CPI Data Pushes Markets Lower

The markets have been hovering around the opening levels today, trading a tad higher and lower at different times. We believe that the markets are in a consolidation phase after having gained tremendously over the last week and on Monday.

The CPI data has just come in, pushing the markets lower than its range. The CPI figure for Aug 2012 has come in at 10.03% YoY, which is again beyond the comfort zone of the RBI. This figure for the month of July stood at 9.68% which marks no easing in inflation. With this, the Sensex is trading lower by 54.60 points or or 0.29% at 18487.71 and Nifty is trading lower by 16.10 points or 0.29% at 5593.9.

The Asian markets opened negative today and have been following the trend ever since. Hang Seng, Nikkei and Shanghai are currently trading lower by 0.06%, 0.39% and 0.94% respectively. This downtrend has been on the back of the weakened outlook on China as also the rising tension between China and Japan. Investor confidence is being weighed down heavily by these concerns. Reports say that there was an increase in the number of closures at Japanese factories in China pressured by anti-Japanese protests on the anniversary of the Mukden Incident, which marks the Japanese invasion in China in 1931. Auto makers Toyota and Honda have halted their operations and Seven & I and Fast Retailing have closed their stores, taking the markets lower.

Europe too opened lower today, pressured by the oil and banking majors. Yesterday too, the stocks were seen trading lower on worries over China's outlook. Since there are issues between two largely linked economies, it adds to concerns over the individual growth of China. These pressures have seen the FTSE, DAX and CAC opening lower by 0.4%, 0.7% and 0.6% respectively.

On the domestic front, the delayed monsoon took a toll on food prices, which is evident from the sub-indices data in the CPI. Food prices for consumers have accelerated to 12.03% in Aug 2012 as compared to 11.53% in July. With CPI and WPI data both showing a spike over July, the chances of a key rate reduction from the RBI seems less likely until there is some improvement.

The rupee had gained considerably yesterday and had broken the 54/dollar barrier. Today, however, a feeble opening for the markets and the dollar’s gains against the euro in the global markets led to a weaker rupee, which was seen trading at 54.28/dollar.

In the domestic markets, while the Sensex is trading lower, midcaps and smallcaps are trading higher by 0.75% and 0.69% respectively. Among the sectors, PSU, Power and FMCG are the top gainers, up by 0.99%, 0.85% and 0.71% respectively. Banks are major movers in the PSU sector, which have been boosted due to a cut in the CRR announced by the RBI yesterday. Oil & Gas is trading lower by 1.28%.

We expect the markets to remain low and range-bound today, as consolidation would keep the markets from showing gains.