Markets bounce back from day’s low; Sensex reclaims the crucial 20,200 level

Indian equity markets have trimmed substantial losses as benchmark equity indices recover from knee jerk reaction to RBI’s move of hiking key policy rates by 25 basis points and putting its focus squarely back on managing inflation and the fiscal deficit. However, the lower levels which have attracted investors, keen to enter the markets, also minimized some of the early bourses’ damage. Besides, the 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, also aided recovery. Thus, bouncing off lows, although Sensex has reclaimed the crucial 20,200 psychological levels, Nifty is still trading shy of the crucial 6,000 level. Meanwhile, broader indices in sync with larger peers, too have trimmed part of their losses. On the global front, both Asian and European markets are trading in red on Friday as investors sit back to ponder the US Federal Reserve's policy outlook, a day after the world's most powerful central bank triggered a global rally in riskier asset markets with an unexpected decision to maintain its stimulus program.

Closer home, while stocks from defensive Health Care and Information Technology counters are acting beneficiaries to the sluggish momentum of the bourses, all the other sectoral pivotals are lost in the sea of red, with stocks from Realty, Banking and Capital Goods counters emerging as the prominent losers. The overall market breadth on BSE is in the favour of declines which have thumped advances in the ratio of 1453:453; while 16 shares remained unchanged.

The BSE Sensex is currently trading at 20280.76, down by 365.88 points or 1.77% after trading in a range of 20,677.99 and 20,051.43. There were only 5 stocks advancing against 25 declines on the index.

The broader indices too trimmed some losses; the BSE Mid and Small cap indices were trading lower by 1.27% and 0.85% respectively.

The only gaining sectoral indices on the BSE was Health Care up by 0.60%, IT up by 0.21%, while Realty down by 5.42%, Bankex down by 3.63%, Capital Goods down by 3.18% PSU down by 2.21% and Auto down by 1.93% were remained the losing indices on BSE.

The top gainers on the Sensex were Sun Pharma up by 2.44%, Wipro up by 1.19%, Gail India up by 1.11% and Dr Reddy’s Lab up by 0.91% and BHEL up by 0.26%. On the flip side, L&T down by 4.89%, SBI down by 4.77%, ICICI Bank down by 4.23%, Maruti Suzuki down by 4.06% and Hero MotoCorp down by 3.79% were the only losers on the Sensex.

Meanwhile, Reserve Bank of India’s new governor, Raghuram Rajan, following the footsteps of his predecessor, Duvvuri Subbarao, reiterated the commitment of bringing down inflation to more tolerable level, by hiking the policy Repo Rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 7.25% to 7.50% with immediate effect in his maiden Mid-Quarter Monetary Policy Review: September 2013. Consequently, with this the Reverse Repo rate under the LAF and the Bank Rate stood adjusted to 6.5% stands reduced to 9.5%.

However, The GUV, as Raghuram Rajan has been nicknamed, in an expected move, reduced the marginal standing facility (MSF) rate by 75 basis points from 10.25% to 9.5% and slashed 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. However, the cash reserve ratio (CRR), or the portion of deposits banks have to maintain with the central bank, were unchanged at 4.0%.

Further, the governor, besides highlighting that WPI inflation had started rising, it found inflation at the retail level, measured by the CPI, ‘worrisome’ as the index had stayed high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence. Although, he did underscore better prospects of a robust kharif harvest to lead to some moderation in CPI inflation, but added that there was no room for complacency. However, he also stressed 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. Furthermore, Raghuram in his policy document highlighted its intent to maintain tight liquidity conditions at the short end of the term structure, until the measures designed to alter the path of the CAD and improve prospects for its stable funding took effect.

Thus, the new governor after pulling out a rabbit out of hat in his maiden speech, acted as a party popper, as after this development, the Sensex tanked by over 500 points to 20129.20 level and Rupee weakened to 62.42/$ level.The CNX Nifty is currently trading at 5,997.60, down by 117.95 points or 1.93% after trading in a range of 6,130.95 and 5,932.85. There were only 10 stocks advancing against 40 declines on the index.

The top gainers of the Nifty were HCL Tech up by 2.79%, Sun Pharma up by 2.55%, Lupin up by 1.78%, Power Grid up by 1.49%, and Gail India up by 1.46%. On the flip side, DLF down by 9.71%, IDFC down by 6.83%, PNB down by 6.58%, L&T down by 4.89% and Indusind Bank down by 8.74%, IDFC down by 8.14% and JP Associates down by 4.83% were the major losers on the index.

Most of the Asian equity indices were trading in red; Nikkei 225 up by 0.12% and Hang Seng up by 1.67% , Jakarta Composite up by 0.43%, Seoul Composite down by 0.02%, Straits Times down by 0.49%, and Taiwan Weighted down by 1.01%, Shanghai Composite down by 0.86%, KLSE Composite up by 0.09%.

European markets have got off to a negative start; with CAC 40 declining by 0.22%, DAX sliding by 0.17% and FTSE 100 losing 0.29%.