Indian equities add losses to continue its weak trade

Indian equities added losses to continue its weak trade in the late afternoon session, which was largely dragged by rate sensitive stocks. The pessimism crept in after Reserve Bank of India’s (RBI) mid quarterly monetary policy review outcome which kept its focus on reining in the inflationary pressure on economy rather than stimulating economic momentum. Traders were seen piling up position in Consumer Durables sector while selling was witnessed in Bankex, Realty and FMCG sector. Shares of rate sensitive Banking and Realty stocks were seen trading under pressure after RBI dashed all hopes of slashing key interest rates by leaving them unmoved in its recent policy review meet held today. Aviation companies Kingfisher Airlines, Jet Airways and Spicejet were seen trading under pressure in red after Government ruled out the possibility of raising the 49 percent FDI cap in the Indian aviation, which the beleaguered industry was eagerly vying for. In the scrip specific development, Tata Steel, The Tinplate Company of India and Tata Sponge Iron were seen trading firm after Tata Steel on Friday, June 15, 2012, made a voluntary open offer for raising its stake in The Tinplate Company of India and Tata Sponge Iron.

On the global front, the Asian markets were trading in green while the European markets were seen trading on a mixed note.  Greek parliamentary elections’ likely verdict of a narrow victory to parties that supported a bailout for the country’s failed economy, propelled market participants 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. On the home turf, the NSE Nifty and BSE Sensex were trading below their psychological 5,100 and 16,800 levels respectively. The market breadth on BSE was negative in the ratio of 907:1610 while 130 scrips remained unchanged.

The BSE Sensex is currently trading at 16,702.13 down by 247.70 points or 1.46% after trading as high as 17,109.95 and as low as 16,686.01. There were 3 stocks advancing against 27 declines on the index.

The broader indices were trading on a negative note; the BSE Mid cap index declined 1.02% while Small cap index shed 0.64%.

On the BSE sectoral space, Consumer Durables up 0.24% was the sole gainer, while Bankex down 3.16%, Realty down 2.49%, FMCG down 1.33%, Capital Goods down 1.30% and Power down 1.28% were the major laggards in the space.

Tata Steel up 1.49%, Bajaj Auto up 0.68% and Coal India up 0.18% were the only gainers on the Sensex, while SBI down 4.08%, ICICI Bank down 3.36%, Sterlite Industries down 3.34%, HDFC Bank down 3.04% and Dr Reddy’s down 2.31% were the major losers in the index.

Meanwhile, furthering over two-year-old anti-inflationary posture, Reserve Bank of India (RBI), shockingly this time around also preferred to sacrifice growth over inflation and left the key cash reserve ratio (CRR) and policy repo rate untouched at 4.75% and 8% respectively, in its mid-quarter monetary policy review.  The Reserve Bank had frontloaded the policy rate reduction only in April with a cut of 50 basis points. Consequent, to this standstill stance, the reverse repo rate under the LAF will remain unchanged at 7% and the marginal standing facility (MSF) rate and the Bank Rate at 9%. However, the central bank of India to further augment liquidity and encourage banks to increase credit flow to the export sector, increased the limit of export credit refinance from 15% of outstanding export credit of banks to 50%, a move which will potentially release additionally liquidity of over Rs 300 billion, equivalent to about 50 basis points reduction in the CRR.

Uncomfortable with soaring headline inflation, more importantly the Retail Inflation measured as Consumer price index (CPI) inflation, which entered double digits of 10.36% in April from 9.38% in March, the RBI in light of deteriorating global macroeconomic and financial conditions, opted to battle out the inflation demon. During 2011-12, headline WPI inflation rate moderated from a peak of 10% in September 2011 to 7.7% in March 2012. However, during 2012-13 so far, provisional data suggest that it inched up from 7.2% in April to 7.6% in May, driven mainly by food and fuel prices. 'Further reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressures,' the RBI reported in its mid-quarter policy review.  Rupee’s fall, which counterbalanced the positive impact that the wholesale prices index, could have given the decline of the international crude prices, also emerged to be one of the reason behind the standstill policy of RBI.

The central bank, to tackle inflation, raised its key lending rate 13 times since March 2010 but appeared reversing the rate cycle by cutting the repo rate (short-term lending rates) by 50 basis points in April. However, RBI in its forward guidance has clearly stated that the evolving growth-inflation dynamic would continue to influence its decision-making. 'Future actions will depend on a continuing assessment of external and domestic developments that contribute to lowering inflation risks,' the RBI said in its statement.

The S&P CNX Nifty is currently trading at 5,060.75, lower by 78.30 points or 1.52% after trading as high as 5,190.20 and as low as 5,057.45. There were 6 stocks advancing against 44 declines on the index.

The top gainers on the Nifty were Tata Steel up 1.27%, Cairn India up 1.02%, Power Grid up 0.94%, ACC up 0.72% and Bajaj Auto up 0.68%.

HCL Tech down 4.62%, DLF down 4.47%, SBI down 4.08%, Axis Bank down 3.76% and PNB down 3.68% were the major losers on the index.

In the Asian space, Shanghai Composite advanced 0.40%, Hang Seng surged 1.01%, Jakarta Composite soared 1.46%, KLSE Composite ascended 0.19%, Nikkei 225 jumped 0.1.77%, Straits Times Index climbed 0.61%, KOSPI Composite Index shot up 1.81% and Taiwan Weighted garnered 1.76%.

The European markets were trading on a mix note with, France’s CAC 40 dropped 0.34%, Germany’s DAX ascended 0.32% and the United Kingdom’s FTSE 100 descended 0.19%.