SOUTHWARD JOURNEY CONTINUES

Turbulence doesn't seem to die down any time soon for the Indian stock markets which are being slaughtered session after session due to feeble corporate earnings announcement and fragile macroeconomic backdrop. The last trading day of this month too remained no exception as the frontline indices passed through an extremely unstable day though they managed few brief stints into positive territory only to succumb to unrelenting profit booking by investors. Indian benchmarks snapped the first day of a new F&O series on a disappointing note as jittery investors seemed helpless amid an increasingly vulnerable domestic setup. On one hand spiraling international crude oil prices have become the headache of policymakers while on the other worries over global economic recovery loom large given the fact that world's biggest economy continues to grow at a tepid pace. Market participants also resorted to broad based position squaring in Rate sensitive counters like Realty and Bankex as they felt that RBI will now be forced to adopt more aggressive stance in its annual monetary policy review meet on May 3rd. Leads from the Asian and European counterparts remained highly unsupportive for the domestic indices while decline in international crude oil prices too failed to enthuse the local sentiments. The NSE's 50-share broadly followed index Nifty, drifted by well over half a percent point and shut shop below the crucial 5,750 support level while Bombay Stock Exchange's Sensitive Index, Sensex took another hundred and fifty points blow to settle below the psychological 19,150 mark. The broader markets too failed miserably by the end of trade as they underperformed benchmarks by quite a margin. The midcap index plunged 1.03% while the smallcap index closed with 1.57% losses. On the sectoral front, Capital Goods index did the maximum damage as it shaved off 2.72% after majors like L&T and Crompton Greaves took nasty cuts of 3.87% and 9.94% respectively. The high beta Realty pocket too got pummeled by investors as it lost 2.66% after majors like DLF and HDIL got butchered by 2.37% and 7.89% respectively. On the result front, stocks like Bata India, Manappuram General Finance and Bharat Electronics were commended by the investors in the session while shares of companies like HDIL and TVS Motors and UCO Bank got punished badly. Among individual gainers, RIL garnered around a percent on the buzz that Reliance group is in talks to purchase stake held by Bharti Enterprises in an insurance JV with AXA Group.

On the global front, majority of Asian equity indices settled in the red zone on the back of weaker than expected economic growth data from the US which weighed down the sentiments. However, the Chinese benchmark managed to buck the somber trend and surged around a percent as a report indicated that manufacturing growth sustained its expansion this month even as the government raised interest rates and let the yuan strengthen at a faster pace, thereby easing worries that the  policy tightening measures have slowed the economy. The European equities are trading in the negative terrain as France's CAC fell 0.40%, Britain's FTSE 100 eased 0.03% and Germany's DAX dropped 0.10%. On the other hand, the screen trading for US index futures indicated that the Dow could open on a flat note on Monday.

Earlier on Dalal Street, the benchmark got off to a dull start as leads from the initial moments remained somber because the Asian equities traded mixed on the back of weaker than expected economic growth data from the US. The frontline indices tried hard to keep their head above the water in the morning session but selling emerged on every attempt to move above the neutral line as continuous disappointing result announcements by major companies hit sentiments. The indices nosedived in late hours of trade as they even tested the psychological 5,700 and 19,000 levels but a strong short covering rally in the dying moments prevented the markets from drifting below those psychological levels. The bourses eventually snapped another session on a gloomy note and extended the declining streak for the fifth consecutive session. Markets registered lower volumes of over Rs 1.16 lakh crore on the first day of a new F&O series. The turnover for NSE F&O segment remained on the lower side compared to Thursday at over 1 lakh crore. Market breadth remained abysmal as there were 940 shares on the gaining side against 1960 shares on the losing side while 98 shares remained unchanged.

Finally, the BSE Sensex plunged by 156.06 points or 0.81% to settle at 19,135.96 while the S&P CNX Nifty lost 35.95 points or 0.62% to end at 5,749.50.

The BSE Sensex touched a high and a low of 19,356.50 and 19,015.05 respectively. The BSE Mid-cap and Small-cap index declined by 1.03% and 1.57% respectively. 

Hindustan Unilever up 2.24%, Maruti Suzuki up 1.27%, RIL up 0.83%, Hero Honda up 0.80% and Wipro up 0.79% were the major gainers on the Sensex.

On the flip side, L&T down 3.87%, Jindal Steel down 3.57%, ONGC down 2.79%, Jaiprakash Associate down 2.57% and DLF down 2.37% were the major losers on the index.

Natural rubber prices continue to remain strong on a tight demand-supply equation and rally in crude oil prices. Earlier expectations of correction in 2011 have proved incorrect as the supply side is not likely to respond much despite strong prices seen throughout the last one year or so owing to whether related problems and aging of trees in key producers.

