Markets end slightly lower ahead of RBI policy meeting

Extending their downfall, Indian equity benchmarks ended the Monday’s trade slightly in the red as investors opted to remain on sidelines ahead of Reserve Bank of India (RBI) policy meeting on February 3. Though, Street widely expects Central bank to pause during the February 2015 monetary policy review, while maintaining a dovish tone, and resume cutting the repo rate by a further 50 basis points (bps) after the presentation of the Union Budget. Markets, after a negative opening, started moving southward but sudden spurt in noon deals helped key gauges to gain their positive terrain. Though, the recovery proved short-lived and markets ended the session with a cut of around one fifth of a percent.

Overall sentiments remained dampened as investors remained worried over a huge shortfall in tax deducted at source (TDS) collections, the Central Board of Direct Taxes (CBDT) has asked the income tax department (I-T) to initiate special measures to achieve the collection target for this financial year. Selling got intensified after Growth in India’s factory activity slipped in January from December’s two-year high as new orders rose at a weaker rate despite factories keeping price increases to a minimum. The HSBC India Purchasing Managers’ Index (PMI), a headline index designed to measure the overall health of the manufacturing sector, slid to three month low at 52.9 in January, down from 54.5 in the prior month. However, losses remained capped as some support came in from report that overseas investors pumped in a staggering Rs 33,688 crore in capital markets last month, making it the highest investment in six months owing to easing inflation and rate cut by Reserve Bank of India (RBI).

On the global front, European markets made a positive start following sharp gains in January, with Julius Baer rallying after unveiling a cost-cutting plan. Asian markets ended mostly in the red after China’s factory sector shrank in January for the first time in more than two years, the latest signal that the country’s growth slowdown is set to persist. The Chinese official Purchasing Managers’ Index (PMI) fell to 49.8 in January, a low last seen in September 2012 and below the 50-point level that separates growth from contraction on a monthly basis.

Back home, depreciation in Indian rupee too dampened the sentiments. Rupee was trading at 61.90 per dollar at the time of equity markets closing compared with its previous close of 61.86. Meanwhile, metal stocks edged lower after downbeat Chinese factory sector data raised concerns about the world's second-largest economy. On the flip side, auto stocks remained on buyers’ radar on report that car sales in January are estimated to have risen almost 8% over the same month last year, despite an increase in prices on the back of 4-6% hike in excise duties from the month. Additionally, aviation stocks edged higher as Jet fuel prices have been cut by 11.3 per cent bringing further relief to domestic airlines. In Delhi, the price of aviation turbine has been cut from Rs 52,423 a kilolitre to Rs 46,513 a kilolitre.

The NSE’s 50-share broadly followed index Nifty declined by over ten points to end below the psychological 8,800 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex declined by over sixty points to end below its crucial 29,150 mark. Broader markets, however, outperformed benchmarks and ended the session with a gain of around a percent. The market breadth remained in favor of advances, as there were 1622 shares on the gaining side against 1,288 shares on the losing side while 130 shares remain unchanged.

Finally, the BSE Sensex declined by 60.68 points or 0.21%, to 29122.27, while the CNX Nifty lost 11.50 points or 0.13% to 8,797.40.

The BSE Sensex touched a high and a low of 29268.13 and 28958.52, respectively. The BSE Mid cap index was up by 0.56%, while the Small cap index was up by 1.13%.

The top gainers on the Sensex Axis Bank up by 4.82%, Hindalco up by 4.01%, Wipro up by 3.08%, Larsen & Toubro up by 1.95% and GAIL India up by 1.70%. On the flip side, Bharti Airtel down by 3.54%, Dr. Reddys Lab down by 3.04%, Hindustan Unilever down by 2.63%, ICICI Bank down by 2.60% and ITC down by 2.17% were the top losers.

On the BSE Sectoral front Capital Goods up by 1.25%, IT up by 1.00%, Consumer Durables up by 0.94%, INFRA up by 0.79% and TECK up by 0.55% were the top gainers, while FMCG down by 1.77%, Oil & Gas down by 0.54%, Metal down by 0.47% and PSU down by 0.25% were the top losing indices on BSE.

