Volatility continued in early afternoon trade as key benchmark indices surged and hit fresh intraday after slipping into the red once again after the Reserve Bank of India (RBI) kept its main lending rate viz. the repo rate unchanged while cutting the Statutory Liquidity Ratio by 50 basis points after a monetary policy review. The barometer index, the S&P BSE Sensex, and the 50-unit CNX Nifty, both, hit their highest level in more than a week. The Sensex was up 162.80 points or 0.66%, up close to 220 points from the day's low and off about 20 points from the day's high. The market breadth, indicating the overall health of the market was strong. The market sentiment was boosted by the RBI's announcement after the monetary policy review to allow foreign portfolio investors to participate in the domestic exchange traded currency derivatives market to the extent of their underlying exposures plus an additional $10 million. Firmness in Asian stocks also boosted sentiment on the domestic bourses.
Interest rate sensitive realty stocks edged higher. Hero MotoCorp extended Monday's gains triggered by the company's strong sales in May.
Key benchmark indices edged higher in early trade on firm Asian stocks. A bout of volatility was witnessed as key benchmark indices recovered from lower level after giving away almost entire intraday gains in morning trade. High volatility was witnessed in mid-morning trade as key benchmark indices regained positive terrain and hit fresh intraday high after nose-diving into the negative terrain from positive terrain soon after the Reserve Bank of India kept its main lending rate viz. the repo rate unchanged while cutting the Statutory Liquidity Ratio by 50 basis points after a monetary policy review. The RBI's monetary policy announcement came at 11:00 IST. Volatility continued in early afternoon trade as key benchmark indices surged and hit fresh intraday after slipping into the red once again in mid-morning trade.
The market sentiment was boosted by data showing that foreign funds remained net buyers of Indian stocks on Monday, 2 June 2014. Foreign institutional investors (FIIs) bought shares worth a net Rs 234.49 crore on Monday, 2 June 2014, as per provisional data from the stock exchanges.
At 12:20 IST, the S&P BSE Sensex was up 162.80 points or 0.66% to 24,847.65. The index jumped 182.36 points at the day's high of 24,867.21 in early afternoon trade, its highest level since 26 May 2014. The index fell 57.88 points at the day's low of 24,626.97 in mid-morning trade.
The CNX Nifty was up 55.10 points or 0.75% to 7,417.60. The index hit a high of 7,419.10 in intraday trade, its highest level since 26 May 2014. The index hit a low of 7,342.15 in intraday trade.
The BSE Mid-Cap index was up 51.14 points or 0.59% to 8,701.66, underperforming the Sensex. The BSE Small-Cap index was up 83.38 points or 0.91% to 9,280.30, outperforming the Sensex.
The market breadth, indicating the overall health of the market was strong. On BSE, 1,655 shares rose and 1,017 shares fell. A total of 103 shares were unchanged.
Realty stocks rose. DLF (up 2.48%), D B Realty (up 2.88%), Housing Development & Infrastructure (up 1.85%) and Unitech (up 2.1%) gained.
Hero MotoCorp rose 2.38%, with the stock extending Monday's gains triggered by the company's strong sales in May. Continuing its growth trajectory, Hero MotoCorp (HMCL), reported all-time high despatch sales for a non-festive month. Riding on robust volumes driven by new launches, Hero MotoCorp sold 6.02 lakh units of two-wheelers in May 2014 -- its highest-ever despatch sales for any non-festival period. The previous highest was in the preceding month, i.e., April 2014 when the company sold 5.71 lakh units-thus highlighting HMCL's sustained volume growth since the beginning of FY 2015.
The sales registered in May 2014 represents a growth of eight per cent over the corresponding month in the previous year, when the company had sold 5.57 lakh units. The company announced sales figures on 1 June 2014.
In May 2014, HMCL crossed the landmark six lakh sales figure for the second time, thus representing second-highest monthly sales ever. The all-time high monthly sales of the company was recorded in the festival month of October last year when it sold 6.25 lakh units of two-wheelers.
In the foreign exchange market, the rupee edged lower against the dollar. The partially convertible rupee was hovering at 59.265, compared with its close of 59.1525/1625 on Monday, 2 June 2014.
The Reserve Bank of India kept its main lending rate viz. the repo rate unchanged at 8% and also kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL) after a a monetary policy review today, 3 June 2014. The central bank announced reduction in the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points to 22.5% of their NDTL from 23% with effect from the fortnight beginning 14 June 2014. A reduction in the required SLR will give banks more freedom to expand credit to the non-government sector, the RBI said. The Reserve Bank of India is also cognizant of the significant on-going financing needs of the government. Therefore, the SLR is reduced by 0.5% of NDTL, with any further change dependent on the likely path of fiscal consolidation, the central bank said in a statement.
