Weekly Review: Markets slip 2%, IT shares weigh

Markets ended an eventful week on a negative note with May inflation data and hawkish monetary policy dragging both the benchmark indices down 2.2% to a 13-week low.

Nifty opened on a positive note and touched a high of 5,520 during the early part of the weak. However the index succumbed to selling pressure after May inflation data and 25 basis point rate hike stimulated concerns of a further growth slowdown. Mid-week Nifty broke the short-term 5,480 support on reports that oil ministry allegedly favoured Reliance Industries for development of KG D6 gas field. Investors dumped heavyweight RIL shares, dragging the Nifty index to low of 5,356.

Finally the CNP CNX Nifty ended near week's low, at 5,366, down 30 points and the Sensex closed at 17,870 down, 115 points. Markets clocked losses for the second consecutive week.

The Reserve Bank of India (RBI) hiked its repo rate by 25 basis points to 7.5% which was in line with consensus. Nomura in the weekly note said, "Tug-of-war between growth and inflation will intensify and there could be further slowdown in the coming two quarters." Shubhada Rao, Executive Vice President and Chief Economist, Yes Bank said that the RBI will hike rates by additional 25-50 bps this year which may bring down the FY12 GDP to 7.8%.

Inflation for the month of May remained at stubbornly high levels of 9.1% y-o-y compared to 10.5% a year ago raising concerns that consecutive rate hikes were not yet effective. Economists said the inflation was mainly core inflation or manufacturing inflation which is affected by commodity prices and it, so unless commodity prices ease, inflation would persists.

The sell-off was mainly led by FII outflows last week as they removed shares worth Rs 2263 crore according to the provisional data available from the Bombay Stock Exchange. In the upcoming week, there are no major triggers for the market. Ashish Chaturmohta from IIFL Wealth said that markets are looking weak in the near term, if Nifty broke 5,320 support and the index could fall below 5,100 levels.

Asian markets also ended mostly in the red on concerns over Europe's debt troubles and uncertainty over the progress of recovery in the US. Hong Kong's Hang Seng Index, China's Shanghai Composite and Japan's Nikkei Stock Average posted weekly losses.

Reliance Industries slipped to a 26-month low of Rs 868, the stock was down 8% on a weekly basis on reports possible dealings between energy companies and the oil ministry. Analysts raised concerns that important bureaucratic decisions may get delayed as a result which could affect the RIL’s ability to carry out exploration and production activity.

Among individual stock Maruti slipped 5% this week to 1,167 due to 13-day strike which caused the total loss of revenue of around Rs 600 crore. The strike was called off on late Thursday after the management agreed to some of the workers’ demands.

Tata Steel jumped advanced 0.5% to Rs 572 this week after it agreed to sell stake in African Riversdale mining unit for $ 1.1 billion which may increase cash flows for the company making it easier for the company to service debt said analysts.

Among the sectoral pack technology stocks were the worst hit due to fear of slowdown in Europe as Greek debt woes escalated. BSE IT index lost 4.5%. Top losers were TCS, down 6.6%, Wipro lost 6.5% and Infosys declined 3.4%.

BSE Oil & Gas index also declined 4.8% as probe into RIL weighed on the sector, down 4.5%. Besides Reliance Industries, Cairn India was down 3.3%, GAIL India was down 1.3% and ONGC was down 0.8%.

BSE FMCG index emerged as a defensive bet as it was the only index that ended in the green on weekly basis, up 0.2%. Top gainers were Marico, up 3.7%, Hindustan Unilever advanced 3.1% and Tata Global was up 2.7%.

From the broader markets, the midcap and the smallcap indices were also down over 1% each. Top losers from the midcap space were GTL, down 17%, KGN Industries fell 13.4% and Jain Irrigation was down 9.6%. From the smallcap space SE Investment fell 30%, Sutlej Textiles declined 16% and MIC Electricals was down 14.7%.

From the Sensex top losers were Hindalco declined 8%, Sterlite Industries fell 4.8% and Tata Motors was down 3.8%. Top gainers were Reliance Infrastructure, Hindustan Unilever and Reliance Communication.