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Key indices settle near the flat line

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Initial gains for the two key benchmark indices triggered by the weather office retaining its forecast of above normal rains for the 2016 southwest monsoon season could not be sustained as the outcome of monthly survey showed that the rate of growth in India's services sector eased last month. The barometer index, the S&P BSE Sensex, lost 0.11 points to settle at 26,843.03. The Nifty 50 index rose 1.85 points or 0.02% to settle at 8,220.80. The Sensex failed to retain the psychologically important 27,000 level after it briefly surpassed that mark in early trade. The India Meteorological Department (IMD) issued its second stage monsoon forecast for the 2016 southwest monsoon season (June to September) after trading hours yesterday, 2 June 2016. Markit Economics released the outcome of the monthly survey on India's services sector for May 2016 at about 10:30 IST. With minuscule gains, the Nifty attained its highest closing level in more than 7 months.

FMCG stocks edged higher after the weather office stuck to its previous forecast of good rains for the 2016 southwest monsoon season. Tractor maker Mahindra & Mahindra (M&M) also edged higher on prospects of above normal rains. Aviation stocks edged lower as global crude oil prices rose. Idea Cellular tumbled on reports that US based private equity firm Providence Equity Partners offloaded a large portion of its stake in the market at a discount to ruling market price.

BPCL edged higher after the company's announcement that it has secured shareholders' approval for increase in limit of total shareholding of all registered foreign institutional investors (FIIs) put together to 49% of the paid-up equity share capital of the company from 24%.

In overseas stock markets, Asian and European stocks edged higher after data overnight showed US private-sector employment gains accelerated in May 2016 and another data showed filings for unemployment benefits in the US declined for a third consecutive week. The US economy is the world's biggest economy. Meanwhile, the European Central Bank (ECB) left key interest rates unchanged after a monetary policy review yesterday, 2 June 2016, in line with investors' expectations. ECB President Mario Draghi said that the central bank remains ready to use all the tools within its mandate to make sure that the low-inflation environment doesn't become entrenched. Draghi said that the central bank could push interest rates further into negative territory if needed.

Chinese stocks shrugged off data showing slowdown in growth in China's services sector last month. In mainland China, the Shanghai Composite index settled 0.46% higher. In Hong Kong, the Hang Seng index closed 0.42% higher. The Caixin China services purchasing managers index (PMI) eased to a three-month low of 51.2 in May from 51.8 in April.

US stocks registered modest gains yesterday, 2 June 2016, on signs of steady job gains in the world's biggest economy. Private-sector employment gains accelerated slightly in May 2016, according to data from Automatic Data Processing Inc. Employers added 173,000 jobs during the month. The private sector employment data comes ahead of the influential US government's nonfarms payroll data. The US government will unveil the monthly job data for May 2016 later in the global day. The nonfarms payroll data could provide cues on the timing and pace of further interest rates increases from the US Federal Reserve. The job data has implications for the US monetary policy. The US central bank's mandate centers on maximizing employment and keeping inflation at a 2% target level. The Federal Open Market Committee (FOMC) next undertakes monetary policy review at a two-day meeting on 14-15 June 2016. The Fed has kept the benchmark fed funds rate unchanged after raising it for the first time in nearly a decade in December 2015.

Chicago Fed President Charles Evans today, 3 June 2016, said in prepared remarks at the Global Interdependence Center in London that the Federal Reserve should avoid aggressive tightening of US interest rates if it doesn't want to upset the so-far-so-good economic apple cart. Evans said it may be appropriate to have two 25 basis point moves between now and the end of the year.

The Sensex lost 0.11 points to settle at 26,843.03, its lowest closing level since 1 June 2016. The index rose 165 points or 0.61% at the day's high of 27,008.14. The index fell 51.07 points or 0.19% at the day's low of 26,792.07.

The Nifty rose 1.85 points or 0.02% to settle at 8,220.80, its highest closing level since 27 October 2015. The index rose 43.05 points or 0.52% at the day's high of 8,262. The index lost 9.10 points or 0.11% at the day's low of 8,209.85.

