Sensex drops 115 points as RBI maintains status quo on key rates

Index heavyweights RIL, Infosys and HDFC were among the top losers

Benchmark share indices ended lower on Tuesday on profit booking after the Reserve Bank of India at its third bi-monthly policy review today kept key rates unchanged as retail inflation continues to remain at elevated levels.

The Sensex ended down 115 points at 28,072 levels and the Nifty closed 26 points lower at 8,517.

In the broader market, BSE Midcap and Smallcap indices ended up 0.1-1.1% each. Market breadth ended positive with 1,627 gainers and 1,264 losers.

"Overall, the third bi-monthly policy statement appeared more dovish than previous statements, as the RBI stated that inflation projections for January-March 2016 are lower by about 0.2 %, with risks broadly balanced around the target of 6.0 per cent for January 2016. As per the RBI, the outlook for growth is improving gradually, warranting the continuation of the accommodative stance of monetary policy. We expect 50bps rate cut during the remaining period of FY16," said Jay Shankar, Chief India Economist & Director, Religare Capital Markets

RBI POLICY

The Reserve Bank of India at its third bi-monthly Monetary Policy today kept the repo rate unchanged at 7.25% and also kept the cash reserve ration (CRR) unchanged at 4%.

Headline consumer price index (CPI) inflation rose for the second straight month in June 2015 to a nine-month high of 5.4%.

The central bank, however, retained its growth forecast of 7.6% for the financial year ending March 2016, citing a gradually improving outlook on the back of better real income from the decline in commodity prices and likelihood of better agricultural income if the monsoon continues to improve.

In its policy review today, however, the RBI took a marginally softer outlook on hardening inflation, saying "...inflation projections for January-March 2016 are lower by about 0.2%, with risks broadly balanced around the target of 6.0% for January 2016".  

MONSOON

India’s southwest monsoon in the remaining two months of the four-month season, that is in August and September, is expected to be below normal at 84 per cent of the long-period average (LPA) as El Niño weather conditions have strengthened in the past few months, the India Meteorological Department (IMD)  said on Monday.

SECTORS & STOCKS

BSE Oil and Gas index was among the top losers down 0.7% alongwith Consumer Durables and IT indices.

Index heavyweights ITC and HDFC ended down 0.7-1.3% each.

Among IT majors, Infosys and Wipro ended down 1.7% each on the back of an appreciating rupee.

Oil shares ended lower after global crude oil prices eased on concerns of oversupply post the Iran nuclear deal and weak demand outlook. Reliance Industries, ONGC and GAIL ended down 1.3-2.5% each.

Hero MotoCorp trimmed early gains and ended down 2.7%. The country’s largest two-wheeler player reported a 33 per cent surge in net profit to Rs 750 crore for the quarter against Rs 563 crore in the corresponding quarter last year on the back of higher-than-expected margins.

Financials ended mixed despite the status-quo on key rates by the RBI. SBI, ICICI Bank and Axis Bank ended up 0.4-2.5% each.

Steel stocks ended on reports that the government plans to hike import duty on flat and long steel products. SAIL, Tata Steel, Jindal Steel, JSW Steel ended up 1.7-3.4% each.

Bharti Airtel ended down 1.2% ahead of its April-June 2015 quarter earnings due today.

Among other shares, BGR Energy Systems surged nearly 12% after the company reported a 24.5% year-on-year (YoY) growth in net profit at Rs 11.44 crore for the quarter ended June 30, 2015 (Q1), on the back of strong operational income.

Nilkamal ended nearly 6% higher after the company's net profit for the quarter ended June 30, 2015 jumped 360% to Rs 25.3 crore compared to Rs 5.5 crore in the corresponding quarter last fiscal.

Ajanta Pharma ended up 5% after the company announced that it has received final approval from US Food and Drug Administration (FDA) for its three Abbreviated  New Drug Application (ANDAs) – Montelukast tablets, sodium chewable tablets and oral granules.

Tyre stocks gained on the back of robust earnings in April-June quarter and expectations of higher demand going forward. Ceat, Apollo Tyres, MRF, Goodyear India ended up 4-7% each.

Britannia Industries ended up 1.2%. The company after market hours reported 67% growth in net profit in April-June 2015 at Rs 190 crore compared to the same quarter last year on the back of robust revenue growth.