Benchmarks nose-dive to-day’s low post RBI’s policy statement

Local equity markets nose-dived to-day’s low after RBI’s third bi-monthly monetary policy played a mood-dampener, with RBI introducing no special measures for managing liquidity, slashing HTM ceiling and striking a hawkish tone on inflation front by projecting an upside risk to 2016 inflation target of 6%. Delivering just about on expected lines, India’s central bank retained the policy rate, making its fourth consecutive time status quo stance. Major blow came from banking index, which retreated sharply from day’s high point post RBI’s policy stance, which dragged both Sensex and Nifty lower below the psychologically crucial  25,650 and 7,700 levels respectively, with steep losses of around half a percent. Meanwhile, broader indices too succumbing to selling pressure, were trading mixed.

On the global front, most of the Asian counterparts continued to reel under pressure after a survey showed China's services sector growth fell to a record low, pouring cold water on the positive market mood following upbeat U.S. earnings and relief over Portugal's rescue of its largest bank. China services purchasing managers' index (PMI) compiled by HSBC/Markit fell to 50.0 in July from a 15-month high of 53.1 in June, in a lowest reading since November 2005 when the data collection began, indicating a recovery in the broader economy is still fragile and may need further government support.

Closer home, benchmarks reversed gears to trade in negative territory after policy statement, and also Service PMI data, which declined to 52.2 in July from17-month high at 54.4 in June. On the BSE, most of the sectoral indices on BSE succumbed to selling pressure, besides Auto counter which was the only knight in the shining armour. On the flip side, brutal selling was witnessed in stocks from Metal, Power and Fast Moving Consumer Goods counter. However, sugar stocks after witnessing a sharp sell-off in previous trading session, bounced back in today’s trade after reports suggested UP government, sugar mills on collision course over cane price. The overall market breadth on BSE was in the favour of advances which have thumped declines in the ratio of 1429:1065; while 120 shares remained unchanged.

The BSE Sensex is currently trading at 25607.06, down by 116.10 points or 0.45% after trading in a range of 25562.36 and 25831.53. There were 8 stocks advancing against 22 stocks declining on the index.

The broader indices were trading mixed; the BSE Mid cap index was down by 0.05%, while Small cap index up by 0.11%.

The gaining sectoral indices on the BSE were Auto up by 0.65% was the only gainer while, Metal down by 0.91%, Power down by 0.72%, FMCG down by 0.66%, Bankex down by 0.58%, INFRA down by 0.57% were the losing indices on BSE.

The top gainers on the Sensex were Mahindra & Mahindra up by 1.90%, Bajaj Auto up by 1.75%, Sun Pharma Inds. up by 1.53%, ONGC up by 1.15% and Dr. Reddys Lab up by 0.70%. On the flip side, Hero MotoCorp down by 1.58%, HDFC down by 1.54%, Coal India down by 1.35%, ICICI Bank down by 1.20% and NTPC down by 1.20% were the top losers.

Meanwhile, Reserve Bank of India (RBI), in its third bi-monthly monetary policy review, delivered on expected lines and kept the policy repo rate unchanged under liquidity adjustment facility (LAF) at 8.0%, which consequently led to reverse repo rate remaining unchanged at 7% and marginal standing facility (MSF) rate and the Bank Rate untouched at 9.0%.

Besides, the central bank, much in line with expectations, reduced the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22.5% to 22.0% of their NDTL with effect from the fortnight beginning August 9, 2014 and decided to continue to provide liquidity under overnight repos at 0.25% of bank-wise NDTL and liquidity under 7-day and 14-day term repos of up to 0.75% of NDTL of the banking system.

In addition, RBI in order to enable banks' greater participation in financial markets brought down the Held to Maturity (HTM) ceiling to 24% of NDTL with effect from the fortnight beginning August 9, 2014 from than 24.5% of their NDTL as on the last Friday.

On the inflation front, though RBI acknowledged the moderation in CPI headline inflation for two consecutive months, despite the seasonal firming up of prices of fruits and vegetables since March mainly on account of both base effects and the steady deceleration in CPI inflation excluding food and fuel, it sounded a word of caution as it underscored that it would continue to monitor inflation developments closely and would remain committed to the disinflationary path of taking CPI inflation to 8% by January 2015 and 6% by January 2016. Besides, it also flagged an upside risk target of 6% by January 2016, warranting a heightened state of policy preparedness to contain these risks if these materialized.

However, RBI stroke a neutral stance on growth front as it highlighted in policy documents that the GDP growth target of 5.5% within a likely range of 5 to 6% that was set out in the April projection for 2014-15 could be sustained, if the recent pick-up in industrial activity was sustained in an environment conducive to the revival of investment and unlocking of stalled projects, with ongoing fiscal consolidation releasing resources for private enterprise, external demand picking up and international crude prices stabilizing. However, it highlighted on the flip side that if the risk relating to the global recovery, monsoon and geo-political tensions intensify, the balance of risks could tilt to the downside.

Overall RBI’s third bi-monthly monetary policy turned out to be disappointing, with RBI introducing no special measures for managing liquidity, slashing HTM ceiling and striking a hawkish tone on inflation front by projecting an upside risk to 2016 inflation target of ‘6%’. Delivering on expected lines, RBI retained the policy rate, making it the fourth consecutive time that Governor Raghuram Rajan kept interest rates unchanged. So far, Rajan raised interest rates three times since he took office in September 2013, even as economic growth slowed to decade-low rates as it set the target of bringing down consumer price inflation to 8% by the end of the fiscal, and to 6% by the next fiscal.

The CNX Nifty is currently trading at 7652.35, down by 31.30 points or 0.41% after trading in a range of 7638.05 and 7720.00. There were 15 stocks advancing against 35 stocks declining on the index.

The top gainers on Nifty were Ultratech Cement up by 2.57%, ACC up by 2.51%, Mahindra & Mahindra up by 2.04%, Bajaj Auto up by 2.00% and Grasim Industries up by 1.84%. On the flip side, BPCL down by 1.97%, BHEL down by 1.57%, Hero MotoCorp down by 1.38%, ICICI Bank down by 1.37% and Coal India down by 1.32% were the top losers.

Asian markets continued to reel under pressure; Taiwan Weighted slid by 188.75 points or 2.02% to 9,141.44; Nikkei 225 lost 154.19 points or 1% to 15,320.31; Hang Seng declined by 69.06 points or 0.28% to 24,531.02; Jakarta Composite shed 23.49 points or 0.46% to 5,095.76; KOSPI Index surrendered 14.16 points or 0.68% to 2,066.26; Shanghai Composite skid 12.88 points or 0.58% to 2,210.45 and FTSE Bursa Malaysia KLCI plunged by 0.96 points or 0.05% to 1,874.84. On the flip side, Straits Times up by 3.99 points or 0.12% to 3,322.39 was the only gainer among Asian pack.