Sensex ends marginally higher; Nifty Bank at record close post RBI policy

Equity benchmarks ended rangebound session marginally higher on Wednesday, backed by banks stocks after the Reserve Bank of India softened its hawkish stance and lowered inflation forecast for the current financial year.

The 30-share BSE Sensex rose 80.72 points to 31,271.28 and the 50-share NSE Nifty gained 26.75 points at 9,663.90, led by Reliance Industries, ICICI Bank and ITC. However, weak technology stocks capped gains.

“The statement from RBI is dovish,” Murthy Nagarajan, Head Fixed Income, Tata Asset Management said, adding the market may expect RBI to cut rates in the coming policy.

Ajay Srivastava of Dimensions Consulting also feels accommodative policy is on the horizon. Interim policy move is likely, may be in July and not in August, he said.

Viral Acharya, the deputy governor of RBI has stated the data of CPI and GDP has surprised on the downside which could allow the RBI to follow an accommodative stance if the data persists.

The Reserve Bank of India left repo rate — at which banks borrow money from the central bank — unchanged at 6.25 percent in its monetary policy review, saying it remained watchful of incoming data but slashed statutory liquidity ratio by 50 basis points to 20 percent. The central bank expects headline inflation at 2-3.5 percent in the first half of the year and 3.5-4.5 percent in the second half, if the configurations evident in April are sustained.

The implementation of the GST, which is scheduled to be effective from July 1, is not expected to have a material impact on overall inflation, RBI said. The central bank lowered its real GVA growth forecast for FY18 by 10 bps to 7.3 percent, with risks evenly balanced.

Banks stocks gained momentum on early monetary policy easing hope, cut in SLR and ahead of weekly expiry of futures & options contracts. Nifty Bank rose 0.65 percent while PSU Bank was up 1.2 percent, also on hopes of early resolution to stressed assets issue and recapitalisation.

ICICI Bank was the second leading contributor to Sensex’ gains, up 1.91 percent followed by State Bank of India (up 1.2 percent), Axis Bank (0.6 percent) and PNB (1.77 percent).

Shares of housing finance companies – Can Fin Homes, GIC Housing and DHFL gained 1.5-5 percent as the RBI has decided to reduce risk weight on specific categories of housing loans that will be sanctioned from June 7 onwards. Hence, standard asset provisioning rate on such loans will go down. Shriram City Union Finance also gained 5 percent.

The fall in risk weighted average is a good idea for housing companies, Ajay Srivastava said, adding the real impact of it is substantial for these companies.

Reliance Industries was the leading contributor to Sensex’ gains, up 2 percent followed by Maruti Suzuki, HUL, M&M and Sun Pharma with more than 1 percent upside.

Technology stocks were under pressure, with the Nifty IT index falling nearly 2 percent after Infosys, COO, Pravin Rao told Moneycontrol about IT industry being asked to take price cuts of 20-30 percent. TCS, Infosys and Wipro were down 2-3 percent.

The broader markets outperformed benchmarks, with the BSE Midcap index up 0.46 percent and Smallcap up 0.75 percent.

Cadila Healthcare continued to end at record closing high, especially after it continued to get USFDA approval for drugs that filed from Moraiya facility (that got cleared by USFDA in February 2017). The stock was up 9.55 percent at Rs 537.25.

Reliance Capital spiked 4 percent as the company after market hours said Reliance Nippon Life AMC will get listed on exchanges before March 31, 2018 and will dilute 10 percent stake in the first tranche.

European markets were higher ahead of European Central Bank meeting and UK elections. France’s CAC was up 0.9 percent and Germany’s DAX rose 0.3 percent at the time of writing this article. Asia continued to close mixed.