Sensex, Nifty close in red despite IIP surprise; autos zoom

Key equity benchmarks ended trade directionless on Wednesday, despite a better-than-expected October IIP number. The Sensex closed the session down 31.88 points or 0.16 percent at 19355.26, while the Nifty ended 18.00 points or 0.31 percent down at 5880.80.

Aided by smart recovery in manufacturing growth, factory output grew 8.2 percent in October compared with the 5 percent contraction recorded in the same month last year. Analysts polled by CNBC-TV18 had expected a rise of 4.5 percent in October output.

Mahindra and Mahindra was the top gainer on the Nifty today, after reports suggested that the auto major is looking to raise vehicle prices by over a percent. Bank of America Merril Lynch has raised its target on the stock to Rs 1,035, foreseeing a trend reversal in the tractor segment. Autos overall as a sector did well; Bajaj Auto up 2.57 percent and Hero Motocorp up 1.92 percent.

Shares Kingfisher Airlines and Jet Airways closed the session up close to 5 percent after CNBC-TV18 reported that Etihad executives are scheduled to meet Jet Airways and Kingfisher Airlines top officials. Sources told the channel that Etihad's senior executives have been favouring Jet, but decision in this regard is not yet finalised.

Other major gainers of the day were Reliance (up 1.53 percent) and Sun Pharma (up 1.35 percent).

Among the top losers of the day, HUL lost nearly over 2.5 percent after Unilever Indonesia announced the change in the rate of royalty to be paid to its parent company, Unilever. HUL currently pays a royalty of around a percent, which is a significantly lower than the 3.5-6 percent most other MNC subsidiaries pay to the parent company.

Other losers include the likes of BHEL (down 2.04 percent), GAIL (down 2.01 percent). Grasim (down 1.76 percent) and HDFC (down 1.74 percent).

But the big story of the day was that finally there seems to be some breakthrough in the banking bill logjam. Finance minister P Chidamabram told reporters today that the government and the opposition have reached an agreement on passing the bill in parliament. BJP sources too indicated the same.

Markets remained lacklustre as investors chose to stay on the sidelines despite better-than-expected October IIP number and news of an agreement between government and Opposition on the crucial Banking Bill. Both the 30-share Sensex and 50-share Nifty slipped into the red in late afternoon trade. At 14.13 pm, the BSE benchmark was trading down 48.10 points or 0.25% at 19339.04, and the Nifty was down 19.40 points or 0.33% at 5879.40. Europe was trading positive.

Many stocks from the Capital Goods space, like L&T (-1.41%), BHEL (-2.13%), and Crompton Greaves (-1.60%) blunted the markets. Auto, aviation and tech were among the positive contibutors to the Sensex. The agreement on Banking Bill cheered financials with HDFC Bank, PNB and IDFC trading up between 0.33% and 1.56%. On the losing side were India's top lender SBI and housing finance major HDFC; each lost 0.29% and 1.81%, respectively.

Meanwhile, market watchdog Sebi said guidelines to prevent flash-market crash will be in place within a few days.

After staying lacklustre for half a day, markets are likely to react positively to BJP chief LK Advani's statement that Opposition and the government have reached an agreement on Banking Bill. The implication of the news have started to impact stocks like M&M Financials (up 4.87%) and L&T Financial Holdings (4.95%), Shreeram Transport (1.23%) and Reliance Cap (2.76%). Bank Nifty rose 0.11%.

At 13.02 am , the Sensex was up 34.64 points or 0.18% at 19421.78, and the Nifty was up 7.05 points or 0.12% at 5905.85. Gitanjali Gems, Shoppers' Stop, KPIT Cummins gained above 2% each. Adhunik Metalik is the biggest smallcap gainer, rising above 12%.

Equity benchmarks made feeble attempt to move upward led by auto stocks, but stayed largely flat even as industrial output for the month of October numbers surprised on the upside. October IIP expanded at robust 8.2% versus an expectation of 4.5%, which is a distinctive improvement. At 11.06 am, the Sensex was up 60.89 points or 0.31% at 19448.03, and the Nifty was up 17.70 points or 0.30% at 5916.50. Rupee appreciated significantly to touch 54.15 to a dollar.

Top Sensex gainers were Mahindra and Mahindra (up 2/27%), Hero Motocorp (1.64%), Sun Pharma (1.39%), BHEL (1.29%) and Bajaj Auto (1.27%). Banking stocks like HDFC Bank, SBI and  ICICI Bank remained in focus, gaining between 0.45% and 0.6%, as Parliament takes up  Banking Laws Amendment Bill for discussion. Real action, however, was seen in broader markets with midcap stocks trading with big gains and big volumes.

Rest of Asia appears strong with Hang Seng and Australia trading at 16-month highs.  Meanwhile, the Federal Reserve is expected to announce a fresh round of bond buying on Wednesday as part of its efforts to support a fragile economic recovery.

Key equity indices were up in early trade Wednesday, even as near term outlook remains hazy in the absence of any improvement in macro-economic indicators.

 Also, rating agency Standard & Poor's on Tuesday cautioned that India faced a one-in-three chance of rating downgrade in the next two years, in case the government failed to push reforms.

The Sensex was up 48 points at 19435, and the Nifty was up 10 points at 5909.

Shares of IT and auto companies led early gainers, with TCS, Wipro, Infosys, Hero Motocorp and Bajaj Auto up around 1 percent each. Power utilities and bank shares were slightly down.

Brokers see the market consolidating around these levels for the next few sessions, and said further upsides would be driven by sentiment and liquidity, rather than fundamentals.

Equity benchmarks have risen by a better-than-expected 25 percent so far this calendar, as investors are hopeful that the government will be able to revive the economy through some key reform measures.

But not everybody is as optimistic.

"In our view, market returns in CY2013 will depend on the interplay between (1) reforms, which the Government may or may not be in a position to implement and (2) the reality of the Indian economy and earnings," said a note by brokerage house Kotak Securities.

Among secondline IT services firms, Satyam Computer and Tech Mahindra were up around 5 percent each.

Laggards in the banking space included Union Bank of India, Bank of India, IndusInd Bank, Yes Bank, Axis Bank and Bank of Baroda, all of which were down around 1 percent each.

Bank shares had rallied on Monday on hopes that the Banking Laws Amendment Bill would be passed without too many hurdles. However, there is some uncertainty over it, with the Opposition protesting against the inclusion of a new clause in the Bill.

Jet shares were up over 3 percent amid media conflicting reports on whether the proposed stake sale to Gulf carrier Etihad would go through.