Market drops on Fed rate hike fears

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Fears that the US central bank may resume raising interest rates in the United States as early as next month pulled global stocks lower and Indian markets followed suit. The barometer index, the S&P Sensex, lost 347.22 points or 1.35% at 25,357.39, as per the provisional closing data. The losses for the 50 index were lower than those for the in percentage terms. The Nifty lost 86.75 points or 1.1% at 7,783.40, as per the provisional closing data. After hovering in negative almost throughout the trading session, the Sensex and the Nifty extended losses in late trade. The Nifty hit its lowest level in more than a week.

World stocks edged lower after minutes from the US Federal Reserve’s April policy meeting signalled the US central bank could raise rates as soon as next month if data supported the case that the American economy is getting stronger. The Federal Open Market Committee (FOMC) next undertakes monetary policy review on 14-15 June 2016. Investors in emerging markets, including India are worried that higher interest rates in the US will drain liquidity from emerging markets and redirect it to developed economies. The US central bank had lifted rates in December 2015 for the first time in nearly a decade.

The Sensex dropped 352.62 points or 1.37% at the day’s low of 25,351.99 in late trade, its lowest level since 16 May 2016. The barometer index rose 9.95 points or 0.03% at the day’s high of 25,714.56 at the onset of trading session. The Nifty lost 103.35 points or 1.31% at the day’s low of 7,766.80 in late trade, its lowest level since 9 May 2016. The index rose 6.05 points or 0.07% at the day’s high of 7,876.20 at the onset of trading session.

The market breadth indicating the overall health of the market was weak. On BSE, 1,632 shares fell and 916 shares rose. A total of 164 shares were unchanged. The BSE Mid-Cap index was provisionally down 1.12%. The BSE Small-Cap index was provisionally down 1.01%. The fall in both these indices was lower than the Sensex’s decline in percentage terms.

The total turnover on BSE amounted to Rs 5094 crore, higher than turnover of Rs 2613.94 crore registered during the previous trading session.

In overseas stock markets, Asian and European stocks edged lower after minutes from the US Federal Reserve’s April policy meeting signalled the US central bank could raise rates as soon as next month if data supported the case that the American economy is getting stronger. US stocks finished little-changed after seeing high intraday volatility yesterday, 18 May 2016, after minutes from the Federal Reserve’s April 26-27 meeting indicated that most of its members are ready to lift rates as early as June if economic data points to stronger US second-quarter economic growth along with higher inflation and employment. Expectations of a rate hike soared after the release of the minutes yesterday, 18 May 2016. The Fed funds futures market is now pricing in a roughly 34% chance of a rate hike at the Federal Open Market Committee’s (FOMC) next monetary policy meeting on 14-15 June 2016. Ahead of the release of the minutes, futures prices had indicated a June rate hike was unlikely. The US central bank had lifted rates in December 2015 for the first time in nearly a decade.

Index heavyweight and housing finance major HDFC lost 2.75% to Rs 1,175. The stock hit high of Rs 1,208.05 and low of Rs 1,173.50 in intraday trade.

Index heavyweight and cigarette major ITC fell 2.36% to Rs 325. The stock hit a high of Rs 332.85 and low of Rs 323.10 in intraday trade.

Adani Ports and Special Economic Zone (APSEZ) lost 6.23% after global ratings firm lowered outlook on the company’s Baa3 issuer and senior unsecured rating to negative from stable. The change in APSEZ’s ratings outlook to negative reflects the company’s lower volume growth, mainly due to lower coal volumes and an increase in capital expenditure and financial leverage compared to Moody’s previous expectations. The sharp decline in coal cargo for APSEZ’s ports due to reduction in coal imports by India, together with some state-owned utilities shifting their cargo to government owned ports is likely to have material impact on the growth trajectory of APSEZ, the global ratings agency said. The announcement was made during market hours today, 19 May 2016.

Pharma major Lupin rose 0.59% after consolidated net profit rose 47.5% to Rs 807.10 crore on 34% growth in net sales to Rs 4091.30 crore in Q4 March 2016 over Q4 March 2015. The Q4 March 2016 results are not strictly comparable with Q4 March 2015 results due to the acquisition of GAVIS Pharmaceuticals LLC, USA, Novel Laboratories, Inc., USA and VGS Holdings, Inc., USA (GAVIS) with effect from 8 March 2016. Lupin announced the fourth quarter results during market hours today, 19 May 2016.

Commenting on the company’s financial performance, Nilesh Gupta, Managing Director of Lupin said that Q4 March 2016 witnessed robust growth across all key markets. Record approvals and significant launches have enabled Lupin to deliver its best results yet and the company is back on the growth path, Gupta said. He said that the company will continue to ramp up its investments in research and is focused on building pipelines in niche high-value areas such as inhalation, biosimilars and complex injectables.

Castrol India fell 2.36% to Rs 376.15 after its UK-based parent Castrol Limited UK sold 5.68 crore shares or 11.5% stake in the company via open market transactions today, 19 May 2016. The stock hit a high of Rs 381 and a low of Rs 364.40 in intraday trade. The counter clocked huge volume of 6.79 crore shares on BSE as compared with two-week average daily volume of 1.71 lakh shares. After the latest share sale, Castrol Limited UK’s stake in Castrol India has declined to 59.42% from 70.92%.

Shares of Parag Milk Foods provisionally settled at Rs 248, a premium of 15.34% over the initial public offer price of Rs 215. The stock debuted at Rs 215.70, a premium of 0.33% over the initial public offer (IPO) price. The stock hit a high of Rs 250 and low of Rs 215.70 in intraday trade. On BSE, 44.25 lakh shares were traded on the counter. Parag Milk Foods is one of the leading manufacturers and marketers of dairy-based branded foods in India.

On the political front, the trends announced so far for assembly elections in Assam showed that Bharatiya Janata Party (BJP), Asom Gana Parishad and Bodoland People’s Front alliance was set to form government in the state dislodging Congress, which has ruled the state for three consecutive terms. The trends for the assembly elections in West Bengal showed that Chief Minister Mamata Banerjee was all set to retain power in the state with her party Trinamool Congress heading for an emphatic victory. In Tamil Nadu, the trends showed that All India Anna Dravida Munnetra Kazhagam (AIADMK) was set to retain power in the state. In Kerala, the trends showed that the Communist Party of India-Marxist (CPM)-led Left Democratic Front (LDF) was set to oust Congress led United Democratic Front government. The counting of votes for the assembly elections in these four states is underway with final results expected later in the day. The Congress-DMK alliance has emerged victorious in the election for the Union territory of Puducherry.

A win for the BJP led coalition in Assam will put BJP in the right shape for the 2017 assembly election in Uttar Pradesh (UP). The UP assembly has 403 seats. The number of seats in Rajya Sabha, or the upper house of parliament, depends on representation in states. A lack of a majority for the BJP led National Democratic Alliance (NDA) in the Rajya Sabha has delayed passage of a key tax reform bill viz. the Goods and Services Tax (GST) bill in the upper house. The NDA rules the central government after an emphatic victory in the 2014 Lok Sabha election.

Finance Minister Arun Jaitley said in an interview to All India Radio recently that the GST Bill will be put to vote in the monsoon session of Parliament if Congress continues to oppose the Legislation. The GST bill, which has been approved by the Lok Sabha, is pending in the Rajya Sabha because of stiff resistance by the Congress. For the GST bill to become a law, the GST bill also needs to be approved by half the state assemblies.