Sensex falls over 3% in July, biggest monthly fall since Jan

A slew of negatives weighed on markets in July, which include US & Europe debt crisis, poor results, weak IIP data, high inflation numbers and RBI’s hawkish stance.

Major news for the month

Infosys Q1 consolidated net profit up 16% to Rs1,722 crore

May IIP at 5.6%

Inflation in June at 9.44% versus 9.06%

HDFC Bank Q1 net profit up 34% to Rs1,085 crore

TCS Q1 net profit at Rs2,380 crore

RBI hikes repo, repo");'> reverse repo by 50 bps

Wipro Q1 consolidated net profit up 1% to Rs1,335 crore

RIL Q1 net profit up 17% to Rs5,661 crore

ICICI Bank Q1 consolidated net profit soars 53% to Rs1,667 crore



Indian indices

The Indian markets remained jittery in July over a spate of domestic and global headwinds. Weakest growth in the US jobs in nine months, debt crisis in the Europe & US and back-to-back warnings on the US debt situation by Moody's and S&P kept investors nervous.

Macro economic data back home also appeared to be a dampener on the markets. Industrial growth fell to a nine-month low of 5.6% and June inflation rose to 9.4%. Inflation has always remained the top priority of the Reserve Bank of India ( RBI) and so it chose to raise key rates by 50 basis points in its policy review on Tuesday (July 26, 2011). It stunned investors by raising higher-than-expected rates and indicated it would continue with its anti-inflationary stance despite slowing growth in Asia's third-largest economy and uncertain global demand. Concerns that higher interest rates will pinch corporate profit growth and hurt Indian economy added to the negative tone.

On earnings front, corporate results so far have been mixed with disappointments outnumbering surprises. The results of major companies like Infosys, Wipro, RIL, Crompton Greaves, ONGC failed to lift sentiments, while HDFC Bank, TCS and ICICI Bank soothed markets.

On Wednesday (July 13, 2011), three bomb blasts rocked India's largest city, Mumbai, in congested areas during the evening rush hour.

However, markets also received some positive news. Chinese Q2 June 2011 GDP rose stronger-than-expected. Investors breathed a sigh of relief after the second bailout deal for Greece and plans by the European Union to prevent the spread of the sovereign debt crisis. European leaders agreed at an emergency summit in Brussels on a 109 billion euro ($155 billion) bailout from the European Union and IMF - the second for Greece - while private firms will also roll over their bonds and extend their repayment period.

The Sensex hit the monthly high of 19132 and the low of 18132 to close lower by 649 points or 3.44%, at 18197. The Nifty hit the monthly high of 5740 and the low of 5454 to shut 165 points or 2.93% down, at 5482. During the month of July, the Sensex and the Nifty swung 1000 points and 286 points respectively. The Sensex registered its biggest monthly fall since January.

Global indices

Except Nikkei up by 0.17% and Hang Seng up by 0.19%, all the major world indices ended the month lower. CAC 40 was the biggest loser of the month declining by 7.81%, following that Sensex down by 3.44% and Dax 100 lost by 2.95%.

Sectoral and stock screening

Nine sectors closed lower and four went up in July. Major gainers - BSE Consumer Durables (CD) surged by 1.53%, BSE Fast Moving Consumer Goods (FMCG) rose by 1.18% and BSE Realty advanced by 1.07%. Major losers - BSE Metal tumbled by 6.94%, BSE Capital Goods (CG) lost by 6.54% and BSE Power slipped by 5.98%.

Among 'A' group stocks, top three gainers of the month - Petronet LNG surged by 26.87%, SKS Microfinance rose by 18.76% and Idea Cellular gained by 18.31%. Top three losers of the month - Crompton Greaves declined by 34.72%, Lanco Infratech slid by 23.45% and Adani Enterprises lost by 17.75%.

FII/MF activity

The foreign Institutional investors (FIIs) were the net buyers of Indian stocks to the tune of Rs8030.1 crore in July, substantially higher than net buy of Rs4,571.9 crore seen in June. The domestic institutional investors (DIIs) were the net buyers of Indian shares to the tune of Rs679.8 crore in July versus net buy of Rs1,201.1 crore in June.

Market Outlook

Both domestic macro environment and global cues continued to remain challenging for the equity markets. The Q1 result season has also not aided sentiments, with continued downward revision in earnings estimates due to intense margin pressure and rising interest burden. Globally, the slowdown concerns and fragile economic conditions would keep the news flow mixed at best. However, the valuations are much more reasonable now and markets could continue to consolidate in its 500-odd points Nifty range. Such conditions are conducive for stock pickers to explore value in the Mid-cap space. Also, volatility in within a range is favourable for a smart trader.