Equity markets recoup some lost ground; support emerges at lower levels

Indian equity markets after drifting lower in a knee jerk reaction to RBI’s first quarterly monetary policy review, have recouped some lost ground as support emerged at lower levels. What led the markets lower was not the status quo stance over policy rates, but 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, digesting the bad news, investors have shifted their focus on European markets, which would be guiding factor for the rest of the session. Meanwhile, bounce back of Information Technology, could also be thanked for slender recuperation of Indian equity markets, along with the prominent gains of Fast Moving Consumer Goods and Information technology stocks. On the flip side, Capital Goods, Banking and Metal counters, continued to weigh on the exuberance of the previous session. 30 share barometer index of Bombay Stock Exchange (BSE), Sensex, despite being knocked over 75 points, was holding its 17000 crucial mark, in line with widely followed index, which was above the 5150 psychological mark. Broader indices, too trimmed losses, in sync with frontline indices.

On the global front, Asian pacific shares are mostly trading in green on hopes for further stimulus from the European Central Bank and the US Federal Reserve, both of which hold policy meetings later this week. Meanwhile, European shares appeared set to register third successive session of gains.

Closer home, the BSE Sensex, after declining by 80.14 points or 0.47% is currently trading at 17,063.54. The index, so far has touched a high of 17208.45 and a low of 17004.09. There were 10 stocks advancing against 19 declining ones on the index, while a share remained unchanged. The overall market breadth on BSE

The broader indices however rolled back some of its losses; the BSE Mid cap and Small cap indices were trading lower by 0.33% and 0.26% respectively.

Capital Goods down by 0.33%, Bankex down by 1.24%, Metal down by 1.12%, Power down by 0.73% and Realty down by 0.63% were the prominent losers on BSE sectoral space, while Health care up by 0.39%, Fast Moving Consumer Goods up by 0.20% and Information Technology up by 0.06% were the only gainers on the index.

Cipla up by 1.85%, Wipro up by 1.71%, ONGC up by 1.01% HDFC up by 0.84% and Coal India up by 0.69% were the gainers on the Sensex, while Bharti Airtel down by 2.83%, Hero MotoCorp down by 1.29%, Tata Steel down by 1.19%, Dr Reddys Lab down by 0.99% and Tata Motors down by 0.97% were the major 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 5170.50, down by 29.30 points or 0.56%. The index so far has touched a high of 5218.35 and low of 5154.05 respectively. There were 17 stocks advancing against 33 declining one’s on the index.

The top gainers on the Nifty were Wipro up by 2.19%, Cipla up by 1.92%, Grasim Industries up by 1.22%, ACC up by 0.94% and ONGC up by 0.90%. While, Bank Baroda down by 3.79%, Reliance Infra down by 2.88%, SBI down by 2.81%, SAIL down by 2.56% and Bharti Airtel down by 2.44% were the major losers on the index.

Most of the Asian indices were trading in green; Hang Seng index gained 0.73%, Nikkei 225 added 0.69%, Taiwan Weighted surged 1.56%,  Kospi Composite Index spurted by 2.07%  and  Jakarta Composite  rose 0.45%  while  Straits Times down by 0.43%,  KLSE Composite declined 0.14%, and Shanghai Composite lost 0.19% were the losers.  

European shares started off on cautious note; CAC 40 was trading lower by 0.23%, DAX declined by 0.09% and FTSE 100 lost 0.15%.