Markets weak as commodity stocks decline

02 June 2005

Markets were disheartened today by more dilly dallying on the part of the government and political manoeuvring by the Left parties on the fuel price hike and disinvestment. After opening marginally firm, front line stocks set on a path of steady decline for the rest of the day.

A sharp increase in crude prices yesterday weighed in on most oil stocks as they continue to lose more money in the absence of a price revision. Metal stocks continued to remain weak today as well.

Some of the FMCG stocks like HLL and ITC and auto stocks which had posted excellent gains in the past few days lost ground on profit booking, adding to the overall weakness. To make matters worse, IT stocks also were subdued.

Sensex closed at 6656, down 74 points and the Nifty at 2065, down 23 points. Nifty June futures discount to the spot widened to 28 points from yesterday's 24 points.

Among Nifty stocks, L&T, Colgate and Tata Tea were the major percentage gainers while Hindalco, Ranbaxy and TCS were the major losers.

Yesterday, US markets brushed aside soaring crude prices and managed to close with good gains. Though the manufacturing output data was weaker than expected, traders were encouraged by lower inflation outlook. Lower inflation would mean return of the ever persistent hope for lower interest rate hikes by the US Fed. NASDAQ gained close to a per cent. The gains on the Dow were marginally lower.

Crude futures for July delivery shot up over 4 per cent yesterday and closed in on the $55-mark. The surge was caused by relatively insignificant news of a rupture in a Texas refinery pipeline. Traders are awaiting weekly US inventory figures today. Oil stocks made smart gains on the surge in crude prices.

Indian ADR's generally had a good day yesterday. IT stocks witnessed a mixed trend with Satyam and Wipro closing with gains while Infosys lost ground. Tata Motors were the star performer with gains of over 5 per cent followed by ICICI Bank at close to 2 per cent. MTNL, VSNL, HDFC Bank and Dr. Reddy's all closed with gains.

The oil price hike was once again postponed as intense political lobbying continues. It was widely reported that a price hike will be announced today following the meeting of Left parties with the prime minister. Today, yet another series of meetings were announced as the government tries to lower the political costs of the fuel price hike.

After giving some indication that they may allow the government to go ahead with the BHEL disinvestment plan, the left parties turned around again today and asked the government to reconsider the decision.

Ranbaxy denied reports that the company has reached a settlement with multinational pharma company Pfizer on a patent dispute. There were market rumours about a settlement under which Ranbaxy would withdraw its patent challenge in return for a payment of $90 million. The stock closed nearly 3 per cent lower.

Cement companies continue to report excellent shipment volumes month after month. Ultratech, formerly L&T cement, reported a 15 per cent jump in May shipments to over 1.25 million tonnes. Grasim and ACC also reported around 10 per cent growth in May shipments. Gujarat Ambuja reported a growth of close to 5 per cent. However, most cement stocks closed in the negative.

Metal stocks continued their decline after yesterday's price cuts in steel and aluminium prices. Analysts expect prices to come down further in the short term as global inventories have risen. Tata Steel and SAIL both lost over 2 per cent each. Hindalco lost over 3 per cent. The BSE metal index lost over 2 per cent.

Maruti continued to decline after reporting disappointing sales volumes for the month of May. Yesterday, the company had reported a 4 per cent decline in May sales volumes. Its main competitor Hyundai India announced today that it will launch a new version of its premium hatchback model Getz to take on Maruti's new model Swift. The stock closed 2 per cent lower.