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July 2011

Equity markets continued their downside in the month of May with the benchmark S&P CNX NIFTY declining 3.3% over the month. Domestic markets fell on weak domestic cues starting with a higher-than-expected rate hike of 50 bps by the RBI in its Annual Monetary Policy for FY12 on May 3. Later in the month, concerns of rising inflation especially after the government allowed state-owned oil marketing companies to hike petrol prices by Rs 5 per litre dragged markets down. Markets were also affected by basket selling by foreign institutional investors (FIIs) on concerns over India's high inflation rate and weak corporate earnings. FIIs turned sellers to the tune of Rs 5,158cr in the month of May, as compared to a buying of Rs 7,019 cr in April. Some losses for the markets however got capped on stock-specific movement driven mainly by strong corporate earnings report such as of index major L&T. Indices also rose after election results in four states and one Union Territory on May 13 raised hopes of political stability and development. Short covering ahead of May derivatives contract expiry and intermittent fall in crude oil prices also helped the market erase some losses in the month.




Among sectoral indices, the auto sector was the worst hit in the month with the BSE Auto Index falling over 6.5% due to concerns over higher interest rates, high fuel prices and rising commodity prices. BSE Metal Index declined around 5% in the month as metal stocks fell mainly due to disappointing results of most major metal players. SAIL reported a 28% decline and Hindalco reported a 37% decline in the bottom line for FY11 due to rise in input costs. BSE Oil & Gas Index fell by 4.1% during the month after the government increased the contribution of upstream oil companies toward fuel subsidies to 38.8 % from 33% for 2010-11 fiscal  to compensate for the under recoveries incurred on account of selling petroleum products below cost prices by state run oil marketing companies (OMCs). Also, there were concerns over the delay in the ramp up of natural gas output from Reliance Industries’ KG-D6 field. BSE Bankex fell over 4.1% in the month due to the continuing monetary tightening by the RBI and as index major SBI reported disappointing numbers with its fourth quarter profits plunging 99% due to higher provision expense for teaser loans and pension liabilities.

 

Among the few sectoral gainers, BSE FMCG index and BSE Healthcare index rose the most, up 2.6% and 2.4% respectively, as investors preferred to take defensive bets due to the ongoing volatility in the markets. Ranbaxy Laboratories emerged as the topmost individual gainer on Nifty, up around 21% in the month, while Hindustan Unilever Ltd. gained around 7%.

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