BSE Sensex snaps 6-day losing streak as Raghuram Rajan's RBI pauses rate hike

Written by Reuters | Mumbai | Updated: Dec 19 2013, 00:34am hrs
Sensex todayThe benchmark BSE index provisionally gained 1.32 percent and the broader NSE index ended higher 1.46 percent. Reuters
Markets today cheered RBI Governor Raghuram Rajan's unexpected decision to maintain a status quo on interest rates with benchmark Sensex rising for the first time in 7 days and ending nearly 248 points higher on the back of heavy buying in banking, realty and auto shares.

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Overall, nearly 1,500 stocks, or 6 out of every 10 traded on BSE rose, helping investor wealth rise by Rs 85000 crore.

The BSE Sensex index rose by 247.72 points, or 1.20 per cent, to 20,859.86. Also, the broad-based NSE Nifty index shot up by 78.10 points, or 1.27 per cent, to end at 6,217.15.

Reliance Industries (RIL), HDFC Ltd and Larsen & Toubro (L&T) lifted the 30-share Sensex where Tata Power and Bharat Heavy Electricals Ltd (BHEL) were among best performers in the 27 that rose.

The RBI in its mid-quarter policy review kept the repo rate on hold at 7.75 per cent against the market expectation of 0.25 per cent hike. The cash reserve ratio was also kept unchanged at 4 per cent.

After wholesale and retail inflation data came on the higher side, fears of a repo rate hike dragged down Sensex by over 714 points in previous six sessions after hitting life-time high on December 9.

"RBI's decision to hold rates and the mention to announce off-policy action if need be, suggests RBI buying time ahead of Fed's impending decision on QE tapering," said Dhananjay Sinha, Head, Institutional Research, Emkay Global Financial.

The most interest-sensitive Realty sector index gained the most by rising 3.51 per cent. Besides, the Capital Goods sector was second best performer (2.61 per cent), followed by Oil and Gas index (2.15 per cent), Banking index (1.40 per cent) and Auto index (1.73 per cent).

In other markets, the rupee was trading a tad stronger at 61.97 versus dollar. Bond yields dropped by over 10 bps across the curve with 10-year bond yield at nearly 8.8 per cent.

All eyes are now on the US Fed's move on tapering. The Federal Open Market Committee is expected to release its statement later today after a two-day meeting in Washington.

" of US taper would be something which global markets would be watching out. Fall out of this event should decide the course going forward," said Nirmal Bang Securities Senior Research Analyst (PCG) Vishal Jajoo.

Across BSE, pharma stocks attracted attention with Orchid Chemicals among the top gainers with 20 per cent surge. Trent gained nearly 11 per cent after the Tesco news.

Dipen Shah, Head- Private Client Group Research, Kotak Securities:

RBI surprised markets with status quo, against expectation of 25 bps increase in repo rate. RBI showed its reluctance to respond to every data point (where likelihood of noise is high) with a rate action. There are early signs that fruits and vegetables prices are correcting from recent highs, we must also remember that Fruit & Vegetables has weight of only 3.8% in WPI & CPI. We concur with RBIs view that headline inflation needs to moderate (irrespective of the source; whether its food, oil or non-food).

RBI has chosen to wait for now, probably till 14th Jan by when IIP, CPI, WPI. The FEDs decision on tapering would also be known by then. In light of sustained high inflation (both food and core inflation), the probability of a 25bps hike in remainder of the current fiscal remains. The markets reacted positively to the RBI decision and expectedly so. Markets ended strong ahead of the Fed decision indicating markets comfort on this event. We believe that, a mild taper is already discounted and if the Fed does not announce any taper timeline, markets will take it positively.

Gaurang Shah, Assistant Vice President, Geojit BNP Paribas Financial Services Ltd

The RBI governor has delivered a policy which came as a surprise to a large section of the markets. When the announcement came at 11 a.m. that all rates have been kept unchanged, the markets responded with an immediate rally that was spearheaded lead by banking/cap goods & auto sector stocks.

What was more surprising about this decision was that it came just before the US Fed delivers its view on QE3 tapering later this evening. We saw strength in INR against USD at 61.97 at 3.30 pm & it looks like that this strength could spillover into tomorrows trade as well, provided the US Fed like the RBI, maintains the status quo.

