Indian equity indices started the new week on a depressing note after plunging around a percentage point as leads remained weak not only locally but globally as well. Investors resorted to broad based profit booking following the disappointing February IIP numbers which grew at a tepid pace of 3.6%. The lower than expected numbers sparked apprehensions over the capital goods sector which failed to perform for third consecutive month. While the marginal wilt in international crude oil prices which spiraled at uncomfortable levels too failed to enthuse the local mood as prospect of long-term supply cuts in crude oil undermined sentiments. Marketmen feared that rising oil prices would lead to heightened inflationary pressure which in turn will compel the RBI to take stern policy actions in its annual monetary policy review meet next month. Meanwhile reports of another strong 7.1 magnitude earthquake rattling Japan's northeast coast and a fresh tsunami alert in the late hours of the session too weighed on investor mood. Cautious investors also speculated that earnings performances by heavyweight companies in fourth quarter could be in-line with expectations and may not provide any further direction to the markets. The NSE's 50-share broadly followed index Nifty, settled with losses of close to a percent, below the crucial 5,800 support level while Bombay Stock Exchange's Sensitive Index Sensex got pounded by around two hundred points to close above the psychological 19,250 mark. The broader indices too failed to show any kind of resilience and succumbed to the selling pressure. The BSE's Midcap Index went home with losses of 0.70% while the Smallcap Index shed 0.71%. On the sectoral front, the high beta Realty pocket once again languished at the bottom of the table after deposing 2.52% as majors like DLF and Unitech respectively sulked 3.51% and 3.55%. The Auto counter too witnessed hefty bouts of profit booking as it sank 2.15% on the back of weakness in heavyweights like Tata Motors and Bajaj Auto which slipped 2.84% and 2.55%. Index heavyweight Reliance Industries too failed to make its presence felt in the session as it shed 1.67% by the end of trade. On the other hand, BSE's Healthcare sector ended with marginal gains of 0.05% after Sun Pharma soared around 2% on reports that it is likely to enter into a marketing alliance with US drug maker Merck & Co for the Indian market. While the other sector that managed to snap the session with trivial gains of 0.02% was FMCG which rose on the back of gains in Marico and Dabur India which respectively amassed 6.96% and 1.09%. While FMCG major ITC gained 0.46% on reports that the company is planning to rebrand its retail stores.
On the global front, majority of Asian equity indices finished the day's trade in the negative terrain with Malaysian benchmark KLSE Composite being the top laggard in the space after declining around a percent. The European markets are trading on a somber note as the France's CAC shaved off well over half a percent being the top loser, followed by Germany's DAX down 0.58% and Britain's FTSE 100 down 0.01%. On the other hand, the screen trading for US index futures indicated that the Dow could open on a positive note.
Earlier on Dalal Street, the benchmark started the day on a weak note tracking subdued leads from the Asian markets most markets have come off the day's high level on the back of profit booking ahead of the quarterly corporate earnings announcements. After the weak start selling pressure gathered greater force after government released weaker than expected February IIP numbers which grew at a tepid pace of 3.6%, triggering heavy sell-off in BSE's Capital Goods counter. The frontline indices failed to show any kind of resilience thereafter and treaded on a southbound journey. The markets saw position squaring through the day and eventually finished the day's trade around the day's low level with losses of around a percentage point. Markets registered tepid volumes of over Rs 0.90 lakh crore compared to Friday's while the turnover for NSE F&O segment too remained lower at over Rs 0.78 lakh crore. Market breadth remained negative as there were 1134 shares on the gaining side against 1746 shares on the losing side while 93 shares remained unchanged.
Finally, the BSE Sensex plunged by 188.91 points or 0.97% to settle at 19,262.54 while the S&P CNX Nifty lost 56.30 points or 0.96% to end at 5,785.70.
The BSE Sensex touched a high and a low of 19,426.30 and 19,242.59 respectively. The BSE Mid-cap and Small-cap indices declined by 0.70% and 0.71%, respectively.
Reliance Infrastructure up 0.84%, Cipla up 0.63%, ITC up 0.46%, Infosys up 0.39% and Tata Power up 0.35% were the major gainers on the Sensex.
On the flip side, DLF down 3.51%, Jindal Steel down 3.01%, Jaiprakash Associate down 2.96%, Tata Motors down 2.84% and HDFC down 2.69% were the Major losers on the index.
Industrial production in India continues to remain week as the high base effect from last year and rising interest rates weighs on growth. According to the data released by the central statistical office (CSO) growth in the index of industrial production (IIP) came down to 3.6% in February 2010 compared with 3.9% (revised) in the previous month. There was a slowdown across the board if one looks at year-on-year comparisons. Manufacturing sector which has the highest weight in IIP expanded by just 3.5% compared with 16.1% growth seen in the same month a year ago. Mining was another poor performer expanding at just 0.6% as against 11% growth a year ago. Electricity was the only sector that performed well with growth of 6.7% compared with 7.3% growth in February 2010.
