Weekly: Sensex drops 465 points on FII sell off, RBI stance

Delhi election results on February 10 will be keenly observed by investors

In the week to February 6, the benchmark BSE  Sensex registered its biggest weekly fall since the one ending December 12, 2014. The decline was precipitated by persistent selling after the Reserve Bank of India (RBI) kept key rates unchanged at its Tuesday monetary policy review. Sluggish macroeconomic data coupled with weak bluechip earnings added to the drag.

The 30-share Sensex ended 465.04 points, or 1.6 per cent, lower at 28,717.91. The the 50-share Nifty, the benchmark index of the National Stock Exchange, lost 147.85 points, or 1.7 per cent, as it slid to 8,661.05.

Following the duo’s downward glide, the BSE Mid-Cap Index slumped 247.91 points, or 2.3 per cent, to end at 10,490.68 and the BSE Small-Cap Index shed 251.92 points to close at 11,077.34, a decline of 2.2 per cent.

Foreign institutional investors were net sellers in Indian equities worth Rs 1,102 crore for the week, provisional stock exchange data showed.

Key events

The RBI kept its repurchase, repo, rates unchanged at 7.75 per cent and the reverse repo rate at 6.75 per cent. The repo rate is the rate at which the central bank lends to banks, while the reverse repo is what it borrows from banks at. However, the central bank cut the Statutory Liquidity Ratio — the portion of deposits that banks must invest in government bonds, or other RBI-approved assets - by 50 basis points to 21.5 per cent, effective February 7.

Growth in India’s factory activity slipped in January from December’s two-year high as new orders slowed despite factories keeping price increases to a minimum. Factory output, as measured by the Purchasing Manager’s’ Index (PMI) declined to 52.9 points in January, compared with 54.5 in December. Similarly, China’s manufacturing sector PMI slipped to 49.7, suggesting a contraction in output.

The HSBC Services PMI rose to 52.4 in January from 51.1 in December that depicted that growth among India's services firms has picked up pace.

Stocks

On the sectoral front, 9 out of 12 sectoral indices ended in the negative territory with BSE Bankex leading the decline.

ICICI Bank, Tata Motors, Hero MotoCorp, Tata Power, Dr Reddy’s Lab lost between three and seven per cent on lower than expected quarterly results. On the other hand, Bharti Airtel and Tata Power reported strong quarterly results but ended the week on a dismal note and lost between two per cent and 10 per cent.

Banking shares declined across the exchange on RBI stance. Axis Bank, HDFC Bank and SBI shed between two and seven per cent. HDFC Bank raised Rs 9,840 crore by selling shares in the domestic market and offering 22 million ADRs in the US. Auto stocks reeled under pressure on weak sales numbers. Bajaj Auto and M&M slipped between six and 10 per cent.

IT shares ended higher tracking better-than-expected numbers in the fourth quarter as well as the accounting year ended December 31 by IT Services Company Cognizant. Infosys, TCS, HCL and Wipro surged between two and six per cent.

Outlook

Index of industrial production (IIP) data for December and inflation based on the combined consumer price indices (CPI) will be unveiled next week.

The results of Delhi Assembly elections on February 10 will be keenly observed by the investors.

Corporate earnings to be posted by L&T, BHEL, DLF, Cipla, Coal India, ONGC, Hindalco, M&M and SBI will dictate the trend on the bourses in the forthcoming week.

Further, markets will react to the US job growth that rose solidly in January showing strength in the economy that puts a mid-year interest rate increase from the Federal Reserve back on the table.