Markets end near 2-yr lows as RBI flags growth concerns

Key share indices ended near their 2-year lows amid a volatile trading session Friday, after the Reserve Bank of India, in its monetary policy review, highlighted growth concerns.

"While inflation remains on its projected trajectory, downside risks to growth have clearly increased. Further rates hike may not be warranted," the Reserve Bank of India (RBI) said in it its mid-quarter review of monetary policy.

The 30-share Sensex ended at 15,491, down 345 points and the 50-share Nifty ended down 95 points, at 4,652, its newest low in 2011.  

The last time that S&P CNX Nifty ended below the 4700 mark had been on November 03, 2009, when it ended at 4,563.90.

 The RBI in its monetary policy review paused its rate hike cycle after continuously raising the key policy rates thirteen times in one year. Looking at the overall slowdown in the growth and fall in inflation, the central bank kept the key rates unchanged. The central bank maintained repo (rate at which banks borrow from RBI) at 8.5%, reverse repo (rate at which the RBI borrows from banks) at 7.5%. The inflation projection for March FY12 is kept at 7 per cent.

The economic growth has come down to 6.9% in the second quarter of the current fiscal from 8.1% in the corresponding quarter in the previous financial year even as inflation remains close to the double-digit mark. The industrial growth registering a negative growth of 5.1% in October too may have prompted RBI to maintain the status quo.

PMEAC Chairman C Rangarajan today said RBI's move to keep all the key policy rates unchanged in its mid-quarterly policy review is on expected lines and the central bank might start revising downwards its monetary stance only if inflation continues to decline further. "The impact of the base effect will be seen as food prices generally come down in winter season. So I do believe inflation will come down sharply and that might provide the correct environment in which the RBI can act further in the direction of easing action," he said.

Dr. Arun Singh, Senior Economist, Dun & Bradstreet India commented, “Though inflation, especially food, is witnessing a downward trend during the past few weeks, structural issues regarding the supply side bottlenecks still prevail. The RBI, which has to consider the impact of the rising borrowing costs on the growth momentum on one hand and the existing inflationary pressures in the economy on other, might not be able to accommodate monetary expansion in the near term. As a result, we expect the RBI to hold the policy rates at the present level till at least June 2012 before bringing it down.”
During the day, the BSE benchmark index touched the day's high at 16,069 and the day's low at 15,425.

Reliance Industries and Larsen & Toubro were the major draggers, accounting for a 100-odd point loss on the Sensex. Other prominent draggers were HDFC Bank, ICICI Bank and ITC.

All the sectoral indices ended in the red. Rate-sensitive BSE Realty and Bankex indices, ended lower by 3-4% each.
Union Bank of India, Axis Bank, Punjab national Bank and yes Bank, down 4-5% each, were the notable losers from among the financial stocks.
From the auto space, Apollo Tyres, Ashok Keyland, Hero MotoCorp and Mahindra & Mahindra, ended down 1-4% each.

BSE Capital Goods index witnessed some selling pressure and was the major loser among the indices, down nearly 5%.  BGR Energy Systems, Suzlon Energy and Larsen & Toubro, were the prominent losers from the space, down 5-10% each.

Sterlite Industries, JP Associates, BHEL and DLF, down nearly 4% each, were the losers among the Sensex 30 stocks.

Among individual stocks, Apollo Hospitals Enterprises surged 12% to Rs 532, recovering from its 14% fall Thursday, after the company clarified on enquiries with regard to the recent allotment of 3.09 million equity shares of Rs 5/- each to Dr. Prathap C. Reddy, one of the promoters of the company, at a price of Rs 385.88 per share on December 10, 2011.

Spanco surged 9% to Rs 72 on news that the company has received a five-year tax holiday from Nigeria for creating more jobs in the country's outsourcing sector.

The overall market breadth was remarkably negative as 1,884 stocks declined against 847 advancing ones, on the BSE.