Sensex ends on a cautiously optimistic note; all eyes on RBI meet

Stock markets in India made a cautiously optimistic start of the vital week as the frontline indices settled on a positive note after suffering over two percent cuts in the previous week. Monday’s session turned out to be an extremely range bound one with the benchmarks see-sawing around the neutral line through the day. 

Despite the weak trades in early session and some hiccups in mid noon trades the key gauges concluded the session with modest gains of around one third of a percent and sailed above the psychological 17,150 (Sensex) and 5,200 (Nifty) levels.

Markets participants at large overlooked the monthly WPI inflation data which largely remained unchanged in March as it came in at 6.89% as compared to 6.95% for the previous month. The markets traded with a positive bias for most part of the session as it became increasingly certain that in the backdrop of weak February industrial production numbers and slight moderation in March WPI inflation to 6.89% v/s 6.95% in February, the Indian central bank, which remains in a tight corner a day ahead of its annual monetary policy review meet, would start the liquidity easing cycle by cutting key interest rates.

Investors piled up hefty positions in the interest rate sensitive Banking, Realty and Automobile counters amid expectations that the lower manufacturing inflation print would give comfort for the RBI to deliver a 25 bps rate cut. While the Capital Goods pocket too gained traction in the session on the back of ease in core inflation numbers.

The local bourses even went on to outperform all their Asian peers in the session which traded with notable losses. However, the European markets after starting on a cautious note, climbed to higher levels, providing a much needed support to domestic markets.

However, the information technology counters continued to languish at the bottom of the table with around half a percent extending the brutal butchery they suffered in the previous session after bellwether Infosys announced its gloomy guidance for the year. The upside in local markets was also capped because of the decline in index heavyweight shares like Infosys, ONGC and Reliance Industries. Besides, the rise in bond yields and continued depreciation in Indian rupee against a US dollar too dissuaded investors from opening fresh positions.

On the global front, cues from Asia remained unsupportive as markets in the region settled in the negative terrain as market participants remained influenced by the plunge in US markets over weekend. Apart from the US concerns the regional worries too have gripped the investors, as Bank of Korea cut its economic growth estimate and concerns over the Europe's debt crisis too deepened.

The European markets after starting the session on a week note, gained momentum to trade with notable gains. But investors there remained cautious over Euro-zone debt woes which threatened to intensify again as yield on Spanish and Italian bonds rose, indicating waning investor conviction.

Back home, the NSE’s 50-share broadly followed index Nifty, rose by around one third of a percent to settle above the psychological 5,200 support level while Bombay Stock Exchange’s Sensitive Index - Sensex amassed fifty six points to finish just above the crucial 17,150 mark. Moreover, the broader markets showed resilience in the session and settled on a positive note with over half a percent gains outperforming their larger peers.

The markets gained on weak volumes of over Rs 1.21 lakh crore while the turnover for NSE F&O segment remained on the lower side as compared to that on Friday at over Rs 0.91 lakh crore. The market breadth turned pessimistic by the end as there were 1551 shares on the gaining side against 1223 shares on the losing side while 133 shares remained unchanged.

Finally, the BSE Sensex gained 56.44 points or 0.33% to settle at 17,150.95, while the S&P CNX Nifty rose by 18.75 points or 0.36% to close at 5,226.20.

The BSE Sensex touched a high and a low of 17,173.06 and 17,010.16 respectively. The BSE Mid cap and Small cap index were up by 0.80% and 0.56% respectively.

The top gainers on the Sensex were Tata Motors up by 3.91%, SBI up by 2.44%, ITC up by 2.07%, L&T up by 1.54%, and Maruti Suzuki up by 1.41% while Bharti Airtel down by 1.74%, Infosys down by 1.41%, Sun Pharma down by 1.20%, Hindustan Unilever down by 0.68%, and Mahindra & Mahindra down by 0.64% were the major losers on the index.

The top gainers on the BSE sectoral space were Auto up by 1.31%, Bankex up by 1.22%, Capital Goods (CG) up by 1.10%, Realty up by 1% and FMCG up by 0.97%, while TECk down by 0.65%, IT down by 0.49% and Oil & Gas down by 0.27% were the top losers on the BSE sectoral space.

Meanwhile, coming in a tad higher than expected, the headline inflation rose by 6.89% in March from a year earlier, mainly driven by higher food prices. However, manufacturing inflation, which is the key number that the RBI will look at before taking a stance on monetary policy, has come in much lower than expected hence fuelling expectations of a rate cut.

 According to the data released by the government, headline inflation as measured by the wholesale price index (WPI) in the month of March grew by a 6.89% as compared to 6.95% for the previous month and 9.68% during the corresponding month of the previous year. The inflation rate for January too was revised upwards to 6.89% as compared to 6.55% (Provisional). 

The 'All Commodities' index (Base 2004-05=100) for the month of March rose by 0.9% to 159.8 from 158.4 for the previous month. The major dampener was the inflation in food items which was 9.94% in March, as against 6.07% in February.

Manufacturing inflation moderated to 4.87%, from 5.75%. As stated earlier, this is the number that the RBI will be looking at before announcing its monetary policy. Since this has shown a declining trend, a rate cut seems eminent.  The RBI is widely expected to cut its main lending rate - the repo rate - by 25 basis points to 8.25% when it reviews policy tomorrow.

Year-on-year, among manufactured items, iron grew dearer by 17.18% and edible oil prices rose by 9.78%. Inflation in tobacco products and basic metals was 8.22% and 9.51% respectively.  Non-food primary articles, which include fibres and oilseeds, was however lower at (-) 1.20% in March. In February, it was (-) 2.56%. Inflation in the fuel and power segment was 10.41% on an annual basis. The rate of price rise was 12.83% in the previous month.

Experts are of the view that inflationary pressure, driven by prices of food articles will keep the pressure on the government to remove supply side bottlenecks.

The S&P CNX Nifty touched a high and low of 5,233.50 and 5,183.50 respectively.

The top gainers on the Nifty were Tata Motors up by 4.22%, JP Associates up by 3.36%, Axis Bank up by 3.17%, SBI up by 2.60% and PNB up by 2.30%.

On the flip side, Ambuja Cement down by 2.39%, ACC down by 1.74%, Bharti Airtel down by 1.64%, Infosys down by 1.57%, and Sun Pharma down by 1.55% were the top losers on the index.

The European markets were trading mixed, as France's CAC 40 up 0.87%, Britain’s FTSE 100 down 0.39%, while Germany's DAX was up by 0.67%.

After witnessing strong rally in previous session, Asian counters resumed its south bound journey on Monday. Barring Straits Times, all the Asian equity indices ended the trade in the negative terrain as a surge in Spanish government bond yields renewed concerns about the euro zone's sovereign debt crisis and undermined investor confidence in riskier assets. Moreover, concerns about Europe outweighed an announcement by the People’s Bank of China over the weekend to double the yuan’s trading range against the dollar on a given day to 1 percent from 0.5 percent, pushing currencies such as the yen and the dollar higher, and hurting commodity prices.

Meanwhile, Japanese Nikkei share average fell 1.7 percent as investors cut their exposure to risky assets in response to fresh concerns over the euro zone debt crisis after Spanish bond yields soared. However, Chinese shares ended flat with a downward bias on Monday as weakness in overseas markets and growing worries about a domestic slowdown weighed, although hopes for policy loosening helped trim losses.