The RBI has reduced the liquidity provided under the export credit refinance (ECR) facility from 50% of eligible export credit outstanding to 32% with immediate effect. In pursuance of the Dr. Urjit R. Patel Committee's recommendation to move away from sector-specific refinance towards a more generalised provision of system liquidity without preferential access to any particular sector or entity, the Reserve Bank of India has decided to limit access to export credit refinance while compensating fully with a commensurate expansion of the market's access to liquidity through a special term repo facility from the Reserve Bank of India, equivalent to 0.25% per cent of NDTL. This should improve access to liquidity from the Reserve Bank of India for the system as a whole without the procedural formalities relating to documentary evidence, authorisation and verification associated with the ECR. This should also improve the transmission of policy impulses across the interest rate spectrum and engender efficiency in cash/treasury management, the RBI said.
Retail inflation measured by the consumer price index (CPI) increased for the second consecutive month in April, pushed up by a sharp spike in food inflation, especially in the prices of fruits, vegetables, sugar, pulses and milk. CPI inflation excluding food and fuel has moderated gradually since September 2013 although it is still elevated. In March and April, CPI headline inflation has risen on the back of a sharp increase in food prices. Some of this price pressure will continue into May, but it is largely seasonal, the RBI said. Moreover, CPI inflation excluding food and fuel has been edging down.
The risks to RBI's forecast of 8% CPI inflation by January 2015 remain broadly balanced, the RBI said. Upside risks in the form of a sub-normal/delayed monsoon on account of possible El Nino effects, geo-political tensions and their impact on fuel prices, and uncertainties surrounding the setting of administered prices appear at this stage to be balanced by the possibility of stronger government action on food supply and better fiscal consolidation as well as the pass through of recent exchange rate appreciation. Accordingly, at this juncture, it is appropriate to leave the policy rate unchanged, and to allow the disinflationary effects of rate increases undertaken during September 2013-January 2014 to mitigate inflationary pressures in the economy, the RBI said.
The Reserve Bank of India remains committed to keeping the economy on a disinflationary course, taking CPI inflation to 8% by January 2015 and 6% by January 2016, the RBI said. If the economy stays on this course, further policy tightening will not be warranted, the central bank said. On the other hand, if disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance, the RBI said.
Contingent upon the desired inflation outcome, the April projection of real GDP growth of 5% to 6% in 2014-15 is retained with risks evenly balanced around the central estimate of 5.5%, the RBI said. The outlook for the agricultural sector is contingent upon the timely arrival and spread of the monsoon. Easing of domestic supply bottlenecks and progress in the implementation of stalled projects should brighten the outlook for both manufacturing and services, the RBI said. The resumption of export growth is a positive development and as world trade gathers momentum, the prospects for exports should improve further, the central bank said.
Financial markets across the world still remain vulnerable to news about the impending normalisation of interest rates in some developed economies, even as some valuations appear frothy, the RBI said.
The RBI said that with a view to improving the depth and liquidity in the domestic foreign exchange market, it has been decided to allow foreign portfolio investors to participate in the domestic exchange traded currency derivatives market to the extent of their underlying exposures plus an additional $10 million. Furthermore, it has also been decided to allow domestic entities similar access to the exchange traded currency derivatives market.
As a prudential measure, the eligibility limit for foreign exchange remittances under the Liberalised Remittance Scheme (LRS) had been reduced to $75,000 last year. In view of the recent stability in the foreign exchange market, it has been decided to enhance the eligible limit to $125,000 without end use restrictions except for prohibited foreign exchange transactions such as margin trading, lottery and the like.
At present, only Indian residents are allowed to take Indian currency notes up to Rs 10,000 out of the country. Non-residents visiting India are not permitted to take out any Indian currency notes while leaving the country. With a view to facilitating travel requirements of non-residents visiting India, it has been decided to allow all residents and non-residents except citizens of Pakistan and Bangladesh to take out Indian currency notes up to Rs 25,000 while leaving the country, the RBI said.
