Markets erase all the early gains after RBI’s rate hike

The Indian equity markets paired all its early gains despite the RBI rate hike being in-line with expectations. Nifty slipped into the red, while Sensex moving towards yesterday’s closing but still in positive territory. Meanwhile, RBI hikes repo rate by 25 basis points (bps) to 8.5%, reverse repo rate adjusted 25 bps higher to 7.5% while CRR is maintained at 6%. The RBI expects inflation to remain high, food inflation to remain under pressure and headline inflation is expected to decline from December onwards. Marginal standing facility is now at 9.5%, inflation forecast is retained at 7% while GDP growth forecast has been lowered to 7.6% from 8%. The RBI has de-regulated savings bank deposit rate with immediate effect, which is negative news for the banks. On sectoral front, consumer durables stocks have declined sharply, dragging the BSE CD index down by over 2.5%. Bank stocks, which had a fairly good spell earlier this morning, are drifting lower on selling pressure and the Bankex has now lost over 1.5%. Realty and automobile stocks too have given up most of their early gains. Information technology stocks were trading firm. Capital goods stocks, which suffered some sharp losses in recent sessions, have edged up a bit on short-covering ahead of October series derivatives expiry. Select IT, metal and oil stocks were trading higher.

On the global front, Asian markets were trading in mixed as investors grew more confident about European leaders coming to a broad agreement to contain the region's debt crisis. Back home, the market breadth favoring the negative trend; there were 880 shares on the gaining side against 1,354 shares on the losing side while 110 shares remained unchanged.

The BSE Sensex is currently trading at 16,943.87, up by 4.59 points or 0.03%. The index has touched a high and low of 17,124.68 and 16,900.26 respectively. There were 19 stocks advancing against 11 declining ones on the index.

The broader indices however, kept underperforming the benchmarks; the BSE Mid cap and Small cap indices were down by 0.40% and 0.52% respectively.

The top gaining sectoral indices on the BSE were IT up by 1.18%, TECk up by 1.05%, CG up by 0.67%, Oil & Gas up by 0.30% and FMCG up by 0.25%.

On the flip side, CD down by 2.78%, Bankex down by 1.95%, Realty down by 0.94%, PSU down by 0.60% and Power down by 0.10% were the top losers on the index.

The top gainers on the Sensex were Sterlite Industries up by 2.11%, Infosys up by 2.00%, L&T up by 1.67%, Bharti Airtel up by 1.19% and Hindalco Industries up by 1.09%.

On the flip side, HDFC Bank down by 3.82%, SBI down by 2.65%, DLF down by 1.10, BHEL down by 1.08% and ICICI Bank down by 1.00%.

Meanwhile, during the first nine months of the current financial year, country’s steel production grew by 5.3%, which is less compared to the world’s average growth of 8.2% and China’s 10.7% in the same period of time.  As per the World Steel Association's latest data, India’s production of steel stood at 53.9 million tonne in January-September 2011 compared to 51.1 million tonne in the same period last year.

On the other hand, steel production of China, which is also the largest steel producer and consumer of steel, stood at 525.7 million tonne in January-September compared to 474.9 million tonne in the same period of last year. The World Steel Association's report showed that China produced around 125 million tonne more steel in January-September 2011 compared to the same period of 2009. In contrast, during the same period, India could produce only 7 million tonne more steel compared to 2009.

China’s steel production is highest in world and it also helps to increase the world average production of steel. Its production also makes Asia’s production more than half of the world’s production, which stood at 1,133.8 million tonne in January-September 2011, and Asia’s production of steel was around 728.3 million tonne in the same period of time.      As per the data, China was followed by Japan, the United States which made India the fourth largest producer of steel. However, Russia and South Korea are closely trailing India. In January-September, Japan produced 81 million tonne steel, whereas United States produced around 64.6 million tonne. On the other hand, Russia and South Korea produced 51.8 million and 50.6 million tonne in January-September 2011.

Country’s steel output has increased significantly from crude steel production, which was less than 22 million tonne in 2000 to 70 million tonne in 2010. The government expects India’s steel market to reach around 180-200 million tonne by 2020 and around 500 million tonne by 2050.

The S&P CNX Nifty is currently trading at 5,097.90, lower by 0.45 points or 0.01%. The index has touched a high and low of 5,154.60 and 5,085.55 respectively. There were 33 stocks advancing against just 16 declining ones on the index and one remained unchanged.

The top gainers of the Nifty were ACC up by 2.37%, Infosys up by 2.06%, Sterlite Industries up by 1.99%, Cairn India up by 1.94% and L&T up by 1.68%

On the flip side, HDFC Bank down by 4.04%, Axis bank down by 3.12%, SBI down by 2.86%, Sesa Goa down by 2.25% and PNB down by 1.88%.

Most of the Asian equity indices too were trading on a cautious note; Shanghai Composite gained 1.26%, Hang Seng added 0.22%, Jakarta Composite expanded 2 0.07% and Taiwan Weighted gained 0.28%. 

On the flip side, KLSE Composite down by 0.06%, Nikkei 225 down by 0.86%, Straits Times down by 0.21%, and Seoul Composite down by 0.56%.