Banking stocks led losses as key benchmark indices tumbled in mid-afternoon trade. The barometer index, the S&P BSE Sensex, and the 50-unit CNX Nifty, both, hit 2-1/2-week low. The Sensex was currently off 511.95 points or 1.84% at 27,337.04. The latest sharp slide on the domestic bourses materialisd after Earth Sciences minister Harsh Vardhan was quoted as saying that the India Meteorological Department (IMD) has downgraded this year's monsoon forecast to 88% of the long-term average from April forecast of 93% of the long-term average. Weakness in European stocks amid ongoing uncertainty over Greece's debt situation also weighed on Indian stocks.
The downgrade in monsoon forecast comes just hours after the Reserve Bank of India (RBI) Governor Dr. Raghuram G. Rajan said the RBI decided to front-load a rate cut at today's policy and wait for more certainty on both the monsoon outturn as well as the effects of government responses if it turns out to be weak. The RBI cut its benchmark lending rate viz. the repo rate by 25 basis points to 7.25% after a monetary policy review today, 2 June 2015.
Today's decline on the domestic bourses was broad based, with more than two losers against every gainer on BSE. The BSE Mid-Cap index was off 1.54%. The BSE Small-Cap index was off 1.53%.
Metal shares edged lower. FMCG stocks witnessed selling pressure after downgrade in monsoon forecast. IT shares also edged lower. Index heavyweights ITC and HDFC edged lower. Another index heavyweight Reliance Industries edged higher.
Foreign portfolio investors bought shares worth a net Rs 113.47 crore yesterday, 1 June 2015, as per provisional data released by the stock exchanges. Domestic institutional investors (DIIs) bought shares worth a net Rs 49.34 crore yesterday, 1 June 2015, as per provisional data released by the stock exchanges.
In overseas markets, European stocks edged lower amid ongoing uncertainty over Greece's debt situation. Asian stocks edged lower after an encouraging reading on US manufacturing activity in May increased the likelihood that the US Federal Reserve will raise interest rates this year. US stocks ended with modest gains yesterday, 1 June 2015, recovering part of last week's losses in a session marked by cautious trading as investors reacted to mixed economic data.
At 14:19 IST, the S&P BSE Sensex was down 511.95 points or 1.84% at 27,337.04. The index lost 516.62 points at the day's low of 27,332.37 in mid-afternoon trade, its lowest level since 15 May 2015. The index rose 53.54 points at the day's high of 27,902.53 in early trade.
The 50-unit CNX Nifty was down 165.45 points or 1.96% at 8,267.95. The index hit a low of 8,265.30 in intraday trade, its lowest level since 15 May 2015. The index hit a high of 8,445.35 in intraday trade.
The BSE Mid-Cap index was down 164.89 points or 1.54% at 10,547.54. The BSE Small-Cap index was down 172.67 points or 1.53% at 11,107.11. The fall in both these indices was lower than the Sensex's decline in percentage terms.
The market breadth indicating the overall health of the market was quite weak, with more than two losers against every gainer on BSE. 1,809 shares fell and 725 shares rose. A total of 103 shares were unchanged.
Index heavyweight and cigarette major ITC was down 3.15% at Rs 321.55. The stock hit a high of Rs 329.70 and a low of Rs 321.40 so far during the day.
Index heavyweight and housing finance major HDFC was down 3.24% at Rs 1,206.35. The stock hit a high of Rs 1,249.80 and a low of Rs 1,204 so far during the day.
Index heavyweight Reliance Industries (RIL) was up 0.52% at Rs 906.05. The stock hit a high of Rs 918.50 and a low of Rs 891.15 so far during the day.
IT shares declined. Persistent Systems (down 2.34%), Wipro (down 2.29%), HCL Technologies (down 1.77%), CMC (down 1.36%), Hexaware Technologies (down 0.78%), TCS (down 0.67%), MphasiS (down 0.49%), Oracle Financial Services Software (down 0.28%) and Tech Mahindra (down 0.08%), edged lower. MindTree was up 0.71%.
