Carnage continues on D-Street; Benchmarks dragged to 18 month lows

Indian equities once again swayed to the tune of gloomy global developments and replicated somberness for the third straight session of trade. The session remained highly volatile amid low trading volumes on the first day of a new futures and options series and even got dragged to lowest levels in over eighteen months. Though the frontline indices showed some resilience in the early hours of trade but lack in investors' conviction was firmly evident as investors remained reluctant to initiate large bets and evidently preferred to sit out until some clarity emerges from Jackson Hole meeting of central bankers where Federal Reserve Chairman Ben Bernanke is expected to use his annual speech to announce another economic stimulus programme. However, position squaring gathered greater momentum after European markets got pulverized as jittery investors waited to see whether Fed would promise new steps to help the US economy ward off another recession. Although expectations that he might offer more stimulus have receded this week, any sign that Bernanke is considering such a move would boost markets. On the domestic front fresh build-up of shorts positions and sell-off by foreign institutional investors weighed on the sentiments. Foreign funds have been relentlessly ploughing back their funds from Indian equity markets amid heightened worries over economic slowdown and the spiraling inflationary pressure while the recent reports over 8% below rainfall, lingering deadlock over the Jan Lokpal Bill along with the fears of yet another interest rate hike by RBI in September continued to compound worries of the market participants. The ADAG pack did the maximum damage in the session as major stocks like R Power, R Infra, R Capital and R Com from that group went through heavy pounding in the range of 5 - 12%. Meanwhile, the Supreme Court extended a ban on mining to two more districts of Karnataka on Friday. The move is likely to hamper output from the country's second biggest producer of the steel-making commodity. Reports of that ban had been extended to Tumkur and Chitradurga districts, as part of moves to control illegal mining, sent shares of three top iron ore miners like Sesa Goa, NMDC and JSW Steel clobbered out of shape which lost in the rage of 3 - 6.50%.

Earlier on Dalal Street, the benchmark got off to a sluggish opening in tandem with the lackluster sentiments prevailing in Asian markets ahead of Fed Chairman's speech. The frontline indices soon overlooked the dismal trends that Asian peers exhibited and clawed back into the green territory. But the optimism fizzled out soon and the profit booking gradually started gaining momentum. Thereafter, there was no sign of recovery for the frontline indices as every attempt of recovery was seen as opportunity for bears to square off positions. Selling pressure also intensified in the dying hours as bears build up hefty short positions across the board as investors waited to see whether Bernanke will signal further steps to support the economy. Finally the NSE's 50-share broadly followed index Nifty, took a close to triple digit cut to settle below the crucial 4,750 support level while Bombay Stock Exchange's Sensitive Index, Sensex shaved off almost three hundred points and ended below the psychological 15,850 mark. The broader markets failed to show any resilience in the session and succumbed to the selling pressure evident in the heavyweights. In the BSE sectoral space, the high beta Real Estate counter languished at the bottom of the table with over four percent losses as heavyweights like DLF, HDIL and Unitech plummeted in the range of 4.50-6%. The metal pocket too bore the brunt of selling pressure slipping over three and half a percent after index majors like Tata Steel and Coal India got brutally battered by 4.77% and 3.90% respectively. The markets got slaughtered on low volumes of over Rs 1.1 lakh crore while the turnover for NSE F&O segment too remained on the lower side compared to Wednesday at over 0.89 lakh crore. The market breadth remained pessimistic as there were 636 shares on the gaining side against 2222 shares on the losing side while 118 shares remained unchanged.

Finally, the BSE Sensex plunged by 297.50 points or 1.84% to settle at 15,848.83, while the S&P CNX Nifty shaved off 91.80 points or 1.90% to close at 4,747.80.

The BSE Sensex touched a high and a low of 16,256.38 and 15,765.53 respectively. The BSE Mid cap and Small cap indices were down by 2.25% and 2.65% respectively.

The top gainers on the Sensex were Hero Moto Cop up 2.70%, Mahindra & Mahindra up by 1.20% and Infosys up by 0.68%.

On the flip side, Jaiprakash Associate down 7.58%, DLF down 5.76%, Tata Steel down 4.77%, Reliance Industries down 4.61% and Coal India down 3.90% were the top losers on the index.

