Market cautious ahead of RBI policy

Benchmark indices shed 1% on weak global cues

Benchmark indices shed nearly one per cent on Monday amid weak global cues and caution ahead of the Indian central bank (Reserve Bank of India, RBI) policy meeting. Most global markets traded lower on account of weak China industrial data.

Trading volumes were subdued as investors awaited the release of key economic indicators in the US, Japan, and China, for signals on the health of the global economy. After trading flat for most of the day, a late sell-off saw the benchmark Sensex end one per cent, or 247 points, lower at 25,617.

The NSE Nifty fell 73 points, or one per cent, to 7,795. Stocks in the rate-sensitive banking and realty space outperformed the benchmark indices on hopes of a policy rate cut by the central bank. The RBI is expected to cut the repo rate to the lowest level in four years, amid cooling inflation. (Repo rate is the rate at which  RBI lends money to commercial banks in the event of any shortfall of funds.)

The BSE Bankex closed 0.5 per cent lower, while the BSE Realty index added one per cent. “There should be a 25-basis-point cut in interest rate and markets may react positively. Market should remain sideways — in the near term due to Bihar elections and coming results season,” Taher Badshah, senior vice-president and co-head (equities) at Motilal Oswal Asset Management Co, told Reuters.

Overseas investors sold shares worth Rs 650 crore, while their domestic counterparts net-bought stocks worth Rs 505 crore, provisional data released by stock exchanges on Monday showed. Emerging market exchange traded funds (ETFs) based out of the US were seen pulling out money from markets such as India, China and Mexico as the US Federal Reserve is set to increase interest rates this year.

Among Sensex companies, Tata Motors fell the most at six per cent followed by Vedanta, which declined 4.4 per cent and Sun Pharma 3.4 per cent. Banking stocks traded higher for most part of the day, with State Bank of India and ICICI Bank closing nearly unchanged.

“Late in the day, selling in key pivotal stocks caused the indices to give away gains of the day to end lower by one per cent. Banking gave away gains despite an expected 25 basis points rate cut, while rate-sensitive auto was dragged down by heavyweight Tata Motors due to a rub-off of the global emission controversy,” said Ravi Shenoy – assistant vice-president (research), Motilal Ostwal.

Market players said the market has priced in a 25 basis points rate cut by the RBI on Tuesday. The participants will keenly eye the RBI policy statements on further monetary easing trajectory, they added.

After the RBI announcement, the market will shift focus on second-quarter earnings announcement by Indian companies.

“We believe an earnings recovery is likely to strengthen in the second half of 2015-16, led by consumer sectors, capital goods and banks sectors. Our positive expectations from the domestic economy lead us to maintain our overweight portfolio stance on private sector banks, consumer discretionary and the building materials sector. We are also overweight on the IT sector due to rupee depreciation. Our 12-month forward Nifty target of 9,642 suggests a 24 per cent upside potential from current levels,” said Bhuvnesh Singh, India head of research at Barclays Capital.