Post Session: Quick Review

Extending previous session’s euphoria, markets staged a smart bounce-back from day’s low point to end with gains of over 3/ 4 of a percent on Tuesday, which took both Sensex and Nifty past the psychologically crucial 26,000 and 7,750 levels respectively by close of trade. Recovery, which was witnessed in the late hours of trade, tailing a positive start of European counterparts and recuperation of interest rate-sensitives after Raghuram Rajan, post the release of policy document, assured investors that there was still room left to cut rates in the near future if disinflation continued. RBI governor's assurance provided some solace to local equity markets, which sold off in heavy volumes in early afternoon deals post the release of third bi-monthly monetary policy review, which was perceived as hawkish by many. Sentiments took a hit for the worse after RBI introduced no special measures for managing liquidity, slashed HTM ceiling and stroke a hawkish tone on inflation front by projecting an upside risk to 2016 inflation target of ‘6%’, and saying it would closely monitor inflation developments. Besides, another data point that failed to be positive factor for the market was the activity in Indian services sector, which slightly eased in the month of July due to slowdown in new business orders. The HSBC services Purchasing Managers’ Index (PMI), based on the survey of around 350 private service sector companies fell to 52.2 in July from17-month high at 54.4 in June.

On the global front, Asian stocks mostly plunged on Tuesday after 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. On the flip side, European shares traded a touch higher early on Tuesday as strong results from German car maker BMW and other blue-chip stocks supported an otherwise subdued market. Shares in BMW rallied around 3% after the luxury car maker reported a higher-than-expected second-quarter operating profit, helped by new offroad models and strong China sales.

Closer home, recovery which crept in late hours of trade, was broad-based in nature as none of the sectoral indices on BSE lost to red, with the only exception being the stocks from Capital Goods counter. On the flip side, stocks from Realty, Auto and Metal counters were the prominent gainers of the session. Meanwhile, sugar stocks were in limelight as the UP sugar crisis intensified with mill owners serving suspension notice to state government. Further towards this development, the Indian Sugar Mills Association (ISMA) warned that crushing operations at UP mills would not take place in 2014-2015, besides highlighting that UP sugar mills were still struggling to survive on high cane cost while cane price arrears, which were currently at alarmingly high levels. Criticizing that none of the promises made by UP government have been fulfilled, ISMA has accused the state government of coercive action. The market breadth on the BSE remained in the favour of advances; advances and declining stocks were in a ratio of 1,762: 1,157, while 124 scrips remained unchanged. (Provisional)

The BSE Sensex surged 184.85 points or 0.72% to settle at 25908.01. The index touched a high and a low of 25928.32 and 25562.36 respectively. 20 stocks gained against 10 declines on the index. (Provisional)

The BSE Mid cap and Small cap indices too ended in the green, the BSE Midcap was up by 0.82%, while the BSE Small cap index was higher by 1.12%. (Provisional) 

On the BSE sectoral front, Realty up by 2.65%, Auto up by 2.11%, Metal up by 1.33%, Consumer Durables up by 0.99% and PSU up by 0.76% were the major gainers in the space, while Capital Goods was down by 0.15% remained the lone loser on the sectoral space. (Provisional)

The top gainers on the Sensex were M&M up by 3.83%, ONGC up by 3.35%, Hindalco up by 3.00%, Bajaj Auto up by 2.71% and Tata Steel was up by 2.57%. On the flip side, Hero MotoCorp down by 0.82%, Bharti Airtel down by 0.76%, L&T down by 0.37%, BHEL down by 0.33% and NTPC down by 0.32% were the major losers. (Provisional)

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.

India VIX, a gauge for markets short term expectation of volatility declined 5.85% at 13.94 from its previous close of 14.81 on Monday. (Provisional)

The CNX Nifty ended higher by 60.05 points or 0.78% to settle at 7,743.70. The index touched high and low of 7,752.45 and 7,638.05 respectively. 31 stocks ended in the green against 19 stocks ending in red. (Provisional)

The major gainers of the Nifty were UltraTech Cement up by 5.32%, ACC up by 4.71%, Ambuja Cement up by 4.21%, Grasim up by 3.98% and M&M was up by 3.76%. On the flip side, the key losers were BPCL down by 1.07%, HCL Tech down by 0.96%, Bharti Airtel down by 0.77%, Hero MotoCorp down by 0.57% and MCDOWELL-N down by 0.56%. (Provisional)

European markets were trading in the green; Germany's DAX was down by 0.47%, France's CAC 40 was down by 0.56% and UK's FTSE 100 was down by 0.61%.

Asian equity indices ended mostly in the red on Tuesday as investors remained on sidelines ahead of the U.S. jobs report for May. Sentiments also remained down-beat after a HSBC report showed the performance of China’s service sector fell to a record low in July. The Chinese services Purchasing Managers’ Index (PMI) in July slipped to 50.0, the dividing line between expansion and contraction, from 53.1 in June. The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities, as property-related activity, such as agencies and residential services, see less business.

Ongoing concerns about the situation in Ukraine and the Middle East as well as fears over the health of the European banking sector following the bailout of Portugal's Banco Espirito Santo also kept investors nervous. Bucking the trend, Hong Kong’s benchmarks edged higher as the country’s private sector activity expanded in July as output improved. The HSBC PMI for the private sector rose marginally to 50.4, its highest reading in five months, from 50.1 in June.