Shares absorb impact, drop less than expected

The markets seem to have taken in its stride the Reserve Bank of India (RBI)'s decision to leave rates unchanged and the legislative inaction following protests in Parliament.

Key benchmark indices were down less than 0.5 per cent, as RBI maintained rates in its bi-monthly policy review and the monsoon session of the Parliament continued to be fraught with protests by the Opposition parties.

The BSE Sensex declined 115 points, or 0.4 per cent, to end at 28,071 while the NSE Nifty fell 26 points, or 0.3 per cent, to close at 8,516.

Experts said the twin-effects of the hindrances to Parliament sessions and RBI's decision to keep rates unchanged did not translate into sharp disappointment in the markets, as a lot of this had already been priced in.

On the contrary, the decline in the main-line indices was countered by a rise in the mid-cap and small-cap indices, which have been supporting the decline in markets. The benchmark indices have gained 2.6 per cent in the past five sessions. The markets had been rising for the past four trading sessions on the persistent weakness in the commodity prices, hopes of an optimistic outlook from RBI on inflation and rates in the days ahead, and the revival of monsoons. Corporate earnings numbers have been better-than-expected with margin expansion being cited as one of the biggest surprises by market analysts.

With optimism building on these fronts, the disappointment of the logjam in Parliament's monsoon session has been pushed aside for now, according to experts.

"If the GST (goods and services) Bill is not passed in this session, there will be some disappointment in the market. But the markets have largely remained unaffected by the Parliament session because Bills are just one part of the expectation in the market. Others like weakening commodities prices, margin expansion and the recovery in monsoon have had a more positive impact on sentiments," said Pankaj Pandey, head of research at ICICI Direct.

Banking stocks continued their upward trend, gaining 0.5 per cent on Tuesday. In the past seven sessions, the S&P BSE Bankex has gained 927.77 points or 4.44 per cent. RBI's policy review on Tuesday left key policy rates unchanged, but hinted at a more relaxed stance on inflation on account of improving monsoons.

"In the next few months, the dust will settle down as far as the health of the monsoon and repercussions of an interest rate hike by the US Federal Reserve are concerned. This will provide more clarity to RBI and provide the courage to further trim the interest rates. There is a decent likelihood that the central bank will go for 25 basis points rate cut later this year," said Amar Ambani, head of research at IIFL.

Technology, consumer and capital goods stocks were the laggards of the day, while metals and banking stocks were the gainers. The BSE mid-cap index was up 1.1 per cent and the BSE small-cap index was up 0.7 per cent. "The buying by the mutual funds has been boosting the mid and small-cap segment. Over the past 3-4 weeks, especially, we have seen positive sentiments returning to the market because concerns like the timing of the US rate-hike and reforms-push have been pushed to the background," said Dhananjay Sinha, co-head (institutional research) at Emkay Global Financial Services.

On Tuesday, foreign portfolio investors were net-buyers of Indian equities at Rs 118 crore, while domestic institutional investors were net-sellers at Rs 112 crore, according to provisional data from the exchanges.

For every stock that declined, two stocks gained on the BSE.