The BSE Mid-Cap index lost 0.11%. The BSE Small-Cap index lost 0.42%. The losses for both these indices were higher than the Sensex's decline in percentage terms.

The market breadth indicating the overall health of the market was negative. On BSE, 1,091 shares rose and 1,532 shares declined. A total of 177 shares were unchanged.

The total turnover on BSE amounted to Rs 2924 crore, higher than turnover of Rs 2184.14 crore registered during the previous trading session.

Among the sectoral indices on BSE, the S&P BSE Telecom index (down 2.64%), the BSE Consumer Durables index (down 1.75%) and the BSE Realty index (down 1.14%) underperformed the Sensex. The S&P BSE Bankex index (up 0.82%) and the BSE Auto index (up 0.45%) outperformed the Sensex.

Stocks of public sector banks edged lower. Bank of Baroda (down 0.81%), Bank of India (down 3%), Canara Bank (down 3.63%), Union Bank of India (down 2.62%), IDBI Bank (down 4.18%) and Punjab National Bank (down 1.68%) declined. Indian Bank (up 0.05%) and Vijaya Bank (up 0.5%) edged higher.

State Bank of India was off 2.02% at Rs 196.50 as the stock turned ex-dividend today, 3 June 2016, for dividend of Rs 2.60 per share for the year ended 31 March 2016.

Stocks of private sector banks rose. Axis Bank (up 3.52%), Kotak Mahindra Bank (up 3.14%), ICICI Bank (up 0.99%), Yes Bank (up 0.08%), and IndusInd Bank (up 0.07%) edged higher. HDFC Bank (down 0.32%) edged lower.

Pharma stocks declined. Glenmark Pharmaceuticals (down 3.03%), Lupin (down 1.82%), Cadila Healthcare (down 1.39%), Strides Shasun (down 1.37%), Sun Pharmaceutical Industries (down 1.15%), Cipla (down 1.12%), Wockhardt (down 1.12%), Dr Reddy's Laboratories (down 0.49%), Divi's Laboratories (down 0.25%), Aurobindo Pharma (down 0.23%) and GlaxoSmithkline Pharmaceuticals (down 0.11%) edged lower. Alkem Laboratories (up 4.29%) and Ipca Laboratories (up 0.86%) edged higher.

FMCG stocks edged higher after the India Meteorological Department (IMD) retained its previous forecast of above normal rains for the 2016 southwest monsoon season (June to September). Dabur India (up 2.83%), Emami (up 2.39%), Marico (up 1.67%), Godrej Consumer Products (up 1.61%), Jyothy Laboratories (up 1.02%), Tata Global Beverages (up 0.97%), GlaxoSmithkline Consumer Healthcare (up 0.31%), Procter & Gamble Hygiene and Health Care (up 0.04%) and Colgate-Palmolive (India) (up 0.03%) rose. Britannia Industries (down 1.48%), Nestle India (down 1.02%) and Bajaj Corp (down 0.83%) edged lower. Higher rural income may boost demand for consumer goods. FMCG firms derive substantial revenue from rural India.

Hindustan Unilever (HUL) was up 1.86% at Rs 884.90. The company announced after market hours yesterday, 2 June 2016, that its Foods and Refreshments (F&R) business will now be organised into two separate businesses. Sudhir Sitapati currently Regional Category Vice President, Refreshments (South Asia & Africa), Unilever, will be inducted into the Management Committee of HUL as Executive Director, Refreshments. Geetu Verma, currently Executive Director (Foods & Refreshments) will continue to look after the Foods business. She will be designated as Executive Director (Foods) and will continue as a member of the Management Committee of HUL, the company said.

This change is in alignment with the category structure of Unilever globally, HUL said. Both the businesses have registered strong growth under Geetu's able leadership and have now reached significant scale, HUL said. The reorganization into two separate businesses will enable sharper focus and help to fully leverage the growth opportunities in line with HUL's ambitions, the company said in a statement.

