Market drifts lowers as RBI keeps repo rate unchanged

A bout of volatility was witnessed as key benchmark indices edged lower in mid-morning trade after the Reserve Bank of India (RBI) kept its benchmark interest rate viz. the repo rate unchanged at 6.75% after a monetary policy review. At 11:15 IST, the barometer index, the S&P BSE Sensex, was down 88.64 points or 0.36% at 24,736.19. The 50-unit Nifty 50 index was currently down 23.35 points or 0.31% at 7,532.60. The RBI announced the monetary policy decision at 11:00 IST.

The Sensex lost 88.90 points or 0.35% at the day's low of 24,735.93 in mid-morning trade, its lowest level since 29 January 2016. The index rose 67.70 points or 0.27% at the day's high of 24,892.53 at the onset of the trading session. The Nifty lost 47.05 points or 0.62% at the day's low of 7,508.90 in mid-morning trade, its lowest level since 29 January 2016. The index rose 12.60 points or 0.16% at the day's high of 7,568.55 at the onset of the trading session.

The market breadth indicating the overall health of the market turned negative from positive in mid-morning trade. On BSE, 1,058 shares declined and 1,042 shares rose. A total of 92 shares were unchanged. The BSE Mid-Cap index was currently down 0.37%. The decline in this index was higher than Sensex's decline in percentage terms. The BSE Small-Cap index was currently down 0.04%. The decline in this index was lower than Sensex's decline in percentage terms.

The RBI kept its benchmark interest rate viz. the repo rate unchanged at 6.75% after a monetary policy review. The central bank kept the cash reserve ratio (CRR) unchanged at 4% of net demand and time liability (NDTL).

The RBI said the monetary policy stance continues to be accommodative. RBI Governor Raghuram Rajan said that structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth. With unfavourable base effects on the ebb and benign prices of fruits and vegetables and crude oil, the January 2016 consumer price inflation target of 6% should be met, the RBI said. Going forward, under the assumption of a normal monsoon and the current level of international crude oil prices and exchange rates, inflation is expected to be inertial and be around 5% by the end of fiscal 2016-17, RBI said. However, the implementation of the VII Central Pay Commission award, which has not been factored into these projections, will impart upward momentum to this trajectory for a period of one to two years, the RBI said.

Shares of public sector banks edged higher and those of private sector banks edged lower after the RBI kept the repo rate and the CRR unchanged after the latest policy review. Among public sector banks, Union Bank of India (up 2.23%), Bank of Baroda (up 0.82%), Punjab National Bank (up 0.55%), Canara Bank (up 0.61%), IDBI Bank (up 0.85%) and State Bank of India (up 0.09%) edged higher. Syndicate Bank (down 0.31%) and Indian Bank (down 0.22%) edged lower.

Among private sector banks, Kotak Mahindra Bank (down 0.36%), Yes Bank (down 0.51%), IndusInd Bank (down 0.37%), HDFC Bank (down 0.21%) and ICICI Bank (down 0.39%) declined. Axis Bank (up 0.05%) edged higher.

Shares of oil exploration and production (E&P) companies declined on sharp drop in crude oil price. Cairn India (down 3.94%), Oil India (down 1.78%), ONGC (down 2.29%) and Reliance Industries (down 1.37%) edged lower. Lower crude oil prices will result in lower realization from crude sales for oil exploration firms.

Shares of state-run oil marketing companies (PSU OMCs) also declined. HPCL (down 0.85%) and Indian Oil Corporation (down 0.51%) edged lower.

BPCL lost 1.93% as the stock turned ex-dividend today, 2 February 2016, for interim dividend of Rs 12.50 per share for the year ending 31 March 2016.

In the global commodities markets, Brent for April settlement was currently off 69 cents at $33.55 a barrel. The contract had declined $1.75 a barrel or 4.86% to settle at $34.24 a barrel during previous trading session.

In overseas stock markets, Asian equities edged lower on fresh weakness in oil prices. But Chinese stocks edged higher after the country's central bank injected more liquidity into the financial system, in a move to stave off potential liquidity squeezes ahead of the weeklong Lunar New Year holiday that starts on 7 February 2016. The Shanghai Composite index was currently up 2.36%. US stocks pared sharp opening losses to finish nearly unchanged for the day yesterday, 1 February 2016, as weak US manufacturing data were taken as an indication that the Federal Reserve will hold off on its plans to raise interest rates later this year.

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