Sensex, Nifty hit over 8-1/2-week low as RBI hikes repo rate by 25 bps

Volatility ruled the roost in mid-morning trade as the key benchmark indices reversed intraday gains after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014. The barometer index, the S&P BSE Sensex, and the 50-unit CNX Nifty, both, hit their lowest level in more than 8-1/2 weeks. The Sensex was down 85.41 points or 0.41%, off 173.31 points from the day's high and up 67.76 points from the day's low. The market breadth, indicating the overall health of the market, was positive.

Index heavyweight and cigarette major ITC slipped in volatile trade. Bank and realty stocks reversed initial gains after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14. Auto stocks trimmed intraday gains after the Reserve Bank of India (RBI)'s surprise hike in the repo rate.

Key benchmark indices edged higher in early trade on firm Asian stocks. Key benchmark indices trimmed gains after hitting intraday high in morning trade. Volatility ruled the roost in mid-morning trade as the key benchmark indices reversed intraday gains after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014. The announcement was made at 11:00 IST.

Foreign institutional investors (FIIs) sold shares worth a net Rs 1334.21 crore on Monday, 27 January 2014, as per provisional data from the stock exchanges.

The market may remain volatile this week as traders roll over positions in the futures & options (F&O) segment from the near month January 2014 series to February 2014 series. The January 2014 F&O contracts expire on Thursday, 30 January 2014.

At 11:15 IST, the S&P BSE Sensex was down 85.41 points or 0.41% to 20,622.04. The index lost 153.17 points at the day's low of 20,554.28 in mid-morning trade, its lowest level since 28 November 2013. The index gained 87.90 points at the day's high of 20,795.35 in mid-morning trade.

The 50-unit CNX Nifty was down 32.60 points or 0.53% to 6,103.25. The index hit a low of 6,085.95 in intraday trade, its lowest level since 28 November 2013. The index hit a high of 6,163.60 in intraday trade.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,031 shares rose and 901 shares dropped. A total of 140 shares were unchanged.

The total turnover on BSE amounted to Rs 1219 crore by 11:15 IST, compared with Rs 958 crore by 10:25 IST.

Among the 30-share Sensex pack, 19 stocks declined and rest of them gained.

Index heavyweight and cigarette major ITC fell 0.97% to Rs 321.30 in volatile trade. The stock hit high of Rs 325 and low of Rs 319.15 so far during the day.

Bank stocks reversed initial gains after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14.

Among private bank stocks, ICICI Bank (down 2.02%), AXIS Bank (down 1.29%), HDFC Bank (down 0.42%) and Kotak Mahindra Bank (down 1.34%) declined.

IndusInd Bank fell 2.68%. The private sector bank before market hours today, 28 January 2014, said the Reserve Bank of India (RBI) has approved the re-appointment of Mr. Romesh Sobti as Managing Director and CEO of IndusInd Bank for a period of one year from 1 February 2014 to 31 January 2015. IndusInd Bank said that the board of directors intends to represent to RBI for approval of the term of three years, viz.1 February 2014 to 31 January 2017, as earlier approved by the board of directors.

Among PSU bank stocks, State Bank of India (down 0.3%), Union Bank of India (down 0.72%), Bank of India (down 2.07%), Bank of Baroda (down 0.45%), Punjab National Bank (down 1.88%) and Canara Bank (down 1.3%) edged lower.

RBI governor Dr. Raghuram G. Rajan today, 28 January 2014, said that the enhanced framework for resolution of distressed assets will be operational by 1 April 2014.

Auto stocks trimmed initial gains after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.

Tata Motors rose 0.68%, with the stock recovering after Monday's steep slide. Shares of Tata Motors had lost 6.13% on Monday, 27 January 2014, after the company announced the demise of its Managing Director, Karl Slym.

Maruti Suzuki India gained 0.48% ahead of its Q3 results today, 28 January 2014.

M&M rose 0.6%. Ashok Leyland shed 0.69%.

Shares of two wheeler companies rose. Hero MotoCorp (up 0.09%), Bajaj Auto (up 1.01%) and TVS Motor Company (up 0.75%) gained.

Realty stocks reversed initial gains after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14. Purchases of both residential and commercial property are largely driven by finance.

DLF (down 0.68%), D B Realty (down 0.37%), Indiabulls Real Estate (down 1.41%), HDIL (down 0.24%) declined. Unitech rose 0.4%.

In the foreign exchange market, the rupee edged higher against the dollar. The partially convertible rupee was hovering at 62.97, compared with its close of 63.10/11 on Monday, 27 January 2014.

Indian government bond prices dropped after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014. The yield on 10-year benchmark federal paper, 8.83% GS 2023, was hovering at 8.7835%, higher than its close of 8.7651% on Monday, 27 January 2014. Bond yield and bond prices move in opposite direction. Bond supply will return after a two-week break with the RBI announcing Rs 14000-crore debt sale for Friday, 31 January 2014. US Treasuries prices fell on Monday, 27 January 2014, on profit-taking from last week's safe-haven gains and as traders shrugged off weaker-than-expected data on new US home sales.

The Reserve Bank of India (RBI) surprised markets by raising its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014. Consequently, the reverse repo rate under the LAF stands adjusted at 7% and the marginal standing facility (MSF) rate and the Bank Rate at 9%, the RBI said. The central bank kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liability (NDTL).