Meanwhile, raising hopes of a rate cut by the Reserve Bank of India (RBI), Indian manufacturing activity retreated from two year high in January on slower pace of order flows from domestic and global markets. The HSBC India Purchasing Managers' Index (PMI), a headline index designed to measure the overall health of the manufacturing sector, slid to three month low at 52.9 in January, down from 54.5 in the prior month. Notably, despite falling, the index remained consistent with a solid improvement in business conditions in January. Moreover, the latest expansion was the fifteenth in as many months since the index has been higher above the watershed 50 mark, which denotes growth since November 2013.

The latest survey points that business conditions although have improved at a solid rate albeit more slowly than in the previous month. The overall improvement in the Indian manufacturing sector has been underlined by further output growth in January. Production has risen at a robust pace, extending the current sequence of expansion to 15 months.

Amid reports of improving demand, latest data indicated that new orders increased for the fifteenth successive month in January. However, having accelerated to the highest since April 2011 in the previous month, the growth of new export business moderated in January. A sub index covering new orders fell to 54.4 from 57.9 in December on weaker international demand since one of India's main export destination, the euro zone is struggling to revive its economy and battling disinflation. Among the monitored sub-sectors, by far the sharpest rise occurred in consumer goods.

On the price front, lower prices paid for metals, chemicals, plastics and energy led to the weakest rise in input costs in the current 70-month period of inflation. As a result, output charges rose only fractionally during the month. Meanwhile, growth of output and new business continued to have little impact on employment in January, as workforce numbers rose only marginally during the month.

Lastly, in an encouraging development, the report indicated of RBI slashing interest rates by 75 basis points in the first half of 2015 on account of sluggish growth and falling inflation. The Reserve Bank of India, which last month announced a surprise rate cut of 25 basis points after maintaining a hawkish monetary stance for 20 months, is scheduled to undertake its sixth bi-monthly monetary policy review, 2014-15 on Tuesday, February 3.

The CNX Nifty touched a high and low of 8,840.80 and 8,751.10 respectively.

The top gainers on Nifty were HCL Technologies up by 5.95%, Axis Bank up by 5.55%, Hindalco Industries up by 3.90%, Wipro up by 3.14% and Kotak Mahindra Bank up by 2.75%. On the flip side, Asian Paints down by 5.70%, Bharti Airtel down by 3.67%, Dr. Reddy's Laboratories down by 2.92%, Jindal Steel & Power down by 2.87% and ACC down by 2.74% were the top losers.

Most of European Markets were trading in the green; Germany's DAX was up by 0.11% and UK's FTSE 100 was up by 0.13%, while France's CAC was down by 0.13%.

The Asian equity benchmarks ended mostly in red on Monday, after the latest gauge of China’s factory sector activity raised concerns about the world’s second-largest economy. Malaysian markets were closed today on account of ‘Malaysia - FT Day’ holiday. Activity in China’s factory sector shrank for the second straight month in January, as the New Year got off to a rocky start for the world’s second-largest economy. The slack performance, including a 15th month of shrinking factory employment, will add to the debate over how and whether Beijing will accelerate policy easing, with most bank economists calling for a combination of rate cuts and increased liquidity to spur productive investment. The final HSBC/Markit Purchasing Managers’ Index (PMI) for January came in at 49.7 on a seasonally adjusted basis, just below the 50.0 level that separates growth from contraction. The number was slightly lower than a preliminary flash reading of 49.8 but higher than the final 49.6 in December. Hong Kong Retail Sales fell to a seasonally adjusted annual rate of -3.9%, from 4.1% in the preceding month. Indonesian Trade Balance rose to a seasonally adjusted 0.19B, from -0.42B in the preceding month. Thai CPI fell to a seasonally adjusted annual rate of -0.41%, from 0.60% in the preceding month.