Market falls for 7th straight day; banks drag Sensex 113 pts post RBI#39;s hawkish stance
Benchmark indices continued downtrend for seventh consecutive day on Wednesday due to late sell-off in banks after the Reserve Bank of India sounded hawkish and kept the repo rate unchanged, citing fear of rising inflation.
The 30-share BSE Sensex rebounded 470 points in opening, which was in line with global recovery after sharp fall seen in past few trading sessions, but it slowly erased gains as the day progressed and turned volatile, before falling in late trade and closing the session lower by 113.23 points at 34,082.71.
The 50-share NSE Nifty also climbed above 10,600 levels in opening to hit day’s high of 10,614, but closed down 21.60 points at 10,476.70.
“In the near term, domestic markets could remain volatile, mimicking global market performance, mainly the US. Also, the last leg of the Q3FY18 results would drive stock specific movement and volatility,” Jayant Manglik, President, Religare Broking said.
He remains cautiously optimistic on the markets and advises investors to invest in fundamentally strong companies after the much required correction.
The Monetary Policy Committee has maintained repo rate at 6 percent and continued with neutral stance, citing several reasons which can push inflation higher going ahead.
The MPC noted that the inflation outlook is clouded by several uncertainties on the upside, which are the staggered impact of HRA increases, crude oil and commodity prices, minimum support prices (MSPs) for kharif crops and increase in customs duty in Union Budget, and fiscal slippage.
The RBI expects inflation at 5.1 percent in Q4 while CPI inflation is estimated at 5.1-5.6 percent for first half of FY19 and 4.5-4.6 percent for second half of next year, with risks tilted to the upside.
“The monetary policy was, in our opinion, far less hawkish than expected given that RBI’s inflation target had been busted, fiscal limits breached and uncertainty on critical prices such as oil and local food prices (specifically the MSPs of procured food items) has multiplied,” Abheek Barua, Chief Economist, HDFC Bank said.
Not only did the stance remain neutral, there were no indications of an imminent rate hike by the RBI, he added.
The RBI revised growth projections downwards for FY18 GVA to 6.6 percent (from 6.7 percent earlier) and sees October 2018-March 2019 GVA growth at 7.1-7.2 percent and FY19 GVA growth at 7.2 percent.
Banks extended losses in late trade, with the Nifty Bank losing 141 points. HDFC Bank, Yes Bank, IndusInd Bank and PNB fell 1-2 percent while SBI and ICICI Bank gained 0.4-0.6 percent.
IT index also ended lower, falling 0.9 percent as TCS, Wipro, HCL Technologies and Tech Mahindra were down 0.6-1.8 percent while Infosys ended mildly higher.
Realty index gained the most, rising 1.7 percent despite unchanged in policy rates.
L&T, Vedanta, Bharti Infratel, Bajaj Finance, IndusInd Bank, Bharti Airtel and HUL among others gained 1-2 percent whereas HPCL was the biggest gainer, rising 5 percent followed by IOC, ONGC, ITC, BPCL and GAIL.
Eicher Motors (up 1.56 percent) and Cipla (up 0.9 percent) also gained after quarterly earnings while Aurobindo Pharma rose 3 percent ahead of earnings later today.
Broader markets outperformed frontline indices, with the Nifty Midcap rising 0.4 percent on strong breadth. About three shares advanced for every share falling on the NSE.
SpiceJet, Saksoft, Ipca Labs, Fiberweb India, Jayshree Tea, Nelco, Venkys and Voltas rallied 2-19 percent after strong set of quarterly earnings.
On the global front, Asian markets ended mixed despite sharp recovery on Wall Street while European stocks were trading half a percent higher at the time writing this article.
