Indian markets witness smart intra-day turnaround on sanguine global cues

Boisterous Indian equity markets managed to elegantly overcome early blues and staged an exciting bounce back from the lowest levels on Tuesday’s session, taking the benchmark indices beyond crucial technical levels. The frontline indices surged over one and half a percentage points from intraday lows to settle comfortably over the psychological 17,200 (Sensex) and 5,200 (Nifty) bastions.

Both the bourses, after trading cautiously in early session, fell sharply and touched intraday low near their psychological 5,150 (Nifty) and 17,000 (Sensex) levels triggered by a slide in interest rate sensitives banking, auto, realty stocks as the Reserve Bank of India (RBI) at its First Quarter Review of Monetary Policy Statement 2012-13 maintained status quo on its key lending rates, keeping them unchanged, as it choose to rein in inflation over growth. Moreover, what actually affected the sentiment was the lower projection of GDP growth along with higher revision of inflation, which pointed out the stagnation in economy in light of global slowdown. However, the apex bank reduced the Statutory Lending Ratio (SLR) of scheduled commercial banks to 23% from 24% of their net demand and time liabilities (NDTL) with effect from the fortnight beginning August 11, 2012.

Indian markets recovered from the day’s low tracking strength in the global markets. Asian markets ended mostly in the positive terrain with South Korea, Taiwan and Japanese markets closing near the day’s high. European stocks also traded flat to positive in early trade ahead of European Central Bank’s (ECB) meet scheduled for August 2, 2012. There is some speculation that the ECB may resume its bond buying programme to bring down rising Spanish and Italian borrowing costs, but uncertainty persists partly because Germany has repeated its opposition to such a step.

Back home, sentiments were also supported by software pack, which surged about a percent and stocks like Wipro, TCS, Financial Technologies and HCL Technologies edged higher in the trade after Prime Minister Manmohan Singh set up a panel headed by N Rangachary to review taxes in information technology and R&D sectors. Moreover, the stocks were also supported on report that RBI withdrew a previous order that made it compulsory for exporters to convert half of their forex earnings kept in local banks into rupees. Although, power sector felt the pressure and remained one of the major losers due to biggest ever power failure in India, half of the country was without electricity supply on Tuesday afternoon. However, confirming the collapse of northern and eastern grids, Power Minister Sushil Kumar Shinde was reported saying that power for all essential services like railways and metro will be restored in an hour.

The NSE’s 50-share broadly followed index Nifty, surged by about thirty points to settle well above its psychological 5,200 support level moreover, Bombay Stock Exchange’s Sensitive Index -Sensex- added over ninety points to finish well above the psychological 17,200 mark. Moreover, the broader indices too ended the session in the green trajectory. The market breadth was in the favour of advances, as there were 1,437 shares on the gaining side against 1,294 shares on the losing side while 135 shares remained unchanged.

The BSE Sensex touched a high and a low of 17,253.67 and 17,004.09 respectively. The BSE Mid cap and Small cap index ended up by 0.58% and 0.13% respectively.

ONGC up 3.34%, Sterlite Industries up 2.64%, Tata Motors up 1.92%, Reliance up 1.86% and Wipro up 1.71% were top gainers on the Sensex, while Bharti Airtel down 2.77%, SBI down 1.27%, Hero MotoCorp down 1.24%, Jindal Steel down 1.02% and Dr Reddy down 0.69% were top losers on the index.

The top gainers on the BSE sectoral space were, Oil & Gas up 1.80%, Realty up 1.17%, IT up 0.78%, Health Care (HC) up 0.69% and Metal up 0.68%, while Consumer Durables (CD) down 1.84%, Bankex down 0.28% and Power down 0.20% were top losers on the BSE sectoral space. 

Meanwhile, seeing high inflation as a bigger danger than the slowest growth in almost a decade, the Reserve Bank of India (RBI) in its much awaited first quarter monetary policy review, as expected left its policy rates unchanged at 8% (repo) and 7%( reverse repo) respectively. Also, cash reserve ratio (CRR) remained untouched at 4.75%. However, the world’s most aggressive central bank, in a surprise, did slash its Statutory Liquidity Ratio (SLR) of scheduled commercial banks from 24% to 23% of their NDTL with effect from the fortnight beginning August 11, 2012.  Meanwhile, the MSF rate determined with a spread of 100 basis points above the repo rate, along with the Bank rate remained unchanged at 9.0%

Furthering it’s over two-year-old anti-inflationary stance, RBI this time around also opted to battle out the inflation demon, as last seen in its Mid-quarterly policy review on June 18, 2012. However, in this monetary policy review, the central bank staged much hawkish stand, as besides lowering the growth forecast, it lifted its inflation outlook, on demand of deteriorating economic condition.

Reasoning newer risks to growth from slowing global trade, domestic supply bottlenecks of industrial inputs, coal and electricity and less than satisfactory monsoon, RBI lowered its GDP growth projection from 7.3% to 6.5%. On the other hand, keeping in view the recent trends in food inflation, global commodity prices and the likely demand scenario, the baseline projection for WPI inflation for March 2013 was raised from 6.5%, as set out in the April policy to 7%. India’s June headline inflation, as measured by the WPI, was at 7.25%, a figure that RBI Governor Duvurri Subbarao had earlier hailed as being way above the ‘threshold level.’

Further, in an indication that the RBI would hold the policy rate steady, RBI in its first quarter review of the macro economic and monetary developments warned that inflation is likely to remain sticky during 2012-13 and therefore a recovery should be supported through non-inflationary measure.

The RBI, with this monetary policy review, also has left the onus for the revival of domestic growth on the government through policy actions like removing constraints on foreign direct investment (FDI) and revamping the subsidy schemes.

The S&P CNX Nifty touched a high and low 5,234.55 and 5,154.05 respectively.

The top gainers on the Nifty were Grasim up 3.96%, ONGC up 3.83%, DLF up 3.62%, Sterlite Industries up 3.17% and ACC up by 2.61%. On the flipside, Bharti Airtel down 2.70%, Bank of Baroda down 2.65%, Hero Motocorp down 1.30%, Jindal Steel down 1.21% and Reliance Infra down 1.18% were top losers on the index. 

The European markets were trading mixed, France's CAC 40 was up 0.14%, Germany's DAX was up 0.46% and United Kingdom’s FTSE 100 was down 0.40%.

Most Asian markets ended higher on Tuesday amid hopes for policy easing from major global central banks.  Some positive earnings reports helped Japanese and Hong Kong stocks to hold gains for the fourth consecutive day. Defying the regional trend for the second time this week, China's Shanghai Composite Index dropped 0.3% to 2,103.63, finishing at its worst level since March 2009. However, South Korea’s Kospi Index advanced 2.1 percent even after data showed industrial production of the country dropped.