ABYSMAL START TO WEEK

Monday's session turned out to be an abysmal start to a new week for the Indian stock markets as they prolonged the somber run for yet another session and deposed over one and half a percent points. Market participants resorted to broad based position squaring on the back of mounting inflationary pressure which they felt will force RBI to adopt more aggressive stance in its annual monetary policy review meet on May 3rd. Absence of supportive leads from the markets across the globe too did no good for the local sentiments. The wilt in international crude oil prices because of demand side worries too went unnoticed as investors continued to book profit and punished the technology bellwether Infosys for the second straight day for its disappointing earnings and guidance for FY12. While profit booking in banking heavyweight stock like HDFC Bank ahead of its quarterly earnings announcement later in the day led to profit booking in other banking majors like SBI and ICICI Bank. The NSE's 50-share broadly followed index Nifty, settled with close to triple digit losses, above the crucial 5,700 support level while Bombay Stock Exchange's Sensitive Index, Sensex shaved off around three hundred points to close a tad below the psychological 19,100 mark. The broader markets on the other hand, showed some fervor initially but later succumbed to the immense selling pressure. The BSE's Midcap Index went home with losses of 1.29% while the Smallcap Index eased by 0.81%. On the sectoral front, no index could managed to close in the green terrain, while the high beta Realty pack got pounded by 3.17% and languished at the bottom of the table because of a 4.69% and 3.83% laceration in majors like DLF and HDIL respectively.  The information technology pocket witnessed hefty bouts of profit booking for second straight session and plummeted 2.73% dragged by majors like HCL Tech and TCS which shrank by 3.84% and 3.43% respectively. Among individual stocks, index heavyweight Reliance Industries failed to make its presence felt in the session as it plunged 0.81% by the end of trade. Meanwhile, Indusind Bank too shaved off close to two percent points despite posting encouraging Q4 earnings numbers. On the other hand, rally was witnessed in certain Auto stocks like Hero Honda up 1.80%, Bajaj Auto up 1.09% and Maruti Suzuki up 0.19%.  On the global front, majority of Asian equity indices finished in the negative terrain on initial trading day of the week as China's central bank hiked bank reserve rates by 50 bps in its endeavor to abate inflationary pressure. Hong Kong's benchmark plunged by around three fourth of a percent, being a top laggard in the space. The European markets after starting on a negative note have prolonged their weakness as France's CAC plummeted by over a percent while the Germany's DAX and Britain's FTSE 100 too were trading with cuts of around a percent. On the other hand, the screen trading for US index futures indicated that the Dow could open with cuts of around half a percent.

Earlier on Dalal Street, the benchmark started the day on a positive note tracking the Asian equity indices which mostly traded in green zone as investors shrugged off unpleasant reports of yet another anti-inflationary move by China and showed verve because leads from the US remained optimistic. After the flat start the benchmarks capitalized on the initial momentum on the back of sustained buying across the board. However, the indices did a sharp U-turn after touching psychological resistance levels of 5,900 and 19,650 and treaded on a southbound journey thereafter. In a the absence of any short covering rally, the bourses continued their freefall only to settle around the low point of the day after taking a nasty blow of well over one and half a percent point. Markets declined on large volumes of over Rs 2 lakh crore while the turnover for NSE F&O segment too remained higher compared to Friday's volumes. Market breadth remained negative as there were 1083 shares on the gaining side against 1826 shares on the losing side while 103 shares remained unchanged.

Finally, the BSE Sensex plunged by 295.65 points or 1.53% to settle at 19,091.17 while the S&P CNX Nifty lost 95.45 points or 1.64% to end at 5,729.10.

The BSE Sensex touched a high and a low of 19,649.22 and 19,071.47 respectively. The BSE Mid-cap and Small-cap indices declined by 1.29% and 0.81%, respectively. 

Hero Honda up 1.80%, Hindustan Unilever up 1.65%, Bajaj Auto up 1.09%, ONGC up 0.66% and Maruti Suzuki up 0.19% were the major gainers on the Sensex.

On the flip side, DLF down 4.69%, TCS down 3.43%, Jaiprakash Associate down 3.13%, Tata Steel down 2.92% and Infosys down 2.80% were the Major losers on the index.

Crude oil continues to remain above the $120 a barrel mark as the political unrest in Middle-East and lack of clarity on Saudi Arabia's will to hike supplies keep speculators interested. While a high crude oil can have a number of negative implications for global and Indian economies, the worst impact in India would be felt by the fuel retailers.

