India : Disappointing RBI move drags Sensex 156 pts; Sun Pharma tanks 6%
Wed Dec 07 2016
Rajesh Sharma (2002 articles)

India : Disappointing RBI move drags Sensex 156 pts; Sun Pharma tanks 6%

Equity benchmarks reversed gains in last hour of trade with the Sensex falling 228 points intraday Wednesday as the Reserve Bank defied expectations of rate cut by keeping repo rate unchanged and lowered GVA estimates. However, the fall was arrested after the RBI decided to withdraw incremental CRR from December 10 and due to positive global cues.The 30-share BSE Sensex was down 155.89 points at 26236.87, and the 50-share NSE Nifty fell 41.10 points at 8102.05 after hitting an intraday low of 8077.50 and high of 8190.45. However, the broader markets outperformed as fall in Midcap index restricted to 0.16 percent.

Not only equity markets but also bond markets reacted negatively given that 25 bps repo rate cut was already factored in.

Benchmark indices are expected to be rangebound after pricing in surprise move from the Monetary Policy Committee, say experts, adding now all eyes are Federal Reserve policy meeting that scheduled to be held on December 13-14.

“We expect more volatility going forward as commodity prices like oil and metals are inching up and the outlook for rupee remains lacklustre on account of Fed rate hike expectation,” Vinod Nair of Geojit BNP Paribas Financial Services says.

Motilal Oswal of Motilal Oswal Financial Services feels the Nifty may not fall much from here. He says every knee jerk negative reaction should be used to add the equity allocation.

The Reserve Bank of India today unexpectedly kept the policy repo rate unchanged at 6.25 percent and cash reserve ratio at 4 percent, indicating that it needs more data and more time to evaluate the impact of demonetisation before deciding further rate cut. The central bank says currency demonetisation may bring down CPI inflation by 10-15 basis points in Q3 and oil price & financial market turbulence are risks to its March 2017 CPI target. It has reduced GVA growth forecast for FY17 to 7.1 percent from 7.6 percent.

Another reason for RBI’s status quo is the likely tightening of monetary policy in the US. If the Federal Reserve hikes interest rate then that will move funds from emerging markets to US treasury.

However, the central bank has decided to withdraw incremental cash reserve ratio with effect from December 10. On November 26, it had announced an incremental CRR of 100 percent to suck out excess liquidity in the banking system after currency demonetisation.

Meanwhile, the rupee recovered sharply after the monetary policy decision. It closed at 67.63 against the US dollar, up 27 paise from the previous close.

On December 6, FIIs were net buyers for the first time since November 9. They bought Rs 161.80 crore worth of shares (as per provisional data) after selling close to Rs 17,000 crore worth of shares in previous 18 consecutive sessions.

The Nifty Bank fell more than 1.5 percent intraday after RBI move but recovered immediately a bit to end 1 percent lower. Bank of Baroda, Axis Bank, PNB, HDFC Bank and SBI were down 1-3 percent. However, HDFC bucked the trend, up 1.7 percent, may be on the back of buying interest.

Auto index was up 0.4 percent, supported by Tata Motors (up 0.88 percent), Hero Motocorp  (up 1.31 percent), Mahindra & Mahindra (up 0.77 percent) and Eicher Motors (up 4 percent). However, Maruti lost 0.5 percent and Bajaj Auto fell 0.8 percent.

Sun Pharma was the biggest loser today, down 6 percent after the US Food and Drug Administration issued Form 483 observation letter to Halol unit that inspected on December 1.

Among others, ITC, TCS, Lupin, Tata Steel and Wipro were down over 1 percent.

The market breadth turned negative as about 1519 shares declined against 1084 advancing shares on the BSE.

On the global front, European stocks were higher on expectations of further monetary stimulus in the upcoming meeting of the European Central Bank. France’s CAC, Germany’s DAX and Britain’s FTSE were up 1-1.5 percent higher at the time of writing this article. Asia ended higher.

Rajesh Sharma

Rajesh Sharma

Rajesh Sharma is Correspondent for Stock Market of South East Asia based in Mumbai. He has been covering Asian markets for more than 5 years.

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