Benchmarks end a disappointing day with half a percent cut

It turned out to be a lackadaisical performance from the Indian benchmark indices on Wednesday as they failed to snap the session in the green territory and settled below the neutral line. Though the start was good tracking the positive cues of the global markets, but sentiments got spooked in the second half of trade after Reserve Bank of India (RBI) Governor Urjit Patel-led Monetary Policy Committee (MPC) maintained 'accomodative policy stance'  keeping the repurchase (repo) rate unchanged at 6.25% in its bi-monthly policy review. The MPC committee unanimously decided to keep the policy rate unchanged considering the “heightened uncertainty” of volatility related to US rate hike and the local demonetization drive. The expectation of slow pace of recovery in the economy also weighed on market sentiment.  Acknowledging the threat to economic growth from notes ban, the RBI has cut its GDP forecast, slashing gross value added growth outlook to 7.1% for FY17 from 7.6% earlier. However, in a positive move for the banking sector, the central bank withdrew incremental cash reserve ratio (CRR) of 100% on deposits. The RBI also forecast inflation to be around 5% for the fourth quarter of FY17 stating that some of the price reduction resulting out of demonetisation could be temporary. Meanwhile, former RBI Governor D Subbarao said that the Indian government's decision to delegalise high denomination currency notes may hurt growth in short-term, but in the medium- to long-term it will have positive macroeconomic implications. According to him, the banks will see their cost of funds declining even in the absence of any further policy easing by the RBI, and this should encourage them to reduce lending rates and pump credit into the economy. Also, investors got some comfort with Asian Development Bank’s (ADB’s) report, indicating that the largest economies of Asia - India and China - will help maintain the growth rate of the region at 5.7% in 2016 and 2017. The report also mentioned that India’s growth prospects have got a boost from the acceptance of the 7th pay panel recommendations and likely implementation of the Goods and Services Tax (GST) regime next year.

On the global front, Asian markets ended mostly higher on Wednesday, catching a lift from gains in the U.S. and as a weak Japanese yen helped exporters’ stocks on the Nikkei Stock Average. Also, news that China's local government pension fund is moving one step closer to investing in the stock market provided some relief, rising hopes that typically longer investment strategy of the fund will foster stability and raise liquidity. Bank stocks across Asia benefited from reports that Italy was preparing to take a €2 billion euro ($2.1 billion) controlling stake in Banca Monte dei Paschi di Siena, one of the country’s many troubled banks. Meanwhile, market participants were looking to the ECB's policy meeting on Thursday, at which it is widely expected to announce an extension of its quantitative easing programme. Uncertainty remains over whether the size of monthly purchases will be kept steady or scaled back, and over whether it will send a formal signal on the eventual end of the programme.

Back home, the local benchmark got off to an optimistic start in the morning trade as investors were largely influenced by the supportive leads from Asian markets. Thereafter, the frontline indices showed signs of consolidation and gyrated in a tight band for most part of the session. However, the key gauges suffered a setback in the last leg of trade as sudden bouts of profit booking emerged in the local markets following the surprise move of the RBI to keep key interest rates unchanged despite wide expectations of a rate cut, post which the indices could not show any kind of potent recovery. Finally the NSE’s 50-share broadly followed index Nifty, declined by half a percent to settle just above the crucial 8,100 support level, while Bombay Stock Exchange’s Sensitive Index Sensex deposed over one hundred and fifty points and closed below the psychological 26,300 mark. Moreover, the broader markets succumbed to the selling pressure despite showing positive moves early on and settled with moderate cuts. 

The market breadth remained pessimistic as there were 1085 shares on the gaining side against 1523 shares on the losing side while 181 shares remained unchanged. Finally, the BSE Sensex declined by 155.89 points or 0.59% to 26236.87, while the CNX Nifty dropped 41.10 points or 0.50% to 8,102.05.

The BSE Sensex touched a high and a low of 26540.83 and 26164.82, respectively and there were 5 stocks on gainers side against 25 stocks on the losers side on the index.

The broader indices made a negative closing; the BSE Mid cap index ended lower by 0.16%, while Small cap index was down by 0.51%.

The top gaining sectoral indices on the BSE were Oil & Gas up by 0.90%, Auto up by 0.42%, Metal up by 0.13%, PSU up by 0.06% and Consumer Durables up by 0.06%, while Realty down by 1.49%, Bankex down by 1.07%, IT down by 0.63%, FMCG down by 0.61% and Capital Goods down by 0.56% were the top losing indices on BSE.

The top gainers on the Sensex were Adani Ports &Special up by 1.86%, HDFC up by 1.74%, Hero MotoCorp up by 0.91%, Tata Motors up by 0.88% and Mahindra & Mahindra up by 0.77%. On the flip side, Sun Pharma down by 5.96%, Axis Bank down by 2.00%, TCS down by 1.47%, SBI down by 1.47% and Tata Steel down by 1.40% were the top losers.

Meanwhile, international rating agency, Fitch Ratings in its latest report titled ‘2017 Outlook: Emerging Asia Sovereigns’ has said that there is scope for monetary easing in India as retail inflation is holding below the 5 percent target. Fitch said that inflation of 4.2 percent in October 2016 was below the intermediate target of 5 percent by March 2017 and within the medium-term target range of 4 percent (+/-) 2 percent.

Fitch also said that India's growth outlook remains strong on the back of infrastructure spending and the implementation of ambitious reform agenda. As per the report, some central banks in the emerging Asian economies may still find room for further monetary policy easing, given generally low consumer inflation. It said that the growth outlook is particularly strong in Bangladesh, India and the Philippines, while it added that India accounts for 14 percent of the region's gross domestic product (GDP).

The rating agency believes that domestic growth drivers include an infrastructure boost and implementation of an ambitious reform agenda in some Asian economies like India and Indonesia. However, it said that public debt levels are high in some countries including India. The report added that India and Vietnam have favourable macroeconomic prospects, but weaknesses in their public finances have deterred rating agency from taking positive rating action. Thus, it has a 'BBB-' rating for India with a ‘stable’ outlook.

The CNX Nifty traded in a range of 8,190.45 and 8,077.50. There were 17 stocks in green against 34 stocks in red on the index.

The top gainers on Nifty were Eicher Motors up by 4.60%, BPCL up by 3.43%, Adani Ports &Special up by 2.32%, Idea Cellular up by 2.02% and HDFC up by 1.76%. On the flip side, Sun Pharma down by 5.91%, Bank of Baroda down by 3.20%, Axis Bank down by 1.96%, Tech Mahindra down by 1.86% and Bosch down by 1.41% were the top losers.

The European markets were trading in green; UK’s FTSE 100 increased 86.73 points or 1.28% to 6,866.57, Germany’s DAX increased 163.32 points or 1.52% to 10,938.64 and France’s CAC increased 55.23 points or 1.19% to 4,687.17.

Most of the Asian markets made a positive closing on Wednesday; with Japanese shares rallying on weaker yen after another record close on Wall Street overnight bolstered investor sentiment. Further, Chinese stocks snapped a three-day streak of losses, helped by a rally in resources shares. News that China's local government pension fund is moving one step closer to investing in the stock market provided some relief, rising hopes that typically longer investment strategy of the fund will foster stability and raise liquidity. Though, gains remained muted ahead of Thursday's highly-anticipated ECB meeting, which may set the tone for financial markets after Sunday's votes in Austria and Italy. The ECB is expected to extend its asset purchase program by six months to prop up growth and inflation. Oil prices eased further in Asian deals after losing 1.7 percent overnight on data showing record high production in the producer group and the API data showing solid builds in gasoline and distillate inventories.