The publically controlled oil marketing companies (OMCs) which have been selling retail fuels at highly subsidized prices are set to lose record amount of money if crude remains at current levels. The intensity of crisis is no less than what happened in first half of 2008 when crude oil touched a high of $147 a barrel. What is worse is that unlike 2008, government fiscal deficit scenario is not very good and surge in under-recoveries will have a high impact on overall government finances as well even with a partial subsidy sharing by it.

The Indian basket of crude oil touched a 33-month high of $120.36 per barrel last week even as the three government controlled companies - Indian Oil, Bharat Petroleum and Hindustan Petroleum - continue to sell retail fuels at same prices which prevailed earlier. The companies are losing a record Rs 18 on every litre of diesel and Rs 4 on petrol even as the latter was deregulated in June last year. The under-recovery on kerosene is no less at Rs 28 per litre while each cylinder of domestic LPG involves a revenue loss of Rs 315.

If crude remains at the current levels and domestic retail fuel prices are not hiked either, over the current financial year the OMCs will lose Rs 177,562 crore in revenues. The figure will be the highest in history, far higher than even 2008-09 case when crude had reached $147 a barrel. This is because crude oil prices crashed heavily following the global financial crisis of late 2008 which brought overall under-recoveries down in that year.

Earlier, the Union Petroleum and Natural Gas Minister Jaipal Reddy had out any possibility of deregulating diesel prices at this stage or even hiking the administered prices of diesel and kerosene to cap under-recoveries of IMCs. The minister had said that while the proposal was good in theory, it was not pragmatic to take it up presently. Analysts feel that only after the ongoing state assembly elections are over, government may think about raising prices, and even then the hike would be far less than what is required to check surging revenue losses of fuel retailers.

Realty down 3.17%, IT down 2.73%, TECk down 2.32%, Capital Goods down 2.12% and Metal down 1.92% were the major losers in the BSE sectoral space. There were the no gainers in the BSE sectoral space.

The S&P CNX Nifty touched a high and a low of 5,897.90 and 5,722.25 respectively.

The top gainers on the Nifty were Hindustan Unilever up 2.53%, Hero Honda up 1.72%, Bajaj-Auto up 1.16%, ONGC up 0.68% and Maruti up 0.30%.

The top losers on the index were DLF down 4.96%, HCL Tech down 4.50%, Sesa Goa down 3.86%, TCS down 3.60% and JP Associate down 3.57%.

Economies like India and China, that are set to grow at a rapid pace, will also see high inflationary pressures which is a natural outcome of high growth trajectory and policy makers will have to manage the growth-inflation trade-off, said the International Monetary Fund (IMF) on Saturday.

Talking about the high inflation pressures in India and China, the IMF managing director, Dominique Strauss-Kahn, said it would be very surprising that an economy like the Chinese or Indian could rise at 8- 9% a year without ever facing the question of inflation. "It is absolutely normal. They have to manage it,' Kahn said on the sidelines of the Spring Meeting of the IMF and World Bank in Washington.

'At the same time, it comes at a moment when growth produces its results, namely that people have more purchasing power, of course, when you have more purchasing power, at the level, absolute level, which is not very high, all this is used for more consumption; so rightly it produces inflation,' he said while explaining the inter-relations of growth and inflation.

On moderation in growth when policy makers try to check inflation, Kahn said that it was normal again but the process of managing growth-inflation was a continuous one. He conceded that rising inflation has generated concerns for fast growing economies but added that steps were being taken by policy makers to check inflation, referring to the monetary tightening implemented by the Indian and Chinese central banks.

The IMF had said in a recent report that even though there was a very difficult trade-off in high growth and inflation, emerging economies needed to continue growing at a reasonable pace, while at the same time curbing inflation as much as possible, as for achieving the poverty alleviation targets, high growth was a must. The Indian government too has been saying that at least 8-9% growth every year was needed to reduce poverty at a rapid pace and ensure basic amenities across the country.

European markets were trading in red. France's CAC 40 slipped by 1.47%, Germany's DAX dropped by 1.12% and Britain's FTSE 100 falls by 1.02%.

Most of the Asian equity indices finished the day's trade in the negative terrain on Monday as China increased bank reserve ratio by 0.50% to curb Inflation. This is fourth hike this year by central bank, which came after data showed consumer prices rising at their fastest clip in nearly three years in March in China and central bank Governor Zhou Xiaochuan said monetary tightening will continue for some time. Moreover, Seoul shares edged lower in the trade today as extensive selling witnessed by foreign investors, with falls in banking issues and steelmakers dragging the market down but crude refiners lending support.