)
Triggered by the Reserve Bank of India’s (RBI’s) statement on inflation that dimmed the hope of rate cut in the upcoming Monetary Policy review in June amid a weakening Rupee, and the state of the economy as revealed by the January – March quarter gross domestic product (GDP) numbers on Friday saw the markets tumble in trade today.
The Sensex crashed in the last hour of trade and ended down 455 points or 2.25% at 19,760, while the 50-share Nifty slumped 138 points, or 2.3%, at 5,986.
Adding to the woes was the downtrend seen in the other global markets. Hang Seng slipped 0.3%, Shanghai Composite declined 0.7% and Singapore’s Straits Times lost 0.6%. However, Japan’s Nikkei rose 1.3%. European markets, too, were lower in afternoon deals. France’s CAC fell 1% to 3,949, UK’s FTSE and Germany’s DAX was down 1% each.
Except the S&P BSE IT index that ended 0.9% higher on the back of the rupee - dollar equation, all sectoral indices ended weak with the interest rate sensitive stocks coming under selling pressure. The S&P BSE Auto index and the S&P BSE Bankex shed 1.8% and 2.5%, respectively.
Bharti Airtel, GAIL, Jindal Steel and Hindalco shed 4-5% each. ITC, HDFC and Reliance accounted for a 220 points decline on the Sensex.
Economic data
The Q4 GDP data though in-line with market expectations at 4.8% was way below what the government had expected. The manufacturing sector grew at an annual 2.6% during the quarter, while farm output rose just 1.4%, the data showed.
India's economy grew by 5% in 2012-13, its lowest rate in a decade but in-line with an official estimate, data showed. Helped by higher revenue mop up, fiscal deficit for 2012-13 worked out to be at 4.89% of GDP, down from revised estimate of 5.2 %, sources said.
Further, Reserve Bank of India governor's comment on Thursday that inflation still remains high and it will take into account the current account deficit for policy decisions also weighed on market sentiment.
“The markets have been spooked by lower-than-expected GDP data for the January – March period. This, coupled with the rupee and the RBI’s statement on inflation, added to the woes,” said Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities.
Observe Siddhartha Sanyal and Rahul Bajoria, analysts at Barclays in a note: “The GDP numbers were broadly in line with expectations and the overall momentum of the recovery remains tepid, as expected. We continue to expect a similar trend to continue in the near-term – our expectation of GDP growth in H1 FY13-14 remains 5.3% y-o-y. While we expect FY 13-14 GDP growth of 6%, the expansion during the current fiscal year will likely remain back-loaded and partly just statistical, reflecting a markedly favourable base.”
Outlook
Despite the current economic scenario and the recent statement by the central bank, market participants suggest that the fundamental view from a long-term perspective remains intact. However, there can be a correction in the near-to-medium term, they point out.
“I think, the markets can easily correct around 10% from here on in the next three months. The central bank can slash rates in the next two policy reviews (June and July) by 25 – 50 basis points. But, this will be dependent on the inflation trajectory,” said Thunuguntla of SMC Global.
“Among the rate sensitive pack, the correction in prices will be selective. IndusInd Bank, Kotak Mahindra Bank, YES Bank still look good. In the auto pack, we like Mahindra & Mahindra, Bajaj Auto. We feel that auto sales will improve over the next few months and are advising clients to buy these stocks. Among the FMCG pack, we like ITC,” said AK Prabhakar, Senior Vice President (Equity Research), Anand Rathi Financial Services.
"Nifty is a whisker away from what may be a classical head & shoulder pattern. A close below 5930 may confirm this Bearish Reversal Pattern. If that happens then we may expect 200 points fall from current levels in the near-term and if Global Cues remain negative then we may revisit 5500-5600 levels," said said Vikram Dhawan, director, Equentis Capital
"However, investors are cautioned not to jump the gun and wait for the confirmation as a sharp rally from here towards 6100 levels may take the sting out of this reversal pattern," he adds.
As regards the rupee, Abhishek Goenka, founder and CEO, India Forex Advisors maintains a bearish bias on Indian Rupee and expects it to move towards 57-58 levels.
From a medium-to-long term perspective, Gaurav Bhandari, Head of Institutional Broking, Centrum Broking remains bullish. He expects the Sensex to touch a new high of 25,900 by December 2014 where it will trade at 15.3x one-year forward EPS as against 13.8x CY13e EPS.
“On the fundamental side, this rally will be driven on the back of the recent correction in commodity prices (oil and gold), fall in interest rates and continuous efforts by the government to revive growth. The correction in commodities will lead to a cool-off in inflation and lead to deeper correction in deposit and lending rates. We expect a repo rate cut of around 50-75 bps over the next 12 months,” he said.
Prabhakar of Anand Rathi expects IT (Infosys and TCS) and pharma stocks like Cadila Healthcare, Dr Reddy’s Laboratories, Lupin and Cipla to do well going ahead.
