A VOLATILE SESSION

Indian stock markets extended their consolidation phase this Tuesday as they seem to have formed a base around the psychological 5,550 and 18,500 levels and are showing little signs of budging from those levels despite the amount of volatility seen in the markets. Marketmen at large remained precautious ahead of IIP and WPI data along with the outcome of assembly polls due this week and indulged only in stock centric activities through the session. The undertone continued to remain cautious amid macroeconomic headwinds like inflationary pressure and rising borrowing costs pummeling interest rate sensitive banking sector stocks. Mixed corporate earnings announcement by heavyweights and plough back of FII funds from the domestic markets too did not go down well with local investors. Meanwhile, reports that a meeting of the Empowered Group of Ministers (EGoM) to consider hiking fuel prices scheduled to be held on May 11 getting deferred, weighed on PSU oil marketing companies like HPCL, BPCL and IOC which slipped in the later hours after trading on a strong note for most part of the session. On the global front majority of Asian markets snapped the session on a positive note with moderate gains. Moreover, reports of Greece denying reports that it expects a new aid package of nearly 60 billion euros ($85.71 billion) to deal with its debt crisis buoyed sentiments in the European region. While the shrink back in international crude oil prices too went largely unnoticed in the local markets.  The NSE's 50-share broadly followed index Nifty slipped marginally from its previous close and settled below the psychological 5,5500 level while Bombay Stock Exchange's Sensitive Index, Sensex too finished on a flat note with a negative bias, however above the psychological 18,500 level. The broader markets on the other hand too remained quiet through the session and settled on a flat note. The midcap index eased 0.04% while the smallcap index added 0.25%. On the sectoral front, the interest rate sensitive Bankex counter languished at the bottom of the table, being the top laggard with losses of 0.63%, as concerns that higher interest rates would increase the cost of borrowing pummeled majors like HDFC Bank and Kotak Mahindra Bank which shaved off 1.47 and 1.24% The consumer durables pack too witnessed hefty selling pressure and slipped 0.60% as heavyweights like Whirlpool and Blue Star plunged 4.84% and 1.18% respectively. On the other hand, the FMCG pocket remained amid the thick of things and surged 1.20% on the back of gains in majors like HUL which spurted by 4.46% along with United Breweries which zoomed by 7.16%. Moreover, negative close for bellwethers like RIL, L&T, ICICI Bank and Infosys pulled the markets below the neutral line. On the result front, stocks like NTPC, Hindalco Industries, PTC India, Vardhman Textiles, Zuari Industries got commended by the investors in the session.

On the global front, most Asian equity indices settled in the green terrain on the back of a better than expected Chinese trade data which showed the nation's trade surplus surged to $11.4 billion in April and exports hit a record monthly high. The European indices are trading on a sanguine note as the France's CAC 40 surged by 1.39%, Germany's DAX soared by 1.44% and London's FTSE 100 jumped by 1.21%. On the other hand, the screen trading for US index futures too indicated that the Dow could open on a positive note.

Earlier on Dalal Street, the benchmark got off to a quiet start bucking positive leads from the Asian equity indices which mostly traded on a positive note influenced by the overnight gains in Wall Street which extended their last week gains on support of rebound in the commodity prices. The indices initially looked jittery but managed to capitalize on the momentum later as leads from the global markets remained supportive. The frontline indices went ahead to test the psychological 5,600 and 18,700 levels which proved as stern resistance levels as investors started to cash in on positions from those levels, lacking conviction that the markets may be able to sustain the initial optimism and selling gathered pace in the mid noon session as investors squared off positions from the banking and consumer durables counters. Eventually the bourses snapped yet another session on a flat note with marginal cuts. Markets consolidated on volumes of over Rs 1.09 lakh crore while the turnover for NSE F&O segment remained marginally higher compared to Monday at over 0.97 lakh crore. Market breadth remained negative as there were 1370 shares on the gaining side against 1410 shares on the losing side while 151 shares remained unchanged.

Finally, the BSE Sensex fell by 16.19 points or 0.09% to settle at 18,512.77 while the S&P CNX Nifty closed lower by 9.85 points or 0.18% to end at 5,541.25.

The BSE Sensex touched a high and a low of 18,689.37 and 18,429.06 respectively. The BSE Mid-cap declinhed by 0.04% and Small-cap index closed higher by 0.25%. 

Hindustan Unilever up 4.46%, NTPC up 4.31%, Sterlite Industries up 2.87%, Jaiprakash Associate up 2.00% and Reliance Communication up 1.29% were major gainers on the Sensex.

