Infrastructure loan boost lifts markets

Sensex closes week 617 points or 2.5% higher; Nifty ends up 204 points or 2.7%

Benchmark share indices rebounded in the week to July 18 after the Reserve Bank of India (RBI) exempted the mandatory reserve requirements on funds raised through bonds for extending credit to housing and infrastructure sectors. Further, hopes of cut in key policy rates amid easing inflation also aided sentiment.

The Sensex ended up 617 points or 2.5 per cent at 25,642 and the 50-share Nifty ended up 204 points or 2.7 per cent at 7,664. In the broader market, the BSE Mid-cap Index gained 1.3 per cent, while the Small-cap Index surged 5.1 per cent outperforming the benchmark indices. However, the week was marred by emergence of geopolitical tensions after a Malaysian Airline jet was downed at the Ukraine-Russia border and the political unrest in Gaza.

The wholesale price index (WPI)-based inflation fell to a four-month low of 5.43 per cent in June against 6.01 per cent in the previous month, as the rate of food price rise declined and ironically onions turned cheaper.

Consumer Price Index (CPI)-based inflation fell to 7.31 per cent in June, the lowest since its launch in January 2012. Its wholesale counterpart declined to a four-month low of 5.43 per cent in the month.

To boost demand for infrastructure and housing, RBI on Tuesday said banks would not have to maintain cash reserve ratio (CRR) or statutory liquidity ratio (SLR) and will not have to meet priority-sector lending targets for funds raised through bonds for extending credit to these sectors.

While the exemption from CRR and SLR requirements was announced by the finance minister in his Budget speech, the banking regulator further sweetened the deal by including loans for affordable housing.

Under the new definition of affordable housing, loans of up to Rs 50 lakh in metros for houses valuing up to Rs 65 lakh and those of up to Rs 40 lakh for houses valuing up to Rs 50 lakh in all other cities are now part of affordable housing.

Merchandise exports grew 10.22 per cent to $26.4 billion in June from $24.02 billion in the same month last year, driven by strong demand for engineering goods, ready-made garments and petroleum products. This was even as the export number for June 2013 was revised upwards from $23.78 billion, thereby increasing the base.

This was a second straight month of double-digit growth in exports, with the rate in May higher at 12.40 per cent, official data released on Wednesday showed.

Metal shares were among the top Sensex gainers on the back of encouraging economic data from China and the proposed measures in the Budget for higher infrastructure outlay. Tata Steel surged 12 per cent and Hindalco zoomed 10 per cent. Bank shares ended higher after the exemption of reserve requirements by the RBI for infrastructure funding would lead to cost of funds. Axis Bank jumped nearly 10 per cent, ICICI Bank surged 9 per cent and HDFC Bank ended up 2.5 per cent. SBI gained 5.8 per cent after it slashed the interest rate on short-term fixed deposits up to 179 days by 50 basis points.

In the infrastructure segment, engineering major Larsen & Toubro ended up 7.1 per cent after it won an Rs  5,076 crore contract from Kuwait Oil Company (KOC) for setting up facilities to separate gas and water from crude oil.

TCS ended nearly 2 per cent up after the IT major reported a better-than-expected consolidated net profit of Rs 5,058 crore for the quarter ended June 2014. Bajaj Auto ended down 2.6 per cent after reporting a flat growth in the first-quarter standalone net profit at Rs 740 crore compared with Rs 738 crore in the same quarter last year.

Week Ahead
Geopolitical tensions between Ukraine and Russia and the unrest in Gaza will continue to weigh on market sentiment.

Reliance Industries and UltraTech Cements will be in action following the first quarter earnings results on Saturday.

Other companies that will announce their earnings include HDFC, HDFC Bank, Axis Bank, Wipro and ACC among others.