RBI’s mid-quarterly policy review emerges to be party pooper for D-street

RBI’s mid-quarterly policy review emerged to be party pooper for Dalal Street, which knocking off significant portion of gains, nose-dived to intra-day’s low level, as investors digested world’s most aggressive central bank’s anti-inflationary stance. After acknowledging the small effort made by the finance minister in moving towards fiscal consolidation, RBI’s governor, Duvvuri Subbarao, playing safe, just slashed CRR by 25 basis points, a move which is expected to release Rs 17,000 crore in banking system, besides underscoring that its priority remained fighting inflation. Major losers on BSE sectoral front were stocks from Information Technology, Fast Moving Consumer goods and healthcare counters, while keeping up the uptrend were the stocks of Realty, Capital Goods and Bankex counters. Additionally, Aviation and Retail stocks continue to make most out of FDI move.

Sentiment at Dalal Street also turned sour with negative opening of European markets. European shares dipped in early trade on Monday as investors took a breather following a sharp two-week rally.

Closer home, the BSE Sensex is currently trading at 18,486.32, up by 22.05 points or 0.12% after touching a high and low of 18715.03 and 18,485.54, respectively. There were 17 stocks advancing against 13 declines on the index. The overall market breadth on BSE is in the favour of advances which outnumbered declines in the ratio of 1340:1299, while 139 shares remained unchanged.

The broader indices too trimmed gains significantly; the BSE Mid cap and Small cap indices were trading higher by 0.50% and 0.64% respectively.

The top gainers on the BSE sectoral space were, Realty up by 4.53%, CG up by 2.12%, Bankex up by 1.91%, Auto up by 1.51% and Power up by 1.44%. While IT down by 2.82% and FMCG down by 2.69%, HC down by 1.92% and TECk down by 1.90% were top losers on the index.

The top gainers on the Sensex were Jindal Steel up by 4.37%, ICICI Bank up by 4.27%, Tata Motors up by 3.29%, SBI up by 2.97% and L&T up by 2.93%. On the flip side, ITC down by 3.88%, TCS down by 3.50%, Dr Reddys Lab down by 3.47%, Infosys down by 2.47% and Wipro down by 2.03% were top losers on the Sensex. 

Meanwhile, in an effort to sustain the newly-found animal spirit, Reserve Bank of India (RBI), in its mid-quarter monetary policy review, walking through a much thin rope, only slashed cash reserve ratio (CRR) of scheduled banks by 25 basis points from 4.75 per cent to 4.50 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning September 22, 2012. However, world’s most aggressive central bank, furthering its anti-inflationary stance, maintained a status quo on key policy rates, viz. repo and reverse repo, currently at 8 per cent and 7 per cent respectively. Meanwhile, marginal standing facility (MSF) rate and the Bank Rate stood unchanged at 9.0 per cent.

In an effort to capitalize on the momentum generated by last week's sudden burst of reforms by the government, which is basking in all-round praise for decisively attempting to rebound after months of paralysis, RBI’s move, which is expected to pump in around Rs 17,000 crore into the banking system, is seen as a positive one by some bankers. 

Meanwhile, after facing months of contemptuous criticism on policy paralysis, the government braved the might of opposition, by announcing a series of big-bang reforms, beginning with an increase in diesel prices followed by allowing foreign direct investment (FDI) in multi-brand retail and power exchanges as well as relaxing the norms on FDI in aviation and broadcasting.

However, RBI in its mid-quarter monetary policy review underscored that since inflationary tendencies have persisted, the primary focus of monetary policy remains the containment of inflation and anchoring of inflationary expectations.  Further, in its guidance, RBI pointing at current situation, where persistent inflationary pressures alongside risks emerging from twin deficits - current account deficit and fiscal deficit - has constrained a stronger response of monetary policy to growth risks, stated that the stance of RBI’s monetary policy will be conditioned by careful and continuous monitoring of the evolving growth-inflation dynamic.

Only in April, the Reserve Bank implemented a frontloaded policy rate reduction of 50 basis points on the expectations of fiscal policy support for inflation management alongside supply-side initiatives for addressing the deceleration of investment and growth. As these expectations did not materialise and inflation remained firmly above 7.5 per cent, the Reserve Bank decided to pause in its policy easing in the mid-quarter review (MQR) of June and in the first quarter review (FQR) of July.

The S&P CNX Nifty is currently trading at 5,589.05, up by 11.40 points or 0.20% after trading in a range of 5,652.20 and 5,589.05There were 28 stocks advancing against 22 declines on the index.

The major gainers of the Nifty were Reliance Infra up by 5.66%, DLF up by 5.08%, JP Associates up by 4.95%, IDFC up by 4.86% and ICICI Bank up by 4.17%. On the flip side, ITC down by 4.04%, Dr Reddy down by 3.74%, TCS down by 3.58%, Ranbaxy down by 3.31% and Infosys down by 2.66% were major losers on the index.

Asian indices were trading mixed; Jakarta Composite was up by 0.09%, Taiwan Weighted added 0.31% and Straits Times jumped by 0.37% while Shanghai Composite lost 2.11%, Kospi Composite Index declined by 0.26% and Hang Seng index was down 0.01%, were the losers.  The Japanese market is closed today on account of a public holiday on ‘Respect for the Aged Day’, while the Malaysian market is closed on account of Malaysia Day public holiday.

European markets got a pessimistic start; CAC 40 declined 0.58%, DAX lost 0.11% and FTSE 100 surrendered 0.36%.