Markets Fall 1%, Macquarie Downgrades HDFC

The Indian markets have reacted negatively to the WPI inflation numbers for May 2012, which came in as 7.55%. On a MoM basis, it has risen a bit. The markets are now in a confused mood. Investors do now know whether there will be a CRR cut or a Repo rate cut. Even if one expects some sort of a cut, the quantum is cannot be predicted. The situation has arisen due to the moderately high inflation but lower industrial growth. With the priority of the RBI being inflation, it is not clear what the stance of the RBI will be.

Amid this uncertainty, the markets dropped by over 1% today. Both the indices started falling after the inflation data was announced. Investors took this opportunity to book the profits in the scrip which they had bought after dismal IIP numbers.

Meanwhile, the Finance Minster has said that the inflation will remain around 6.5%-7.5% in the current fiscal. Despite this statement, the markets tanked heavily.

On the Asian indices, the sentiments remained weak with all key indices tanking heavy. Hang Seng was down over 1%. Shanghai was also down 0.99%.

The European markets are currently trading down by between 0.4%-0.6%. Italy has faced higher borrowing costs in the auction of its bonds. Meanwhile, the yield on Spain's 10-year government bonds reached an all-time high of 7% after the downgrade. In Europe, mobile phone manufacturer Nokia has announced that it will cut nearly 10000 jobs due to the poor Q2 show.

On the sectoral indices front, only IT and Teck were up, while all rest closed in negatives. Realty and Bankex, the rate sensitive sectors were down nearly 3%. Auto was also down 2%. Capital Goods and Power indices were down 2% each as more power projects are being delayed by the companies over the issues of fuel security.

In the Sensex, Infosys was up 1%. Cipla, ITC and Sterlite were marginally up. All other stocks were down with Tata Motors beaten over 4.5%. Shares of L&T, NTPC and Tata Power were down over 3%.

Among other stocks, Indiabulls Real Estate tanked 6.4% by closing. Unitech, Adani Ports and PNB were also down 5% each. in such negative environment MMTC was up 8%. Piramal Health was also up 4.4%. The shares of the Sensex company Housing Development Finance Corporation tanked 1.6%, and will tank further as the research house Macquarie has downgraded the stock.

The shares of 3I Infotech, Cinemax India and ACIL were trading at a 52-week low.

Moser Baer India surged nearly 3% over the restructuring of its convertible FCCBs which will be listed in Singapore.

Overall, the market breadth remained negative, with a total of 62% of traded stocks showing a decline on the BSE.

Going ahead, we believe that the markets will remain range bound due to uncertainty on the RBI's action on the monetary policy front.