Index heavyweight and IT major Infosys was down 1.53% at Rs 2,014.35. The stock hit a high of Rs 2,054.80 and a low of Rs 2,008 so far during the day.
Metal shares edged lower. Hindalco Industries (down 2.69%), JSW Steel (down 2.01%), NMDC (down 1.74%), Tata Steel (down 1.66%), Vedanta (down 1.62%), Hindustan Copper (down 1.27%), Bhushan Steel (down 1.06%), Jindal Steel & Power (down 0.86%) and Hindustan Zinc (down 0.36%), edged lower. Steel Authority of India (up 0.53%) and National Aluminum Company (up 0.83%), edged higher.
FMCG stocks witnessed selling pressure after downgrade in monsoon forecast. Marico (down 4.33%), Bajaj Corp (down 2.34%), Hindustan Unilever (down 2.34%), Tata Global Beverages (down 2.03%), Britannia Industries (down 2.02%), Colgate Palmolive (India) (down 1.31%), Dabur India (down 0.7%), Jyothy Laboratories (down 0.18%) and Godrej Consumer Products (down 0.07%), edged lower. Procter & Gamble Hygiene & Health Care (up 0.97%) and GlaxoSmithKline Consumer Healthcare (up 1.35%) edged higher.
A deficient monsoon could adversely impact revenue of FMCG firms. FMCG companies derive substantial revenue from rural India.
Nestle India was up 2.62% to Rs 6,846.50. Nestle India announced after market hours yesterday, 1 June 2015, that consumers are concerned by reports that the authorities in Uttar Pradesh have found elevated levels of lead in a sample pack of Maggi noodles. Nestle India said that the company is fully cooperating with the authorities who are conducting further tests and the company is awaiting their results.
Nestle India has submitted samples of Maggi noodles from almost 600 product batches to an external laboratory for independent analysis. These samples represent around 125 million packets. All the results of these internal and external tests show that lead levels are well within the limits specified by food regulations and that Maggi noodles are safe to eat. The company is sharing these results with the authorities, Nestle India said.
The company regularly monitors all its raw material for lead, including testing by accredited laboratories which have consistently shown levels in Maggi Noodles to be within permissible limits. Nestle India said that the company remains committed to continuing to improve the quality of agricultural raw materials across the food chain working with farmers, suppliers, authorities and the food industry to ensure food safety. The quality and safety of products are the top priorities for the company, Nestle India said in a statement.
The Reserve Bank of India (RBI) cut its benchmark lending rate viz. the repo rate by 25 basis points to 7.25% after a monetary policy review today, 2 June 2015, matching market expectations. The announcement was made at 11:00 IST. The RBI kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL).
The RBI has raised inflation forecast while trimming growth forecast for the current fiscal year. Inflation based on the consumer price index (CPI) is expected to be pulled down by base effects till August 2015 and will start rising thereafter to about 6% by January 2016, which is slightly higher than the RBI's projections in its April policy review. In its April policy review, the RBI had said that CPI inflation is expected to ease to around 4% by August 2015 and rise therefore to reach 5.8% by the end of the current financial year. The central bank has trimmed its forecast of GDP growth for the current fiscal year to 7.6%, with a downward bias. At its policy review on 7 April 2015, the RBI had forecast GDP growth at 7.8% for the current fiscal year assuming a normal monsoon this year.
India's merchandise export growth has weakened steadily since July 2014 and entered into contraction from January 2015 through April, with a recent shrinking of even volumes exported. Net exports are, therefore, unlikely to contribute as much to growth going forward as they did in the past financial year, according to the central bank. Consequently growth will depend more on a strengthening of domestic final demand.
