With corporate results not turning out to be quite what the Street had expected, the Sensex gave up 370.68 points or more than 2% on Monday to close at 16,863.30. The Sensex has gained some 9% since the start of the year and is among the best-performing markets especially with the rupee having strengthened.
On Monday, the Indian market followed weak Asian cues; equities in Hong Kong, for instance, snapped a six-session winning streak as investors took risk off the table ahead of a crucial meeting in the euro zone that would seek to avert a default by Greece. The US markets were soft last Friday as the world?s largest economy reported a slower than expected growth for the December quarter. The data showed slower-than-expected annualised US growth of 2.8%, although this was the fastest quarterly rate in 1-1/2 years. On Monday, US futures were trading down; futures on the Standard & Poor?s 500 Index, expiring in March fell 0.6% and the MSCI Asia Pacific Index retreated 1%.
Exporting firms in Asia saw their shares fall and the Shanghai Composite lost 1.5% to fall below the 2,300 level in a day of weak volumes. The broader Hang Seng closed the session lower by 1.7% at 20,160.4, giving up almost all its gains from last week. Meanwhile, European stocks headed for the biggest two-day drop in seven weeks amidst anxiety that a summit of euro zone’s leaders might not be able to bring the debt crisis in control quickly enough. Bloomberg reported that the Stoxx Europe 600 retreated 0.7 % to 253.55 as of 12:20 pm in London, for the largest two-day slide since December 8, 2011. European Union leaders are meeting the first time this year amid slowing growth and pressures to arrive at a solution to the Greek debt problem.
Leaders are expected to conclude a German – led deficit – control treaty and endorse the statutes of a 500 billion-euro ($661 billion) rescue fund to be set up this year.
Back home, the broader Nifty lost 117.4 points to close the session at 5,087.3. The market is nervous that earnings are not coming in as expected and that could trigger a further de-rating.
While liquidity has driven up stocks in January, investors remain concerned about the weak macro-economic fundamentals. Net profits for a sample of 463 companies (excluding banks and financials) have fallen by about 2% y-o-y in the three months to December, 2011 although net sales have risen a reasonably good 25% y-o-y. Operating profit margins crashed 400 basis points y-o-y driving down the operating profit. Although the Street?s expectations were tempered, for a sample of 71 companies, earnings surprises were barely positive, according to a Bloomberg study. Bloomberg reported that eight out of 15, or 47%, of Sensex companies that have posted December-quarter earnings missed analyst estimates, compared with 40% in the September quarter and 47%in the previous three months.
