Markets to start the F&O expiry week on a somber note

The Indian markets suffered a huge disappointment in last session, with major indices losing over one and half a percent after the RBI in an unexpected move, hiked the Repo rate by 25 basis points in its effort to rein inflation. Today, the start of the F&O expiry week is likely to remain cautious but bouts of volatility is surely to be witnessed with the market’s surge followed by sell-off in last week and expectation of another repo rate hike in offing. Traders will remain concerned with Fitch Ratings cutting its growth forecast for India in 2013-14 to 4.8%, from its earlier estimate of 5.7%. Also, there is report that foreign direct investment (FDI) inflows into the services sector, which contributes over 60 percent to India’s GDP, declined by 36.5% year-on-year to $1.02 billion during the April-July period. However, there will be some respite too, as according to an Assocham study, the non-oil trade deficit in the current financial year is likely to be much lower at $65-72 billion as against the $81.8 billion in 2012-13 on account of curbs on gold imports. There will be buzz in the power sector too, as the Power Ministry has proposed to pool prices of imported and domestically produced natural gas to be supplied to power plants stranded by a drop in production of the fuel from Reliance Industries’ KG-D6 block.

The US markets turned lower in last session on the looming uncertainty about the time of Fed’s tapering. Though, the Asian markets have made a mixed start and the Chinese market was trading higher after a flash measure of the country’s manufacturing jumped more than forecast, however some of the indices are closed unable to give clear signals.

Back home, 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. 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. 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.