Benchmarks remain under pressure on RBI measures

Key benchmarks continued to drift lower after a weak start due to selling pressure in banks and other rate sensitives’ after the Reserve Bank of India announced additional liquidity tightening measures to contain excessive speculation and volatility in the foreign exchange market.  Sentiments got dampened after the RBI reduced the liquidity adjustment facility (LAF) for each bank from 1 per cent of the total deposits to 0.5 per cent, thus limiting the access to borrow funds from the central bank. The limit will come into force with immediate effect and continue till further notice, the RBI in another measure to suck out liquidity from the system, has asked banks to maintain higher average CRR (cash reserve ratio) of 99 per cent of the requirement on daily basis as against earlier 70 per cent. CRR is portion of deposits that banks are required to keep with RBI. They said a weakening trend in the Asian region also had negative impact on the domestic equity market.

Meanwhile, Indian bond yields and swap rates surged after the RBI’s move to shore up the weak local unit, which only edged up modestly despite the measures. The partially convertible rupee was at 59.53/54 per dollar, stronger than its close of 59.76/77 on Tuesday. The benchmark 10-year bond yield rose as much as 33 basis points to 8.50 percent, it’s highest since late May 2012.The 1-year swap rate jumped 41 bps to 9.30 percent, while the benchmark five-year rate rose 27 basis points to 8.45 percent. The overnight cash rate jumped to 10 percent versus Tuesday’s close of 6.50/6.55 percent. The Reserve Bank of India took new steps to support the rupee, signaling it will stay the course with its defence of the currency despite risks to economic growth.

On the global front, Asian markets too witnessed choppy trade in early deals with Chinese benchmark declining over a percentage point after its vast manufacturing sector slowed to an 11-month low in July as new orders faltered and the job market darkened, suggesting the world’s second-largest economy is losing momentum. Back home, the traders were seen piling up positions in IT, Teck and Health Care, while selling was seen in Banking, Realty and Metal sector. In sector specific developments, all the banking related stocks edged lower after the Reserve Bank of India (RBI) on July 23, 2013 announced more measures to squeeze liquidity from the banking system to stem rupees. Retail related stocks were trading under pressure on the buzz that government may not change the FDI policy to suit any particular company.

Meanwhile, the NSE Nifty and BSE Sensex were trading near the psychological 6,050 and 20,000 levels respectively. The market breadth on BSE was showing negative trend with advances to declines in the ratio of481:1114. The BSE Sensex is currently trading at 20118.32, down by 183.81 points or 0.91% after trading in a range of 20252.70 and 20098.64. There were 7 stocks advancing against 23 declines on the index. The broader indices were trading in red; the BSE Mid cap index was down by 1.39% and Small cap index lost 0.89%.

The top gaining sectoral indices on the BSE were, IT up by 0.68%, Teck up by 0.57% and Health Care up by 0.22%, while Bankex down by 4.17%, Realty down by 3.34%, Metal down by 2.11%, Capital Goods down by 1.95%, Auto down by 1.61% were the top losers on the BSE.

The top gainers on the Sensex were Sun Pharma up by 1.57%, TCS up by 1.39%, Dr Reddys Lab up by 1.26%, Bharti Airtel up by 1.12% and Wipro up by 0.51%. On the flip side, ICICI Bank was down by 4.16%, Sterlite Industries was down by 3.63% ,SBI was down by 3.63%, HDFC Bank was down by 2.83% and  Maruti Suzuki was down by 2.80% were the top losers on the Sensex.

Meanwhile, the Manufacturing Industry Promotion Board (MIPB), chaired by the Commerce Ministry Anand Sharma in its first meeting, to take stock of the progress made in implementation of the National Manufacturing Policy has asked the finance ministry to incorporate provisions concerning exemption to units in National Manufacturing Investment Zones (NMIZs) from capital gains tax in the Direct Taxes Code (DTC) bill, pending in Parliament.

The meeting which was attended by top officials from ministries including economic affairs, science and technology and revenue, urged the Department of Revenue to ensure that the dispensation pertaining to relief from capital gains tax as approved in the National Manufacturing Policy, be included in the DTC Bill.

Anand Sharma also asked the labour ministry to convene a tripartite meeting to take a final decision on amending section 25 FFF (1A) of the Industrial Disputes Act, 1947, which deals with compensation to workers in case of closure of mines following exhaustion of minerals and told the heavy industry department and the National Manufacturing Competitiveness Council to outline measures to strengthen the public sector industries in the capital goods sector in the short and medium term. The board will carry out another review after three months for the early implementation of these mega infrastructure projects.

The government in its efforts to give a push to manufacturing by offering a host of sops, including capitals gains exemption, to units in mega industrial zones called the NMIZs had announced the National Manufacturing Policy. NMIZs are envisaged as mega industrial zones with state-of-the-art supporting infrastructure. The government has so far given in-principle approval for setting up of 12 NIMZs.

The CNX Nifty is currently trading at 5,997.85 down by 79.95 points or 1.32% after trading in a range of 6,047.25 and 5,992.20. There were 10 stocks advancing against 40 declines on the index.

The top gainers of the Nifty were Sun Pharmaceuticals up by 1.63%, Bharti Airtel up by 1.58%, TCS up by 1.43%, Dr. Reddy's Laboratories up by 1.22% and Lupin up by 0.37%. On the flip side, IDFC down by 8.24%,  IndusInd Bank down by 7.80%, JP Associates  down by 5.78%, Axis Bank down by 5.72% and Kotak Bank down by 5.55% were the major losers on the index.

Most of the Asian equity indices were trading in red; Shanghai Composite declined 24.03points or 1.18% to 2,019.85, Hang Seng slipped 44.44 points or 0.20% to 21,870.98, Jakarta Composite dropped 15.14 points or 0.32% to 4,752.02, Nikkei 225 decreased 57.49 points or 0.39% to 14,721.02 and Taiwan Weighted was down by 9.23 points or 0.11% to 8,205.46.

On the flip side, KLSE Composite rose 2.75 points or 0.15% to 1,808.06, Straits Times increased 6.02 points or 0.19% to 3,259.78 and Seoul Composite was up by 2.94 points or 0.15% to 1,907.09.