Sensex stunned by RBI's status quo on rates

The Indian stocks ended with heavy losses on Monday, starting off a new trading week on a negative note. The NSE Nifty slumped ~130 points from day's high. The fall was majorly led by Banking, Realty, FMCG and PSU Stocks. Overnight gains in the US and Asian markets lifted the Nifty at open, as a favorable outcome of the Greek elections raised hope of a lasting solution to the eurozone debt crisis. Market participants were also hopeful that early gains would get extended if the Reserve Bank of India (RBI) cuts key interest rates and/or CRR. However, completely reverse happened, as markets were unable to hold on to their gains after the RBI left key interest rates unchanged. The central bank did not announce any reduction in the Cash Reserve Ratio (CRR) and the Repurchase rate (repo rate) as it was of the opinion that any easing of liquidity would fuel inflationary pressures. Technically, the Nifty closed below the critical 200 DMA which is placed at 5070 mark indicating weakness in the coming days. While the Bank Nifty index closed below the 50 DMA and the 100 DMA. The BSE Sensex ended at 16,705 losing by 1.4% or 244 points. It had earlier touched a day’s high of 17,109 and a day’s low of 16,636. It opened at 17,039. The NSE Nifty settled at 5064 down by 75 points or 1.4%. It touched a day’s low of 5,042 and day’s high of 5,190. DLF, SBI, PNB, Ster, Reliance Infra, HCL Tech, Bank Baroda, Axis Bank, ICICI Bank, Siemens and Dr Reddy’s were the notable losers on the Sensex and the Nifty today. Power Grid, Tata Steel, Bajaj Auto, Cairn and ACC were among the gainers on the Nifty. The INDIA VIX on the NSE plunged by 11.5% to close at 22.60. It hit days high of 25.54. It hit a low of 22.25. The market breadth on the BSE was weak, 1688 stocks declined and 1003 stocks advanced. Sectoral indices were a sea of red barring only Consumer Durables which ended tad up 0.1%. Interest rate-sensitives paced the declines with the BSE Bankex down ~3.2% and the Realty index down 2.8%. FMCG, PSU, Power, Capital Goods, Teck, IT and Metals all love over 1% each. Losses on the broader markets were somewhat arrested with the BSE Mid-Cap index declining 1% and the BSE Small-Cap index down 0.6% Noteworthy losers on the BSE-500 were S.Kumars Nationwide, 3i Infotech, Adani Enterprises, SKS Microfinance, IRB Infra and United Breweries Holdings among others. Top gainers on the BSE-500 index were Allcargo Logistics, KEC International and Wyeth. Market participants had turned hopeful that the RBI would take steps to spur GDP growth in the wake of a series of downbeat economic data. However, with the RBI maintaining status quo on policy rates, frontline Indian indices plunged into the negative zone. Rate-sensitive sectors such as Banking and Realty took the biggest hit on the chin. The benchmark 10-year bond yield rose to 8.14% from 8.04% levels seen before the RBI's policy announcement. The rupee weakened against the dollar to 55.87 from around 55.37 before the RBI decision. "Doubts persist over the prospects for the eurozone amid soaring borrowing costs for Spain and Italy. Also, the pro-euro parties are reportedly seeking renegotiation of the bailout terms. This might lead to uncertainty for some more time. Investors will also keep an eye on the presidential election and its impact on UPA II’s economic policies. The southwest monsoon has made a rather slow start, adding to the growing list of problems for India. Though the market is likely to trade with a positive bias, one should be careful, as uncertainty still prevails over a whole host of issues. We would urge a little bit of caution because the upside from here may be capped," says Amar Ambani, Head of Research, IIFL. The RBI took a different view of the macro-economic conditions. It blamed other factors for the economic slowdown and lobbed the ball back into the Government’s court for reviving the economy. Government data released today showed sticky inflation at the retail level, justifying the RBI’s move to maintain a status quo on monetary policy. Provisional annual inflation rate based on all-India general Consumer Price Index (CPI) combined for May 2012 on point-to-point basis is 10.36% as compared to 10.26% for April 2012. Globally too, things cooled off pretty fast after yields on Spanish and Italian bonds jumped anew. Top European benchmarks surrendered some of their gains in choppy trade, while those in Spain and Italy remained in the red. US stock futures too softened after an initial bounce. All eyes will be on the two-day FOMC meeting that kicks off on Tuesday. Major Asian markets (barring China and India) rallied earlier today in a region-wide relief rally over the encouraging outcome of the Greek parliamentary election.