GLOMMY SETUP

It turned out to be a difficult session of trade not only for Indian equity indices but also for global markets as growing uncertainties over the future prospects of escalating euro-zone sovereign financial problems sent shockwaves across the globe. Domestic benchmarks seem to have taken turn for the worse after being decimated by close to two percentage points and piercing the crucial psychological levels of 5,400 and 18,000 for the first time in two months amid across the board ruthless selling pressure. The bourses, which have already declined by around 11% this year on apprehensions that inflationary pressure and hike in interest rates would lead to higher borrowing costs thereby hurting corporate earnings, got pulverized by resurfacing Euro-zone debt worries. The rating agency, Fitch downgraded Greece's debt three notches further into junk status and S&P's lowered Italy's credit rating outlook to negative from stable, on the basis of slowing economic growth and "diminished" prospects for a reduction of government debt, deepening the risk of contagion and of credit markets drying up globally. Meanwhile Agriculture Minister Sharad Pawar opined that an Empowered Group of Ministers is expected to meet this week to decide on the oil ministry's demand to increase the price of diesel and liquefied petroleum gas. Moreover, the disappointing earnings announcement from heavyweight BHEL too weighed on the frontline indices however, results of oil upstream firm GAIL and Dish TV got commended by the investors in the session. The NSE's 50-share broadly followed index, Nifty failed to cling on to the psychological 5,400 support level and settled with about a triple digit cut while the Bombay Stock Exchange's Sensitive Index Sensex deposed over three hundred points and ended the day just below the psychological 18,000 level. The broader markets too succumbed to the intense selling pressure exerted on their larger peers and finished with large cuts. The midcap index shed 1.41% and the smallcap index declined 1.57% points. On the BSE sectoral space, the Capital Goods counter languished at the bottom of the BSE sectoral space with losses of 2.95% on the back of the disheartening earnings reported by heavyweight BHEL which shrunk by 6.69%. While the profit booking was also witnessed in the Power index which plunged by 2.91%, apart from BHEL, stocks like NTPC and PTC India slipped by 3.03% and 6.77% respectively. Index heavyweights like RIL, ONGC and L&T too failed to make their presence felt as they sank in the range of 1.5% to 2.5%. On the other hand, only respite came from the FMCG and consumer durables indices which managed to keep their head above the water and settle with gains of 0.60% and 0.50% respectively. 

On the global front, Asian equity indices went through a bloodbath and settled with grave losses. The Chinese benchmark remained the top laggard in the space after being slaughtered by around three percent points. The European counterparts too got off to a discouraging start and are currently trading with large cuts as France's CAC 40 slipped 1.80%, Germany's DAX dropped 1.76% and London's FTSE 100 fell 1.57%. On the other hand, the screen trading for US index futures too indicated that the Dow could open on a negative note.

Earlier on Dalal Street, the benchmark got off to a subdued start in line with most Asian peers which traded with large cuts in the range of one to two percent as investors largely remained influenced by over the weekend Wall Street plunge and resurfacing European financial crisis. After the pessimistic opening the frontline indices failed to show any kind of enthusiasm and continued their southbound journey as ruthless position squaring remained the flavor of the day. The benchmarks eventually finished the first day of new F&O series with huge cuts, just below the crucial support levels around the lowest point of the session. The indices plummeted on higher volumes compared to that on Friday. The market breadth on the BSE was awfully negative as only 801 shares were on the gaining side against 1973 shares on the losing side while 124 shares remained unchanged.

Finally, the BSE Sensex plummeted 332.76 points or 1.82% to settle at 17,993.33 while the S&P CNX Nifty tumbled 99.80 points or 1.82% to settle at 5386.55.

The BSE Sensex touched a high and a low of 18,269.06 and 17,971.02, respectively. The BSE Mid-cap and Small-cap indices lost 1.41% and 1.57%, respectively. 

The top losers of the Sensex were BHEL down 6.69%, ICICI Bank down 3.61%, Rel Infra down 3.57%, Tata Motors down 3.36% and Tata Steel down 3.30%; while ITC up 2.29% was the only gainer on the index.

