S&P downgrade warning spooks investors; Sensex down 51 pts

After surging nearly 175 points, the Sensex today erased gains and closed 51 points lower, breaking a five-day upsurge, after S&P's warning that India may lose its investment-grade rating spooked investors. 

The BSE benchmark index, which had gained 754 points in the last five straight sessions, opened higher in the morning.

It rose 174.94 points to touch a day's high of 16,893.81 tracking global trends after Eurozone leaders over the weekend agreed to lend 100 billion euros to stabilise Spain's banks.

However, an S&P report citing "slowing GDP growth and political roadblocks to economic policy-making" as some of the worrying factors that may lead to a rating downgrade for India jolted the domestic market. India's current sovereign credit 'BBB-' rating is one notch above speculative-grade.

Panic selling pulled down the Sensex from the day's high level to close at 16,668.01, lower by 50.86 points from Friday's close of 16,718.87.

Blue-chips RIL, SBI, ICICI Bank, L&T and Maruti were among the 18 counters that declined in the 30-share index. Across the market, 1,450 stocks declined while 1,260 scrips went up.

Brokers said if it not were for a better trend in global stock markets and Finance Minister Pranab Mukherjee's assurance that FY'13 would be a turnaround year for GDP growth, the market would gave fallen further.

Key indices in China, Hong Kong, Japan, South Korea and Singapore rose between 1.07-2.44 per cent while indices in UK, France and Germany were last trading up to 2 per cent higher.

"Markets started the week on a strong footing. However, the S&P statement impacted sentiments negatively," said Milan Bavishi, Head Research, Inventure Growth & Securities.

Shares of capital goods, healthcare, realty and refinery declined on selling pressure while consumer durable and FMCG firmed up moderately.

The negative sentiment impacted rupee as it touched a intra-day low of 55.81 today and was last trading at 55.71 against the dollar.

Meanwhile, the 50-share Nifty lost 14.25 points, or 0.28 per cent to 5,054.10, after touching the day's high of 5,124.45. 

On April 25, Standard & Poor's affirmed its 'BBB-' long-term sovereign credit rating on India but revised the outlook on the rating to negative from stable.

The outlook revision reflected at least a one-in-three chance of a downgrade in next two years if India's external position continues to deteriorate, GDP growth prospects diminish, or progress on fiscal reforms remains slow, it said.

Among the four 'BRIC' countries, India currently has the lowest credit rating and is the only one with a negative outlook. Russia and Brazil have 'BBB' long-term foreign currency ratings and China has an 'AA-' rating.

Major losers in Sensex today were Cipla (2.25 pc), BHEL (2.21 pc), L&T (1.99 pc), Jindal Steel (1.93 pc), Tata Motors (1.40 pc), Hero MotoCorp (1.36 pc), Dr Reddy (1.21 pc), ONGC 1.18 pc), M&M (1.13 pc) and Reliance Industries (1.08 pc).

However, Tata Power firmed up by 2.18 per cent, followed by Bajaj Auto (1.85 pc), HUL (1.58 pc), Gail India (1.55 pc) and Coal India (1.44 pc) were among the 12 Sensex gainers.

Among the sectoral indices, the BSE-Capital Goods fell by 1.64 per cent, followed by the BSE-Healthcare (1.34 pc) and the BSE-Realty (1.02 pc). The BSE-Consumer Durable index moved up by 0.99 per cent.

"IIP numbers for the month of April to be released tomorrow and inflation data to be released on 14th June will provide cues for any policy change in the RBI meet on 18th," said Sharmila Joshi, Head Equity, Fairwealth Securities.

The total turnover declined further to Rs 1,947.16 crore from the last Friday's level of Rs 1,970.93 crore.

Foreign institutional investors (FIIs) bought shares worth a net Rs 202.01 crore last Friday as per provisional figures from the stock exchanges.