Market settles higher amid volatility

Key benchmark indices settled with modest gains after witnessing intraday volatility after the Reserve Bank of India (RBI) decided to keep the policy repo rate unchanged after a policy review meet today, 7 June 2017. The barometer index, the S&P BSE Sensex rose 88.02 points or 0.28% at 31,278.58, as per the provisional closing data. The Nifty 50 index gained 26.55 points or 0.28% at 9,663.70, as per the provisional closing data. Good prospects of rains and firm global stocks supported gains on the bourses.

After opening with small gains, key indices held firm till early afternoon after extending gains and hitting fresh intraday high in morning trade as sentiment was boosted by firm Asian stocks and good prospects of rains. However, indices pared almost entire intraday gains in afternoon trade ahead of the RBI meet. Stocks regained strength in late trade after the central bank kept policy rate steady after indices hovered near the flat line in mid-afternoon trade.

 

A sharp drop was witnessed in IT stocks amid a media report saying that the Infosys' clients were asking for 20-30% cut in prices for projects. Interest rate sensitive bank, auto and realty stocks rose after RBI kept rates steady.

The S&P BSE Mid-Cap index provisionally rose 0.55%. The S&P BSE Small-Cap index provisionally advanced 0.76%. Both these indices outperformed the Sensex.

The total turnover on BSE amounted to Rs 3505.72 crore, higher than turnover of Rs 3410 crore registered during the previous trading session.

The breadth indicating overall health of the market was positive. On the BSE, 1,461 shares rose and 1,175 shares fell. A total of 153 shares were unchanged.

The Sensex gained 156.43 points or 0.5% at the day's high of 31,346.99 in morning trade. The index fell 17.58 points or 0.05% at the day's low of 31,172.98 in late trade. The Nifty gained 41.40 points or 0.42% at the day's high of 9,678.55 in morning trade. The index fell 6.60 points or 0.06% at the day's low of 9,630.55 in late trade.

IT stocks dropped sharply amid a media report saying that the Infosys' clients were asking for 20-30% cut in prices for projects. TCS (down 3.13%), Infosys (down 2.09%), Wipro (down 2.03%), HCL Technologies (down 1.29%), and Tech Mahindra (down 2.02%) fell.

Hexaware Technologies fell 5.24% to Rs 244.95, with the stock sliding on profit booking after recent rally. The stock had rallied 10.12% in the preceding four trading sessions to settle at Rs 258.50 yesterday, 6 June 2017, from its closing of Rs 234.75 on 31 May 2017.

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, 7 June 2017, the monetary policy committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25%. Consequently, the reverse repo rate under the LAF remains at 6%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.5%.

In order to give greater flexibility to banks to comply with the liquidity coverage ratio (LCR) requirement in an efficient manner, it has been decided to reduce the statutory liquidity ratio (SLR) from 20.5% of NDTL to 20% of NDTL with effect from the fortnight beginning 24 June 2017.

The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.

The current state of the economy underscores the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks. Monetary policy can play a more effective role only when these factors are in place. Premature action at this stage risks disruptive policy reversals later and the loss of credibility. Accordingly, the MPC decided to keep the policy rate unchanged with a neutral stance and remain watchful of incoming data, it added.

Meanwhile, the second stage forecast of Southwest monsoon seasonal rainfall was issued by Indian Meteorological Department (IMD) in New Delhi yesterday, 6 June 2017. IMD has forecast that quantitatively, the monsoon seasonal rainfall for the country as a whole is likely to be 98% of the long period average (LPA) with an error of 4%. The forecast was 2 percentage points higher than the April forecast. The monsoon delivers about 70% of India's annual rainfall, critical for the farm sector. In April, the IMD had forecast this year's monsoon rains at 96% of the 50-year average of 89 centimetres.

Overseas, most European stocks edged higher in volatile trade ahead of Thursday's UK election and the European Central Bank's policy decision.

Orders for Germany's important manufacturing sector slumped in April, the economics ministry said. Manufacturing orders fell by 2.1% compared with March, referring to data adjusted for seasonal swings and calendar effects.

While pollsters still expect British Prime Minister Theresa May to win the most seats in the Thursday election, a tight result could throw the country into political deadlock just days before formal Brexit talks with the European Union are due to begin on 19 June 2017.

Meanwhile, expectations are growing that the ECB could strike a less dovish tone at its meeting tomorrow, 8 June 2017 after recent economic reports indicated that the recovery in the euro area is deepening.

Most Asian stocks rose although investors remained noticeably risk averse ahead of several major political and economic events later this week.

US stocks closed lower yesterday, 6 June 2017 for a second session as investors exercised caution ahead of the UK elections and political uncertainties over former Federal Bureau of Investigation director James Comey's testimony this week.

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