Morning Cues: Weak monsoon casts shadow over Dalal Street

Worries of poor monsoons hit sentiment on Dalal Street yesterday, tipping the indices into the red as investors worried about the growth of the economy.

Despite a better-than-expected inflation figure, the Sensex and Nifty lost around 0.5% each to kick start the week on a soft note. The Sensex lost over 100 points to close at 17,103. Meanwhile, the Nifty dropped below the 5200, down 30 points.

Inflation numbers for the month June came in at a five-month low of 7.25% yesterday, however, continues to remain above the comfort level of the Reserve Bank of India. Governor Subbarao has made it clear about the fact that there will be no trade off between growth and inflation, and so there is yet no reason to cheer.

The big worry for us going forward will be the monsoons, which continue to be deficient. Director of the Indian Metrological Department SC Bhan has said that monsoon is expected to pick up post the July 20.

In more worrying news for the global economy, the International Monetary Fund cut its global growth forecast for 2013 to 3.9% from 4.1%, and warned that the outlook could dim further if policymakers in Europe do not act with enough force and speed to quell their region's debt crisis.

It also sharply revised down its growth projections for India to 6.1% this year from 6.9%, and chopped its 2013 forecast to 6.5% from 7.3%.

Stocks in News

Tata Steel has exited its stake in Dutch metals recycler HKS by selling its 50% stake to Euroscrap Alliance. The deal size has not been disclosed. Euroscrap Holding is a subsidiary of German recycling company TSR.

Public sector mining company Coal India will be in focus today as its board meet to decide on fuel supply agreements has been postponed to July 31. Sources indicate that government has issued directions to the Coal Ministry on FSA issues. The Prime Minister’s Office favours 80% trigger level for signing new FSAs, and there could relaxation on penalty for the first two years.

The sugar space may see some selling today after the government announced a 10% import duty on sugar.

In earnings to watch for, Axis Bank is set to report its first quarter earnings today. In a CNBC-TV18 poll, profits are seen to be under pressure due to higher provisioning, while net interest income growth is likely to sustain. Margins are expected to be under pressure as well due to higher cost of funds.

Exide reported a good set of numbers yesterday, however the stock ended 2% lower. Revenues came in higher than expected due to very strong volume growth in industry battery segment, and margins came in line with estimates

Also watch out for Tata Coffee in trade today. The company reported a net profit of Rs 32 crore versus Rs 13.6 crore on a year on year basis.

US Markets

US markets ended lower in light, choppy trading as ongoing worries over the slowing economy hit sentiment. All eyes are now on Fed chairman Ben Bernanke as he gives his semi-annual report before the Senate banking Committee today and House Committee on Wednesday. Investors will listen for any hints of further stimulus measures.

The Standard & Poor's 500 slipped 0.23% or 3 points to close at 1353. Meanwhile, the Dow and Nasdaq closed around 0.4% lower.

In earnings, Citigroup held small gains after the financial giant posted quarterly earnings that topped expectations. However, revenue came in slightly lower than expected.

Retail sales in the US declined for the third-consecutive month, slipping 0.5% in June. Analysts on average had expected a gain of 0.2%. Meanwhile, business inventories gained in May to USD 1.58 trillion.

European markets

European markets briefly extended losses after US retail sales fell for a third straight month in June. Banks and commodity companies were among the worst-performing sectors.

Currency corner

The euro reversed losses versus the dollar following poor retail sales data that boosted stimulus hopes. Meanwhile, it hit a three and a half year low against the sterling pound as investors fretted about the delay in making bailout funds accessible to troubled euro zone states.

The Indian rupee slipped to 55.31 to the dollar versus 55.15 on Friday.

Commodities

Brent crude prices rose above USD 103 per barrel, lifted by hopes that signs of a slowing economy will prompt stimulus measures, especially in China. Gold prices also saw some strength, gaining to USD 1590 per ounce, ahead of Federal Reserve chairman Ben Bernanke's congressional testimony.

Anisha Mappat
anisha.mappat@network18online.com