Markets likely to react negatively to the RBI’s action

The Indian markets remained bullish in last session with benchmarks inching higher on getting report of lower than expected rise in WPI inflation. Today, the start is likely to be soft, the markets may get a gap-down beginning and much action can be seen in the bond and money markets along with the stock markets, as the Reserve Bank of India (RBI) announced measures to curb the rupee's decline by tightening liquidity and making it costlier for banks to access funds from the central bank. The apex bank has raised the Marginal Standing Facility (MSF) rate and Bank Rate each by 200 basis points to 10.25 per cent. It also capped the amount up to which banks can borrow or lend under their daily liquidity window and announced a sale of government securities through an open market operation. Meanwhile, Prime Minister Manmohan Singh will be meeting his key cabinet colleagues to take a final decision on the proposed reforms in the foreign direct investment (FDI) policy for hiking foreign investment caps in sectors like telecom, retail and defence. The Department of Industrial Policy and Promotion (DIPP) will present the blueprint for FDI reforms based on the suggestions of the Arvind Mayaram committee.  

There will be some important result announcements, Ashok Leyland, DCB, NIIT Technology, S Kumar Nation will be the major companies to announce their numbers today.

The US markets continued their gaining momentum with the start of new week on getting mixed batch of economic reports, though the buying remained somewhat subdued but the disappointing retail sales data seems to have offset recent concerns about the outlook for the Fed’s stimulus program. The Asian markets are trading mixed after some of the indices pared their early gains. The start was good tailing the gains in US markets, while the Japanese market gains were intact as the yen held at one week low against dollar, some of the other indices have slipped in red.

Back home, Indian equity indices extended their winning streak to third day in a row with frontline gauges crossing past their crucial 20,000 (Sensex) and 6,000 (Nifty) bastions, buoyed by lower than expected June Inflation data and positive global set-up. Markets started in the red on disappointing IIP and CPI data that was released after the market hours on Friday. Index of industrial production (IIP) for May fell 1.6 per cent, versus a growth of 2.3 per cent in April, while  consumer price index (CPI) inched up to 9.87 per cent in June, against 9.31 per cent in May. But, the indices turned into the green in noon deals after country’s headline inflation eased for the month of June and remained within the Reserve Bank of India’s comfort zone of sub-5 per cent. The Wholesale Price Index-based inflation rose to 4.86% (Provisional) in June, compared to 4.7% (Provisional) during the previous month. Sentiments also remained up-beat on report that foreign direct investment (FDI) into India increased 25 percent year-on-year to $ 2.32 billion in April, the highest level in the past six months, while a survey by industry body CII said that economic growth in the country may rebound from the next fiscal if government expedites its reform process. Meanwhile, buying in PSU oil marketing companies too supported the sentiments with HPCL and IOC edging higher after hiking the price of petrol by a steep Rs 1.55 a litre, without taxes. Global cues too remained supportive, as European counterparts made a positive opening after political parties in Portugal decided on a deadline for bailout reforms. Back home, buying in fast-moving consumer goods counter too aided the sentiments as the spurt in rains across central and western India is expected to continue in the second half of July, with the weather office forecasting rainfall to be better this month. Metal and mining stocks like, Sterlite Industries, Sesa Goa, SAIL, NALCO and Hindalco Industries too remained on the buyers’ radar after data showed China’s economy grew in line with expectations in the second quarter, belying some fears of a sharper slowdown. Additionally, banking stocks gained despite RBI imposing fines totaling Rs 49.5 crore on 22 private and public sector banks including SBI, PNB and Yes Bank for violating know your customer/anti-money laundering norms. Finally, the BSE Sensex gained 76.01 points or 0.38% to settle at 20,034.48, while the CNX Nifty rose by 21.80 points or 0.36% to end at 6,030.80.