Markets drift lower as RBI keeps policy rates unchanged

After a positive start and subsequent fall, Indian equity markets, has drifted into negative territory post release of the monetary policy statement by the Reserve Bank of India (RBI). The apex bank has left repo and reverse repo rates unchanged, whereas the CRR has been retained at 4.75%. The central bank, however, has cut SLR to 23% from 24% earlier. In currency markets, rupee depreciated against dollar on heavy month-end dollar demand from oil importers. On sectoral front, shares of rate sensitive banking, realty and automobile sectors were drifting lower following the central bank leaving rates unchanged, while only FMCG and healthcare sectors were trading in green zone. In global markets, most of the Asian shares trading higher on hopes for further stimulus from the European Central Bank and the US Federal Reserve, both of which hold policy meetings this week. Back home, the market breadth favoring negative trend; there were 966 shares on the gaining side against 1,261 shares on the losing side while 105 shares remained unchanged.

The BSE Sensex is currently trading at 17,028.99 down by 114.69 points or 0.67% after trading as high as 17,208.45 and as low as 17,004.09. There were 8 stocks advancing against 22 declines on the index.

The broader indices were trading on a negative note; the BSE Mid cap index down 0.48% while Small cap index was up 0.35%.

On the BSE sectoral space, FMCG up by 0.37% and Health Care up by 0.11% while Auto down by 1.47%, Bankex down by 1.43%, Metal down by 1.24%, Realty down by 1.10% and Auto down by 1.10% there were losers on the index.

Cipla up by 1.95%, Wipro up by 1.30%, HDFC up by 0.83% ONGC up by 0.72% and ITC up by 0.72% were top gainers on the Sensex, while Bharti Airtel down by 2.98%, SBI down by 2.58%, BHEL down by 2.20%, Tata Steel down by 1.79% and Tata Motors down by 1.74% were top losers in the index.

 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 is currently trading at 5,159.10, down by 40.70 points or 0.78% after trading as high as 5,218.35 and as low as 5,154.05. There were 14 stocks advancing against 36 declines on the index.

The major gainers on the Nifty were Cipla up by 1.76%, Wipro up by 1.67%, Grasim up by 1.11%, ACC up by 0.67% and Coal India up by 0.67%. While, Bank Baroda down by 3.63%, Bharti Airtel down by 3.12%, Reliance Infra down by 3.01%, SBI down by 2.87% and SAIL down by 2.73% were major losers on the index.

Most Asian markets were trading in green; Hang Seng index up by 0.74%, Nikkei 225 up 0.69%, Taiwan Weighted up 1.56%,  Kospi Composite Index up 2.07%  and  Jakarta Composite  up by 0.61%  while  Straits Times was down 0.39%,  KLSE Composite down 0.08%, and Shanghai Composite down 0.05% were the losers.