Frontline indices consolidate while broader markets move ahead

Even as Indian frontline indices made a jubilant start by regaining the important psychological 5,700 and 19,000 levels in the early morning session, but they failed to capitalize on the promising opening which brought their winning streak of six straight sessions to a subdued end. Nevertheless, the frontline indices managed to accumulate around 1,150 (Sensex) and 350 (Nifty) points in last six sessions on the back of some supportive local as well as global developments. Initial day of a new F&O series finished on an unenthusiastic note halting a six-day advance, and the domestic benchmarks appeared exhausted as the session largely remained characterized by choppiness. The key indices oscillated in a tight range as investors took a break and resorted to some profit booking in heavyweights after the tremendous around three percent rally for the week. Reports that India's manufacturing grew at the slowest pace in nine months in June, RBI's 2.75 percentage point lending rate hikes since March 2010, weighed on. Meanwhile, the Ministry of Commerce released India's export data which showed that India's merchandise exports rose 56.9% to $25.9 billion in May from a year earlier. Imports rose 54.1% to $40.9 billion, largely due to a rise in non-oil imports, which were up 71% from a year earlier at $30.75 billion while India's May trade deficit widened to $14.9 billion from $10.0 billion a year earlier. Back on street, position squaring was largely witnessed in rate sensitive automobile and Cement stocks with some of them reporting a mixed bag of monthly sales numbers. Leads from the European markets too remained uninspiring as euphoria around Greece's debt default aversion faded and investors' attention turned to the strength of global economic recovery. On the other hand all the Asian indices settled in green except the Chinese markets, which fell on the back of dismal Chinese PMI data, showing that the manufacturing activity decelerated for the third consecutive month. 

For the local bourses, the psychological 5,700 and 19,000 levels proved as stiff resistance for the benchmarks as the market gave up all the intra-day gains thereafter, slipping into the red terrain and failed to make a comeback. The NSE's 50-share broadly followed index Nifty, settled with moderate losses below the crucial 5,650 support level while Bombay Stock Exchange's Sensitive Index, Sensex lost around a hundred points to close above the important psychological 18,750 level. However, the midcap and smallcap stocks remained the order of the day as hefty buying interests was witnessed in the broader markets which outperformed their large caps by a large margin.  The midcap index garnered 0.69% points while the smallcap index amassed 0.83% point. On the sectoral front, it was the beaten down high beta - Realty pocket which vivaciously rallied by 3% despite the somber sentiments across all other sectors. Real Estate majors like DLF, HDIL and Unitech zoomed by 4.65% 3.10% and 2.19% respectively. The information technology counter too remained amid the thick of things and gained 0.78% as majors like Wipro and Infosys gained 1.05% and 0.93% respectively. On the other hand the Oil and Gas sector remained the top laggard in the space plunging 1.84% after heavyweight Reliance Industries got clobbered by close to four percent points. Meanwhile reports emerged that Iran will halt supplies to Indian refineries in August as the two countries have still not found a way to make payments for their $12 billion a year oil trade. Auto stocks like Maruti Suzuki, TVS Motors, Mahindra and Mahindra ended with a negative close after reporting weak auto sales numbers. The markets slipped on weaker volumes on expected lines as being the first day of a new F&O series. Market breadth remained positive as there were 1700 shares on the gaining side against 1152 shares on the losing side while 132 shares remained unchanged.

Finally, the BSE Sensex slipped 83.07 points or 0.44% to settle at 18,762.80, while the S&P CNX Nifty lost 20.20 points or 0.36% to settle at 5,627.20.

The BSE Sensex touched a high and a low of 19,031.38 and 18,713.07, respectively. The BSE Mid cap and Small cap index were up by 0.69% and 0.83% respectively.

The top gainers on the Sensex were DLF up 4.65%, Hindalco Inds up 2.98%, Reliance Com up 1.78%, Sterlite Inds up 1.22% and Bajaj Auto up 1.05%.

On the flip side, Reliance down 3.95%, Bharti Airtel down 2.99%, Maruti Suzuki down 2.18%, Hindustan Unilever down 1.75% and Mahindra & Mahindra down 1.43% were the top losers on the index.

Meanwhile, the Indian manufacturing sector registered its nine month lowest growth rate in June, indicating the tight monetary stance taken by the central bank to curb inflation, and raising input cost holding the growth pace of manufacturing sector.

The headline HSBC Markit Purchasing Managers' Index (PMI) based on a survey of around the 500 companies fell to nine month low level to 55.3 in June from 57.5 in May. This fall is steepest fall from September 2010. However, as per the HSBC Markit PMI, new business received by manufacturers in India increased substantially during June, extending the sequence of sustained growth to 27 months. The new export orders also rose firmly however, the rate of growth was slowest since November 2008.

The Indian manufacturing sector output was also affected by the power cut and shortage of labour, the report said labour shortages and power cuts impacted negatively on production. Subsequently, backlogs of work increased for a fifteenth successive month.

The survey also states purchasing activities increased in the sector, however, many companies in manufacturing sector commented that the increased cost of raw materials limiting their purchasing power. The HSBC report said, "Suppliers' delivery times continued to lengthen, with anecdotal evidence suggesting that vendor performance was negatively impacted by higher levels of input buying, alongside shortages of materials, labour and power".

The input prices rise due to increase in prices of raw material, and because of the higher input prices the output prices also increased in the month of June, however, according to the survey the latest increase slowed to the weakest in seven months as pricing power was restricted by strong competition for new business.