Meanwhile, the recommendations made by Sonia Gandhi led National Advisory Council on the proposed Food Security Bill is likely to be accepted by the government, in spite of some concerns that the suggestions would add to subsidy burden, increase dependence on import and may imbalance the country's food economy. The move followed a meeting last week between Gandhi and Minister of State for Consumer Affairs, Food and Public Distribution, KV Thomas. The council had proposed legal subsidized food entitlement for at least 72% of the country's population in phase I by 2011-12. The National Advisory Council had also proposed legal subsidized food entitlements for 75% of the country's population, covering the priority (below the poverty line) and general (above the poverty line) households, in phase II by 2013-14.

The food ministry has set out plans in line with the NAC's proposal to widen the scope of the legislation, which seeks to provide legal guarantee of subsidised grains to the poor, however many experts have warned that the NAC advices would force the government significantly to raise its grain procurement, which in turn would show the way to a larger subsidy load on its already strained finances.

In tandem with experts view, an expert panel headed by the C Rangarajan, PM's Economic Advisory Council chairman said, 'It will not be possible to implement the NAC recommended food entitlements for either of the phases'. The panel had alternative suggested covering just 46% of the rural and 28% of the urban population roughly corresponding with the poverty estimates.

The Rangarajan panel's views were strongly criticized by the NAC, which released a part of the draft food security bill for public debate a week after the panel submitted its report. The NAC is opposed to leaving out Above Poverty Line beneficiaries from the ambit of the food law. 

The PM formed an Empowered group of Ministers to settle varying views of the NAC and panel on the proposed legislation and even enlisted the planning commission's support. Now the government may offer a compromise by implementing largely the NAC recommendations law, but the prices would be higher than the suggested in order to reduce the burden of subsides.

Presently, the government gives 35 kg of grains a month to each of the 65.2 million families living below the poverty line through the Public Distribution System (PDS). The government charges only Rs. 4.16 a kg for wheat and Rs. 6.65 a kg for rice from these families, while the NAC has proposed wheat at Rs 2 kg and rice at Rs 3 kg in food security law.

The top losers on BSE sectoral space were Capital Goods (CG) down 2.95%, Power down 2.91%, Bankex down 2.85%, Realty down 2.79% and Metal down 2.62%; while FMCG up 0.59% and Consumer Durables (CD) up 0.49% were the only gainers on the on the BSE sectoral space.

India received $3.39 billion Foreign Direct Investment in January-March 2011, whereas it was $4.96 billion last year, down by 32%, according to the most recent data from the industry ministry. The FDI investments are falling from last few years, the inflows into India totaled $19.42 billion in 2010-11, down from $25.83 billion in 2009-10.

As per the experts' opinion, the government should prepare more efficient FDI policies and the domestic environment investment friendly to attract more FDIs. The Department of Industrial Policy and Promotion (DIPP) is taking steps like allowing the issuance of equity to abroad firms against imported capital goods and machinery.

The telecommunications, housing and real estate, construction activities and power, were the leading sector to get the FDI, according to the data.Leading investors were Mauritius, Singapore, the US, UK, Netherlands, Japan, Germany and the UAE.

The S&P CNX Nifty touched high and low of 5456.70 and 5373, respectively.

The top losers on the Nifty were BHEL down 7.60%, Sesa Goa down 4.49%, IDFC down 4.48%, Rel Infra down 3.80% and Tata Motors down 3.71%.

On the flip side, GAIL up 2.30%, ITC up 1.85%, Ambuja Cement up 0.95% and Siemens up 0.38% were the only gainers on the index.

European markets were trading in the red. France's CAC 40 plunged 1.84%, Britain's FTSE 100 plummeted 1.55%, and Germany's DAX shed 1.73%.

All the Asian equity indices finished the day's trade in negative terrain on Monday as Fitch Ratings cut Greece's credit rating and Standard & Poor's said Italy's rating was at risk, deepening concern over Europe's sovereign debt crisis. Most of the indices closed the session with a cut in the range of 1-3 percent, where Shanghai Composite remained the major loser which lost about 3 percent after HSBC's preliminary purchasing manager's index for China fell to a 10-month low of 51.1 in May, from April's final reading of 51.8.