Street turns cautious ahead of RBI policy

Market retreats from record high; VIX index climbs to 1-week high

The Indian market fell from its lifetime high levels as investors turned risk-averse ahead of the Reserve Bank of India (RBI) policy meeting on Tuesday. The India VIX index—a fear gauge—climbed to one-week high, as traders braced for volatility on the expectation that the central bank is likely to keep key policy rates unchanged.

The benchmark BSE Sensex after touching a record of 28,809.64, ended 135 points or 0.47 per cent lower at 28,559.6. The 50-share Nifty declined 32 points or 0.38 per cent at 8,555.9, while the India VIX index rose 2.4 per cent to 13.2, one-week high level.

Most other emerging markets also traded weak, as investor sentiment turned negative on slowing industrial growth in China and Europe.

A majority of economists predicted RBI Governor Raghuram Rajan would leave policy rates unchanged on Tuesday and expected a dovish commentary, as crude oil prices and inflation cool off. “Volatility could increase as the market has run up sharply. There are too many long positions being created. This month could be muted in terms of returns. There is a possibility of a minor correction but the overall bullish trend may not change,” said Siddarth Bhamre, head- equity derivatives, Angel Broking.

Oil stocks led to the declines as crude oil prices slumped to a five-year low. Index heavyweights Reliance Industries and ONGC lost 2.4 per cent and 3.9 per cent, respectively.

“Participants preferred to sit on the sidelines and booked some profit…Tomorrow, it’s going to be a decisive session for the markets and RBI’s stance over key policy rates will trigger the next directional move,” said Jayant Manglik, president-retail distribution, Religare Securities.

Rate-sensitive stocks in the banking, auto and realty sector are likely to remain under focus on Tuesday, said experts.

Investment activity was lacklustre by foreign investors as well, as they sold shares worth Rs 12 crore on Tuesday, provisional data by stock exchanges show. Domestic investors, on the other hand, sold shares worth Rs 555 crore.

Declining commodity prices hit metal stocks, with Hindalco declining nearly 4 per cent, while Tata Steel and Sterlite paring over 2 per cent each.

With gains of nearly 35 per cent, the Indian market is the best-performing market among major global markets this year. Most brokerages are forecasting double-digit returns for India’s benchmark indices in 2015.