Sensex slides on IIP shock...Outlook stays hazy

There is no end in sight to the ongoing selloff in the Indian equities at the moment, as the Government continues to dither on key reforms and the central bank is running out of options to shore up the markets. The outcome is deteriorating economic fundamentals, weak business environment, pressure on corporate earnings, FII outflows and further dent in India's credibility. Indian markets fell yet again on Friday, extending the losing streak to a fourth straight session and notching up losses for another week. The weakness in the Indian equities is continuation of the slowdown in momentum witnessed since the announcement of the Union Budget. The controversy surrounding GAAR provisions for FII investments through tax havens and the long-running tax dispute with Vodafone have prompted FIIs to take a cautious view of the Indian markets for the time being. Widening trade deficit and dwindling capital flows have sent the Rupee sliding as well. The gallant efforts by the RBI to support the local currency have not yielded the desired results either. If all this was not enough, traders and investors got another rude shock today in the form of yet another bad IIP data. Markets hit intra-day lows after Government data revealed that industrial production growth decelerated sharply in March. The combined output of factories, mines and power utilities, as measured by the index of industrial production (IIP), contracted by 3.5% in March as against a 4.1% growth in February. Finally, the BSE Sensex ended at 16,292, down 127 points. It had earlier touched a day's high of 16,447 and a day's low of 16,233. It opened at 16,355. The NSE Nifty closed at 4,923, down 37 points. It hit intra-day high of 4976 and low of 4906. It opened at 4939. The India Volatility Index, or VIX slipped was down by 1.1% and closed at 22.48. It hit an intra-day high of 23.93 and intra-day low of 22.35. Market breath was weak, on the BSE, 1772 stocks declined while to 981 shares declined; only 118 stocks remained unchanged. Among the broader indices, the BSE Small-Cap and Mid-Cap index was down 0.9% and 0.8% respectively. Among the BSE sectoral indices, the rate sensitive Auto sector was the only gainer, up 0.6% on the hope of interest rate action by the Reserve Bank of India following dismal IIP numbers. The BSE Bankex index ended flat. On the other hand, Pharma led the pack of declining sectors, down 2%. It was followed by Power, FMCG, Metals, IT, PSU, Capital Goods and Teck. Top gainers on the BSE Sensex and NSE Nifty were JP Associates, Bajaj Auto, Tata Motors, Sesa Goa, IDFC, Axis Bank and Bank of Baroda. Top losing stocks of both the indices were Tata Power, Grasim Inds, Sun Pharma, Ranbaxy Labs, Hindalco Inds, ACC, Cipla, Coal India, Siemens, Ambuja Cements, Maruti Suzuki, ITC, ONGC, Wipro, Infosys and L&T. Markets did manage to stage a minor recovery later in the day but the same fizzled out amid lack of buying support at lower levels. Traders and investors are looking to sell on every rise as the near-term prospects don't look like improving in a jiffy. Technically, on the daily charts, the Nifty continued to trade below the 200 DMA for the fourth session in a row. The current downtrend could worsen if the Nifty breaks below 4925. "The downbeat IIP report for March raises concerns about the strength of India's economy and steps up pressure on the policymakers to take further steps for boosting the investment climate. It will also be interesting to see what stance does the RBI take as far as interest rates are concerned. The central bank has indicated that it will not cut rates aggressively as inflation remains sticky and fiscal deficit is also quite high. The political turmoil in the debt-strapped eurozone, coupled with economic slowdown in the US and China are among the other pressure points hurting our markets. All in all, the backdrop is not very conducive for the equity market at this juncture. One must remain vigilant and cautious in the near term as we do not rule out further worsening of sentiment from here onwards," says Amar Ambani, Head of Research, IIFL.