Sensex shrugs upbeat global cues; continues to languish around day’s low

Stock markets in India continued to languish around the day’s low in Monday’s afternoon trades with the benchmark equity indices shedding about a percentage point, largely dragged by rate sensitive stocks. After getting off to a gap up opening, the markets traded with hefty gains of over a percent for most part of morning trades as cues from across the global space remained supportive. Greek parliamentary elections’ likely verdict of a narrow victory to parties that supported a bailout for the country’s failed economy, propelled market participants across the Asian region into an euphoric mood as the vote was widely seen as a last chance for the debt laden nation to remain in the European Union. Most markets in the European region too traded with over one and half a percent gains as fears of a global financial turmoil due to Euro-zone break-up got dispelled with the Greek election’s likely outcome. However, the frontline equity indices collapsed over two percentage points from the high point of the day with the RBI’s mid quarterly monetary policy review outcome and the key gauges found some support around the psychological 5,100 (Nifty) and 16,800 (Sensex) levels. Investor sentiments’ got spooked after RBI maintained a status quo on key interest rates, choosing to keep its focus on reining in the inflationary pressure on economy rather than stimulating economic momentum. The central bank’s move defied wider market expectations of a cut in key interest rates by 25 basis points as they expected RBI to employ monetary easing measures to bring the economy out of doldrums. Meanwhile, a separate data highlighted that India’s consumer price inflation moved up marginally to 10.36% in May on account of increase in prices of vegetables, edible oils and milk. Meanwhile, cues from the money market too remained disappointing as rupee come off the day’s highs and depreciated against the US dollar. On the BSE sectoral space, the rate sensate Bankex and Realty pockets got brutally butchered by over two percent and remained the top laggards. Amid the broad based position squaring, the only index which traded with notable gains was the Consumer Durables index which traded with close to a percent gains.

Moreover, the broader markets traded on negative note with moderate cuts of around half a percent, performing relatively better than their larger peers. The bourses plunged on extremely large volumes of over Rs 1 lakh crore while the market breadth on BSE was in favor of declines in the ratio of 1455:938 while 126 scrips remained unchanged.

The BSE Sensex is currently trading at 16,789.56 down by 160.27 points or 0.95% after trading as high as 17,109.95 and as low as 16,733.04. There were 3 stocks advancing against 28 declines on the index.

The broader indices were trading on a negative note; the BSE Mid cap index declined 0.56% and Small cap index shed 0.33%.

On the BSE sectoral space, Consumer Durables up 0.79% was the only gainer, while Bankex down 2.23%, Realty down 2.01%, FMCG down 1.08%, PSU down 0.89% and Oil & Gas down 0.79% were the major laggards in the space.

Tata Steel up 1.05%, Bajaj Auto up 0.75% and Tata Motors up 0.62% were the only gainers on the Sensex, while SBI down 2.75%, ICICI Bank down 2.26%, HDFC Bank down 2.20%, Dr Reddy’s down 1.98% and Tata Power down 1.76% were the major losers in the index.

Meanwhile, dampening the growing sanguinity in financial markets, the Reserve Bank of India (RBI), often regarded as one of the world's most aggressive central banks, lived up to the tag as they dashed all hopes of slashing key interest rates by leaving them unmoved in its recent mid-quarter monetary policy review meet. The RBI maintained status quo on the repo rate, rate at which banks borrow money from RBI, keeping it unchanged from its 8 percent levels.

Consequently, the reverse repo rate, rate at which Reserve Bank borrows money from banks, under the liquidity adjustment facility (LAF) remained unchanged at 7.0 percent, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0 percent. Meanwhile, scheduled banks’ cash reserve ratio (CRR), ratio which individual banks need to keep on hand in the form of cash reserves with the central bank, was also left unchanged at 4.75 percent of their net demand and time liabilities.

The central bank’s move has defied wider market expectations of a cut in key interest rates by 25 basis points as they expected RBI to employ monetary easing measures to bring the economy out of doldrums. The IIP numbers released by the government last week suggested that industrial production grew at a frustratingly slow pace while the country's economic growth rate slipped to 5.3 percent in the fourth quarter of 2011-12, lowest in nearly 9 years due to poor performance of the manufacturing and farm sectors.

However, the most recent inflation reading painted a gloomier picture of the economy as it accelerated to 7.55 percent levels in May, leaving the RBI in a tight spot. Recent growth-inflation dynamics have prompted the Reserve Bank to indicate that no further tightening is required. Notwithstanding the deceleration in economic growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions.

At a time when most experts are criticizing the apex bank for not stimulating growth, some experts commended RBI’s decision to hold rates amid the highly inflationary scenario. They were of the opinion that by keeping monetary policy tight the RBI is trying to rein in the inflationary pressure on the economy which is a well thought plan and would augur well for the economy in the long run.

The S&P CNX Nifty is currently trading at 5,082.30, lower by 56.75 points or 1.10% after trading as high as 5,190.20 and as low as 5,068.85. There were 6 stocks advancing against 43 declines on the index.

The top gainers on the Nifty were Cairn up 1.13%, ACC up 0.88%, Bajaj Auto up 0.83%, Power Grid up 0.75% and Tata Steel up 0.59%.

DLF down 3.76%, HCL Tech down 3.05%, SBI down 3.03%, ICICI Bank down 2.76% and Axis Bank down 2.67% were the major losers on the index.

In the Asian space, Shanghai Composite advanced 0.25%, Hang Seng surged 1.22%, Jakarta Composite soared 1.67%, KLSE Composite ascended 0.42%, Nikkei 225 jumped 0.1.77%, Straits Times Index climbed 0.95%, KOSPI Composite Index shot up 1.81% and Taiwan Weighted garnered 1.76%.

The European markets got off to a positive start as France’s CAC 40 surged 1.22%, Germany’s DAX ascended 1.29% and the United Kingdom’s FTSE 100 jumped 1.33%.