MARKETS SLIP

Stock markets in India have retreated after showing signs of consolidation for most part of the morning session and the frontline equity indices are at the day's lows in early afternoon trades. The benchmark gauges failed to show resilience and succumbed to the selling pressure that the equity markets are experiencing across the globe. The key gauges extended their losing streak for a second straight session as it sank by around three fourth of a percent and looked set to slip below the psychological 5,450 (Nifty) and 17,250 (Sensex) levels. The Indian bourses, which were outperforming their Asian peers since early trades, sank in tandem with their European counterparts that got off to a gap down opening as market participants focused on the French presidential elections closely. Investors worried that the onerous financial crisis in Europe would aggravate as the incumbent President was once again seen losing ground in the second round of elections to a Socialist who wants to renegotiate a European treaty intended to limit excessive government spending in order to emphasize growth over austerity.  Sentiments also got undermined after reports showed Macquarie's Asia hedge fund has exited its short positions in Indian single stock futures in response to a controversial set of proposed tax rules that could lower investment returns. Investors also kept a close eye on Indian rupee which is around its three month low levels against US dollar, gradually moving towards 53 as macroeconomic concerns continue to abound, whether it be stalled financial sector reforms, slowing economic growth and capital inflows. However, the downside in frontline gauges was capped by the Oil & Gas sector which provided the much needed support to the indices. The index heavyweight Reliance Industries made its presence felt in the session by surging around a percent as investors reacted positively to its quarterly earnings announcement. However, the high beta Realty index remained the top laggard in the space with over two percent cut while the beaten down IT counters too got pounded ahead of the quarterly result announcement by bellwether TCS.

Moreover, the broader markets too succumbed to the selling pressure that was being exerted on their larger peers and drifted lower by over half a percent points. The bourses sank on good volumes of over Rs 0.60 lakh crore while the market breadth on BSE was in favor of declines in the ratio of 1405:1094 while 105 scrips remained unchanged.

The BSE Sensex is currently trading at 17,263.24 down by 110.60 points or 0.64% after trading as high as 17,444.18 and as low as 17,246.90. There were 8 stocks advancing against 22 declines on the index.

The broader indices were trading on a negative note; the BSE Mid cap index sank 0.75% and Small cap shed 0.54%.

On the BSE sectoral space, Oil & Gas up 0.50% was the only gainer, while Realty down 2.21%, IT down 1.99%, TECk down 1.71%, Power down 1.70% and Capital Goods down 1.36% were the major laggards in the space.

Tata Steel up 1.15%, RIL up 0.96%, ONGC up 0.58%, Sun Pharma up 0.53% and HDFC up 0.37% were the major gainers on the Sensex, while Infosys down 3.55%, DLF down 3.14%, BHEL down 3.07%, Hindalco down 2.72% and Tata Power down 2.10% were the major losers in the index.

Meanwhile, the Centre for Monitoring Indian Economy expects the post tax profit margins of India Inc to edge up by 1% points to 7.1% this fiscal. A fall in input prices, inflation and softer interest regime are expected to raise profit margins for businesses. Consequently net profits are expected to grow by 30.6% after falling by 6.6% in FY12.

Also a fall in international prices of raw materials such as crude, natural gas, edible oils and coking coal in FY13 are further expected to limit expenditure on inputs and increase profits for companies.

As per the economic think tank raw material expenses of the manufacturing sector area expected to be restricted to 8.2%, much lower than the sales growth of 10.1% projected for the year. Further softening of interest rates is expected to be beneficial for the manufacturing sector. Net profits are expected to grow by a robust 51.4% in 2012-13 as against 25.4% fall estimated for the last fiscal.

The non-financial sector too will grow by 11.2% in the ongoing fiscal on the back of a 9.9% reduction in the interest outgo. The government's grant of permission to aviation firms to raise $1 billion for working capital loans through the external commercial borrowing route, will reduce the interest costs for aviation companies.

Also with the electricity sector getting permission to refinance its debts with ECBs, costs are expected to dip for the industry. The removal of customs duty on imported coal and liquefied natural gas (LNG) is also expected to boost the bottomline of the sector.

The Reserve Bank of India in its last monetary policy lowered the interest rates by 50 basis points to encourage growth in the economy. As the cost of finance comes down, profit margins and hopefully investments are expected to go up. The RBI in the last fiscal had hiked interest rates 13 times to control the spiraling inflation. With inflation moderating in the past 2 months it has decided to shift its focus from controlling inflation to boosting growth.

The S&P CNX Nifty is currently trading at 5,254.60, lower by 36.25 points or 0.69% after trading as high as 5,310.55 and as low as 5,253.70. There were 11 stocks advancing against 39 declines on the index.

The top gainers on the Nifty were SAIL up 2.42%, Tata Steel up 1.31%, RIL up 1.06%, ACC up 0.63% and ONGC up 0.60%.

Infosys down 3.48%, R Com down 2.36%, IDFC down 2.83%, DLF down 2.76% and BHEL down 2.73% were the major losers on the index.

In the Asian space, Shanghai Composite sank 0.70%, Hang Seng plunged 1.23%, Jakarta Composite eased 0.10%, KLSE Composite shed 0.38%, Nikkei 225 fell 0.20%, Straits Times dropped 0.50%, Seoul Composite lost 0.10% and Taiwan Weighted declined 0.35%.

The European markets got off to a gap down start as France's CAC 40 plunged 1.54%, Germany's DAX plummeted 1.44% and Britain's FTSE 100 sank 0.81%.