Markets pare early gains; banking stocks lurch

Indian equity markets erased some early gains but continued to trade in positive territory in the late morning session on Wednesday amid sustained buying in some blue chip stocks. The Nifty was racing towards 6000 levels with a gain of 16.30 points, while Sensex up by 58.53 points. Investors’ sentiments were improved with the government’s decision to relax foreign direct investment (FDI) norms in a broad swathe of industries including telecoms, single-brand retail and oil and gas with the aim to increase capital inflows to prop up the sliding currency and rev up growth. In the currency market, rupee pared majority of gains and trading almost flat in positive territory against greenback, amid increasing dollar demand from banks and importers. On sectoral front, shares of telecom companies such as Reliance Communications gained, a day after India approved raising the foreign investment limit in the sector to 100% from 74%. Banking stocks were reeling under pressure for a second day after the central bank raised short-term interest rates in a bid to curb the rupee's slide, while financial companies dependent on short-term wholesale funding also most affected by the central bank's measures to curb liquidity.

On the global front, Asian shares were trading mixed on Wednesday ahead of a congressional testimony by Federal Reserve Chairman Ben Bernanke, which could offer clarity on when the U.S. central bank will reduce its stimulus. Back home, the market breadth was favoring positive trend; there were 1000 shares on the gaining side against 825 shares on the losing side, while 131 shares remained unchanged.

The BSE Sensex is currently trading at 19,909.76, up by 58.53 points or 0.29% after trading in a range of 19,979.65 and 19,881.19. There were 17 stocks advancing against 13 declines on the index.

The broader indices were trading in green; the BSE Mid cap index was up by 0.34% and Small cap index up by 0.48%.

The top gaining sectoral indices on the BSE were, Consumer Durables up by 1.28%, FMCG up by 1.15%, IT up by 0.96%, Power up by 0.88% and Teck up by 0.87%. While, Bankex down by 1.43%, Metal down by 0.91%, PSU down by 0.60% and Auto down by 0.48% were the top losers on the BSE.

The top gainers on the Sensex were Dr Reddys Lab up by 1.79%, TCS up by 1.76%, ITC up by 1.64%, Wipro up by 1.64% and Tata Power up by 1.40%. On the flip side, Tata Motors was down by 2.08%, Coal India was down by 1.38%,  ICICI Bank was down by 1.22%, Tata Steel was down by 1.17% and SBI was down by 0.98% were the top losers on the Sensex.

Meanwhile, after lifting short term rates to drain out liquidity, the Reserve Bank of India (RBI), as a contingency measure, will conduct a special 3-day repo borrowing window, under which banks can borrow Rs 25,000 crore at an interest rate of 10.25%. Apex Bank, with a view to enable banks to fulfill Mutual Funds’ liquidity needs, decided to conduct special repo window. This facility has been made available for a temporary period until further notice.

Earlier, in its further effort to salvage the depreciating local currency, the RBI raised the Marginal Standing Facility (MSF) rate (rate at which banks can borrow from the RBI at an elevated rate against government securities during times of tight cash) and Bank Rate each by 200 basis points to 10.25% as against 8.25% each earlier and limited its lending of overnight funds to banks to Rs 75,000 crore, which meant that banks would have to pay a higher interest rate of 10.25% if they required more than this limit.

The CNX Nifty is currently trading at 5,971.55 up by 16.30 points or 0.27% after trading in a range of 5,989.80 and 5,968.80. There were 25 stocks advancing against 24 declines, while 1 stock remained unchanged on the index.

The top gainers of the Nifty were Asian Paint up by 2.09%, Ambuja Cements up by 1.97%, JP Associates up by 1.88%, Reliance Infra up by 1.87% and TCS up by 1.84%. On the flip side, Axis Bank down by 2.55%, Tata Motors down by 2.16%, Cairn down by 2.11%, Ranbaxy down by 1.93% and Coal India down by 1.51% were the major losers on the index.

Most of the Asian equity indices were trading mixed; Shanghai Composite declined 0.55%, KLSE Composite slipped 0.03%, Straits Times decreased 0.49% and Taiwan Weighted was down by 0.01%.

On the flip side, Hang Seng rose 0.03%, Jakarta Composite increased 0.58%, Nikkei 225 up by 0.11%, and Seoul Composite was up by 1.13%.