Benchmarks continue firm trade in late morning session

Indian equity benchmarks continued their firm trade in late morning session on account of buying in front line blue chip counters. The upbeat trend got support by strong global cues along with buying in Tata group shares. Even the withdrawal of incremental Cash Reserve Ratio (CRR) hike by RBI boosted the sentiments further. The rupee gained against the dollar in early trade on sustained selling of the US currency by exporters and banks. The weakness in the dollar against other currencies overseas supported the rupee. A higher opening in the domestic equity market also gave the uptrend some momentum. This was the third consecutive day of rise for the domestic currency. The sentiments got support with Finance Minister Arun Jaitley’s statement that demonetisation will boost growth in long run. The Finance Minister said the country will now have a cleaner economy, cleaner ethics and better GDP, he added that the economy, in the long term, is looking for a major change and policy makers now have a vision. Meanwhile, the government has sought the approval of the Lok Sabha for gross additional expenditure of Rs 59,978.29 crore as part of the Second Batch of Supplementary Demands for Grants for the fiscal 2016-17. Interestingly, the supplementary demand document was silent on whether this additional spend would affect the Centre’s fiscal deficit position or not. Some support also came with S&P Global Ratings stating that India with a large domestic economy will be less affected by the changes in growth and monetary policy in the new set-up under Donald Trump administration. Traders were seen piling position in Metal, Auto and Consumer Durables sector stocks. In scrip specific development, Crompton Greaves was trading in red after the company said that its deal with Pauwels Spaco -an SPV of first reserve (parties) for sale of its power business in Europe, North America and Indonesia stands terminated. Divi’s Laboratories was trading under pressure after the pharma major said the US Food and Drug Administration (USFDA) has issued form 483 with five observations against its unit at Visakhapatnam of Andhra Pradesh.

On the global front, Asian shares were trading mostly in green, after Wall Street strode to new records. Investors are bracing for the ECB’s policy-setting meeting scheduled for today. Japan’s third-quarter GDP was weaker than thought with a 0.3 percent expansion, revised data showed today, as slack corporate spending held back the world’s number three economy. Back home, the NSE Nifty and BSE Sensex were trading above the psychological 8,200 and 26,500 levels respectively. The market breadth on BSE was positive in the ratio of 1667:417, while 101 scrips remained unchanged.

The BSE Sensex is currently trading at 26583.76, up by 346.89 points or 1.32% after trading in a range of 26357.35 and 26636.42. There were 28 stocks advancing against 2 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index was up by 1.18%, while Small cap index was up by 1.27%.

The top gaining sectoral indices on the BSE were Metal up by 2.54%, Auto up by 2.28%, Consumer Durables up by 2.01%, FMCG up by 1.31% and PSU up by 1.31%, while there were no losing indices on BSE sectoral front.

The top gainers on the Sensex were Tata Motors up by 3.47%, Tata Steel up by 3.47%, Adani Ports & Special Economic Zone up by 2.53%, Maruti Suzuki up by 2.32% and Coal India up by 2.09%.

On the flip side, NTPC down by 0.71% and Dr. Reddy’s Lab down by 0.48% were the top losers.

Meanwhile, in a surprise decision, the Reserve Bank of India (RBI) in its fifth bi-monthly policy announcement maintained status quo, keeping the policy repo rate unchanged at 6.25 per cent. It was first monetary policy review after the government’s announcement of demonetization and was largely expected that the RBI will go for atleast a quarter percent of cut in the policy rates. But, the six-member Monetary Policy Committee (MPC), voted unanimously in favour of keeping the policy repo rate unchanged at 6.25 per cent, they felt that “the assessment is clouded by the still unfolding effects of the withdrawal of specified bank notes (SBNs)” of Rs 500 and Rs 1,000 denominations, prompting it to adopt a wait-and-watch approach.

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25 per cent. Consequently, the reverse repo rate under the LAF remains unchanged at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

The RBI, however, withdrew the 100 per cent incremental Cash Reserve Ratio (CRR) - the ratio of deposits to be kept with the central bank – requirement on deposits raised between September 16 and November 11, effective the fortnight beginning December 10, 2016, releasing more liquidity into the system.

In its assessement MPC noted that global growth picked up modestly in the second half of 2016 but the expectations of reflationary fiscal policies in the US, Japan and China, and the waning of downward pressures on EMEs in recession are tempered by still-prevalent political risks in the euro area and the UK, emerging geo-political risks and the spectre of financial market volatility. On the domestic front, the growth of real gross value added (GVA) in Q2 of 2016-17 turned out to be lower than projected on account of a deeper than expected slowdown in industrial activity. Regarding inflation it said that retail inflation measured by the headline consumer price index (CPI) eased more than expected for the third consecutive month in October, driven down by a sharper than anticipated deflation in the prices of vegetables. Underlying this softer reading, however, was an upturn in momentum as prices rose month-on-month across the board. In the external sector, India’s merchandise exports rebounded in September and October. After a prolonged fall for 22 months, imports rose in October on the back of a sharp rise in the volume of gold imports and higher payments for POL imports.

In its outlook the MPC noted that upturn in the prices of several items that is masked by the easing of inflation on base effects during October. Despite some supply disruptions, the abrupt compression of demand in November due to the withdrawal of SBNs could push down the prices of perishables in the reading that becomes available in December. The withdrawal of SBNs could result in a possible temporary reduction in inflation of the order of 10-15 basis points in Q3 and the headline inflation is projected at 5 per cent in Q4 of 2016-17 with risks tilted to the upside but lower than in the October policy review. However, incorporating the expected loss of growth momentum in Q3 and waning effects in Q4 alongside the boost to consumption demand from higher agricultural output and the implementation of the 7th CPC award, GVA growth for 2016-17 was revised down from 7.6 per cent to 7.1 per cent, with evenly balanced risks. MPC also noted that globally, the imminent tightening of monetary policy in the US is triggering bouts of high volatility in financial markets, with the possibility of large spillovers that could have macroeconomic implications for EMEs.

The CNX Nifty is currently trading at 8209.75, up by 107.70 points or 1.33% after trading in a range of 8151.75 and 8225.50. There were 47 stocks advancing against 4 stocks declining on the index.

The top gainers on Nifty were Tata Motors - DVR up by 4.17%, Tata Motors up by 3.57%, Bosch up by 3.39%, Tata Steel up by 3.13% and Zee Entertainment up by 2.88%.

On the flip side, NTPC down by 0.80%, Bharti Infratel down by 0.73%, Aurobindo Pharma down by 0.69% and Dr. Reddy’s Lab down by 0.44% were the top losers.

The Asian markets were trading mostly in green; FTSE Bursa Malaysia KLCI increased 5.23 points or 0.32% to 1,637.70, Jakarta Composite increased 11.66 points or 0.22% to 5,277.03, KOSPI Index increased 26.37 points or 1.32% to 2,018.26, Taiwan Weighted increased 91.32 points or 0.99% to 9,355.21, Hang Seng increased 131 points or 0.57% to 22,931.92 and Nikkei 225 increased 171.53 points or 0.93% to 18,668.22.

On the other hand, Shanghai Composite decreased 3.57 points or 0.11% to 3,218.67.