Indian equities regain strength; trade continues in positive zone

Indian equities regained strength and are trading in a positive zone hovering well above the neutral line ahead of the October series futures and options contract settlement. The markets which had already factored in a 25 basis point rate hike by the reserve bank showed muted reaction to its thirteenth hike in key interest rates since March 2010. However, interest rate sensitive sectors got affected after the recent hike. The buying among frontline counters pulled the market up with investors hunting for fundamental beaten down stocks. IT, Capital Goods and Auto sectors lead the race among BSE Sectoral space. Infosys helped pull the IT sector with around two and half percent gain. While yesterdays beaten down stock L&T was up by more than three percent leading in Capital Goods sector on good account of short covering. Auto pack was up on account of buying in M&M which was up by more than three and half percent. However, the sell-off in banking stocks post deregulation of saving rates by RBI in its policy has capped the upside. RBI in an unexpected move announced to deregulate the savings bank interest rates with immediate effect which weighed on the rate sensitive banking counter and major lenders like HDFC bank, ICICI Bank, SBI, PNB, BOB, and BOI which got butchered down. Realty shares counter like Unitech, DLF, Sobha Developers, DB Realty, Parsvnath Developers, Oberoi Realty, Godrej Properties and Anant Raj Industries were also trading under pressure after latest interest rate hike by RBI. A special Muhurat trading session is being held from 16:45 to 18:00 on Wednesday, October 26, 2011 on account of Diwali. There is no regular trading session on that day. The market will also remain closed on Thursday, October 27, 2011 on account of Diwali.

On the global front, Asian markets were trading in mix while the European markets were too trading in mix on pessimistic note. There was discouraging reports of a demand for signoff rights from German politicians on details of the plan, ahead of the Wednesday summit. Also, displeasing remarks from Italy's leader on the country's austerity reform plan and lack of agreement on changes to its pension system overnight together undermined investors’ morale. Back home, the NSE Nifty and BSE Sensex were trading above their psychological 5,100 and 17,000 levels, respectively. The market breadth on the BSE was negative in the ratio of 1115:1475 while, 108 scrips remained unchanged.

The BSE Sensex is currently trading at 17,091.38 up by 152.10 points or 0.90% after trading as high as 17,124.68 and as low as 16,900.26. There were 23 stocks advancing against 7 declines on the index.

The broader indices were trading in the red terrain; the BSE Mid cap index shed 0.02% while Small cap was down by 0.40%.

On the BSE sectoral space, IT up 1.77%, Capital Goods up 1.70%, Auto up 1.69%, TECk up 1.52% and Oil & Gas up 1.17% were the major gainers while Consumer Durables down 2.73%, Bankex down 2.05% and PSU down 0.37% were the only losers in the space.

M&M up 3.63%, L&T up 3.35%, Sterlite Industries up 3.06%, NTPC up 2.78% and Infosys up 2.50% were the major gainers on the Sensex, while HDFC Bank down 4.77%, SBI down 3.27%, BHEL down 1.02%, ONGC down 0.58% and ICICI Bank down 0.49% were the major losers on the index.

Meanwhile, the Reserve Bank of India (RBI), which raised its key policy rates for the 13th time since Match 2010, had indicated that it may not go for another rate hike in the near future. While announcing the credit policy, the RBI Governor D Subbarao said that the inflationary pressures are expected to ease starting December 2011 and is likely to go down to 7% by March 2012 and hence further rate hike may not be required to curb inflation.

The headline inflation measured by the Wholesale Price Index (WPI) have been hovering around double digit mark, as per the official data, headline inflation for the month of September stood at 9.72%, which is way above the RBI’s comfort zone and RBI governor expects inflation and inflationary expectations to be at the current level for coming two months.

On the RBI’s anti-inflationary monetary stance, he said the impact of past monetary policy is still unfolding and hence the RBI, for now, is persisting with the anti-inflationary monetary stance. However, he expects inflation to decline from December onwards and a decline in inflation will help in keeping the chances of a rate hike in early 2012 low.

Earlier, the RBI had cumulatively raised the cash reserve ratio (CRR) by 100 basis points. However, on the basis of current assessment, bank rate and CRR has been retained at 6%. The RBI has also left the statutory liquidity ratio (SLR) untouched at 24%. Further the RBI also deregulated the savings bank deposit interest rate with immediate effect, with some condition.

Based on two conditions banks are free to determine their savings bank deposit interest rate. First the banks will have to offer uniform interest rates on the saving banks deposits up to Rs 1 lakh, irrespective the amount in the account within Rs 1 lakh and saving banks deposits more than Rs 1 lakh banks are free to offer differential rate of interest. However, banks cannot do any discrimination from customer to customer on interest rates for similar amount deposit.

The S&P CNX Nifty is currently trading at 5,138.35, higher by 40.00 points or 0.78% after trading as high as 5,154.60 and as low as 5,085.55. There were 38 stocks advancing against 12 declines on the index.

The top gainers on the Nifty were M&M up 3.54%, Sterlite up 3.45%, IDFC up 3.25%, L&T up 3.15% and ACC up 2.94%.

HDFC Bank down 5.00%, PNB down 4.39%, Axis Bank down 4.11%, SBI down 3.46% and SesaGoa down 1.29% were the major losers on the index.

Asian markets traded on a mixed note, Shanghai Composite surged 1.66%, Hang Seng advanced 1.05%, KLSE Composite edged higher 0.14%, Straits Times ascended 0.03%, Jakarta Composite gained 0.09% and Taiwan Weighted rose 0.28%. On the flipside, Nikkei 225 plunged 0.92% and Seoul Composite declined by 0.51%.

The European markets were trading mix with, France’s CAC 40 down 0.25%, Germany's DAX lost 0.33% and Britain’s FTSE 100 edged higher 0.10%.