Benchmarks end near intraday high despite RBI’s status-quo stance

Despite anti-inflationary stance from Reserve Bank of India, Indian equity markets snapped the session near their intraday high levels. Frontline gauges made a positive opening but all enthusiasm was overtaken and the benchmarks entered into red after the apex bank kept the bank lending rate unchanged at 9 per cent, the repurchase (repo) rate at 8 per cent, reverse repo rate at 7 percent, the cash reserve ratio at 4.25 per cent and statutory liquidity ratio at 23 per cent. The frontline indices extended their losses to touch intraday lows after finance ministry cut its forecast for India’s growth to about 5.7 per cent to 5.9 per cent in the year through March from an earlier estimate of as much as 7.85 per cent. However, the markets soon recovered to trade higher thereafter as recovery witnessed in banking stocks after RBI indicated a cut in the repo rate in the January-March quarter. Further, the gains in banking stocks were fuelled by expectations that the banking amendment bill will be passed in parliament after the government dropped a controversial clause that would have allowed banks to trade in commodity futures.

Domestic markets extended their gains in second half to end near day’s high supported by positive opening in European counters which climbed for the first time in four days amid optimism that American lawmakers will agree on a budget to avoid fiscal cliff. Moreover, most of the Asian equity indices shut shop in the green terrain tracking overnight gains in US stocks on optimism for progress in resolving the US budget crisis before the year-end deadline. Japanese Nikkei once again outperformed other regional peers, gaining about a percentage point following the weekend election victory of the Liberal Democratic Party, whose leader, Shinzo Abe, in line to become prime minister, is looking forward to shore up growth with higher public works spending.

Back home, the northward journey was also supported by hefty buying in realty counters which rallied over percent as sentiment turned bullish on the expectations of rate cut by the Reserve Bank of India at its policy meet next month. Some support also came in after metal stocks rose for the third straight day after data on December 14, 2012 showed that a preliminary version of HSBC’s China manufacturing Purchasing Managers' Index hit a 14-month high in December 2012. Moreover, software and technology pack rose by 0.50 and 1 per cent respectively after Indian rupee breached the 55 level against the dollar after the Reserve Bank of India left the key policy rates and the cash reserve ratio unchanged in its mid-quarter monetary policy review.

The NSE’s 50-share broadly followed index Nifty rose by about forty points to end near its psychological 5,900 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex surged by over one hundred and twenty points to finish above the psychological 19,350 mark. Moreover, broader markets too traded in-line with benchmarks snapping the session with a gain of over half a percent.

The overall volumes stood above Rs 2.50 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 1,682 shares on the gaining side against 1,256 shares on the losing side while 135 shares remain unchanged.

Finally, the BSE Sensex gained 120.33 points or 0.63% to settle at 19,364.75, while the S&P CNX Nifty rose by 38.90 points or 0.66% to end at 5,896.80.

The BSE Sensex touched a high and a low of 19,396.28 and 19,149.03, respectively. The BSE Mid-cap index was up by 0.52% and Small-cap index was up by 0.59%.

The top gainers on the Sensex were, Bharti Airtel up 4.23%, BHEL up by 4.14%, Tata Steel up 3.76%, Hindalco Industries up 2.66% and Sun Pharma up 2.33%, while, Maruti Suzuki down by 1.64%, ONGC down by 0.87%, Dr Reddys Lab down by 0.68%, Bajaj Auto down by 0.45% and Reliance down by 0.35% were the top losers on the index.

The top gainers on the BSE Sectoral space were, Realty up 2.38%, Metal up 1.78%, Capital Goods (CG) up 1.50%, TECk up 1.14% and Power up 1.08%, while Oil & Gas down 0.21% was the only loser on the space.

Meanwhile, in a move to curb demand for the precious metal, the government is mulling schemes like gold deposits, accumulation plans, gold-linked accounts and pension products. These gold-backed products will allow the investors enjoy benefits of investment in the metal without investing in the physical commodity.

In its Mid-Year Economic Analysis tabled in Parliament, the government said ‘gold backed financial instruments in the form of modified gold deposits and gold accumulation plans, besides gold-linked accounts and pension products linked with the precious metal are some measures being considered to reduce the attraction of a direct investment in bullion and jewellery in the domestic market and check a substantial rise in imports.’ By adding further it said gold-linked investments would have to be monitored to see whether the overall demand for the metal actually falls.

This move by the government is aimed to curb the gold imports, which is pushing up the current account deficit (CAD). India’s gold imports in 2011-12 financial year stood at $60 billion and the quantum of import was 1,067 tonnes. With imports touching a record high last year, the Reserve Bank too announced a slew of curbs on gold purchase and financing.

With gold imports contracting by 18.4% y-o-y to Rs 71,912 crore in the April-June quarter of the current financial year, the government is hopeful of recording a lower CAD this fiscal. India’s CAD has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $21 billion on the back of rising oil and gold imports.

The S&P CNX Nifty touched a high and a low of 5,905.80 and 5,823.15 respectively.

The top gainers on the Nifty were BHEL was up 4.39%, Bharti Airtel up 4.36%, Tata Steel up 4.12%, Hindalco up 2.62% and JP Associates was up 2.55%.

The top losers on the index were Maruti Suzuki down by 1.57%, Ranbaxy down by 0.81%, Dr Reddy down by 0.62%, Bajaj Auto down by 0.60% and Reliance down by 0.59%.

The European markets were trading mixed, France’s CAC 40 down by 0.09%, Germany’s DAX up 0.44% and the United Kingdom’s FTSE 100 up by 0.33%.

Asian stock markets ended mostly higher on Tuesday, as signs of progress in U.S. budget negotiations improved the sentiments. However, Hong Kong market went home with red mark on second consecutive day, weighted down by a 3.3% loss for AIA Group after American International Group sold its remaining stake in the Asian insurance giant. Investors were trading cautiously ahead of Japan's trade data on Wednesday and the Bank of Japan's policy meeting on Thursday. Japan's Nikkei Stock Average went home with green mark, after touching highest level in more than eight months.