RBI’s status-quo stance triggers brutal risk aversion on D-Street

The Reserve Bank of India’s (RBI) quarterly monetary policy review day turned out to be a tumultuous one for the stock markets in India, which reversed their course immediately after the RBI’s policy decision came to the fore. The benchmark equity indices not only got ruthlessly slaughtered by about over one and a half percent from the high point of the day but also went on to undo all the good work done in the past months as Nifty end below 5,600 mark for the first time after September 20, 2012. The psychological 5,700 (Nifty) and 18,700 (Sensex) levels proved as stern resistances as the key gauges tumbled lower from those levels and the southbound journey only halted with the close of trade.

The sentiments’ got spooked mainly after RBI in second quarter review of monetary policy 2012-13, left its key policy rates, viz. repo and reverse repo, unchanged at 8 percent and 7 percent respectively. By maintaining the repo rate, the central bank has reiterated its stance on inflation management since upside risks to inflation continue to persist. However, investors ignored RBI’s move to reduce the cash reserve ratio - the percentage of deposits banks keep with the Reserve Bank by 0.25 percent to infuse additional liquidity that will inject Rs 17,500 crore into the financial system.

Meanwhile, banks, especially state-owned ones, were further hurt after the RBI increased the amount of provisioning against restructured assets for the sector to 2.75 percent from 2 percent, as part of its monetary policy review. Selling pressure aggravated as RBI also lowered economic growth estimate to 5.8 percent for 2012-13, from 6.5 percent projected earlier while, the forecast for inflation for March 2013 was raised to 7.5 percent, from 7.0 percent.

However, investors shrugged off supportive global cues as Asian market shut shop mostly in the green as sentiments got some support after Bank of Japan announced monetary easing that was marginally higher than street estimation. Moreover, European counters too traded firmly in the early trade as the initial damage inflicted by a powerful storm on the US east coast looked to have been less severe than many had expected.

Back home, sentiments got dampened after most of the sectors got hammered badly during the trade. Major stress was witnessed among banking stocks, mainly the PSUs with the apex bank maintaining status quo on policy rates however, even other rate sensitives, viz. Auto and Realty witnessed nasty laceration. Moreover, tyre stocks accelerated amidst sluggish trade, after Competition Commission of India (CCI) gave a clean chit to the tyre manufacturing companies, which were off lately being probed for alleged cartelisation. The anti-trust regulator issued order for probe on allegations of cartelisation among tyre manufacturers following a compliant. However, software and technology space remained the only gainers on the BSE sectoral front after rupee fell to a five-week low against the dollar on October 30, 2012.

The NSE’s 50-share broadly followed index Nifty butchered by about seventy points to end below its psychological 5,600 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex hammered badly by over two hundred points to finish below the psychological 18,450 mark. Broader markets too settled on a pessimistic note with a brutal cut of over a percent.

The overall volumes stood at over Rs 1.70 lakh crore, which remained on the higher side as compared to that on Monday. The market breadth remained in favor of declines as there were 1,004 shares on the gaining side against 1,795 shares on the losing side while 119 shares remain unchanged.

Finally, the BSE Sensex shaved off 204.97 points or 1.10% to settle at 18,430.85, while the S&P CNX Nifty plunged by 67.70 points or 1.19% to end at 5,597.90.

The BSE Sensex touched a high and a low of 18,718.28 and 18,393.42, respectively. The BSE Mid-cap index was down by 1.01% and Small-cap index was down by 1.26%.

Maruti Suzuki up 2.27%, Dr Reddys Lab up 1.58%, Infosys up 0.99%, HUL up 0.80% and Wipro up 0.78% were the major gainers on the Sensex. On the flip side, SBI down 4.43%, Tata Motors down 3.52%, L&T down 2.93%, Hindalco down 2.38% and Jindal Steel down 2.25% were the major losers on the index.

The top gainers on the BSE sectoral space were IT up 0.51% and TECk up 0.36%. While Bankex down 2.35%, Realty down 2.28%, Consumer Durables (CD) down 2.26%, Capital Goods (CG) down 2.09% and PSU down 1.71% were top losers on the BSE sectoral space.

Meanwhile, to decide on fixing reserve prices for 54 coal mines, which are to be allocated through competitive bidding route, the Ministries of Power and Steel has approached CRISIL for suggestions. Ministers are likely to approach the coal ministry with their final draft by end of the month, after holding meetings with CRISIL. A linkage to international prices while considering valuation of coal reserves was proposed by the government appointed panel, which was in charge of preparing draft proposal on coal mine allocation.

CRISIL had urged government to provide discount for mines allocated to power sector and other public sector companies reasoning that if not done so will lead to increase in electricity tariff. The centre had affirmed that it would begin the process of allocating coal blocks through competitive bidding route by the year-end. While the Ministry of Coal has identified about 54 new coal blocks for auction to the bidders for captive use in different sectors, nearly 16 is for power, 12 for steel and 12 for government firms in other sectors.

CRISIL has been directed to provide the ratings, research, and risk and policy advisory services while preparing the methodology as its been identified as the lowest financial bidder for the Coal Ministry's contract. The Comptroller and Auditor General had come up with the report that private allottees might have the financial impact on their benefits by about Rs 1.86 lakh crore, on 57 coal block allocation.

The S&P CNX Nifty touched a high and a low of 5,689.90 and 5,589.90 respectively.

The top gainers on the Nifty were Maruti Suzuki up 1.75%, Dr Reddy up 1.14%, IDFC up 0.88%, HUL up 0.82% and Infosys up 0.79%.

The top losers on the index were Bank of Baroda down 5.13%, SBI down 4.60%, JP Associates down 4.35%, Tata Motors down 3.68% and PNB down 3.62%.

European markets were trading in green. France’s CAC 40 up 1.20%, Germany’s DAX up 0.93% and Britain’s FTSE 100 up by 0.79%.

Most of the Asian stock markets ended in green on Tuesday as the Bank of Japan announced monetary easing that was marginally higher than market forecasts and cut its growth outlook. Hong Kong markets went home with red mark as local developers continued to decline following recent measures introduced to cool down the property market. Japan’s Nikkei closed lower after the central bank expanded its asset-purchase fund by 11 trillion yen to 66 trillion yen.