Sensex rebounds to end flat post RBI policy outcome

Benchmark indices settle the day flat as RBI kept its policy rate on hold at 6.25% for a second meeting in a row, opting to wait for more clarity on the trend for inflation.
 
The Central Bank also changed its policy stance to 'Neutral' from 'Accommodative' and FY17 GVA target was lowered to 6.9% from earlier target of 7.1%.
 
Sensex fell as much as 160 points as soon as the policy was announced while Nifty breached its crucial 8,750 levels. Earlier this week, both indexes had hit a four-month high on rate-cut hopes.
 

The S&P BSE Sensex settled the day at 28,289, down 45 points, while the broader Nifty50 ended at 8,769, up 1 point. BSE Midcap index fell 0.5%, while BSE Smallcap index fell 0.2%.

 
"Cut of 25 bps was widely expected and would have uplifted the sentiments. This rate cut was necessary from the perspective of bringing that demand back in the system. Markets would marginally correct, to settle around 8,500-8,600 levels and this correction should be used as an opportunity to deploy more money in the equity markets from the long term perspective," said Motilal Oswal in a note.
 
The RBI decision disappointed investors, sending India's benchmark 10-year bond yields up 13 bps from levels before the decision.
 
Sectors and Stocks
 
BSE Bankex pared losses to settled the day 0.4% lower after falling over 1% post RBI policy outcome. PNB, Axis Bank, Kotak Mahindra Bank and IndusInd Bank were the top banking losers.

 
GAIL, Coal India, TCS and Tata Motors were top movers on BSE Sensex while Dr Reddy’s, ITC, Tata Steel and Sun Pharma were the biggest laggards.
 
Tata Steel ended the day 1% lower after  hitting a two-year high of Rs 487, up 3% on the BSE in early morning trade as the company reported a consolidated net profit of Rs 232 crore for the quarter ended December 2016 (Q3), against loss of Rs 2,748 crore in a year ago quarter.
 
Infosys shares fell around 1% after media reports that the founders NR Narayana Murthy, Kris Gopalakrishnan, and Nandan Nilekani among others are learnt to have raised concerns over the governance of the company.

 
RBI Maintains Status Quo
 
RBI kept repo rate remains unchanged at 6.25%, changing its stance from accommodative to neutral.
 
The Central Bank said it would monitor inflation, despite calls for the central bank to support an economy dealt a major blow when PM Narendra Modi in November abolished high-value notes in a bid to target unaccounted cash, or "black money."
 
MSF, Bank rate was left unchanged at 6.75% while Reverse Repo rate stayed at 5.75%. Rate on hold to assess demonetisation impact on inflation, output gap, said RBI, adding that expect CAD to be below 1% of GDP for FY17.

RBI deputy governor R Gandhi announced that from February 20, cash withdrawal limit from savings account will be RS 50,000 per week. From March 13, no limit on cash withdrawals from savings bank accounts. Further, the cash withdrawal limits would be eased in two stages.
 
"RBI has taken a right decision at right time by keeping the repo rate unchanged at 6.25%. From the Industry point of view, it is desirable to have the lower interest rate but when the system is flooded with low cost deposit and liquidity, where rates are already at the comfortable level, further cut could have triggered inflation risk," said Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments.

 
"It could have also dented the household savings yields. Additionally, it could have narrow down the spread between the Federal bond return and Indian bond return. Initial, negative reaction from the currency market was premature; however it changed the course after factoring the real impact of holding rates," he added.
 
Global Markets
 
Asian share markets hovered below four-month highs on Wednesday and the euro was pressured as doubts over the policies of US President Donald Trump and a looming election in France sapped investors' confidence.
 
European shares rose on Wednesday led by mining stocks and financials on a heavy day for regional corporate results.

 
The pan-European STOXX 600 index was up 0.5%. Britain's FTSE 100 was flat.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1% in late trade, after spending most of the session in the negative territory.
 
Japan's Nikkei rose 0.5%.
 
On Wall Street, the S&P 500 ended barely higher while the Nasdaq edged to a record high as gains in big tech names countered energy declines.