Auto stocks slide

A bout of volatility was witnessed as key benchmark indices pared losses soon after extending intraday slide in early afternoon trade. At 12:20 IST, the barometer index, the S&P BSE Sensex, was down 191.34 points or 0.74% at 25,582.27. The Nifty 50 index was currently down 60 points or 0.76% at 7,830.75. Prospects of higher interest rates in the United States weighed on the domestic bourses after the latest data showed that US consumer prices rose in April at their fastest pace in three years. Additionally, hawkish comments from US Federal Reserve officials yesterday, 17 May 2016, increased expectations that the US central bank will pick up the pace of rate rises during the current calendar year.

Investors in emerging markets, including India are worried that higher interest rates in the US will drain liquidity from emerging markets and redirect it to developed economies.

The Sensex dropped 270.21 points or 1.04% at the day's low of 25,503.40 in early afternoon trade, its lowest level since 16 May 2016. The barometer index fell 102.13 points or 0.39% at the day's high of 25,671.48 in morning trade. The Nifty lost 80 points or 1.01% at the day's low of 7,810.75 in early afternoon trade, its lowest level since 16 May 2016. The index fell 38.25 points or 0.48% at the day's high of 7,852.50 in morning trade.

In overseas stock markets, Chinese stocks edged lower after Zhang Dejiang, the No. 3 official in the Chinese central government, made no mention today, 18 May 2016, of a stock trading link between Hong Kong and Shenzhen. In mainland China, the Shanghai Composite index was currently down 2.02%. In Hong Kong, the Hang Seng index was currently down 1.59%. Before his arrival for a conference in Hong Kong, speculation was rife that Zhang could announce the launch of a long-anticipated stock trading link between Hong Kong and Shenzhen.

US stocks dropped yesterday, 17 May 2016, after Federal Reserve officials implied that interest rates could be raised as early as next month. Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams, both, yesterday, 17 May 2016, said the Fed's decision on whether to raise rates at the June 14-15 meeting hinges on the data. Lockhart said that June certainly could be a meeting at which action could be taken. Dallas Fed President Robert Kaplan, seen as a hawk, said he will push for an interest rate hike in June or July.

The consumer-price index increased a seasonally adjusted 0.4% in April from the prior month after rising 0.1% in March. That was the largest one-month increase since February 2013. A measure of underlying price pressures, which excludes the often-volatile categories of food and energy, rose 0.2% last month after ticking up 0.1% in March. Core prices were up 2.1% from a year earlier, a fifth consecutive month of annual growth above 2%the longest such streak in four years.

Closer home, the market breadth indicating the overall health of the market was negative. On BSE, 1,272 shares fell and 988 shares rose. A total of 149 shares were unchanged. The BSE Mid-Cap index was currently off 0.34%. The fall in this index was lower than Sensex's decline in percentage terms. The BSE Small-Cap index was currently up 0.08%, outperforming the Sensex.

State-run coal-mining giant Coal India lost 0.49% to Rs 282.50. The stock was volatile. The stock hit a high of Rs 285.40 and a low of Rs 281.45 so far during the day. The Competition Appellate Tribunal (Compat) yesterday, 17 May 2016, quashed a 2013 order of the Competition Commission of India (CCI) which imposed a Rs 1773.05 crore penalty on Coal India and three of its subsidiaries alleging misuse of their monopoly to supply poor quality coal and fixing prices. Compat has sent the case back to the CCI to be heard again within two months.

The CCI in December 2013 had found Coal India and its three subsidiaries viz. Mahanadi Coalfields, Western Coalfields and South Eastern Coalfields guilty of abusing their dominant position for supplying non-coking coal and having unfair fuel supply contracts.

Auto stocks fell. Tata Motors (down 1.51%), Eicher Motors (down 0.54%), Ashok Leyland (down 1.41%), Bajaj Auto (down 2.03%) and Hero MotoCorp (down 1.89%) edged lower. TVS Motor Company rose 0.65%.

Maruti Suzuki India lost 2.21% after the Japanese yen strengthened against the dollar. A strong yen adversely impacts Maruti's operating profit margin. Maruti pays royalty to its Japanese parent Suzuki Motor Corporation in yen terms for some of its earlier models. As per recent media reports, Maruti will start paying royalty to its Japanese parent in rupee term on all new models from the current financial year, which began on 1 April 2016. Maruti also has an exposure to the yen to the extent it imports raw materials from Japan.

The slide in the Maruti stock was also triggered by reports that UK-based vehicle testing agency Global New Car Assessment Programme (Global NCAP) yesterday, 17 May 2016, awarded zero star safety rating to the company's 'Celerio' and 'Eeco' car models following a crash test.

Meanwhile, as per latest reports in Japanese media, Japan's Suzuki Motor Corporation has used improper fuel economy testing methods. Japanese parent Suzuki Motor Corporation holds 56.21% stake in Maruti Suzuki India (as per the shareholding pattern as on 31 March 2016).

Mahindra & Mahindra (M&M) lost 1.22% on reports that Global NCAP yesterday, 17 May 2016, awarded zero star safety rating to the company's Scorpio sports utility vehicle model following a crash test.

FMCG stocks declined. Marico (down 0.96%), Britannia Industries (down 0.56%), Colgate-Palmolive (India) (down 0.28%), Dabur India (down 0.28%), Godrej Consumer Products (down 0.37%), Hindustan Unilever (down 0.83%), Procter & Gamble Hygiene and Health Care (down 0.18%) and Bajaj Corp (down 1.78%) fell. Jyothy Laboratories (up 2.78%) and Tata Global Beverages (up 0.5%) rose.

Nestle India slipped 1.14% to Rs 6,138 on turning ex-dividend today, 18 May 2016 for final dividend of Rs 18.50 per share for the year ended 31 December 2015 (FY 2015). The stock also turned ex-dividend today, 18 May 2016 for interim dividend of Rs 12 per share for the year ending 31 December 2016 (FY 2016).

GlaxoSmithkline Consumer Healthcare lost 4.4% after net profit fell 8.18% to Rs 180.68 crore on 8.51% decline in total income to Rs 1166.40 crore in Q4 March 2016 over Q4 March 2015. The result was announced after market hours yesterday, 17 May 2016.

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