Aviation stocks edged lower as global crude oil prices rose. SpiceJet (down 5.39%), Jet Airways (India) (down 2.15%) and InterGlobe Aviation (down 2.26%) edged higher. Higher crude oil prices adversely affect aviation firms as jet fuel prices, which typically constitute about 50% of airlines' operating costs, are directly linked to international crude oil prices.

Shares of oil exploration and production companies rose along with gains in crude oil prices. Oil India (up 0.21%) and Cairn India (up 0.35%) edged higher. ONGC (down 0.47%) edged lower. Higher crude oil prices would result in higher realization from crude sales for oil exploration firms.

Shares of public sector oil marketing companies also moved higher. Indian Oil Corporation (up 0.68%) and HPCL (up 2.24%) edged higher.

BPCL rose 1.07% at Rs 1,012.85 after the company's announcement that it has secured shareholders' approval for increase in limit of total shareholding of all registered foreign institutional investors (FIIs) put together to 49% of the paid-up equity share capital of the company from 24%. The announcement was made after market hours yesterday, 2 June 2016.

Brent for August settlement was currently up 10 cents at $50.14 a barrel. The contract had risen 32 cents or 0.64% to settle at $50.04 a barrel during the previous trading session after a weekly report showed a decline in US crude inventories.

Telecom stocks declined on media reports that Reliance Jio Infocomm (RJIL) has begun selling its Lyf smartphones with SIM cards enabled for the high-speed service in India's bigger cities. Bharti Airtel (down 2.6%) and Reliance Communications (down 3.55%) edged lower. This is the first time regular consumers will get access to the Jio 4G network, following the company opening it up for employees late last year.

Index heavyweight Reliance Industries (RIL) was up 0.2% at Rs 957.95. RJIL is telecom arm of RIL. Meanwhile, RIL after market hours today, 3 June 2016, announced that it has restarted its purified terephthalic acid (PTA) plants, and is ramping up production to full capacity at Dahej. The PTA plants had been shut for a brief period owing to increased water salinity. RIL said it ensured PTA supplies to downstream customers from its Hazira and Patalganga plants during the brief shutdown at Dahej. Now, the customers will be getting PTA from all three locations, RIL said.

Bharti Infratel was up 0.85%. Bharti Infratel is a telecom tower arm of Bharti Airtel.

Idea Cellular tumbled on reports that US based private equity firm Providence Equity Partners offloaded a large portion of its stake in the market at a discount to ruling market price. The stock lost 9.97% at Rs 106.55. The stock slumped on huge volumes. On BSE, 2.62 crore shares changed hands in the counter compared with average daily volume of 7.30 lakh shares in the past one quarter. Providence reportedly sold a 3.47% stake in Idea Cellular at Rs 110.50 per share, a discount of 6.63% to the stock's closing price on BSE yesterday, 2 June 2016. As per the shareholding pattern of Idea Cellular as on 31 March 2016, Providence Equity Partners owned 6.81% stake in Idea Cellular through its arm P5 Asia Investments (Mauritius) Limited.

Tractor maker Mahindra & Mahindra (M&M) rose 1.56% at Rs 1,353.45 after India Meteorological Department (IMD) retained its previous forecast of above normal rains for the 2016 southwest monsoon season (June to September). Good rains may boost demand for tractors. Meanwhile, M&M after market hours yesterday, 2 June 2016, announced the launch of new electric sedan eVerito. The eVerito would be available in key cities like New Delhi, Mumbai, Bangalore, Pune, Kolkata, Chandigarh, Hyderabad, Jaipur and Nagpur with immediate effect. It will be priced at Rs 9.50 lakh (ex showroom Delhi, for D2 variant, post state subsidy and FAME incentive). The direct drive single speed transmission eVerito can be charged at home. It can be charged in 1 hour and 45 minutes through fast charging technology. On a full charge, the Mahindra eVerito can travel for up to 110 kms (based on vehicle loading) and can achieve a top speed of 86 kmph. Its running cost is Rs 1.15/km assuming cost of electricity at Rs 7 per unit.

The eVerito also features Boost Mode and Telematics which include real time and immediate assistance wherever the vehicle may be.

