Sensex ends 97 points lower as RBI flags inflation risk

Benchmark indices ended lower with the Nifty50 index breaking 8,700 after Raghuram Rajan at his last monetary policy review meeting as RBI governor hinted upside risks to inflation while keeping key policy rates unchanged, in line with economists' expectations.

The S&P BSE Sensex ended lower 97 points at 28,085 and the Nifty50 slipped 33 points to settle at 8,678. Among broader markets, BSE Midcap and the Smallcap index fell 0.3%-0.4%.   

Commenting on today's event, Dhananjay Sinha Head, Institutional Research, Economist and Strategist, Emkay Global Financial Services said, "Governor from his last policy have increased the risks on inflation especially arising from the core inflation-services oriented. The policy statement highlighted that the projected inflationary trajectory has been pushed up. Earlier Urjit Patel committee had estimated 100-150bps impact on the inflation projection of 5% with the full implementation of the 7th pay commission; which is in line with our expectations. We have been highlighting the inflationary risks arising from accommodative RBI's stance and fiscal reflationary approach. We believe the structural liquidity would again turn challenge with a slight uptick in credit growth and with dissipation of seasonal factors which would lead to hardening of the yields."

The rupee today fell by 7 paise against the US currency to close at 66.84 on fresh dollar demand from banks and importers on the back of strong dollar in overseas markets.

In overseas stock markets, European stocks edged higher in early trade and most Asian shares rose as US crude oil traded near its highest price in two weeks. US stocks closed lower yesterday, after touching record highs as Wall Street caught its breath in the wake of last week's upbeat jobs data.

Back home, Raghuram Rajan, whose 3-year term will come to an end on September 4, left interest rates unchanged at his final policy review meeting as RBI governor. Rajan left the repurchase, or repo, rate unchanged at 6.5% as retail inflation for the month of June headed to 5.77%, driven in large part by a spike in food inflation which has the most weightage in the basket of goods used in the Consumer Price Index (CPI). The Cash Reserve Ratio (CRR) was also left unchanged at 4%.

Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mutual Fund adds, “RBI monetary policy was a non-event and as such was on expected lines. Having said that RBI continues to emphasise on rate transmission within the banking system and has suggested proactive frontloading of open market operations (OMO) to ensure that liquidity in the banks is not strained on account of FCNRB redemptions. This would ensure that deposit rates do not come under pressure during the redemption period and the gradual rate transmission continues unabated. We continue to believe that there is scope for additional rate cut of 25-50 bps in the current fiscal and RBI would be flexible in its approach to deliver the same.”

Meanwhile, the amended goods and services tax (GST) constitutional amendment bill was passed by the Lok Sabha yesterday.

Among key stocks, shares of Housing Development Finance Corporation (HDFC) and Max Financial Services ended lower upto 2% after the HDFC Life and Max Life Insurance announced a swap ratio for their merger. HDFC Life is a material subsidiary of the HDFC.

Lupin slumped by over 5% despite robust first quarter earnings after operational performance was lower-than-expected.  India's third-largest drugmaker reported a 68% rise in first-quarter profit, beating analysts' expectations.

The company reported EBITDA (earnings before interest, taxes, depreciation and amortisation) margin at 32.2% in June 2016 quarter against 32.8% in March 2016 quarter. EBITDA margin was at 29.2% in June 2015 quarter. Analysts expected EBITDA margin at 32.7% for the quarter.

M&M, the country's leading auto maker will set up the nation's first auto shredding facility in Gujarat or Maharashtra along with MSTC, a government owned company. The stock slipped over 1%.

Index heavyweight and cigarette major ITC dropped over 0.3%. The stock hit a high of Rs 252.40 and low of Rs 246.50 during the day. According to research agency AC Nielsen, the growth in sales of fast-moving consumer goods has slowed down in April-June to 3.2 per cent, year on year, from 5.6% in January-March.  

Metal and mining stocks declined as copper prices fell in global commodity markets. India on Tuesday slapped anti-dumping duty on import of hot-rolled steel products from six nations, including China and South Korea, in a bid to shield domestic manufacturers against cheaper inward shipments. Tata Steel fell by 1%.

Government on Monday said that coal allocation via the electronic auction (e-auction) route rose by 29% in 2015-16, fetching 33% more than the notified prices. Coal India gained 1.5%.

Inox Wind touched its 52-week low of Rs 200 in an intra-day deals after rating agency CRISIL on Monday, has revised its outlook on the long-term bank facilities of the company to 'Negative' from 'Stable' and reaffirmed the 'CRISIL AA-' rating. The stock slipped over 4%.

Sutlej Textiles and Industries extended gains for the third straight session rising 7% after reporting 43% year-on-year (YoY) growth in net profit at Rs 45.09 crore for the quarter ended June 30, 2016 (Q1FY17).

Transpek Industries rose 5% after the company announced that the board will meet on Friday, August 12, 2016 to consider a proposal for buyback of equity shares.

Rural Electrification Corporation (REC) ended higher over 2% after the company announced the board will consider the proposal of bonus issue at their meeting scheduled for Thursday, August 11, 2016.

SRF rose 3% after touching record high on the National Stock Exchange (NSE) in an intra-day trade. The company reported 27% year-on-year (YoY) increase in consolidated net profit at Rs 144 crore for the quarter ended June 30, 2016 (Q1FY17), on back of strong operational performance.