Benchmarks add gains to continue firm trade

Indian equities added gains to continue its firm trade above neutral line in the late afternoon session on back of buying in the frontline blue chip counters. The stock markets showed a kneejerk reaction to the higher than expected rate cut by Indian central bank. This was RBI’s first interest rate reduction in three years and the move is likely to spur growth that has slowed markedly due to relentless monetary tightening. Traders were seen piling up position in Realty, PSU and Metal sector while selling was witnessed in Consumer Durables sector. Besides, the rate cut has come in the backdrop of lower than expected growth in industrial production and slight moderation in March WPI inflation, however concerns remained that the inflationary pressure would reignite due to volatile international crude oil prices and the depreciating Indian rupee.

In the scrip specific development, Gold financing companies Muthoot Finance and Manappuram Finance were seen trading weak in red after the RBI in its monetary policy review today announced some regulatory measures for companies financing loans against gold. Shares of real estate firms Unitech, DLF, Phoenix Mills, Oberoi Realty, HDIL, Parsvnath Developers, DB Realty, Peninsula Land and Godrej Properties etc. were trading firm in green on 50 basis points repo rate cut. Also, shares of Banking counter like Axis Bank, SBI, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, PNB, Yes Bank, Bank of Baroda, Bank of India, IDBI Bank and Union Bank of India etc. were trading in green.

On the global front, Asian markets were trading in red while the European markets were trading in green on optimistic note. On the home turf, the NSE Nifty and BSE Sensex were trading above their psychological 5,250 and 17,200 levels respectively. The market breadth on BSE was in favor of advances in the ratio of 1372:1274 while 136 scrips remained unchanged.

The BSE Sensex is currently trading at 17,289.75 up by 138.80 points or 0.81% after trading as high as 17,373.28 and as low as 17,103.36. There were 27 stocks advancing against 3 declines on the index.

The broader indices were trading on positive note; the BSE Mid cap index gained 0.40% while Small cap was up 0.22%.

On the BSE sectoral space, Realty up 1.59%, PSU up 1.46%, Metal up 1.40%, Power up 1.14% and FMCG up 0.93% were the major gainers, while Consumer Durables down 0.19% was the only laggard in the space.

Coal India up 3.05%, ONGC up 2.43%, Hero MotoCorp up 2.21%, DLF up 2.01% and SBI up 1.39% were the major gainers on the Sensex, while M&M down 1.12%, RIL down 0.44%and Maruti Suzuki down 0.16%, were the major losers in the index.

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.

The S&P CNX Nifty is currently trading at 5,266.10, higher by 39.90 points or 0.76% after trading as high as 5,293.40 and as low as 5,208.35. There were 43 stocks advancing against 6 declines while 1 stock remained unchanged on the index.

The top gainers on the Nifty were Reliance Infrastructure up 4.25%, Reliance Communications up 3.91%, Coal India up 3.17%, ONGC up 2.64% and Reliance Power up 2.49%.

Cairn India down 1.70%, M&M down 0.94%, RIL down 0.51%, Kotak Bank down 0.49% and ACC down 0.46% were the major losers on the index.

In the Asian space, Shanghai Composite shrank 0.94%, Hang Seng plunged 0.23%, Jakarta Composite eased 0.04%, Nikkei 225 shed 0.06%, Straits Times lost 0.38%, Seoul Composite declined 0.37%, KLSE Composite dropped 0.37% and Taiwan Weighted plummeted 1.86%.

The European markets were trading in green as France’s CAC 40 ascended 1.07%, Germany’s DAX added 0.55% and Britain’s FTSE 100 amassed 0.46%.