Indian markets comes out of Brexit jitters; Sensex ends above 26500

Showing more firmness in aftermath of Britain’s decision to exit European Union, the Indian markets posted decent gains on Tuesday. Though, there were rounds of volatility too but they were mainly due to the F&O series expiry slated in two days, and the market participants showing their faith and going for value buying took the bourses higher for the day. Earlier, the start was on a cautious note but the markets soon started gaining traction, with the regional peers showing some upmove on hopes of firm measures in the backdrop of Brexit.  Traders also took some encouragement with the report of good monsoon progress and decline in international crude prices. Also, the World Bank’s recently released Global Economic Prospects (GEP) stated that India is seen to grow faster than emerging market peers. It said that India`s push to draw more FDI is also seen to be a positive step. It added that business sentiment is up in India with many startups commencing operations in 2015. More public investment in infrastructure is also seen as a positive which could reduce supply-side restraints. Moreover, markets kept buzzing through the day on reports that the much-anticipated Seventh Pay Commission bonanza for the government employees is likely soon with the Union Cabinet set to consider the panel's recommendations on Wednesday.

On the global front, overcoming the slump in US markets, the Asian markets presented a good show and ended mostly in green. Following that the European markets made a positive start first time since Britain’s shock vote to leave the European Union, amid speculation policy makers will take steps to limit any economic fallout and there will be more co-ordinated central bank response to financial market losses.

Back home, the markets gained pace in the second half after the European markets made a positive start, getting a halt to the Brexit sell-off. The domestic traders lapped up blue-chip stocks and went for covering shorts. Gradually the rally turned broad based and apart from the bluechips the broader markets too equally participated the rally and by the end outperformed them.The rupee strength too kept boosting the market sentiments, which moved higher tracking the gains in other regional currencies against dollar. On the sectoral front, the FMCG counter kept buzzing since morning on hopes of good rural consumer demand after the monsoon picked up pace. The met department reported that rains after an unexpected lean patch bounced back and the rainfall deficit has narrowed to 16%. The pharma stocks too participated in the rally, despite the National Pharmaceutical Pricing Authority (NPPA) stating that it has “fixed/revised ceiling prices of 45 scheduled formulations of Schedule-I under Drugs (Price Control) Amendment Order, 2016.” Out of the 45, the prices of 42 medicines were reduced by up to 15 per cent. However, there was some cautiousness in banking stocks after Moody's Investors Service said that efforts to consolidate 27 public sector banks into 8-10 large lenders create risks that could offset potential long-term benefits in the current weak economic environment.IT and tech counters too were still showing impact of Brexit and ended in red. 

The BSE Sensex ended at 26524.55, up by 121.59 points or 0.46% after trading in a range of 26378.46 and 26583.33. There were 19 stocks in green against 11 stocks in red on the index.

The broader indices outperformed the benchmarks; the BSE Mid cap index was up by 0.48%, while Small cap index gained 0.79%.

The top gaining sectoral indices on the BSE were FMCG up by 1.75%, Metal up by 1.01%, Oil & Gas up by 0.84%, PSU up by 0.78%, Realty up by 0.66%, while IT down by 0.89%, TECK down by 0.46%, Consumer Durables down by 0.08% were the losing indices on BSE.

The top gainers on the Sensex were Lupin up by 4.39%, Hindustan Unilever up by 3.25%, ITC up by 2.59%, Cipla up by 1.61% and Coal India up by 1.43%. On the flip side, Tata Motors down by 1.84%, TCS down by 1.34%, Wipro down by 1.22%, Sun Pharma Inds. down by 0.99% and Hero MotoCorp down by 0.95% were the top losers.

Meanwhile, the government has finally initiated the process of setting up a new monetary policy committee after it notified key amendments to a law governing the Reserve Bank of India. The finance ministry has stated that “The government has decided to bring the provisions of the amended RBI Act regarding constitution of MPC into force on 27 June 2016 so that statutory basis of MPC is made effective.”

The finance ministry has said that according to the monetary policy framework, agreed by RBI and the government last year, the central bank will look to contain inflation within a band of 4% plus/minus 2 percentage points from next year. Under the changes, passed by parliament last month, a six-member monetary policy council will set interest rates by majority, with a casting vote for the central bank governor in the event of a tie. It further stated that a Committee-based approach will add lot of value and transparency to monetary policy decisions.

Out of the six Members of MPC, three Members will be from the Reserve Bank of India, including the Governor, who will be the ex-officio Chairperson, the Deputy Governor, RBI and one officer of RBI. The other three Members of MPC will be appointed by the Central Government, on the recommendations of a Search-cum-Selection Committee, which will be headed by the Cabinet Secretary. These three Members of MPC will be experts in the field of economics or banking or finance or monetary policy and will be appointed for a period of 4 years and shall not be eligible for re-appointment. The meetings of the MPC shall be held at least 4 times a year and it shall publicise its decisions after each such meeting.

The government has notified the rules for the procedure for election of members of MPC and what will constitute a failure to meet inflation target under the MPC framework. As per rules, no member of MPC should have any financial or other interest that prejudicially affects his functions as a member. Also, it would be considered that every six months, RBI will publish the policy report explaining sources of inflation and its forecast for 6-18 months .If the panel failed to meet the inflation target, it shall give reasons in the report thereof, remedial actions as well as estimated time within which the target will be achieved.

The CNX Nifty ended at 8127.85, up by 33.15 points or 0.41% after trading in a range of 8086.85 and 8146.35. There were 29 stocks on gainers side against 22 stocks on decliners side on the index.

The top gainers on Nifty were Lupin up by 4.43%, Idea Cellular up by 3.99%, Hindustan Unilever up by 3.36%, Bharti Infratel up by 3.33% and Bosch up by 2.83%. On the flip side, HCL Tech. down by 2.97%, Tata Motors - DVR down by 2.82%, Tata Motors down by 1.90%, Hindalco down by 1.46% and TCS down by 1.28% were the top losers.

European markets were trading higher, France’s CAC gained 106.05 points or 2.66% to 4,090.77, UK’s FTSE 100 increased 144.52 points or 2.42% to 6,126.72 and Germany’s DAX was higher by 202.35 points or 2.18% to 9,471.01.

Asian stocks closed mostly higher on Tuesday, as a rebound in oil prices and hopes for new stimulus measures from South Korea and Japan along with growing expectations that the Federal Reserve will ease its monetary policy at its July meeting, helped investors put Brexit worries on the back burner. Chinese stocks rebounded as the country's leaders sought to calm investors rattled by Britain's vote to leave the European Union. Premier Li Keqiang said the government would take measures to keep its financial and capital markets stable and avoid wild fluctuations. Meanwhile, in its 2016 financial stability report, the People's Bank of China said it would continue to implement prudent monetary policy and proactive fiscal policy. Japanese shares ended a choppy session marginally higher after Economy Minister Nobuteru Ishihara said the government is willing to provide assistance to lessen the impact of the British referendum on small and medium-sized companies (SMEs).