While retail inflation measured by the consumer price index (CPI) declined significantly on account of the anticipated disinflation in vegetable and fruit prices, it remains elevated at close to double digits, the RBI said. Moreover, inflation excluding food and fuel has also been high, especially in respect of services, indicative of wage pressures and other second round effects. In terms of the wholesale price index (WPI), headline inflation eased to a four-month low with the sharp decline in vegetable and fruit prices. Non-food manufactured products (NFMP) inflation, however, rose in December on an uptick in prices of chemicals, non-metallic minerals and paper products. Hardening prices of services and key intermediates seen in conjunction with rising bank credit, increase in order books, pick-up in capacity utilisation and the decline in inventories of raw materials and finished goods in relation to sales suggests that aggregate demand pressures are still imparting an upside to overall inflation. The RBI said that it is critical to address these risks to the inflation outlook resolutely in order to stabilise and anchor inflation expectations, even while recognising the economy is weak and substantial fiscal tightening is likely in Q4 March 2014.

In the Mid-Quarter Review on 18 December 2013, the policy decision was to wait for more data before acting. With the subsequent substantial fall in food prices, especially of vegetables, headline inflation has fallen significantly. Some of these effects will continue into the next round of data readings, the RBI said. CPI inflation excluding food and fuel has, however, remained flat and WPI inflation excluding food and fuel has risen, the central bank said in a statement.

The Dr. Urjit Patel Committee has indicated a "glide path" for disinflation that sets an objective of below 8% CPI inflation by January 2015 and below 6% CPI inflation by January 2016. The Reserve Bank of India's baseline projections set out in the accompanying Review of Macroeconomic and Monetary Developments for Q3 of 2013-14 indicate that over the ensuing 12-month horizon, and with the current policy stance, there are upside risks to the central forecast of 8%, the RBI said. An increase in the policy rate will not only be consistent with the guidance given in the Mid-Quarter Review but also will set the economy securely on the recommended disinflationary path, the RBI said. The extent and direction of further policy steps will be data dependent, though if the disinflationary process evolves according to this baseline projection, further policy tightening in the near term is not anticipated at this juncture, the central bank said in a statement. Governor Dr. Rajan said in a statement that if inflation eases at a pace that is faster than the RBI currently anticipates and if that reduction is expected to be sustained, the Reserve Bank of India will have room to become more accommodative.

If policy actions succeed in delivering the desired inflation outcome, real GDP growth can be expected to firm up from a little below 5 per cent in 2013-14 to a range of 5 to 6 per cent in 2014-15, with risks balanced around the central estimate of 5.5 per cent, the RBI said. A pick-up in investment in an environment in which external demand continues to be supportive of export performance could impart an upside to this forecast, the RBI said.

The Reserve Bank is engaged in active management of liquidity to offset frictional and structural pressures so that there is adequate credit flow to the supply side of the economy, the central bank said.

Despite a significantly more comfortable external position than in the summer of 2013, both fiscal and monetary authorities need to continue their efforts at macroeconomic stabilisation, the RBI said.

Since the Mid-Quarter Review of December 2013, the global recovery is gaining traction, led by the strengthening of the US economy, but it is still uneven and subdued in the Euro area and Japan, and a slowdown in China seems to be underway, the RBI said. Notwithstanding the boost from stronger external demand, uncertainty continues to surround the prospects for some emerging economies, with domestic fragilities getting accentuated. Financial market contagion is a clear potential risk, the RBI said.

Asian stocks rose on Tuesday, 28 January 2014, before the Federal Reserve meets to discuss a further reduction in stimulus. Key benchmark indices in Taiwan, Hong Kong, Indonesia, Singapore, South Korea and Japan rose by 0.01% to 0.71%. Key benchmark indices in Taiwan and China fell 0.06% to 1.58%.

Profit at China's industrial companies increased 6 percent in December from a year earlier, after rising 9.7 percent in the previous month, the National Bureau of Statistics said today, 28 January 2014.

Thailand's manufacturing production decreased 6.2 percent in December from a year earlier, according to a report today, 28 January 2014.

Trading in US index futures indicated that the Dow could advance 51 points at the opening bell on Tuesday, 28 January 2014. US stocks edged lower in a volatile session on Monday, 27 January 2014 as worries over emerging-markets currencies unsettled investors. Stocks began the day on a higher note following upbeat results from Caterpillar, but fell after home sales data showed a larger drop in December than anticipated.

Sales of new single-family homes fell in December, but the whole of 2013 saw the highest sales level in five years, the US government reported Monday, 27 January 2014. Sales of new single-family homes dropped 7% in December due to harsh winter weather. The median price of new homes ticked up in December and for 2013, the median price hit $265,800, up 8.4% from the prior year, the strongest annual growth since 2005.

A two-day monetary policy meeting of the Federal Open Market Committee (FOMC) begins today, 28 January 2014. Federal Reserve officials have been scrutinizing US economic data to determine the timing and pace of reductions to asset purchases. The central bank decided at its December gathering to begin cutting its monthly bond buying by $10 billion to $75 billion.

In Turkey, the country's central bank on Monday, 27 January 2014, said it will "take the necessary policy measures for price stability" at a meeting on Tuesday, 28 January 2014. The announcement came after the currency's decline.

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