The Eight Core Industries, having a combined weight of 37.90% in the Index of Industrial Production (IIP), recorded a 4.2% increase in output during April 2014. Coal production increased 3.3%, while the electricity generation increased 11.2% in April 2014 over April 2013. The production of fertilizer increased 11.1%, while that of steel and cement also galloped 3.1% and 6.7% in April 2014. However, the output of crude oil declined 0.1%, while that of the natural gas and petroleum refinery also dipped 7.7% and 2.2% in April 2014.
Markit Economics will unveil the result of a monthly survey on the performance of India's services sector for May 2014 tomorrow, 4 June 2014.
Rural Development Minister Gopinath Munde died after a head-on road collision in New Delhi early in the morning today, 3 June 2014. Munde, appointed just over a week ago to Prime Minister Narendra Modi's new government, suffered serious injuries while driving to the airport and died in hospital. Munde, 64, died in hospital from cardiac arrest.
Finance minister Arun Jaitley is expected to table Union Budget for 2014-15 in Lok Sabha by July 2014. An interim budget was presented by P. Chidambaram in February this year. Essentially, in the nature of a vote on account, the interim budget was intended to get Parliament approval for expenditure to be incurred during the first few months of fiscal year 2014-15 due to Lok Sabha elections.
The First Meeting of the Special Investigating Team (SIT) was held on Monday under the Chairmanship of Mr. Justice M.B. Shah, former Judge of the Supreme Court. During the meeting, detailed modalities of proceeding further with the Supreme Court mandate were discussed and the roadmap decided. SIT was recently constituted to implement the decision of the Supreme Court on large amounts of money stashed abroad by evading taxes or generated through unlawful activities. The next meeting of the SIT will be convened shortly to take stock of the follow-up of the decisions taken in the First Meeting of SIT on Monday.
Asian stocks edged higher on Tuesday, 3 June 2014, as concern eased about a slowdown in China, the world's second-largest economy. Key benchmark indices in Indonesia, South Korea, Japan, Hong Kong, Taiwan and China were up 0.15% to 0.66%. Singapore's Straits Times fell 0.24%.
A Chinese manufacturing gauge rose to a four-month high, signaling that the economy is stabilizing even as job cuts and weakness in the property market underscore pressure on the government to do more to support growth. A Purchasing Managers' Index from HSBC Holdings Plc and Markit Economics was at 49.4 in May, up from 48.1 in April.
The data came two days after a government gauge signaled the fastest growth in five months. Levels below 50 still signal contraction in the sector. China's official Purchasing Managers' Index rose to 50.8 in May, the highest level since December, a June 1 report showed.
China's non-manufacturing purchasing managers' index rose to 55.5 in May from a previously reported 54.8 in April, according to data released by the Beijing-based National Bureau of Statistics and the China Federation of Logistics and Purchasing.
The Reserve Bank of Australia kept its benchmark cash rate at a record low as fiscal consolidation adds to a mining investment slowdown as a brake on growth. The key rate was held at 2.5% for a 10th month, Governor Glenn Stevens and his board announced in Sydney today, repeating an expectation for a period of stability in rates.
Trading in US index futures indicated that the Dow could fall 5 points at the opening bell on Tuesday, 3 June 2014. The Dow Jones Industrial Aerage and the S&P 500 index finished at record highs again on Monday after a closely watched read on US manufacturing was revised to show more strength than initially indicated in May.
Manufacturing expanded in May at the fastest pace this year as American assembly-line workers responded to increased orders by cranking up production. The Institute for Supply Management's factory index rose to 55.4 from the prior month's 54.9. Readings above 50 indicate expansion. The release of the data, watched closely by financial markets as a gauge of the economy's strength, was anything but smooth. Twice the Tempe, Arizona-based group had to amend its figures due to calculation errors.
The influential US nonfarm payroll data for May 2014 is due for release on Friday, 6 June 2014.
The Federal Open Market Committee (FOMC) next undertakes monetary policy review at a two-day meeting on 17-18 June 2014. The Fed on 30 April 2014 said after a monetary policy review that it will keep the benchmark interest-rate target at almost zero for a "considerable time" after its bond-buying program ends. The FOMC also reduced monthly debt purchases to $45 billion, its fourth straight $10 billion cut, and said further reductions are likely in "measured steps" if the economy continues to improve.
In Europe, expectations are that the European Central Bank (ECB) will announce new stimulus measures when the Governing Council of the ECB holds a monthly meeting on euro area interest rates on Thursday, 5 June 2014.
Bank of England's Monetary Policy Committee will probably keep its benchmark interest rate at a record-low 0.5% and leave its bond-purchase program unchanged at a monthly meeting on interest rates in UK on Thursday, 5 June 2014.
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