RBI’s unchanged policy stance spooks sentiments at Dalal Street; Eco survey proves a non-event

Thursday’s session turned out to be a tumultuous one for Indian stock markets which got thrashed for the first time in last five sessions on a day filled with several imperative events like the outcome of RBI’s mid quarter policy review and announcement of Economic survey for financial 2011-12. The frontline indices got bludgeoned by around one and half a percent a day ahead of the tabling of much awaited Union Budget 2012-13 and drifted below the psychological 17,700 (Sensex) and 5,400 (Nifty) levels.

Largely across the board selling was evident in the session and investors ruthlessly butchered the rate sensitive counters like Realty and Banking as Indian central bank after a major action last week, took a cautious stance and abstained from resorting to liquidity easing measures in its policy review. Shares from the Reliance ADA group got pummeled in the session on reports that RCom and Reliance Power will move out of the National Stock Exchange's 50-share Nifty index with effect from April 27 and would be replaced by Asian Paints and Bank of Baroda.

Also the finance ministry’s economic survey proved to be a non-event, failing to spur optimism and lift domestic sentiments. The survey stated that India’s economy is likely to pick up pace in 2012-13 and grow 7.6% while the growth rate is estimated to accelerate in the next fiscal year at 8.6%. It could not give any significant upside triggers to the markets as the government is expected to miss this fiscal year's deficit target of 4.6 percent of GDP by a wide margin, and it faces a difficult task to cut a soaring subsidy bill and revive slowing growth.

The survey cautioned that attention should to given to the asset price bubbles in the real estate and stock markets and the risks associated with these, which carry implications for the real economy. Meanwhile, initial numbers for the last installment of advance tax payment by the top corporate presented a tepid growth in the levy mop-up, with banking and financial institutions leading the pack. Besides, the appreciation in rupee along with spike up in bond yields too did not go down well with market participants amid concerns that yields could continue to gain if the government announces big borrowing plans in Budget.

In the meantime, some gains in information technology bellwethers like Wipro and TCS propelled the IT index on BSE into the positive terrain by the end. While shares like Kingfisher, Jet Airways and Spicejet from the beleaguered Airline counter skyrocketed in late trade amid hopes of some pleasant surprise wrapped in Union Budget 2012-13.

Indian bourses went on to comprehensively underperform their Asian counterparts on the global front, which recovered from early lows. European markets are trading on a flat note as investors await reports on American jobs and manufacturing. Investors remained cautious as optimism over brighter economic outlook for the world’s largest economy got offset by increasing growth worries over world’s second largest Chinese economy which is also touted to be as global growth engine.

Back home, the NSE’s 50-share broadly followed index Nifty, got pounded by over one and half a percent to settle below the psychological 5,400 support level while Bombay Stock Exchange’s Sensitive Index – Sensex- slumped around two hundred fifty points and closed below the psychological 17,700 mark.

Moreover, the broader markets too settled on a pessimistic note as they succumbed to the selling pressure that was being exerted on their larger peers and plunged around a percent. The markets dived on extremely large volumes while the market breadth remained pessimistic as there were 1848 shares on the gaining side against 1006 shares on the losing side while 129 shares remained unchanged.

Finally, the BSE Sensex shaved off 243.45 points or 1.36% to settle at 17,675.85, while the S&P CNX Nifty plunged by 83.40 points or 1.53% to close at 5,380.50.

The BSE Sensex touched a high and a low of 17,918.25 and 17,622.13 respectively. The BSE Mid cap and Small cap indices down by 1.39% and 0.97% respectively.

The major gainers on the Sensex were Hindustan Unilever up 1.80%, Wipro up by 1.43%, NTPC up by 1.13%, TCS up by 0.72%, Sun Pharma up by 0.38%. While DLF down by 4.76%, BHEL down by 3.37%, HDFC Bank down by 3.05%, ICICI Bank down by 2.47% and ONGC down by 2.45% were the major losers on the index.

The only gainer on the BSE sectoral space was IT up by 0.09% while Consumer Durables (CD) down by 3.66%, Realty down by 2.66%, Bankex down by 2.60%, Capital Goods (CG) down by 2.04% and PSU down by 1.97% were top losers on the BSE sectoral space.

Meanwhile, the Reserve Bank of India (RBI) has kept its policy rates unchanged in its mid-quarter monetary policy review. Even though the apex bank had recently slashed the CRR rate to ease liquidity, it has kept the interest rates unchanged due to the still uncomfortable levels of inflation. Going forward, the focus shall remain on growth, but the timing and magnitude of rate cuts shall be determined by the levels of inflation, as per the apex bank.

As per the RBI, on the domestic front, while most indicators suggest that the economy is slowing down, the performance in Q4 of 2011-12 is expected to be better than that in Q3. Inflation has broadly evolved along the projected trajectory so far. However, upside risks to inflation have increased from the recent surge in crude oil prices, fiscal slippage and rupee depreciation. Besides, there continues to be significant suppressed inflation in fuel, fertilizer and power as administered prices do not fully reflect the costs of production. While corporate sales growth in Q3 of 2011-12 was robust, margins moderated, reflecting increasing difficulty in passing on rising input prices.

The Central Bank has given a slightly positive outlook on the global economy. It has stated that the recent macroeconomic data for the US economy has shown some positive signs, in particular for the labour market. Immediate financial market pressures in the Euro area have also eased due to the European Central Bank (ECB) injecting liquidity of more than 1 trillion euros. However since the emerging and developing economies (EDEs) are showing signs a slowdown, the global growth for 2012 and 2013 is expected to be lower than earlier anticipated. Oil prices continue to remain a concern.

The S&P CNX Nifty touched a high and low of 5,462.50 and 5,362.30 respectively.

The top gainers on the Nifty were HUL up 1.99%, Wipro up by 1.99%, NTPC up by 0.90%, TCS up by 0.89%, Sun Pharma up by 0.47%. On the flip side, RCOM down by 5.30%, DLF down by 5.08%, IDFC down by 4.62%, BHEL down by 3.52%, HDFC Bank down by 3.46% were the top losers on the index.

The European markets were trading mixed, as France's CAC 40 was down 0.04%, Britain’s FTSE 100 down 0.08%, while Germany's DAX was up by 0.26%.

Sentiments turned choppy in the Asian region after two days rally and most of the Asian equity indices ended the session in the negative territory on Thursday on concerns that China would retain property-market curbs this year unsettled investors, while the US dollar continued to rise broadly and Japanese exporters’ shares extended recent gains boosted by a weaker yen.

Meanwhile, Chinese benchmark Shanghai Composite ended at three-week low declining 0.73 percent as investors’ focus shifted to Chinese growth concerns, after Premier Wen made some fairly negative comments about the property market. However, Japanese Nikkei edged higher by 0.73 percent extending an eight-month high, as the yen’s drop to an 11-month low against the dollar buoyed earnings prospects for exporters.