Off late, the traction seen in rubber prices has come from a number of factors including the fact that increase in rubber production in current year is now likely to be less than what was earlier anticipated. Thailand, the world's largest exporter, produces around 3 million tonne per year, and accounts for 40% of world production, followed by Indonesia and Malaysia. However, floods in some parts of the Thailand have resulted in substantial downward revision in production estimates for 2011 there.

According to the Association of Natural Rubber Producing Countries (ANRPC), global natural rubber production for 2011 may come in at 10.025 million tonne, lower than an earlier forecast of 10.060 million tonne due to output revisions in member countries. Though the revised figure is above the production level seen in 2010 at 9.473, the increase will be insufficient to help boost the drained stocks and cope with a surging demand.

Global rubber consumption (including synthetic varieties) on the other hand remains strong and reached 24.4 million tonne in 2010, 14.8% higher than in 2009. This reflects a strong recovery in the demand from key industries, mainly by the tyre producers amidst a rally in auto sales in China and India. With strong growth outlook for India and China for 2011, demand for rubber is likely to remain strong as well and ANRPC estimates that it may see traction of over 8% over the calendar year 2011.

Further, the rising crude prices which have led to a significant increase in the cost of synthetic rubber, substitute of natural rubber, have also caused some upward pressure on natural rubber prices. If the crude prices continue to rule at current levels, synthetic rubber prices are likely to see further uptic, thereby leaving little downside for the natural rubber prices until the production of the natural variety shown a significant increase. This however is only likely to happen in 2012, when some new rubber trees start yielding the crucial raw material. 

FMCG up 0.88%, Health Care (HC) up 0.61% and OIL&GAS up 0.02% were only gainers in the BSE sectoral space. Capital Goods (CG) down 2.72%, Realty down 2.66%, Bankex down 1.76%, Consumer Durables down (CD) 1.30% and Metal down 1.21% were major losers in the BSE sectoral space.

The S&P CNX Nifty touched a high and a low of 5,804.30 and 5,706.05 respectively.

The top gainers on the Nifty were Sun Pharma up 3.23%, Ambuja Cement up 3.21%, Hindustan Unilever up 2.35%, HCL Tech up 2.09% and Cairn up 1.64%.

The top losers on the index were L&T down 3.92%, ONGC down 3.54, Axis Bank down 3.50%, JP Associate down 2.89% and Kotak Bank down 2.87%.

The Telecom Regulatory Authority of India (TRAI) has initiated a review of interconnection usage charges (IUC) amidst proposals of deep cuts in these charges that while lower the cost of calls for the consumers but will also impact the profitability of major players significantly. It will at the same time benefit newer players.

The regulator has asked the industry regarding what the new IUC regime should be for the coming three years. It has proposed that the ICU charges could be further brought down and has asked for Industry's views on the same. Another issue raised by the regulator is whether the termination fee should be a part of the capex and if the depreciation should be at 10% on straight line method or not.

The most important issue here is ICU, as it has substantial impact on companies' revenues. The ICU charges refer to the fee that mobile services operators pay to one another for using their networks for originating, carrying and terminating calls. At present, the ICU charges are pegged at a ceiling rate of 20 paise a minute as termination fees and 65 paise a minute for carrying the STD calls. ICU charges typically constitute 75% of the total cost of a mobile call made from one operator to another. 

If the ICU is brought down, it will benefit new operators as they have relatively very small network compared to the incumbent once. Since, new players will be paying much larger money to incumbent players that what they would be getting, owing to their smaller network and lesser number of subscribers, any reduction in ICU will obviously help them on a net-net basis. On the other hand, the move will have a negative impact on industry leaders who will partly lose the edge they have against new players in terms of their huge network and large subscriber numbers.

The telecom regulator feels that this could be a viable way to ensure level playing field for new operators. However, given that tariffs are already at very low levels in the 2G space and operators' margins are already under severe pressure, any substantial decline in ICU form current level will impact the industry badly. With the incumbents and newer operators already at opposite end over a number of issues, the latest move by the regulator will further divide the industry.

European markets were trading in mix note. France's CAC 40 declined by 0.14%, Germany's DAX gained 0.22% and Britain's FTSE 100 was trading higher by 0.03%.

Most of the Asian equity indices finished the trade in the negative terrain on the last trading day of the week as weak economic data from the United States for the first quarter weighed down investors' sentiments. South Korean benchmark - Seoul Composite - finished the day's trade with a cut of more than 0.70 percent on Friday, triggered by profit-booking after hitting record highs earlier in the week and sharp falls in technology issues such as Samsung Electronics too dampened the sentiments in the region. While, Japanese markets remain shut on Friday and will reopen on Monday before closing again from Tuesday to Thursday.