There was no gainer on the BSE sectoral space. While, Realty down 4.09%, Metal down 3.69%, Oil & Gas down 3.19%, PSU down 2.58% and Bankex down 2.50% were the top losers on the BSE sectoral space.

Meanwhile, the state-owned Oil Marketing Companies (OMCs) is likely to post a revenue loss of Rs 121,000 crore in the current financial year for selling diesel, domestic cooking gas and kerosene at the subsidized rates. Oil Minister S Jaipal Reddy said, "State fuel retailers may post a whopping Rs 121,000 crore revenue loss on selling diesel, domestic LPG and kerosene at government-controlled rates this fiscal."

The huge revenue loss to OMCs is despite the recent hike in petroleum products and moderation in the international prices of crude oil. Earlier in June, government had increased the prices of diesel by Rs 3/litre and kerosene by Rs 2/litre and domestic cooking gas by Rs 50 per cylinder, and it also removed custom and excise duties from petroleum products.  The decision of increasing the prices of petroleum product was taken in the wake of hovering prices of crude oil in the international market.

At a meeting of the Parliamentary Consultative Committee on Petroleum and Natural Gas, Jaipal Reddy said, 'even after these measures, the oil marketing companies (OMCs) are currently suffering under-recoveries to the tune of Rs 235 crore per day and are expected to incur an under-recovery of over Rs 121,000 crore during 2011-12". However, before the prices of petroleum products and removal of custom and excise duties, OMCs were estimated to make a revenue loss of Rs 171,000 crore in the current financial year.

Presently, OMCs such as Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum are incurring loss of around Rs 4.97 per litre of diesel, Rs 23.74 per litre of kerosene and around Rs 247 on every cylinder of domestic LPG. 'Besides absorbing an annual estimated revenue loss of Rs 49,000 crore on account of duty reductions, the government will also be required to compensate a large portion of these (Rs 121,000 crore) remaining under-recoveries,' oil minister said.

The losses on fuel sales at subsidized rates have a significant impact on the financial health of OMCs, with diminishing cash flow and reduced resource generation for capacity expansion and modernization. 'The OMCs are forced to borrow heavily from the market even for their working capital requirement, which is leading to mounting interest burden on them,' minister said.

To protect the common man from the adverse impact of increase in oil prices in the international market and to keep cap on the inflationary condition, government continues to sell petroleum products at subsidized rates.  Presently, the market prices of diesel, kerosene and domestic cooking gas are well below the market rates. The petrol prices, which was decontrolled in June 2010, has increased by 21%, at present the petrol cost around Rs 63.70/litre from Rs 51.43 litre in June 2010. The government is also considering decontrolling the prices of diesel, as the government is expected to exceed its fiscal deficit target for 2011-12.

The S&P CNX Nifty touched high and low of 4,872.00 and 4,720.00, respectively.

The top gainers of the Nifty were Hero Moto Cop up 3.14%, M&M up 1.23% and Infosys up 1.13%.

On the flip side, Reliance Capital down 12.33%, RCOM down 11.11%, JP Associated down 7.42%, Reliance Infra down 6.53% and DLF down 6.25% were the top losers on the index.

The European markets were trading in red. France's CAC 40 lost 0.90%, Britain's FTSE 100 lower by 0.44% and Germany's DAX plunged by 1.67%.

Most of the Asian equity indices finished the trade in the negative terrain on last trading day of the week as investors remained cautious ahead of a much-anticipated speech by Ben Bernanke later in the day to see if he will set out a plan to kick start the stumbling US economy moreover, poor lead from Wall Street too dampened the sentiments. Meanwhile, China stocks down slightly by 0.12 percent as the announcement of an upcoming major initial public offering by a coal company drove coal stocks lower. However, Taiwan stocks ended with a gain of about half a percent, led by electronics and chip issues, though Acer fell for a second session as investors fretted about prospects for the computer maker's recovery.

Asian Indices	Last Trade	Change in Points	Change in %
Shanghai Composite	2,612.19	-3.07	-0.12
Hang Seng	19,582.88	-169.60	-0.86
Jakarta Composite	3,841.73	-2.65	-0.07
KLSE Composite	1,444.81	-19.93	-1.36
Nikkei 225	8,797.78	25.42	0.29
Straits Times	2,748.18	-17.56	-0.63
Seoul Composite	1,778.95	14.37	0.81
Taiwan Weighted	7,445.10	34.23	0.46

 

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