Nifty falters ahead of F&O expiry...Ends below 5200

The Indian stock markets weakened ahead of the F&O expiry on Thursday, as market players remained wary of near-term prospects amid a spate of headwinds. The undercurrent continues to be jittery over the impact of the proposed GAAR tax regulations on FII investments through Mauritius and via Participatory Notes (PNs). Barring a brief period in the morning session, the indices were under pressure almost throughout the session. As usual, the selling accelerated in the afternoon, with the benchmarks hitting new lows before recovering by the close of trade. Reported clarifications on GAAR tax regulations and soothing words from the FM on the vexed issue may have calmed some frayed nerves. However, the uncertainties do not end here. As a result, the market is unlikely to heave a sigh of relief until the matter is settled. The sudden drop in FII inflows in the past couple of sessions is testimony of escalating tension on the GAAR issue. The BSE Sensex ended at 17,122, down 135 points or ~0.8% over the previous close. It had earlier touched a day’s low of 17,040 and a day’s high of 17,245. It opened at 17,234. The NSE Nifty settled at 5,194, down 48 points or 1% over the previous close. It earlier touched a day’s low of 5,170 and day’s high of 5,236. The INDIA VIX on the NSE ended lower by 0.7% at 24.87. It hit day's high of 25.83. It hit a day's low of 24.82. Among the BSE sectoral indices, the Consumer Durables index was the top loser, down 3.3%. The Banking index lost 1.8%. The PSU index was down 1.6% and the Realty index ended lower by 1.6%. FMCG and Pharma managed slim gains of 0.3% and 0.2% respectively. The BSE Mid-Cap index lost 0.9% and the BSE Small-Cap index fell by 1%. Out of the 50 stocks in the Sensex, notable losers were Hindalco, ONGC, Sterlite, SBI, ICICI Bank, NTPC, Bajaj Auto and Sun Pharma. Among the top gainers were Maruti, Tata Steel, Wipro, ITC, L&T and DLF. Also adding to the pressure was the Government's borrowing programme for H1 FY13. The benchmark 10-year yield inched higher after the Centre said that it will sell 65% of FY13 debt by the end of September. The Union Government plans to raise Rs 3.7 trillion through bond sales during April-September 2012. The amount is in line with bond traders' expectations of Rs 3.6 trillion to Rs 3.8 trillion. The announcement came after market hours on Tuesday. In FY12, the Government had increased its borrowing amount twice to Rs 5.1 trillion from an initial budget estimate of Rs 4.17 trillion. The Centre plans to reduce its budget deficit to 5.1% of GDP from an estimated 5.9% in FY12 that ends on March 31, Mukherjee said on March 16. The high Government borrowings, coupled with elevated crude oil prices, limited pass-through in domestic fuel prices, an inflationary Budget and high fiscal deficit might prompt the RBI to hold interest rates steady at its April 17 policy meeting. "On the whole, the undertone in the Indian market remains nervous and a fresh bout of selling is not ruled out. At the same time, upside seems capped from here given the plethora of problems the Indian market is confronting. Volatility may increase before Thursday’s F&O expiry. The 200 DMA at around 5160 levels becomes a very important level to watch," says Amar Ambani, Head of Research, IIFL. The cautious trend in India was in sync with the weakness in other Asian markets. In fact, the Chinese market took a severe beating in late trading, with the Shanghai Composite index down ~2.5% on worries about economic slowdown there. Most other Asian markets finished in the red but the S&P/ASX 200 index in Australia rose by ~1%. The sell-off in China today came a day after official data showed that net income at the nation's largest industrial groups dropped 5% in the first two months of the year. Mining and metal stocks were among the hardest hit today. European stock markets were pretty choppy and indecisive today. The Stoxx Europe 600 index was down 0.1%. The FTSE 100 index in the UK was trading a tad lower after swinging back and forth. Indices in Germany, France and the UK were more or less steady.