Looking at the use based classification it becomes clear that capital goods have been a major drag on performance. Overall capital goods production contracted by whopping 18.4% compared with huge expansion of 46.7% seen in the year-ago period. This was the biggest drag on growth in industrial production even as other sector performed somewhat better.
Consumer durables, which were responsible for early part of the IIP rally last year, expanded at 23.4% against 29.1% in the year-ago period. Consumer non-durables on the other hand saw significantly better growth of 6.1% as against contraction of 0.8% seen in the same month of previous year. Intermediate goods also showed some slowdown with a growth of 8.4% against 15.9% expansion seen last year. Production of basic good grew by 5.9% versus 8.5% in Feb 2010. Clearly, even as most segments have slowed down, it is the sharp contraction in the capital goods production which has pulled down growth in overall IIP.
The decline in capital goods production also point out that rising interest rates in the economy as the Reserve Bank of India (RBI) continues to hike its policy rates to check an increasingly sticky looking inflation might be beginning to impact investment plans of India Inc. The central bank has hiked its policy rates by eight times in last financial year and as inflation still remains at elevated levels the RBI is expected to continue its tightening deep into 2011 as well. This may well impact industrial production going forward too.
However, some economists also point out that the IIP has been too volatile in recent past and therefore it may not be reflecting in a very precise manner the underlying momentum in the Indian industrial space. In fact, even the RBI had earlier pointed out that given the antique nature of the index (base: 1993-94), it was difficult to gauge momentum of the industrial sector from the IIP numbers. Nonetheless, to the extent IIP indicates latent movement in industrial space, the latest data does suggest a slowdown compared with what was the case at this time around last year.
Health Care up 0.05% and FMCG up 0.02%, were the only gainers in the BSE sectoral space. Realty down 2.52%, Auto down 2.15%, Consumer Durables down 1.89%, Oil & Gas down 1.59% and Capital Goods down 1.07% were the major losers in the BSE sectoral space.
The S&P CNX Nifty touched a high and a low of 5,830.30 and 5,777.90 respectively.
The top gainers on the Nifty were Sun Pharma up 2.07%, SesaGoa up 1.72%, HCL Tech up 1.47%, ITC up 0.68% and Cipla up 0.33%.
The top losers on the index were Siemens down 5.48%, IDFC down 4.35%, DLF down 3.59%, Jindal Steel down 3.33% and Axis Bank down 3.01%.
In a move that will significantly help fertilizer industry, the Indian government is set to increase the rates under the nutrient-based subsidy (NBS) for various fertilizers. It has already announced a hike in the benchmark import prices of di-ammonium phosphate (DAP) and muriate of potash (MOP) which is used for determination of subsidy under the NBS.
The government earlier approved import parity prices of DAP at $612 a tonne and that of MOP at $420 a tonne following the meeting of an inter-ministerial panel under the secretary, Department of Fertilisers. This compared with existing import parity prices of DAP and MOP and $580 a tonne and $390 a tonne respectively.
As a result of increase in approved prices of the two, the rates of subsidy under the NBS will also increase as there will be an automatic increase in imputed prices of phosphorus (P) and potash (K). At present, the NBS rate on P, linked to a $580-a-tonne reference price for imported DAP, is Rs 29.4 a kg. If the new prices of DAP is taken, the subsidy of P works out to be about Rs 31 a kg. Similarly, the NBS rate on K would increase to Rs 26.5 per kg as compared to Rs 24.6 prevalent presently.
The increase in NBS rates has come amidst continued spike in global crude oil prices. Brent crude prices are currently hovering around $125 a barrel following the political unrest in Middle-East that raised concerns of supply disruptions. This has resulted in increase in cost of fertilizer makers which rely substantially on imported feedstock. For instance, Indian fertilizer companies have for the current fiscal contracted import of DAP at around $612 a tonne price.
The government implemented the NBS at the start of the last financial year to rationalize its subsidy outgo and also to boost innovative fertilizer products. Under the scheme, subsidy is given against actual nutrient content in a fertilizer rather than volume of fertilizer itself. This has resulted in companies coming out with innovative soil specific products which will help boost both crop yields and margins of fertiliser players. At the same time, the scheme is expected to rationalize government's fertilizer subsidy outgo.
European markets were trading mixed. France's CAC 40 slipped by 0.43%, Germany's DAX was gained by 0.03% and Britain's FTSE 100 surges by 0.17%
All the Asian equity indices barring Jakarta Composite finished the day's trade in the negative terrain on Monday as investors remained worried on account of climbing oil prices. Benchmark crude crossed $113 a barrel on the New York Mercantile Exchange while, Brent Crude prices crossed $126 a barrel on the ICE. Japanese Nikkei fell half a percent after figures Monday showed a faster-than-expected fall in core machinery orders in February, raising concerns about the severity of the consequences in coming months of the earthquake and tsunami. The country's core machinery orders fell 2.3 percent in February from January.
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