Post session - Quick review

Benchmark equity indices of Indian equity market witnessed a rock-solid session of trade, on the day marked by the most awaited event of RBIs Annual Monetary Policy Review for the year 2012-13, which underpinned vigor among the fervent bears at Dalal Street. Barometer gauges for the second consecutive session, in a session full of volatility along with high volume.
Barometer gauges although went through a roller coaster ride, nevertheless, the steadily impressive performance of the rate sensitive’s kept the spirit alive. In a bid to push industrial growth and stimulate economy , apex bank of India pruned key policy rates by bolder than expected 50 basis point- a move that may also see interest rates falling on housing, automobile and commercial loans.

Although the benchmark did capitulate to the selling pressure in the noon trade of highlighted inflation risks limiting the scope for future rate cuts, but nevertheless, those apprehensions too were short lived. Barometer indices after dilly dallying for the entire trading session amassed over a percentage points to conclude near the high point of the day. The 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) after getting cautious start gathered gains of over 200 points to end above the 17350 bastion, although the index dipped its head 17150 level, but recuperation that emerged near the dying hours of trade, yanked the benchmark above the 17300 bastion. The 50-scrip S&P CNX Nifty of the National Stock Exchange (NSE) too accumulated over 50 points to finish above the 5250 psychological level, the index after looking close of breaching the 5200 level, shied just away from the 5300 at its close. The broader indices, too managed to pull it well in the highly spirited session as both Midcap and SmallCap index shut shop with gains of over 0.50%.

Dreary performance of the global market also failed to stifle spirits of Indian equity markets as home events were well enough to keep the market-men busy. Asian stock market ended mostly lower on Tuesday amid lingering worries about Spain's debt troubles, while Chinese banks struggled after data showed foreign direct investment in mainland China continued to decline.  Investors remained cautious as Spanish government bond yields broke through the 6 percent mark on Monday for the first time since December, stoking fears that the euro zone's fourth largest economy may need an international bailout.

However, the warning of limited room for rate cuts by the RBI governor left the market high and dry. D. Subbarao, Governor of Reserve Bank of India (RBI) also pointed that the state of the economy as a matter of growing concern. He said, “Though inflation has moderated in recent months, it remains sticky and above the tolerance level, even as growth has slowed”. Further, standstill approach towards the Cash Reserve Ratio (CRR) that was left unchanged at 4.75%, also was taken into account by mindful investors.

But optimistic opening of European markets compensated for the entire decline. European stock markets edged higher on Tuesday, although concerns about Spain's finances kept the overall mood cautious and volumes low.

Back on the home turf, more than Bankex and Auto counters, realty index showcased its metal as the index piped other counters to emerge the undisputed winner. However, stocks from Metal, Public Sector Undertaking sector also allured significant traction. Although none of the sectoral space on BSE dared to end in red, but stocks from defensive health Care, Consumer Durable and Information Technology topped the list from behind. The market breadth on the BSE ended positive; advances and declining stocks were in a ratio of 1657:1155 while 129 scrips remained unchanged. (Provisional)

The BSE Sensex gained 215.33 points or 1.26% and settled at 17,366.28. The index touched a high and a low of 17,373.28 and 17,103.36 respectively. 27 stocks advanced against 2 declining ones while 1 stock remained unchanged on the index (Provisional)

The BSE Mid-cap index gain 0.70% while Small-cap index was up 0.65%. (Provisional)

On the BSE Sectoral front, Realty up 2.30%, Metal up 2.02%, PSU up 1.85%, Capital Goods up 1.74% and Power up 1.61% were the top gainers while there were no losers.

There top gainers on the Sensex were ONGC up 3.76%, Gail India up 3.50%, Coal India up 3.18%, Hindalco Industries up 3.10% and Hero MotoCorp up 2.99% while, M&M down 0.59% and RIL down 0.29% were the top losers in the index. (Provisional)

Meanwhile, the Reserve Bank of India (RBI) has cut the Repo rate by a substantial 50 basis points. Although a rate cut was largely expected, the quantum of it has come in as a pleasant surprise. There has been no cut in the CRR rates.

