Rising CPI dashes rate-cut hope; Sensex ends 301 points lower

Benchmark indices ended lower by over 1% weighed down by rate-sensitive sectors after acceleration in April CPI triggered speculation that the Reserve Bank of India would keep key policy rates on hold at its policy review next month. The RBI next undertakes monetary policy review on June 7, 2016. Weak global cues also weighed market sentiment.

April CPI was a higher than expected 5.39%, on the back of a large jump in food prices, snapping a three-month downtrend whereas March India's industrial output rose by 0.1%, largely losing the momentum generated in February when it had risen by 2%, after a three-month fall.

The S&P BSE Sensex plunged 301 points to close at 25,490 and the Nifty50 fell 86 points to end at 7,815. Broader markets outperformed the benchmark indices and ended 0.3%-0.6%.

“Market would definitely recover and we expect 5%-10% rally if monsoon arises on time and performs well in the month of June. Corporate earnings cycles have also bottomed out and March quarter earnings are slightly better than December quarter.

Key macroeconomic numbers like IIP and CPI will definitely improve going forward if the monsoon turns out to be favorable. Investors should “buy on dips” and minimize exposure to leverage companies.

One should stay invested in quality mid-sized IT and pharma companies (which has lesser exposure to developed companies like US),” says G Chokkalingam, head of Equinomics Research & Advisory.

Among global peers, Asian shares fell on Friday after a rocky performance on Wall Street, while the yen hovered near two-week lows as traders wagered the Bank of Japan will add to its massive stimulus before too long.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.1%. Hong Kong shares slipped 1.2%. Chinese shares started the day in positive territory but quickly retreated, with the CSI 300 down 0.3% and the Shanghai Composite losing 0.3%.

Back home, Indian banks would have to make higher provisions for lending to large corporate borrowers above a certain level from next financial year, according to proposals published by the Reserve Bank of India (RBI) on Thursday.

Rate sensitive sectors like Banks, Auto and Realty witnessed sharp selling pressure after rise in consumer price inflation (CPI) dashed hopes of a rate cut by the Reserve Bank of India.

Financial shares like ICICI Bank, HDFC, SBI and HDFC plunged between 1%-3%. Among auto pack, M&M, Bajaj Auto and Hero Moto slipped between 1%-2%. Bank of Baroda slipped over 1% ahead of the Q4 numbers.

ICICI Bank is looking at consolidating its position in the overseas market by shrinking its equity investment in its subsidiaries in the United Kingdom and Canada.

Capital good majors like L&T and BHEL plummeted over 2% on sluggish IIP numbers.

Adani Ports slumped over 3% after the company reported lower than expected EBITDA (earnings before interest, taxes, depreciation and amortization) margin for the quarter ended March 2016 (Q4FY16).

Dr Reddy's Laboratories was down 1.5% after the pharma major reported an 85.6% fall in consolidated net profit to Rs 74.6 crore for the quarter ended March. The reasons include provisioning to write down receivables from Venezuela and increased tax expenses.

FMCG majors ended mixed on concerns that rise in consumer inflation is likely to hurt spending leading to lower volume growth going forward. Hindustan Unilever was down 3% while ITC ended on a positive note.

Shares of Bharti Airtel slipped over 2%. The telecom major would implement a benchmark of 1.5 per cent for call drops voluntarily, against the two per cent allowed under the Telecom Regulatory Authority of India (Trai)’s prescribed regulations for quality of services.

Among other shares, Crompton Greaves Consumer Electricals (CGCE) hit the upper circuit of 5% at Rs 135 on the NSE.

Shares of fertilizers companies rallied by up to 9% on the BSE. Gujarat Narmada Valley Fertilizers & Chemicals (GNFC), National Fertilizers and Deepak Fertilisers & Petrochemicals Corporation and Aries Agro hit their respective 52-week highs in intra-day trade.

Havells India gained almost 5% after MSCI included the stock in its India index.

Eicher Motors ended nearly 4% down after promoters sold more than 4% stake in the company through open market transaction.

Nestle India moved higher by 7% after the company’s operating performance in the March quarter improved on a sequential basis.

Manappuram Finance surged 19.3%, also its 52-week high on the BSE, after the company reported robust 87% year on year (YoY) growth in consolidated net profit at Rs 131 crore for the fourth quarter ended March 31, 2016 (Q4FY16).