RBI Governor Dr. Raghuram G. Rajan said in a statement that the RBI decided to front-load a rate cut at today's policy and wait for data that clarify uncertainty. With still weak investment and the need to reduce supply constraints over the medium term to stay on the proposed disinflationary path, a more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty, Rajan said. The agricultural activity was adversely affected by unseasonal rains and hailstorms in north India during March 2015, impinging on an estimated 94 lakh hectares of area sown under the Rabi crop. Successive estimates have been pointing to a worsening of the situation, with the damage to crops like pulses and oilseeds -- where buffer foodstocks are not available in the central pool -- posing an upside risk to food inflation. For the Kharif season, the outlook is clouded by the first estimates of the India Meteorological Department (IMD), predicting that the southwest monsoon will be 7% below the long period average. This has been exacerbated by the confirmation of the onset of El Nino by the Australian Bureau of Meteorology.
Among other risks to inflation, crude prices have been firming amidst considerable volatility and geo-political risks are ever present. The RBI also said that volatility in the external environment could impact inflation. Therefore, a conservative strategy would be to wait, especially for more certainty on both the monsoon outturn as well as the effects of government responses if it turns out to be weak.
India's foreign exchange reserves are currently placed at around $350 billion, providing a strong second line of defence to good macroeconomic policies if external markets turn significantly volatile.
Meanwhile, data released by the government after trading hours yesterday, 1 June 2015, showed that the output of eight core infrastructure sector, carrying 38% weight in the Index of Industrial Production, declined 0.4% in April 2015.
Earth Sciences minister Harsh Vardhan was quoted as saying today, 2 June 2015, that the India Meteorological Department (IMD) has downgraded this year's monsoon forecast to 88% of the long-term average from April forecast of 93% of the long-term average. The downgrade in monsoon forecast has sparked fears of a drought in the country where nearly half of farmland lack irrigation facilities.
The IMD will announce the official second stage Long Range Forecast (LRF) for Southwest Monsoon 2015 at 16:30 IST today, 2 June 2015.
The onset of monsoon in Kerala has been delayed. The IMD yesterday, 1 June 2015, said that conditions are becoming favourable for the onset of southwest monsoon over Kerala around 5 June, four days after the scheduled onset date of 1 June.
In global commodity markets, Brent crude oil futures edged higher today, 2 June 2015. Brent for July settlement was up 74 cents at $65.62 a barrel. The contract had lost 68 cents or 1.03% to settle at $64.88 a barrel during the previous trading session.
Oil cartel OPEC is expected to keep its production target of 30 million barrels of oil per day unchanged at a meeting scheduled in Vienna on Friday, 5 June 2015. The OPEC meeting is being closely watched for clues about the organization's next moves.
In overseas markets, European stocks edged lower today, 2 June 2015, amid ongoing uncertainty over Greece's debt situation. Key indices in Germany, UK and France were off 0.59% to 0.77%.
Investors continue to monitor developments in Greece's debt talks. The country has to repay 300 million euros ($329 million) to the International Monetary Fund (IMF) by Friday, 5 June 2015. Greece's lenders held an emergency mini-summit yesterday, 1 June 2015 and are preparing a draft text for an agreement, according to reports. According to reports, this will be the final offer to Greece from the lenders.
Greece is scheduled to repay a total of euro 1.6 billion ($1.76 billion) to the International Monetary Fund (IMF) over the period between June 5-19.
Asian stocks edged lower today, 2 June 2015, after an encouraging reading on US manufacturing activity in May increased the likelihood that the US Federal Reserve will raise interest rates this year. Key indices in Taiwan, Singapore, Japan, Hong Kong and South Korea were off 0.05% to 1.34%. China's Shanghai Composite was up 1.69%.
US stocks ended with modest gains yesterday, 1 June 2015, recovering part of last week's losses in a session marked by cautious trading as investors reacted to mixed economic data. Among macro data in US, a report from ISM showed the pace of manufacturing growth rose in May. Other data showed construction spending surged in April but consumer spending was unexpectedly flat in April.
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