Equity markets are likely to see a gap up tomorrow morning if there is no announcement on tapering by US Fed. We do believe that one can see some profit booking at higher levels on the index.


* BSE index gains 1.2 pct; NSE ends 1.27 pct higher

* All BSE sectoral indexes end positive; rate-sensitive stocks surge

* India's inflation to moderate in Dec-finance ministry official

* Trent surges after Tesco says to buy 50 pct in unit

Indian shares snap 6-day losing streak; RBI pauses ahead of Fed

Indian shares rose more than 1 percent on Wednesday to snap their six-day losing streak, led by gains in rate-sensitive stocks such as DLF after the central bank surprised investors by keeping rates unchanged despite talking tough on inflation.

The central bank warned it would remain vigilant on inflation and that it would be ready to act even in between policy reviews should headline or core inflation not ease as expected.

Analysts said that opened the prospect of rate hikes after January given expectations that inflation will moderate this month. Economic Affairs Secretary Arvind Mayaram told Reuters a softening in seasonal vegetable prices is expected to cool food inflation.

The focus now shifts to the outcome of the U.S. Federal Reserve's two-day meeting ending later in the day. Any decision to start withdrawing monetary stimulus could spark fears of foreign selling in emerging markets such as India.

Overseas investors have made net purchases of around $18 billion so far this year, making India the number one recipient of foreign stock investment in emerging Asia, data from Deutsche Bank shows.

"I think before the end of December we may hit new highs on RBI policy, year-end buying, and unless the Fed tapers aggressively it won't impact us because it has been discounted to a great extent," said Paras Adenwala, managing director and principal portfolio manager, Capital Portfolio Advisors.

The benchmark BSE index rose 1.2 percent, or 247.72 points, to end at 20,859.86, marking its highest close in nearly a week.

The broader NSE index gained 1.27 percent, or 78.10 points, to end at 6,217.15, closing above the psychologically important 6,200 level. Both indexes marked their biggest single-day gain since Dec. 9 when they surged to record high after the main opposition party won the state polls.

All sectoral indexes gained and rate-sensitive stocks led the upside. Real estate developer DLF Ltd rose 5.4 percent, while Hero MotoCorp Ltd gained 3.4 percent.

Shares in state-owned banks outperformed their private sector counterparts on expectations of higher bond portfolio gains after the central bank's rate decision.

Punjab National Bank Ltd rose 4.2 percent and State Bank of India advanced 2.6 percent.

Among private sector lenders, Axis Bank Ltd rose 2.1 percent, while IndusInd Bank Ltd ended higher 3.6 percent.

Trent Ltd surged 10.8 percent after Tesco Plc said on Tuesday it had applied to buy a 50 percent stake in the company's unit, Trent Hypermarket Ltd. Shares in other organised retailers also rose as Tesco's plan to invest in Trent raised hopes that there will be other buyouts and deals in India's $500 billion retail sector, dealers said.

Future Retail Ltd rose 5.1 percent, while Shopper's Stop Ltd gained 5 percent.

Biocon Ltd surged 11.5 percent after it said it will collaborate with Quark Pharmaceuticals to co-develop a drug for ophthalmic conditions.

However, among stocks that fell, Alok Industries Ltd dropped 2.6 percent on going ex-dividend.

Alex Mathews, Head Research, Geojit BNP Paribas Financial Services Ltd

The markets today ended with a positive on the back of the surprising move by RBI. However, investors were cautious and they are waiting for the US Federal Reserves final verdict on stimulus programs.

Nifty closed at 6217 up around 78 points. The market breadth turned to positive from negative as there were seen 1498 stocks advancing against 958 stocks declining. The Volatility index, VIX closed at 17.54 down around 4.30%.

Today all the sectors ended in green with the largest gainers were Capital goods and Power sector, which closed up around 2.76% and 2.22% respectively.

The FIIs were net buyers in the cash segment, bought shares worth Rs 249.93 crore on 17, Tuesday December 2013. On the other hand the DIIs were net sellers on 17 December 2013, sold shares worth Rs 96.83 crore as per the provisional data from the stock exchanges.


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