Unexpected rate hike drags market lower; Nifty below 5,600 mark

The fifty stock index -- Nifty -- witnessed massacre on Tuesday and ended the day’s trade with a cut of over 100 points on the back of unexpected 50 basis point (bps) rate hike by Reserve Bank of India (RBI). However, all the Asian counterparts finished the trade on the strong note. Earlier, the Indian equity markets made a flat start and traded in the narrow range till late morning as investors remained cautious ahead of the RBI’s quarterly monetary policy review. But, once the number came in, the mood turned murky and the benchmark took a sharp fall as RBI increased its key interest rates by 50 basis point. The Repo rate was raised to 8% from 7.50% and Reverse Repo rate raised to 7% from 6.50% while CRR was left unchanged at 6%. RBI Governor said inflation will remain at elevated levels for a few more months and it will continue with anti-inflationary stance. The local market breached its crucial 5,600 mark in the early noon trade as European counterparts turned negative after a positive start. Moreover, the sentiments got thrashed as rate sensitive were beaten down badly on concerns that rising interest rate would impact business adversely. The domestic market continued to trade weak in the mid afternoon on reports that RBI has raised its outlook for wholesale price inflation at the end of the fiscal year in March to 7 percent from 6 percent. Moreover, index heavyweight Reliance Industries ended with a cut of 1.25 percent after the company posting a 16.7 percent rise in its first quarter net profit to its highest ever, but that came lower than what street was expecting on a strong performance by its oil refining business. Afterwards the index traded in the range of 5,550-5,600 till end as there was no positive news. Finally, Nifty snapped the sluggish day of trade near its intraday low with a cut of over about two percentage point.

On the global front, the US markets closed lower overnight as the impasse of increasing debt limit remained unresolved. However, all the Asian equity indices finished the day’s trade in the positive terrain on Tuesday on hopes that a compromise would resolve the US debt deadlock even as President Barack Obama illustrated his country as being dangerously close to default. Moreover, all the European counterparts were trading in the red at this point of time. Back home, on the sectoral front, all the indices on NSE got hammered, CNX Realty remained the major laggard, losing 3.61% followed by CNX Infra down 2.71% and Bank Nifty dropped 2.43%. The India Volatility Index (VIX), a gauge for market’s short term expectation of volatility, was up 0.52% and reached 19.30, while S&P Nifty closed at 5,574.85 losing 105.45 points or 1.86%.

The India VIX witnessed an addition of 0.52% at 19.30 on Tuesday as compared to its previous close of 19.20 on Monday.

The 50-share S&P CNX Nifty tanked 105.45 points or 1.86% to settle at 5,574.85.

Nifty July 2011 futures closed at 5,577.30, at a premium of 2.45 point over spot closing of 5,574.85, while Nifty August 2011 futures were at 5,593.00 at a premium of 18.15 points over spot closing. The near month July 2011 derivatives contract expires on Thursday, 28 July, 2011. Nifty July futures saw an addition of 20.63% or 3.75 million (mn) units, taking the total outstanding open interest (OI) to 21.98 mn units.

From the most active contract by contract value, SBI’s July 2011 futures closed at a discount of 3.50 points at 2433.50 compared with spot closing of 2437.00. The number of contracts traded was 37,822.

BHEL July 2011 futures were at a premium of 0.55 point at 1908.55 compared with spot closing of 1908.00. The number of contracts traded was 32,327.

ICICI Bank July 2011 futures were at a premium of 0.30 at 1041.30 compared with spot closing of 1041.00. The number of contracts traded was 27,656.

RIL July 2011 futures were at a premium of 0.65 at 871.00 compared with spot closing of 870.35. The number of contracts traded was 29,616.

L&T’s July 2011 futures were at a premium of 1.95 at 1783.65 compared with spot closing of 1781.70. The number of contracts traded was 12,832.

Among Nifty calls, 5700 SP from the July month expiry was the most active call with an addition of 1.91 million or 21.05%.

Among Nifty puts, 5600 SP from the July month expiry was the most active put with  a decline of 2.79 million or 26.00%.

The maximum Call OI outstanding for Calls was at 5600 SP (11.01 mn) and that for Puts was at 5500 SP (7.94 mn).

The respective Support and Resistance levels are: Resistance 5664.68 -- Pivot Point 5612.4167-- Support 5522.58.

The Nifty Put Call Ratio (PCR) OI wise stood at 1.04 for July month contract.

The top five scrips with highest PCR on OI were MRF 2.75, Sun Pharmaceuticals Industries 2.24, Punjab National Bank 2.14, Asian Paints 2.00 and Axis Bank 1.64.

Among most active underlying, SBI witnessed an addition of 0.44% of Open Interest (OI) in the July month futures contract followed by BHEL which witnessed an addition of 10.32% of Open Interest (OI) in the near month contract. Meanwhile ICICI bank witnessed a decline of 0.27% of OI in the July month futures. Additionally, L&T witnessed an addition of 6.49%, while Bharti Airtel witnessed decline of 0.35% in OI in the July month futures contract.