Weekly: Markets slump nearly 3% as rate cut hopes fade

Markets ended nearly 3% lower in the volatile week to September 27 on worries that the central bank may avoid rate cuts for now after it flagged concerns over high inflation and investors also turned cautious ahead of the June quarter current account deficit due on Monday which is expected to be higher than March quarter.

In the week to September 27, the 30-share Sensex ended down 536 points or 2.7% to end at 19,727 and the 50-share Nifty ended down 179 points or 3% to close at 5,833.

Sentiment also remained subdued during the week as the Fed would start trimming its monetary stimulus measures after better-than-expected US jobs data which signalled improvement in the world's largest economy. The rally in emerging markets including India lately was on account of ample liquidity following the US Federal Reserve's bond-buying programme.

Meanwhile, foreign institutional investors continued to remain buyers in India equities after net purchases of just over Rs 13,000 crore so far till Thursday (Sep 26) after being net sellers to the tune of nearly Rs 6,000 crore in the previous month.

Most of the sell-off during the week under review was in rate sensitive sectors such as financials and beaten down realty sector. Banks witnessed profit booking as high cost of  borrwing following the repo rate hike would reduce margins while realty stocks slipped on account of high inventory levels on account of low demand for new homes and high cost of home loans.

Bankex and Realty indices were the top losers among the sectoral indices on the BSE down over 7% each while Auto index ended down nearly 1%.

In the financials space, SBI, ICICI Bank, HDFC Bank and HDFC ended down 3.1-7.5% each.

DLF slumped 13%, Unitech ended down 6%, and Godrej Properties ended down over 10% in the realty segment.

IT majors ended mixed with Infosys gaining 0.4% while TCS and Wipro ended marginally down. Wipro was included in the 50-share CNX Nifty replacing Reliance Infrastructure.

Engineering major BHEL was the top Sensex gainer up 6.4% to end at 144. Power equipment related shares gained on expectation of orders from power generation companies after the Cabinet Committee on Economic Affairs (CCEA) Tuesday approved the methodology for auctioning coal blocks.

In the oil and gas segment, index heavyweight Reliance Industries ended down 4.8%. Reports suggest that the Comptroller and Auditor General (CAG) of India is likely to pull up the Directorate General of Hydrocarbons (DGH), as well as Reliance Industries, over an alleged hoarding of gas by the Mukesh Ambani-controlled company. According to an official close to the development, in the coming financial audit report, to be tabled in Parliament’s Budget session next year, CAG will detail the slide in the government’s share in petroleum sector profits due to a drop in gas production. ONGC closed 5.5% lower.

Jindal Steel and Power was the top Sensex loser down 9.2% to end at Rs 260. JSPL’s stock has underperformed over the last one year on account of issues related to allocation of coal blocks. Selling has been further intensified due to the subdued domestic steel demand and a decline in spot power realizations, India Infoline Research said in a note.

Outlook

Markets are likely to remain range bound in the week ahead as investors would adopt wait-and-watch stance ahead of second quarter earnings. Meanwhile, reports suggest that brokerages are likely cut their expectations of growth in earnings per share (EPS) for large companies  to mid-single digits on the back of factors including higher interest rates, lower domestic demand and higher cost of imported raw materials.

Markets will closely monitor key economic data such as current account deficit, balance of payments on Monday.

Data for HSBC India Manufacturing Purchasing Manager's Index (PMI) for the month of September is scheduled for release on Tuesday.

Further, the trends in the Indian rupee, crude oil prices and FII activity would also be on the radar of investors.

Auto and cement stocks are likely to be in action after they start releasing their September sales and dispatch numbers.