Sensex falls 170; RBI remark on inflation rattles buyers

Equity benchmarks tumbled Wednesday, as investors chose to take some money off the table thinking the market to have topped out for the time being. Also, RBI governor D Subbarao's statement that inflation was still high is being viewed as a signal that the stock market cannot take a interest rate cut on January 29 for granted.

The Sensex fell 169.19 points to close at 19978.19, and the Nifty declined 54.75 points to close at 6001.85.

The slide was broad-based with second line shares falling as much as their frontline counterparts.

The big losers were from the banking, metal and auto sectors. Shares in the IT, healthcare and FMCG sectors were under pressure, but fell the least compared to other industries.

Decent third quarter numbers from Bajaj Auto and Yes Bank failed to lift sentiment, as investors appear to be fretting if the high valuations can sustain in the absence of any macro-economic triggers.

Among key losers of the day, Reliance Communications, Hindalco, Unitech, Pantaloon Retail and Sun TV fell between 3-6 percent.

"The market has become pretty expensive," said Sanjeev Prasad of Kotak Institututional Equities, in an interview to CNBC-TV18.

"The Sensex on a free float basis is now trading almost above 15 times March 2014 earnings. If you look at December 2011, this market was trading at above 11.5 times March 2013 EPS. So clearly, there has been big re-rating of the market without much change in fundamentals,'' said Prasad, who is advising clients to book profits.

According to a Bank of America Merrill Lynch survey, investors putting money in BRIC (Brazil Russia India China) funds have turned modestly overweight on India. But at the Asia-Pacific leve, Australia, India and the Philippines (net 11% underweight) were tied as the least favored regions in January.

Brokers see limited chances of any major earnings disappointment as expectations are quite low. But playing on the back of investors is the bitter reality that there are no visible signs of the economy recovery. Also, a sizeable chunk of the money has come through foreign funds, making the market vulnerable to any adverse events globally.

The market continued its losing streak in late afternoon trade. Losing around 90 points, the Sensex was down at 19894.68 while the Nifty fell 32 points at 6024.05. Both autos and banks also remained weak.

However, overall sentiment on Indian market is gradually changing, according to Bank of America-Merrill Lynch's survey of fund managers . It says that emerging market investors have adopted "a modest overweight" position on Indian shares for the first time since July 2010. However, among Asia-Pacific investors, India was among the least favoured region, alongside Australia and Philippines, according to the BofA-ML survey.

Meanwhile, top losers on the index are Tata Motors, Jindal Steel, M&M, Maruti and Hindalco slipping almost 2 percent each.

Unimpressed by the Bajaj Auto's third quarter earnings , the street rubbed a shoulder to the stock as it fell sharply. However, it regained quickly after a bit of struggle narrowing the lose to only 0.6%. India's second largest two-wheeler producer's net profit rose 3 percent year-on-year to Rs 819 crore in the third quarter of current financial year 2012-13, meeting analysts' expectations. Revenues grew by 8.56 percent to Rs 5,413 crore from Rs 4,986 crore during the same period.

On the winning side are Reliance, Dr Reddy's Labs and HCL Tech. RIL gained 2.42% after rival Essar Oil said it swung to a net profit in the October-December quarter, with gross refining margins at a healthy USD 9.75 a barrel. Dealers say Essar results point to potentially improving refining margins at Reliance when it posts results on Friday.

The Nifty was strugging around the 6000 level in the afternoon trade, dragged by auto, banks and poor global cues. At 12.04 PM, the Sensex was down 36.71 points or 0.18% at 19950.11, and the Nifty fell 17.20 points or 0.28% at 6039.40. Midcaps have slumped since yesterday's upmove.

Bajaj Auto, which is scheduled to announce its numbers shortly is expected to be a market mover. Most analysts are bullish on the stock, which has risen 1.13 percent. Speaking about the market, Sudarshan Sukhani told CNBC-TV18 that the correction was good for markets which ralled for two consecutive days. He advises to avoid Tata Motors, which slid after it announced weaker-than-expected quarterly numbers.

Bharti, Idea and Reliance Communication saw huge upsides yesterday but fell 0.1 percent, 2 percent and 2.03 percent respectively. There was news that Reliance Communication will sign a deal with Alcatel worth USD 1 billion.

However, select real estate stocks were seeing huge buying inetrests. Oberoil Realty moved up 4.46 percent, HDIL appreciated 2.36 percent, and IndiaBulls rose 1.12 percent.

Equity markets slipped into the red and remained lacklustre for want of a trigger. At 10.50 AM, the Sensex slipped 18.80 points or 0.09% at 19968.02, and the Nifty went down 10.50 points or 0.17% at 6046.10. Asia continues to trade in the red. The RBI Governor's hawkish statement that there was no room for fiscal and monetary stimulus dampened mood, which dashed rate cut hopes and pushed up bond yields.

Reliance Industries appears to be saviour for the Nifty, trading up 2.15 percent. Other Nifty gainers were HCL Tech (2.21 percent), Dr Reddy's (1.72 percent) and Ranbaxy (1.60 percent).

Kingfisher Airline spiked over 4.5 percent after it got a "no objection" certificate from oil companies. However, there has been no assurance from the UB group on funding the beleagured airline. United Spirit was most active on the BSE, quoting Rs 1812 per share. Spice Jet, which saw a significant upside yesterday on reports of stake sell, was trading flat at Rs 46.10.

Despite recent price hikes, cement stocks were trading flat to negative. Cement prices, which spiraling down sharply in November-December, have started to recover.

After Tuesday's rally, BSE benchmark Sensex and NSE benchmark Nifty opened Wednesday's session mixed. At 9.15 a.m., the Sensex was trading mildly up 0.02 percent at 19991.77, while the Nifty fell 0.13 per cent to 6048.90. On Tuesday the indices closed at a 2-year high, with Sensex breaching the 20,000 mark.

Sentiments were hit due to poor show in Asia as Nikkei fell from a 32-month high on yen's seconf consecutive day rise. Although Kospi was trading in the Green, Hang Seng was down ahead of a policy announcement.

Top gainers on the Sensex were Dr Reddy's (up 2.05 percent), Reliance (1.55 percent), Bajaj Auto (1.48 percent), Sterlite (1.46 percent), and GAIL (0.93 percent). Bajaj Auto, Yes Bank, TTK Prestige and others will announce their quartely numbers today.