Markets stage relief rally post RBI policy; Sensex comfortably cruises past 20,700 level

Markets staging a relief rally have now soared to day’s highest point after Reserve Bank of India, in its second quarter monetary policy review, delivered the expected, by hiking repo rates by 25 basis points and rolling back the MSF rate by the same quantum. Meanwhile, sentimental boost also came on the prospects of improved liquidity condition after India’s Apex Bank increased the liquidity provided through term repos of 7-day and 14-day tenor from 0.25% of bank deposits to 0.5% with immediate effect. Thus, at day’s high point, Sensex and Nity, both gaining over 3 /4 of a percent, were comfortably cruising past the crucial 20,700 and 6,150 levels. Meanwhile, broader indices also adding ground were trading with modest gains

On the global front, Asian shares wavered in recent ranges, as investors awaited the outcome of the US Federal Reserve's policy meeting this week, at which it is widely expected to stay the course on stimulus. Meanwhile, Monday's US economic data offered nothing to alter this view. US manufacturing output barely rose in September and contracts to buy previously-owned homes fell the most in nearly 3-1/2 years, showing economic activity was on a weak footing even before a 16-day partial shutdown of the US federal government that is expected to weigh on fourth quarter growth.

Closer home, the secular up-move of the bourses was led by the across the board rally, wherein no sectoral indices were trading in red. However, the top gainers on the index were stocks from Banking, Realty and Consumer Durable counters. Banking stocks rebounded post RBI policy, where Reserve Bank of India in line with expectation hiked repo rates by just 25 basis points. Meanwhile, Auto stocks also speed drove on stellar set of Maruti Suzuki’s earnings. The company reported over 3 fold jump in its Q2 net profit at Rs 670.23 crore for the quarter as compared to Rs 227.45 crore for the same quarter in the previous year. The overall market breadth on BSE was in the favour of declines which thumped advances in the ratio of 1053:999; while 124 shares remained unchanged.

The BSE Sensex is currently trading at 20732.82, up by 162.54 points or 0.79% after trading in a range of 20733.30 and 20493.66. There were only 26 stocks advancing against 4 declines on the index.

The broader indices too gained some more ground; with BSE Mid cap index up by 0.78%, while Smallcap index gained 0.17%. The gaining sectoral indices on the BSE were Bankex up by 2.13%, Realty up by 1.99%, Consumer Durables up by 1.72%, Metal up by 1.57% and Auto up by 1.24%. While, there were no losers on the index.

The top gainers on the Sensex were Maruti Suzuki up by 6.28%, ICICI Bank up by 3.99%, Tata Steel up by 2.85%, SSLT up by 2.66% and Hindalco Inds up by 2.43%. On the flip side, BHEL down by 0.44%, HDFC and ITC were down by 0.09% and Infosys down by 0.04% were the only losers on the Sensex.

Meanwhile, extending its battle against inflation, Reserve Bank of India (RBI), in its second quarter monetary policy review 2013-14, yet again hiked policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.5% to 7.75% with immediate effect. Consequently, the reverse repo rate under the LAF stood adjusted to 6.75% and the Bank Rate reduced to 8.75% with immediate effect.

At the same time, India’s Apex bank, further unwinding liquidity tightening measures implemented this summer as it struggled to shore up the tumbling rupee, rolled back MSF rate by 25 bps to 8.75% and thus restoring normalcy left Cash Reserve Ratio (CRR) unchanged at 4%. The RBI, however, increased the liquidity provided through term repos of 7-day and 14-day tenor from 0.25% of bank deposits to 0.5% with immediate effect.

Further, striking a hawkish tone, an RBI study of professional forecasters estimated the average WPI inflation to climb up to 6% and stay about those levels for the remaining part of the year, while on the growth front, it reduced the projection for the current fiscal to 4.8% from 5.7% earlier. 

On Current Account Deficit (CAD), which was one of the primary reasons for the depreciating rupee, the RBI's recent trade data suggested it will improve in the second quarter and would come to 3.5%. Meanwhile, for the first time in history, Reserve Bank of India also set its forecast for retail Inflation. It said, 'Notwithstanding the expected edging down of food inflation, retail inflation is likely to remain around or above 9% in the months ahead, absent policy action.'

Thus, with higher estimation of inflation numbers and the cautious outlook put forward by the central bank, expectations of another repo rate hike of 25 basis points have now been reinforced. 

The CNX Nifty is currently trading at 6,153.30, up by 52.20 points or 0.86% after trading in a range of 6,154.10 and 6,079.20. There were 43 stocks advancing against 7 declines on the index.

The top gainers of the Nifty were Maruti up by 6.33%, JP Associate up by 4.98%, ICICI Bank up by 3.37%, Punjab National Bank up by 3.08% and Axis Bank up by 2.89%. On the flip side, BHEL down by 0.55%, ITC down by 0.53%, TCS down by 0.48%, M&M down by 0.17% and HDFC down by 0.15% was the major loser on the index.

The Asian equity indices were trading in mixed; Taiwan Weighted up by 0.16%, Seoul Composite up by 0.18%, Straits Times up by 0.11%, Hang Seng up by 0.22%. While, Jakarta Composite down by 0.69%, KLSE Composite down by 0.16%, Nikki 225 down by 0.49% and Shanghai Composite down by 0.56%.