Sensex slips 314 points as ITC, Vedanta drag

Sensex ends 314 points lower at 27,643. Nifty slips 89 points to 8,370 levels

Benchmark indices succumbed to profit-booking on Monday after closing at five – week highs on Friday, due to selling pressure in metals, fast moving consumer goods (FMCG) and capital goods stocks. The impending derivatives expiry for May series contracts on Thursday remained a drag on the markets.

At the global level, comments by the US Federal Reserve’s chair, Janet Yellen that the US central bank could hike rates later this year in case key economic indicators met expectations and developments relating to a possible default by Greece regarding the upcoming €1.6 billion (£1.14 billion) repayment due on its bailout loans also weighed on the sentiment.

The S&P BSE Sensex moved in a range of around 300 points in intra-day deals before ending at its lowest level in almost a week at 27,643, down 314 points, or 1.1%. The CNX Nifty breached the 8,400 mark to end at 8,370 levels, weaker by 89 points, or 1%.

Among individual stocks, ITC was among the top index losers that slipped over 3% on the back of lower-than-expected results for the March quarter. Vedanta, too, closed 3.6% lower at Rs 200. HDFC, Tata Steel, Gail (India), Tata Motors, SBI and Coal India were also among the top Sensex losers that slipped in a range of 1.6% to 2.7%.

“On Friday, ITC’s earnings came in as a disappointment that has triggered concerns of slowdown in the consumption-led economy. Investors are now concerned that they cannot bank on safe haven plays like fast moving consumer goods (FMCG) stocks,” said G. Chokkalingam, founder & managing director, Equinomics Research & Advisory.

ONGC, Bharti Airtel, Wipro and Mahindra & Mahindra (M&M) were the only four S&P BSE Sensex stocks that ended firm in trade today.

The market breadth was negative on Monday. Out of 2,794 stocks traded on the BSE, there were 1,156 advancing stocks as against 1,524 declines. The rupee also traded marginally weak, down 9 paise at 63.61 a dollar against a close of 63.52 on Friday on the back of sustained dollar buying by FIIs and weakness in local equities.

The probability of rate hikes by US Fed in coming quarters, coupled with eurozone fears and instability in crude inventory would keep rupee/dollar rates volatile and thus the Indian markets as well, analysts say. Given all this, they expect the markets to remain weak for upcoming trading sessions with the Nifty remaining in a range of 8,100-8,400 in the near-term.

ITC slips 3.3%

Index heavyweight and FMCG major ITC ended the day 3.3% lower at Rs 317 levels after its March quarter results that were announced post market hours on Friday came in lower than expectations.

Continuing the dismal performance of Q3FY15, ITC recorded flattish revenue growth of 0.5% y-o-y to Rs 9,188.3 crore. “Revenue growth missed our expectations by around 5% and was impacted by weak performance across the board (ex-non cigarette FMCG business). ITC had undertaken an average price hike of around 17% y-o-y in August, 2014 (another around 15% y-o-y hike in March 2015) across its cigarette portfolio and in that context, we believe that the volume decline for cigarette stood at 14-15% y-o-y,” said a note from Reliance Securities.

Analysts at Religare Institutional Research maintain FY16/FY17 EPS and value ITC at 25.6x FY16 PE/21.9x FY17 PE (price-to-earnings).

"With pressure on cigarettes volumes growth and muted FMCG and other businesses, we foresee limited near-term drivers for the company. Maintain HOLD with a Mar'16 target price of Rs 350 (from Rs 360)," points out Gaurang Kakkad, an analyst tracking the company with Religare Institutional Research.

SECTORS AND STOCKS

All the sectoral indices ended in the red, with the exception of the oil space. The metal, FMCG and capital goods indiced shed about 1% each. In the metals space, Vedanta, Tata Steel and Hindalco lost between 1% and 3% each.

In the FMCG space, ITC dipped over 3% to Rs 318 after the company reported a lower-than-expected results. Hindustan Unilever (HUL), Godrej Consumer Products and Gilette India shed about 1% each. L&T, BEML and ABB among the capital goods stocks closed about 1% lower each.

On the gainer's side, select public sector oil marketing companies had a good session due. ONGC zoomed more than 2%, while HPCL and BPCL gained about 1% each. Bharti Airtel and Wipro also gained 0.5-1% each.

GLOBAL MARKETS

US stocks ended modestly lower during the previous trading session on Friday, 22 May 2015, after Federal Reserve Chairwoman Janet Yellen said she still expected the central bank to raise interest rates sometime this year.

The Asian markets had a mixed session. The Shanghai index rallied for a fifth straight day, surging more than 3% to close at its highest level since 2008 after the China government announced a list of more than 1,000 infra projects that it is inviting private investors to help fund and build.

The Nikkei and Straits Times indices also added about 0.5% each. On the other hand, the SET and Jakarta Composite shed 1% and 0.5%, respectively. Hang Seng remained closed for trade on Monday.