.

On the flip side, TCS down 3.58%, RIL down 2.21%, Mahindra & Mahindra down 2.02%, Hindalco down 1.96% and Maruti Suzuki down 1.85% were the top losers on the index.

The gainers on the BSE sectoral space were Consumer Durables (CD) up 0.92%, Bankex and Power up 0.12%. The major losers in the space were IT down 1.94%, Oil & Gas down 1.56%, Health Care (HC) down 1.29%, TECk down 1.21% and Auto down 1.07%.

Meanwhile, the ministry of commerce and industry is planning yet another review of the Foreign Trade Policy (FTP) for 2009-2014, in an effort to achieve the earlier stated aim $500 billion worth of annual exports within the next three years. The government had earlier indicated it might not conduct another review of the FTP this year, as it had already floated a strategy paper on boosting exports to $500 billion by 2014.

The performance of exports sector have been impressive in the first two months, the export in month of May increased by 57% at $25 billion and in April exports increased by 34.3% at $26 billion, the notable performance was due to the increase in export of some products like electronic items, jewellery and engineering goods. However, there are still some sectors, especially small and medium enterprises (SMEs) that need financial assistance. The government is likely to re-introduce a 2% interest subvention for SMEs and some other labour-intensive sectors in the FTP review.

The government would be conducting another sector-wise review of export-oriented firms, to be completed in the next 45 days by the Directorate General of Foreign Trade, to decide an incentive package for some of the ailing export sectors, said commerce and industry minister Anand Sharma. The incentive of 2% interest subvention was withdrawn on March 31, as a result of which the cost of export finance, 7% last year, is now 11-11.5%.

Along with the interest rate subsidy for the SME and labor incentive sector, ministry may also consider pruning the list of items under the Special Focus Product Scheme, as the exports of some products have performed well, and some still lag like readymade garments, steel and Ferro alloys. On the contrary, it might enhance the coverage of markets by adding new destinations under the Focus Market Scheme (FMS). The duty credit under FMS might also be increased from 3% at present to 5% for the current financial year. The aim of FMS is to counterbalance high freight cost and other externalities to choose international market with a view to increase India's export competitiveness. Freight cost has increased significantly and this increased high freight cost is making India less competitive in for-off countries.

The ministry might also look at expanding the all-industry duty drawback rates, by bringing in items currently under the Standard Input Output Norms. The government has also released a strategy paper to propel export growth momentum. It has also set sector-wise targets for some of the main sectors to achieve the $500 billion export target. The aim set is $125 billion worth of engineering product exports, $70 billion of gems and jewellery exports, and $42 billion of textile exports.

The S&P CNX Nifty touched high and low of 5,421.15 and 5,355.85, respectively.

The top gainers of the Nifty were Tata Steel up 3.25%, Ambuja Cement up 2.64%, Bharti Airtel up 2.58%, RCOM up 1.65% and Reliance Infra up 0.99%.

On the flip side, Sesa Goa down 2.93%, TCS down 2.93%, Sun Pharma down 2.87%, Grasim down 2.78% and Maruti down 2.60% were the major losers on the index.

European markets were trading in green. France's CAC 40 gained 0.83%, Britain's FTSE 100 rose 0.07% and Germany's DAX up by 0.72%.

The gloom continued in the Asian region; barring KLSE Composite all other markets closed in red with Hang Seng suffering the most. Europe's debt troubles and worries on the progress of the US economic recovery continued affecting the markets for yet another day. Some recovery was seen in the region in early trade on news that Greece is likely to get funding through the summer as the International Monetary Fund said it would support Greece. However later on, the uncertainty prevailed as Former Federal Reserve Chairman Alan Greenspan said Greek default is "almost certain". Meanwhile the European leaders will meet today amidst the threat of contagion and may try to find a temporary solution to avoid a disorderly default. Japanese markets hit their three months low as investors opted to move out of the stocks to safer assets, while the Seoul market declined due to the plunge in the large cap technology stocks.

Asian Indices	Last Trade	Change in Points	Change in %
Shanghai Composite	2,643.65	-20.64	-0.77
Hang Seng	21,695.26	-257.85	-1.17
Jakarta Composite	3,722.30	-18.17	-0.49
KLSE Composite	1,563.43	9.19	0.59
Nikkei 225	9,351.40	-59.88	-0.64
Straits Times	3,005.28	-14.85	-0.49
Seoul Composite	2,031.93	-14.70	-0.72
Taiwan Weighted	8,636.10	-18.33	-0.21

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