On the flip side, HDFC Bank down 1.47%, Hero Honda down 1.26%, Mahindra & Mahindra down 1.23%, Tata Power down 0.95% and Tata Steel down 0.95% were the major losers on the index.

Banks in India are already showing signs of slowdown in credit off-take as they are feeling the heat of Reserve Bank of India's anti-inflationary stance. According to the data released by the Reserve Bank of India (RBI) on April 22, bank advances declined by 0.95% to Rs 3,919,000.47 crore compared with the previous fortnight. For the fortnight ended April 8, total bank credit had posted a marginal (0.45%) increase as against the fortnight before while on a year on year basis, though, bank credit was up 21.89% for the fortnight ended April 22. On the other hand, deposit growth remained flat over the fortnight ended April 22, 2011 but on a yearly basis, deposit growth improved to 18%.

Reverberations of the Reserve Bank of India's aggressive stance to rein in the inflationary pressure on the economy have already started to emerge and its recent double whammy of hiking Repo and reverse repo rates by 50 bps and savings bank rate to 4% from 3.5%, may prove even worse for banks which are already struggling with higher borrowing costs compounded by the inability to raise lending rates sharply on concerns of moderating loan demand.

Credit growth for banks is usually subdued in the initial months of a fiscal year because corporate bodies are busy with their audits. However, expectations are rife that credit growth may stay slack for a longer period as retail credit growth, in sectors like housing, automobiles and consumer durables would be largely affected. After the RBI's 50 basis points hike in key policy rates, banks at large are on a spree to hike their base rates, which are touching double digits and making funds costlier for the corporate bodies as well as retail borrowers.

In the last fiscal year, the central bank had hiked rates eight times, to which the banks did not respond with base rate hikes of the same quantum. According to RBI norms, banks have to review their base rates at least once every quarter. Credit growth is the biggest and most potent contributor to demand-side inflation and therefore banks, the largest channel of loan disbursements, are seen as the most effective tool to manage inflation. Banks expect credit growth of 18-22% in FY12, with high interest rates impacting demand for loans from customers.

FMCG up 1.20%, Realty up 1.12%, Power up 0.48%, Metal up 0.10% and PSU up 0.05%, were major gainers in the BSE sectoral space. Bankex down 0.63%, Consumer Durables (CD) down 0.60%, Capital Goods (CG) down 0.38%, Oil & Gas down 0.32% and IT down 0.28% were major losers in the BSE sectoral space.

The Organization for Economic Co-operation and Development's (OECD) Composite Leading Indicators (CLI) for May 2011 continue to show a slowdown for India. Though, CLI for China & other OECD countries showed regained growth momentum.The CLI designed to anticipate turning points in economic activity relative to trend, are pointing to some divergence in the pace of economic activity across major economies.

The turning point for the Indian CLI is in January which precede the turning points in economic activity by approximately six months, hence if the indications are correct the economic slowdown in India should start from around July this year. However, the turning point in January is provisional, which means it could be reversed. Not only india but the CLIs for Italy and Brazil too are pointing to slowdowns in economic activity relative to trend.

However, if the CLI for China is accurate and is a signal of an improvement in growth, then commodity prices will be well-supported. But with the Chinese authorities saying that they are keen to slow the economy, it remains to be seen whether the CLI for the country is accurate.

The S&P CNX Nifty touched a high and a low of 5,592.90 and 5,514.55 respectively.

The top gainers on the Nifty were NTPC up 4.63%, Hindustan Unilever up 4.58%, Sterlite Industries up 3.07%, Ranbaxy up 2.89% and JP Associate up 2.48%.

The top losers on the index were Sun pharma down 2.07%, M&M down 1.84, Ambuja Cement down 1.72%, Hero Honda down 1.70% and HDFC Bank down 1.47%.

European markets were trading in green. France's CAC 40 up 1.39%, Germany's DAX rises by 1.50% and Britain's FTSE 100 was trading inches up by 1.21%.

Most of the Asian equity indices finished the day's trade in the positive terrain on Tuesday on the back of a huge Chinese trade surplus, which surged to $11.4 billion in April and exports hit a record monthly high. Moreover, upbeat corporate earnings in Japan too boosted the sentiment in the region. Chinese benchmark index Shanghai Composite gained more than half a percent on expectations that domestic inflation may be easing in April after hitting a two-year high 5.4 percent in March.

However, stock markets in South Korea and Hong Kong remained closed for the trade today on account of a public holiday.