Weekly: Global cues, growth slowdown weigh on markets

Contraction in India's GDP growth drags markets

The sharp contraction in India's GDP growth and the sell off in global equities sent shock waves here dragging the Sensex below the 16,000 mark for the week ended Jun 1, 2012.

For the week, the 30-share Sensex dropped 253 points or 1.6% to end at 15,965. The 50-share S&P CNX Nifty slipped 79 points or 1.6% to 4,842.

The shockingly low GDP growth during the fiscal vindicated the fact the pace of reforms were not good enough to keep the country's economic growth engine on track. Further, discouraging economic news from Asia, Europe and the US and the weakening rupee further dampened investor sentiment.

India's GDP growth for the Jan-Mar quarter stood at 5.3% against a consensus of just over 6%. GDP growth for the corresponding quarter last fiscal (Jan-Mar 2011) was 9.2%. GDP growth for 2011-12 was 6.5%.

The growth slowed down as the manufacturing sector contracted and a fall in the rupee to a record low levels suggests the economy remains under pressure in the current quarter. This sparked a new round of economic downgrades from investment banks, with Morgan Stanley cutting India's forecasts for the second time.

Meanwhile, on the global front. US stocks fell more than 2 per cent on Friday, after a dismal US jobs report added to fears that Europe's spiraling debt crisis was dragging down the world economy. The Dow Jones industrial average fell 275 points, or 2.22 per cent, to 12,118 at the close. The S&P 500 Index dropped 32 points, or 2.5 per cent, to 1,278. The Nasdaq Composite dropped 80 points, or 3 per cent, to 2,747.

In Asia, Japan's Nikkei average slid to mark its ninth straight week of losses, the longest such run in 20 years, after disappointing Chinese and US data deepened fears of a global slowdown in the throes of Europe's debt crisis. The index lost 1.2%. The other major losers were Taiwan Weighted, Straits, Hang Seng down 0.5-3%. Shanghai Composite which was flat with a positive bias was the only exception.

European shares ended at their 6-month lows on Friday tracking weak economic data from the US and the slowdown in euro zone's manufactuing sector raised worries that signs of global economy recovery still remain elusive.

Meanwhile, India's manufacturing sector kept up its steady expansion in May, with fast-rising output evened out by slowing growth of domestic order books. The HSBC manufacturing Purchasing Managers' Index, slipped marginally to 54.8 in May from 54.9 in April.

Among other highlights of the week under review, the Indian rupee plunged to a new record low of Rs 56.40 against the US dollar because of strong dollar demand from oil importers looking to meet their commitments at the end of the month.
In the steepest ever increase, petrol rates were raised by a massive Rs 7.54 per litre, the first hike in rates in six months. This was the steepest hike in petrol price ever, the previous high being Rs 5 per litre.

Back home, Tata Motors was the top loser among the Sensex stocks. The shares fell nearly 17% to Rs 224 on account of lower than expected EBITDA (earnings before interest, taxes, depreciation, and amortization) margin at Jaguar Land Rover (JLR) of 14.6% against analyst estimate of around 16.5% during the quarter ended March 2012. The consolidated EBITDA margin has improved by only 30bps at 14.1% on year-on-year basis.

Maruti Suzuki also lost nearly 4% during the week after the country's largest carmaker Maruti Suzuki today reported 4.99% fall in total sales at 98,884 units for May.The company had sold 1,04,073 units in the same month last year, Maruti Suzuki India said in a statement.

Capital goods shares also witnessed selling pressure on worries of further slowdown in order inflows in the wake of sharp contraction in economic growth. L&T ended down 4.4% at Rs 1,186.

Oil stocks lost ground on concerns that the depreciating rupee would result in higher expenditure for crude oil imports. ONGC was also among the losers, down 4.2% to Rs 246. The net profit for the quarter ended March 31 incresed by 102 per cent to Rs 5,644 as against Rs 2,791 crore during the same period previous year. BHEL ended nearly 1% down at Rs 207.

Sterlite Industries, Larsen & Toubro and Jindal Steel were also among the top losers.

On the other hand, Hindalco logged in smart gains, the stock jumped 4.1% to Rs 116 after an empowered group of ministers (EGoM) on Wednesday gave the go-ahead to start mining at two coal blocks allotted to them, albeit with some riders.

A ministerial panel recommended conditional forest clearances for developing Essar-Hindalco's Mahan coal mines and also decided to do away with controversial 'go no go' classification of coal blocks.

Tata Power, Coal India, NTPC and Wipro also ended the week higher by 2-4% each.

Most of the sectors reeled under the selling pressure. The Auto stocks were amongst the worst hit in this week's trade on concerns of slowing sales growth and hike in petrol prices would further curtail demand. The BSE auto index plunged 6% or 558 points to 8,680 levels. Capital Goods, consumer durables, bankex, healthcare, metal, oil & gas and power indices also fell 1.5-3% each. While, IT, FMCG and Teck pockets witnessed some bit of buying.

The broader markets were in-line with the benchmark indices. The mid-cap index dropped 1.3% to 5,821 and the small-cap index shed nearly 2% to 6,194 levels.