The repo rate is the rate at which banks borrow money from RBI. This is a reference rate used by banks to lend to their customers like companies and individuals. With the recent cut this rate now stands at 8%. The reverse repo rate, the rate of interest at which the central bank borrows funds from other banks for a short duration, has also been reduced by 0.50%.

The governor of the RBI, D Subarao has stated that the reason for cut is the substantial slow down in GDP growth rate to 6% levels and an even more substantial fall in the core inflation. Non food manufacturing inflation slowed down to below 5% levels for the first time in the last two years, as per government data released on Monday.

The RBI has further stated that going forward it expects GDP growth to be around 7.3% which is lesser than the government’s estimate of 7.5%. It feels that the economy will settle at its post 2008 levels of 7-7.5% in the current fiscal.

The RBI has also said that oil prices and a weak rupee pose inflationary risks, and has warned that inflation could remain sticky in the current fiscal, calling for a policy that would not exacerbate inflation. Hence going forward the monetary decisions taken by the RBI will depend on the growth levels and the trajectory taken by inflation.

Subbarao has further reiterated the role of the government in the economic growth of the country and has stated that there is limited scope for the monetary policy if the government does not do its job of containing the fiscal deficit. Further it believes that it is imperative for macroeconomic stability that administered prices of petroleum products are increased to reflect their true costs of production. A revision in administered prices (if done by the government) may or may not pass on to the general public. But if it does then the upside risks to inflation remain.  In such a situation the monetary policy will have to be recalibrated to the existing situation.

Given the substantial cut by the RBI it is difficult to gauge whether this is a one off move or will there be any more cuts in the future. The RBI seems to say that as long as growth is below its trend of 7.5%, it shall support growth. However the timing and extent depend on the levels of inflation.India VIX, a gauge for market’s short term expectation of volatility lost 8.63% at 20.31 from its previous close of 22.23 on Monday. (Provisional)

The S&P CNX Nifty gain 68.10 points or 1.30% to settle at 5,294.30. The index touched high and low of 5,298.20 and 5,208.35 respectively. 44 stocks advanced against 5 declining ones while 1 stock remained unchanged on the index. (Provisional)

The top gainers on the Nifty were Reliance Infrastructure up 6.14%, Reliance Communications up 5.63%, ONGC up 4.13%, Reliance Power up 4.06% and GAIL India up 3.36%.On the other hand, Cairn India down 1.50%, HCL Tech down 0.73%, Dr. Reddy’s Lab down 0.59%, Kotak Bank down 0.57% and Reliance Industries down 0.22% were the top losers. (Provisional)

The European markets were trading in green, with France's CAC 40 up 1.41%, Germany's DAX up 1.27% and Britain’s FTSE 100 up 0.91%.

Renewed fears over Europe’s sovereign debt crisis continued to dampen sentiment in Asian region and most of the Asian equity indices snapped the day’s trade in the negative terrain on Tuesday. Moreover, data showing foreign direct investment in the mainland China continued to decline too weighed on the sentiments. Fears that Spain could follow Greece, Ireland and Portugal in needing a bailout sent the cost of the country’s debt above six percent for the first time since late last year. Spanish 10-year government bond yields rose above 6 percent on Monday for the first time since the beginning of December, fuelling concerns that Madrid could fail to meet deficit targets as the country acknowledged it has probably tipped into its second recession since 2009. 

Meanwhile, mainland Chinese and Hong Kong stocks edged lower in the trade after foreign direct investment (FDI) in China fell in March for the fifth consecutive month, official figures showed Tuesday, as Europe continues to struggle with its debt crisis and economic weakness. Investment from overseas fell 6.1 percent in March from a year earlier to $11.8 billion. Moreover, Seoul shares fell slightly as investors took to the sidelines to assess the euro zone’s latest debt troubles and await the results of a Spanish bond auction.