Indian equity benchmarks slaughtered on Tuesday following weak global cues, tracking endless European debt crisis. Lower than expected Infosys’ first quarter numbers and consistent slow down in industrial output added more fuel to the fire. Fresh shorts were seen in heavyweights today.
The market has seen sell-off for the third consecutive session, with the 30-share BSE Sensex shed more than 650 points in three days. The index fell 309.77 points, to close at 18,411.62 and the 50-share NSE Nifty tumbled 89.95 points or 1.6%, to settle at 5,526.5, after seeing recovery of about 30 points from day’s low of 5496.95.
VK Sharma, head, private broking and wealth, HDFC Securities says, the markets have so far absorbed Infosys results and even the weak IIP numbers. “The correction seems to be complete for the moment. Only if you see the level of 5,490 breaking then the fresh concerns should arise,” he added.
IT bellwether Infosys has reported first quarter net profit at Rs 1,720 crore, which was lower than expected of Rs 1,736 crore. Even the guidance for Q2 did not surprise the street.
Harit Shah, Senior Research Analyst, Nirmal Bang Institutional Equities said, “The more disappointing aspect was the fact that they gave a very disappointing guidance for second quarter of FY12. They guided for around 4.3% sequential top line growth in rupee terms and we were expecting around 5.5-6% guidance.”
Infosys guided EPS at Rs 128.20-130 and revenues at Rs 31,777-32,311 crore for FY12. Company expects Q2 EPS at USD 0.67-0.68, a growth of 3.1-4.6%.
Infosys plunged over 5%. TCS and Wipro were down 1-1.5%. The BSE IT Index was down nearly 3%.
Rate sensitives too saw huge beating in the second half of trade, especially after disappointing industrial output data. Fears of further rate hike after this data could be the reason.
Industrial growth slowed down in May, due to the poor performance of the manufacturing, capital goods and mining sectors. Index of Industrial Production (IIP) stood at 5.6% on a year-on-year basis as against 6.3% in previous month. CNBC-TV18 was expecting at 8.6%.
The rate tightening will continue, says Robert Prior-Wandesforde , Head-India Eco at Credit Suisse. “I don’t think RBI is going to be terribly concerned by today’s production figure. The wholesale price index (WPI) numbers on the first day are going to be much more significant and there we are looking for a 9.7% outturn. Unless the turmoil in global markets continues and, bear in mind, we are still couple of weeks away from the meeting, we would still look for another 25 basis points increase on 26th of July meeting,” he added.
The BSE Realty, Auto, Capital Goods, Metal and Bankex fell 1-2.7%. L&T, HDFC, SBI, HDFC Bank, Tata Motors, DLF and Tata Steel were down 2-4%.
NTPC, Bharti Airtel and BHEL lost 1%. However, ONGC, HUL, Axis Bank, Power Grid and Dr Reddy’s Labs were only gainers.
Debt crisis in the Europe continent has been unstoppable. After a bailout for Greece provided recently by European Union and IMF, now Italy and Spain could be on the cards for bailout package.
European markets like France’s CAC, Germany’s DAX and Britain’s FTSE were down 1.5-2.5%, at the time of closing of Indian equities. Even Dow Jones and Nasdaq futures fell over half a percent. FTSE MIB and Italia All-Share were down about a percent.
But the sell-off is based on sentiment rather than actual facts, says Jeff Chowdhry, head of emerging equities of F&C Investments.
“Historically debt to GDP of Italy has been very high. Unfortunately we can’t really put it into the same category as either Greece or indeed some of the other countries like Ireland because the banks have not lent to the same degree to the Italian government. But more importantly what we haven’t had is we haven’t got indiscriminate lending on back of property. So Italy really isn’t in the same boat as Greece and Portugal,” Chowdhry explained.
He feels that people will continue to be nervous until there is much more clarity in terms of the activities of the ECB.
“Italy and Spain have been thrown into the mix and they are far bigger in magnitude than Greece, Ireland and Portugal. This could be a true systemic crisis,” said Andrew Lim, analyst at Espirito Santo in London.
Italian 10-year government bond yields broke above 6% for the first time since 1997. The euro hit four-month lows of USD 1.3837 and fell even more sharply to a record low against the safe-haven Swiss franc.
About three shares declined for every one share advanced on the National Stock Exchange. Total traded turnover reported by exchanges was nearly Rs 1.7 lakh crore.