Indian Equities To Extend Losing Streak

Volatility persisted on the street and leading benchmark indices witnessed another red closing yesterday.  Benchmark share indices ended lower, amid a volatile trading session, with IT majors declining the most after INR appreciated against the USD and lower revenue growth guidance from by unlisted It major Cognizant. Apart from that the global cues were also negative with geo-political factors affecting the equity markets. With global equities losing shine, Indian equities also followed the same trend. After consistently declining over the past few trading session, yesterday the Sensex lost 76 points to close at 25,589 while the CNX Nifty shed 23 points to end at 7,649. The broader markets ended in line with the large counterparts. BSE Midcap and Smallcap indices slipped by 0.5%, each.

If we take a look at reasons behind significant crack in IT index reduction in guidance by fast growing Cognizant. Fransisco D’Souza categorically stated that “Due to weakness at certain clients and longer-than-anticipated sales cycles for certain large integrated deals, we are adopting a more conservative stance for the remainder of the year and revising our 2014 revenue guidance to growth of at least 14% over the prior year, while maintaining our full year non-GAAP EPS guidance of USD 2.54”. The company had earlier projected a growth rate of 16.5%. The revised guidance would mean that Cognizant will be growing at its slowest ever in its 20-year history. As on the INR front, INR was trading stronger at 61.30/31 versus its Wednesday's close of 61.4950/5050, tracking the dollar's losses versus major currencies.

US equities also declined further, sending the Dow Jones Industrial Average to the lowest level since April. Reason behind the same was quite clear, concern that the Ukraine conflict is escalating offset better-than-estimated earnings and a drop in American jobless claims. The Standard & Poor’s 500 Index fell 0.6 % to 1909.57, closing below its average price for the past 100 days for the first time since April. The Dow also dropped 75.07 points, or 0.5 %, to 16368.27, close to its 200-day moving average. We are of the opinion that, with Ukraine- Russia tussle re-emerging equity assets are likely to remain under pressure.

In line with US markets Asian equity indices also witnessed a drop (with the regional benchmark index heading for a seven-week low) as U.S. President Barack Obama authorized an air strikes in Iraq. In addition European Central Bank President Mario Draghi said the risks to a recovery from conflicts including that in Ukraine are increasing. Headwinds facing the 18-nation euro area’s recovery are intensifying after Italy slipped back into recession and the standoff between Russia and the US and its allies escalated into the worst such conflict since the cold war.

Nikkei is trading in red with a loss of almost 3%. Even Taiwan and KOSPI are trading in red with cuts of more than 1%. Even Hang Seng and Shanghai Composite are trading down by 0.70% and 0.10% respectively.

SGX Nifty is trading in red and the losses have increased in last few minutes of trading. SGX Nifty is trading below the 7600 mark (Down 71 points) down almost 1%. Considering all the above factors we expect the Indian equities to open in red and then witness further decline as the day progresses.