Markets slide for the second straight session disappointed by RBI's status quo stance

Markets continued their somber mood for yet another day on Tuesday with benchmarks witnessing cut of around half a percent. The trade remained choppy for the day and traders in a cautious mood from the beginning ahead of the RBI’s policy announcement scheduled for the day. Initially there was impact of weak trend in the global markets and traders remained on sidelines, largely overlooking the report that growth of eight core industries rose to 6.3 percent in October on the back of a strong production of coal, crude oil and petroleum products putting the cumulative growth during April-October, 2014-15 at 4.3 percent. The eight core sectors have a combined weight of about 38 percent in the Index of Industrial Production, indicating a better show of the IIP later in the month. The global crude prices have risen in overnight trade and dampened the sentiments of the traders.

In the global markets, the Asian indices mostly made a positive close and the Japanese market moved higher as the yen declined after the initial spike. The stocks in the region also gained some support with the oil resuming its decline after jumping from a five-year low. International Monetary Fund Managing Director Christine Lagarde has said that the drop in oil prices will provide a net boost to the global economy while posing risks for energy-producing nations including Russia.The European markets made a positive start and major indices rose to two months high on hopes of stimulus measures and as energy shares rebounded.

Back home, traders expecting some surprise from the RBI’s fifth Bi-Monthly Monetary Policy review of 2014-15, suffered sudden slump in a knee jerk reaction to central bank's decision of keeping the policy rates unchanged, while stating that change in monetary policy stance at the current juncture is premature. RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent; similarly the cash reserve ratio (CRR) of scheduled banks was kept unchanged at 4.0 per cent of net demand and time liabilities (NDTL). Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate will stand at 9.0 per cent. All the rate sensitives including banks, auto and consumer durables were disappointed, however there was a quick recovery on RBI’s hint of lowering policy rate early next year if current trend in fiscal developments and disinflationary pressure continue. But again profit booking dragged the markets lower and markets found it difficult to recover, there were some valiant efforts in the second half but were sold off with traders remaining worried about global growth and disappointed of a long delay in rate cuts.

On the sectoral front, the auto sector stocks that have moved higher in last session on reporting good sales numbers for the month of November, witnessed some profit booking, as the RBI kept rates unchanged and also on reports that the government plans to make crash tests mandatory for cars once the test facilities are made available in the country. Minister of State for Road Transport and Highways has revealed the government plans to mandate the offset frontal and side impact crash tests for passenger cars. Automobile industry has been avoiding some safety features arguing cost factor. However, the maximum hit was the IT sector stocks after the software services exporters declined on rupee's strength. The PSU oil marketing companies too turned lower, as the international crude prices rebounded, while on domestic front the government once again hiked the excise duty on petrol by Rs 2.25 a litre, and on diesel by Rs 1 a litre. The government expects to mop up Rs 4,000 crore through this additional hike. Though, the hike will not be passed on to consumers, without impacting retail prices of petrol and diesel, the OMCs will be bearing hikes on their own. BPCL was down by over 4%, HPCL was lower by around 2% and IOC lost around 3%. There was buzz in the non sectoral gauge of shipping after announcement of government decision to launch PM Jal Marg Yojna and projects for setting up dry and satellite ports, besides converting riverways into waterways in order to revive the shipping industry. Essar Shipping was up by over 3%, SCI gained 2%, ABG gained over 4% and GPPL was up by over 2%.

Finally, the BSE Sensex plunged by 115.61 points or 0.40%, to 28444.01, while the CNX Nifty declined by 31.20 points or 0.36% to 8,524.70.

The BSE Sensex touched a high and a low of 28576.39 and 28386.46, respectively. The BSE Mid cap index was up by 0.91%, while the Small cap index was up by 0.55%.

The top gainers on the Sensex were Hindalco up by 2.51%, Bharti Airtel up by 1.76%, Larsen & Toubro up by 1.12%, Sesa Sterlite up by 1.10% and ICICI Bank up by 0.74%. On the flip side, GAIL India down by 2.85%, Mahindra & Mahindra down by 2.36%, Infosys down by 2.18%, HDFC down by 1.51% and TCS down by 1.38%.

On the BSE Sectoral front Metal up by 1.20%, Healthcare up by 0.94%, Capital Goods up by 0.73%, FMCG up by 0.65% and Power up by 0.15% were the top gainers, while IT down by 1.48%, Auto down by 1.05%, TECK down by 0.93%, Oil & Gas down by 0.66%, Consumer Durables down by 0.08% were the top losers in the space.

Meanwhile, with an aim to boost power generation capacity of India, the Heavy Industry Ministry pitched for doubling the basic import duty on power generation equipment. The Ministry demanded that duty to be raised to 10 per cent from 5 per cent and the countervailing duty to be brought to nil.

In 2012, the previous government had ended the difference on basic import duty between power projects, underscoring that the same rate of duty would apply to all projects in the sector, irrespective of capacity. After that, electricity generation equipment for mega power projects / ultra mega power projects of 1,000 MW and above also attracted duty. The duty imposed was 5 per cent basic Customs duty, 12 per cent countervailing duty (CVD) and 4 per cent special additional duty (SAD) taking the duty to 21 per cent. In addition to this, there was education cess and the final rate stood at 22.85 per cent.

The Ministry is of the view that if the basic import duty is raised to 10 per cent, and the countervailing duty brought to ‘nil’, domestic manufacturers will get effective protection, in comparison with foreign manufacturers. Besides import duty, all other taxes and charges are paid by both foreign and domestic manufacturers. If CVD is nil, domestic companies will not be required to pay excise duty, thus raising the effective protection from current around 4.7 per cent. Further, the ministry also highlighted the need to exempt more power projects from paying higher duty as they accounted for the bulk of power generation capacity to be added during the 12th Plan period.

The CNX Nifty touched a high and low of 8,560.20 and 8,504.65 respectively.

The top gainers on Nifty were Jindal Steel & Power up by 4.90%, Hindalco Industries up by 2.63%, NMDC up by 2.05%, IDFC up by 1.93% and PNB up by 1.63%. On the flip side, BPCL down by 3.88%, Asian Paints down by 3.02%, GAIL (India) down by 2.64%, Mahindra & Mahindra down by 2.48% and Infosys down by 2.20% were the top losers.

Most of European markets were trading in green, United Kingdom’s FTSE 100 was up by 1.15% and France’s CAC 40 was up by 0.45%, while Germany’s DAX was down by 0.03%.

Asian markets ended mostly in green on Tuesday, as a rebound in oil and other commodity prices and hopes that Chinese policymakers will take further measures to bolster growth spurred bargain hunting in commodity-related stocks. The markets opened on a tepid note but erased early losses to edge higher, led by sharp gains in Chinese and Hong Kong shares. Chinese shares soared to a three-year high, led by banks and brokerages amid speculation of an imminent cut in bank reserve requirement ratios. Japanese shares turned positive after a tepid start amid speculation that the Bank of Japan was buying stocks as part of its asset purchase scheme.