Leif Eskesen, Chief Economist for India & ASEAN at HSBC said, "The momentum in the manufacturing sector slowed in June as sequential growth in output and new orders decelerated further. Even with growth easing, tight capacity is still showing up in rising backlogs of work and a lengthening in supplier delivery times."

"On the inflation front, input costs accelerated, while output prices rose less fast. These numbers confirm that tight capacity and monetary tightening is constraining growth. However, inflation pressures are still firmly in place, calling for further policy rate hikes to anchor inflation expectations", he added.

The top gainers on the BSE sectoral space were Realty up 3.01%, IT up 0.78%, Metal up 0.57%, Power up 0.44% and PSU up 0.33%. While Oil & Gas down 1.84%, Consumer Durables (CD) down 0.79%, Health Care (HC) down by 0.34%, Auto down 0.18%, Capital Goods (CG) down 0.16% was the only loser in the BSE sectoral space.

The S&P CNX Nifty touched high and low of 5,705.80 and 5,609.75, respectively.

The top gainers of the Nifty were DLF up 4.99%, Cairn up 4.51%, Hindalco up 3.77%, IDFC up 2.90% and GAIL up 2.15%.

On the flip side, Reliance down 4.30%, Ambuja Cement down 2.84%, Bharti Airtel down 2.82%, Ranbaxy down 2.65% and Hindustan Unilever down 2.21% were the major losers on the index.

The core infrastructure industries registered a slowdown in the pace of growth in the month of May, coming down at 5.3% compared to 7.4% registered in May 2010, mainly due to increased interest rates and confusion on policies. The RBI has raised interest rates 10 times since March 2010 to tame inflationary pressures and has made its intention clear to sacrifice some growth to calm inflation, so the sluggishness in the industrial sector comes as an obvious outcome. According to data released by ministry of commerce and industries, in the first two months of the fiscal (April-May) 2011-12, eight core industries registered a growth of 4.9% as against 7.9% during the corresponding period of the previous year 2010-11.

The eight core infrastructure include, crude oil, petroleum refinery products, natural gas, fertilisers, coal, electricity, cement and finished steel, and have weight of 37.90 % in the Index of Industrial Production. The fertilizers and natural gas are two new industries added to the core infra industries. In month of May, crude oil, electricity, fertilizers, coal, Refinery products and steel registered positive growth on the other hand, cement and Natural gas show negative growth. Electricity generation which has weight of 10.32% in the IIP registered a growth of 10.3% in May 2011 compared to a growth of 6.4% in May 2010. Electricity generation grew by 8.4% during April-May 2011-12 compared to 6.7% during the same period of 2010-11. Crude Oil production which has weight of 5.22% in the IIP registered a growth of 9.7 % in May 2011 compared to a growth of 5.8% in same month last year. For April-May 2011-12 the growth in the segment was 10.3% compared to 5.5% during the same period of 2010-11.

Fertilizer production which has weight of 1.25% in the IIP registered a growth of  7.3% in May 2011 compared to (-) 6.7% in May 2010, while the production grew by 4.6% during April-May 2011-12 compared to an increase of 1.9% during the same period of 2010-11. Steel production which has weight of 6.68% in the IIP registered a growth of 6.1% in May 2011 compared to 9.0% in May 2010 and grew by 5.5% during April-May 2011-12 compared to an increase of 10.9% during the same period of 2010-11. Petroleum refinery production which has weight of 5.94% in the IIP registered a growth of 4.5% compared to growth of 7.7% in May 2010. For April- May growth of the segment was recorded at 5.6% compared to (-) 6.5% during the same period of 2010-11. Coal production with the weight of 4.38% in the IIP registered a growth of 1.1% in May 2011 compared to growth of 0.3% in May 2010. Coal production grew by 1.9% during April-May 2011-12 compared to an increase of (-) 1.3% during the same period of 2010-11. 

However, Natural Gas production with the weight of 1.71% in the IIP registered de-growth of (-) 9.6% in May 2011 compared to growth of 34.4% in May 2010. For the first two months of the fiscal it registered a growth of (-) 9.5% compared to 43.5% during the same period of 2010-11. Cement production having weight of 2.41% in the IIP too registered de-growth of (-) 2.3% in May 2011 compared to a growth of 8.6% in May 2010. Cement Production grew by (-) 1.7% during April-May 2011-12 compared to an increase of 8.7% during the same period of 2010-11.

European markets were trading in green. France's CAC 40 rose 0.04%, Britain's FTSE 100 gained 0.43% and Germany's DAX advanced by 0.13%.

Most of the Asian equity indices finished the day's trade in the positive terrain on last trading day of the week as US markets extended their rally overnight, while concerns over Greece's debt problems eased a bit after its austerity program cleared the final hurdle in parliament. Moreover, Seoul shares rose more than a percent in the trade on improving sentiment and substantial foreign buying, with firm gains in technology stocks like Samsung Electronics helping the market while, Chinese index Shanghai Composite ended slightly lower after manufacturing activity in the country continued to slow down. Chinese official manufacturing PMI data showed the index falling to 50.9 in June from 52.0 in May -- the third consecutive month of slowing in the manufacturing sector. However, stock markets in Hong Kong remained closed on account of Special Administration Region (SAR) Day.

Asian Indices	Last Trade	Change in Points	Change in %
Shanghai Composite	2,759.36	-2.71	-0.10
Jakarta Composite	3927.10	38.53	0.99
KLSE Composite	1582.94	3.87	0.25
Nikkei 225	9868.07	51.98	0.53
Straits Times	3139.01	18.57	0.60
Seoul Composite	2125.74	25.05	1.19
Taiwan Weighted	8739.82	87.23	1.01
Hang Seng	-	-	-

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