Stocks of two-wheeler makers declined. TVS Motor Company (down 0.29%) edged lower. Bajaj Auto (up 1.55%) edged higher.

Hero MotoCorp (HMCL) was down 1.19% at Rs 3,100.05. The stock hit a high of Rs 3,207.90 and a low of Rs 3,100.05 in intraday trade. HMCL today, 3 June 2016, announced that it has further augmented its senior leadership team with the appointment of Malo Le Masson as the Head of Global Product Planning. Malo, formerly with Infiniti Premium car brand will spearhead HMCL's entire product planning for its global markets, including the domestic market in India. The appointment of Malo, close on the heels of HMCL making its Centre of Innovation and Technology (CIT) in Jaipur operational, significantly ramps-up its newly created function of global product planning, HMCL said in a statement. The announcement was made during market hours today, 3 June 2016.

The Sensex snapped two-day winning streak. The Sensex had gained 175.18 points or 0.66% in the preceding two trading sessions to settle at 26,843.14 yesterday, 2 June 2016, from its close of 26,667.96 on 31 May 2016. The Sensex has risen 175.07 points or 0.65% in calendar year 2016 so far (till 3 June 2016). From a 52-week low of 22,494.61 hit on 29 February 2016, the barometer index has risen 4,348.42 points or 19.33%. The Sensex is off 1,735.30 points or 6.07% from a 52-week high of 28,578.33 hit on 23 July 2015. The Sensex is off 3,181.71 points or 10.59% from a record high of 30,024.74 hit on 4 March 2015.

Meanwhile, the outcome of monthly survey showed that the rate of growth in India's services sector eased last month as new business inflows expanded at the slowest rate since July 2015. The Nikkei India Services Purchasing Managers' Index (PMI) fell to 51 in May 2016 from 53.7 in April 2016. Output rose in three of the six tracked categories, namely Transport & Storage, Post & Telecommunication and Financial Intermediation. Although some service providers took on additional staff in May 2016, the overall pace of job creation was fractional. Input costs rose again, leading to a further increase in prices charged by service providers. Although service providers remained optimistic that output will expand in the year ahead, the level of confidence was the lowest recorded since February 2016.

Meanwhile, the IMD in its second stage forecast stuck to its preliminary forecast of above normal rains for the 2016 southwest monsoon season (June to September). Quantitatively, monsoon season rainfall for the country as a whole is likely to be 106% of the long period average (LPA) with a model error of plus/minus 4%. In its first stage forecast issued on 12 April 2016, the IMD had forecast rainfall to be 106% of the LPA with a model error of plus/minus 5%.

In its region wise forecast, the IMD said that the rainfall is likely to be 108% of LPA in North-West India, 113% of LPA in Central India, 113% of LPA in South Peninsula and 94% of LPA in North-East India, all with a model error of plus/minus 8%. The rainfall over the country as whole is likely to be 107% of its LPA during July 2016 and 104% of LPA during August 2016 both with a model error of plus/minus 9%. The quantum of the rainfall and its spatial and temporal distribution are critical for the country's agriculture.

The IMD said that the rapidly declining El Nino conditions became weak in early May 2016 and now have turned to neutral ENSO conditions. Recent changes in the atmospheric conditions over the Pacific also reflect the weakening El Nino conditions. Latest forecast from IMD-IITM coupled model indicates about 50% probability of La Nina conditions to establish during the monsoon season. Most of the other models also suggest development of La Nina conditions during the latter part of the monsoon season. El Nino conditions cause deficient rains in India whereas La Nina conditions trigger abundant rains in the country.

IMD also said on 2 June 2016 that the conditions are becoming favorable for onset of southwest monsoon over Kerala during next 4-5 days. The arrival of the rains at the Kerala coast marks the onset of the June-September southwest monsoon season in India. The IMD on 15 May 2016 predicted a delay of 6 days for the onset of the monsoon rains in Kerala this year from the normal onset date which is 1 June.

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First Published: Fri, June 03 2016. 16:38 IST