Surprise repo rate hike drag benchmarks lower; Nifty manages to hold 6,000 mark

Indian equity benchmarks lost half of their gains garnered in previous session with benchmarks ending with a cut of over one and a half percent after Reserve Bank of India’s (RBI) newly appointed governor delivered a shocker to the markets by hiking repo rate. Earlier, the markets traded cautiously near their neutral line ahead of the RBI’s monetary policy but markets witnessed a steep fall to breach their crucial 20,100 (Sensex) and 5,950 (Nifty) levels post policy announcement, as RBI stunned the market by hiking repo rate by 25 basis points to 7.5% citing inflationary pressures. The central bank also announced cut in MSF (Marginal Standing Facility) rate by 75 basis points to 9.5%. Further, Rajan reduced the minimum daily maintenance of the cash reserve ratio (CRR) from 99% of the requirement to 95% effective from the fortnight beginning September 21, 2013, while keeping the CRR unchanged at 4.0%.

Though, bourses pared substantial losses and managed to close above their crucial 20,250 (Sensex) and 6,000 (Nifty) bastions as new governor’s reiteration that growth will not be impacted with the 25 basis point hike in the repo rate due to the number of reforms taken up in the recent past to improve investment sentiment, aided to recovery. The lower levels attracting investors, keen to enter the markets, also minimized the damage up to certain extent.

Global cues too remained choppy as most of the Asian equity markets, of the few opened, shut shop in the red with investors trading cautiously after the last session’s strong up-move. Moreover, European markets too traded cautiously in the early deals on Friday, on concerns that the US could be forced to default if American politicians cannot agree on raising the government’s borrowing limit.

Back home, sentiments also remained subdued after Indian rupee depreciated against dollar in early deals. Rupee was at 62.28 against the dollar compared to last closing level of 61.77/dollar. Meanwhile, rate sensitive’s remained the most affected, as Realty index tanked around 7% and the banking index was down by over 4% on concerns that margins would further come under pressure on account of high borrowing costs.

Bucking the trend, some stocks related to textile and apparel industry remained on the buyers’ radar as Apparel Export Promotion Council (AEPC) has reported that the industry is witnessing an upswing and the exports are likely to go up from $13 billion last year to $17 billion in the next two years on the back of economic recovery in the US and Europe.

The NSE’s 50-share broadly followed index Nifty declined by over hundred points but, managed to hold the psychological 6,000 support level, however Bombay Stock Exchange’s Sensitive Index -- Sensex tumbled over three hundred and eighty points to end below its psychological 20,300 mark.

Broader markets also struggled to get traction and ended the session with a cut of around a percentage point. The market breadth remained in favour of decliners, as there were 937 shares on the gaining side against 1,399 shares on the losing side, while 166 shares remained unchanged.

Finally, the BSE Sensex plunged by 382.93 points or 1.85%, to settle at 20263.71, while the CNX Nifty declined by 103.45 points or 1.69% to settle at 6,012.10.

The BSE Sensex touched a high and a low of 20677.99 and 20051.43, respectively. The BSE Mid cap index was down by 0.83% and Small cap index lost 1.01%.

The top gainers on the Sensex were Gail India up 3.51%, Sun Pharma up 1.54%, Coal India up 1.26%, BHEL up 1.12% and Wipro up 0.83%, on the flip side, ICICI Bank down 4.78%, L&T down 4.63%, Sesa Goa down by 3.93%, Hindustan Unilever down by 3.80%, and HDFC Bank down by 3.63%, were the top losers on the index. 

On the BSE Sectoral front, Consumer Durables up by 0.35%, Power up by 0.28%, and Heal Thcare up by 0.13%, were the top gainers, while Realty down by 6.53%, Bankex down by 4.18%, Capital Goods down by 3.04%, Auto down by 1.58%, and PSU down by 1.45%, were the top losers on the sectoral front.

Meanwhile, as per the Apparel Export Promotion Council (AEPC), Indian apparel industry is witnessing an upswing and the exports are likely to go up to $17 billion in the next two years from $13 billion last year on the back of economic recovery in the US and Europe markets, which represent around 65 percent share in the country's total apparel exports. Indian apparel exports have picked up in the last six months as compared to negative growth in the previous two years.

Chairman of Apparel Export Promotion Council (AEPC), A Sakthivel said that the orders that went to neighbouring countries came to India due to industry compliance issues in those nations. On the other hand, Indian apparel industry is compliance-oriented, which has resulted into rise in domestic business. By adding further, Sakthivel said that current scenario looks good for Indian apparel exports and the other factors like depreciation of rupee is also helping the industry to a certain extent. Meanwhile, manufacturing cost of the sector is also going up simultaneously due to rupee depreciation as it imports large quantities of raw material to make items for export purposes, he added.   

Regarding the competition from China, A Sakthivel said that Chinas is one of the biggest competitors for India but the industry manufacturing cost has gone up over the years in that  country. The domestic industry consist a key player in cotton apparel exports and is known for value added exports like embroidery sequence and especially ladies wear. The neighboring countries are not as much competitive in this segment. So far, this year, Indian apparel industry grew by average growth rate of 14 percent.

The CNX Nifty touched a high and low of 6,130.95 and 5,932.85 respectively. 

The top gainers on the Nifty were Reliance Infrastructure up by 5.16%, UltraTech Cement up by 5.00%, GAIL up by 4.19%, HCL Technologies up by 3.65% and Ambuja Cements up by 3.31%. On the other hand, DLF down by 11.99%, PNB down by 7.51%, and Bank of Baroda down by 5.43%, IndusInd Bank down by 5.16%, and JP Associates down by 5.07%, were the top losers.

Most of the European markets were trading in green, France’s CAC 40 was up by 0.04%, and Germany’s DAX was up by 0.05%, while, United Kingdom’s FTSE 100 was down by 0.07%.

Most of the Asian markets concluded Friday’s trade in red but notched up healthy returns for a week that was dominated by developments suggesting that US monetary policy could remain easier than previously expected. South Korean markets are closed from September 18 for the rest of the week for the Chuseok holidays. Trade will resume on September 23. Shanghai Composite and Taiwan Weighted remained closed on account of Mid-autumn Festival. Hang Seng is closed today on account of public holiday. When these markets reopen Monday, there will also be a data point on the Chinese economy in the form of preliminary manufacturing data for September - a number that has impacted markets in recent months.

Prices of both new and existing homes continued to rise in most Chinese cities in August. Of a statistical pool of 70 major Chinese cities, 66 saw a month-on-month rise in new home prices, up from 62 in July, the National Bureau of Statistics (NBS) reported. According to the bureau, 58 cities reported month-on-month price gains in existing and second-hand homes in August, compared to 57 in July. On a year-on-year basis, new home prices rose in 69 cities last month, the same as the July figure, while 68 reported higher year-on-year prices for existing homes in August, up from 67.