Capital goods stocks edge lower

Key benchmark indices languished in negative terrain in afternoon trade as the Reserve Bank of India (RBI) surprised markets by raising its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014, and said that it is only by bringing down inflation to a low and stable level that monetary policy can contribute to reviving consumption and investment in a sustainable way. The barometer index, the S&P BSE Sensex, was down 38.28 points or 0.18%, up close to 115 points from the day's low and off about 125 points from the day's high. The market breadth, indicating the overall health of the market, was positive.

Capital goods stocks edged lower. Pharma stocks were mixed. Shares of steel companies and iron ore miners were mixed after the government on Monday, 27 January 2014, announced the imposition of 5% duty on the export of iron ore pellets. India's steel producers last month requested a duty of iron ore pellets to safeguard domestic supplies.

Key benchmark indices edged higher in early trade on firm Asian stocks. Key benchmark indices trimmed gains after hitting fresh intraday high in morning trade. Volatility ruled the roost in mid-morning trade as the key benchmark indices reversed intraday gains after the Reserve Bank of India (RBI) raised its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014. The Sensex and the 50-unit CNX Nifty, both, hit their lowest level in more than 8-1/2 weeks. The RBI made the monetary policy announcement at 11:00 IST. Key benchmark indices languished in red in early afternoon trade. The Sensex trimmed losses in afternoon trade.

The market sentiment was hit adversely by data showing that foreign funds resort to heavy selling of Indian stocks on Monday, 27 January 2014. Foreign institutional investors (FIIs) sold shares worth a net Rs 1334.21 crore on Monday, 27 January 2014, as per provisional data from the stock exchanges.

The market may remain volatile this week as traders roll over positions in the futures & options (F&O) segment from the near month January 2014 series to February 2014 series. The January 2014 F&O contracts expire on Thursday, 30 January 2014.

At 13:20 IST, the S&P BSE Sensex was down 38.28 points or 0.18% to 20,669.17. The index lost 153.17 points at the day's low of 20,554.28 in mid-morning trade, its lowest level since 28 November 2013. The index gained 87.90 points at the day's high of 20,795.35 in mid-morning trade.

The 50-unit CNX Nifty was down 18.75 points or 0.31% to 6,117.10. The index hit a low of 6,085.95 in intraday trade, its lowest level since 28 November 2013. The index hit a high of 6,163.60 in intraday trade.

The market breadth, indicating the overall health of the market, was positive. On BSE, 1,168 shares rose and 1,079 shares dropped. A total of 171 shares were unchanged.

Among the 30-share Sensex pack, 17 stocks declined and rest of them gained.

Infosys (down 1.43%), Hero MotoCorp (down 1.09%) and Bharti Airtel (down 1.04%) edged lower from the Sensex pack.

Shares of steel companies and iron ore miners were mixed after the government on Monday, 27 January 2014, announced the imposition of 5% duty on the export of iron ore pellets. India's steel producers last month requested a duty of iron ore pellets to safeguard domestic supplies.

Sesa Sterlite gained 1.05% ahead of its Q3 results today, 28 January 2014.

JSW Steel rose 1.58%. Tata Steel rose 2.53%.

Jindal Steel & Power rose 0.67% ahead of its Q3 results today, 28 January 2014.

Steel Authority of India (down 0.74%), and Bhushan Steel (down 0.3%) and NMDC (down 0.43%) declined.

Among other metal stocks, Hindalco Industries (up 0.9%), and National Aluminum Company (up 0.43%), gained. Hindustan Copper (down 0.79%) and Hindustan Zinc (down 0.08%) declined.

Capital goods stocks edged lower. ABB (down 0.51%), Bhel (down 0.18%), L&T (down 0.14%) and Siemens (down 1.46%) declined.

Pharma stocks were mixed. Cipla (down 1.64%), Lupin (down 2.48%), and Sun Pharmaceutical Industries (down 1.92%) dropped.

Dr Reddy's Laboratories rose 0.39%.

Ranbaxy Laboratories rose 1.97% to Rs 316.30, with the stock recovering on bargain hunting after recent steep slide triggered by the US drug regulator banning the company's Toansa facility in India from importing drugs to the US.

Shares of Ranbaxy Laboratories had declined 25.62% in two trading sessions to settle at Rs 310.25 on Monday, 27 January 2014 from a recent high of Rs 417.15 on 23 January 2014, after the company on 24 January 2014 announced that the US Food and Drug Administration (USFDA) notified the company that it is prohibited from manufacturing and distributing active pharmaceutical ingredients (APIs) from its facility in Toansa, India, for FDA-regulated drug products.

The Toansa facility is now subject to certain terms of a consent decree of permanent injunction entered against Ranbaxy in January 2012, Ranbaxy said in a statement.

Subsequent to the Form 483 issued in early January 2014, Ranbaxy voluntarily and proactively suspended shipments of API from this facility to the US market when it received the inspection findings. Ranbaxy said that the management is disappointed with the recent FDA action and would like to apologize to all its stakeholders in for the inconvenience caused by the suspension of shipment. Arun Sawhney, CEO and Managing Director of Ranbaxy said that this development is clearly unacceptable and an appropriate management action will be taken upon completion of the internal investigation.

Ranbaxy further said that the company is committed to highest standard of patient safety and quality, and shall constantly endeavour to strengthen its systems and processes. Ranbaxy will cooperate with the FDA and shall comply with the Consent Decree in both the letter and spirit, it said.

Cadila Healthcare rose 0.05%. The company after market hours on Monday, 27 January 2014, announced that the company has recently completed portfolio and strategy review of its business and has decided to exit from its business in Japan, which is through 100% subsidiary company.

Oil India rose 1.32%. The company said during market hours that the board of directors of the company at its meeting held today, 28 January 2014, has declared interim dividend of Rs 11 per share (i.e. 110%) for the year ending 31 March 2014. Thd dividend is payable on and from 5 February 2014. Payment will be completed on and before 25 February 2014.

Indian government bond prices dropped after the Reserve Bank of India (RBI) surprised markets by raising its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014, and said that it is only by bringing down inflation to a low and stable level that monetary policy can contribute to reviving consumption and investment in a sustainable way. The yield on 10-year benchmark federal paper, 8.83% GS 2023, was hovering at 8.7804%, higher than its close of 8.7651% on Monday, 27 January 2014. Bond yield and bond prices move in opposite direction. Bond supply will return after a two-week break with the RBI announcing Rs 14000-crore debt sale for Friday, 31 January 2014.

In the foreign exchange market, the rupee edged higher against the dollar the Reserve Bank of India (RBI) said that the recent resumption of portfolio flows, both equity and debt, alongside the pick-up in FDI and external commercial borrowings that is underway should help finance the current account deficit comfortably during the current financial year. The partially convertible rupee was hovering at 62.77, compared with its close of 63.10/11 on Monday, 27 January 2014. The RBI said that foreign exchange reserves have been rebuilt since September 2013 and that oil marketing companies have been buying foreign exchange in the market to repay the Reserve Bank of India when their swaps come due. Despite a significantly more comfortable external position than in the summer of 2013, both fiscal and monetary authorities need to continue their efforts at macroeconomic stabilisation, the RBI said.

The Reserve Bank of India (RBI) surprised markets by raising its main lending rate viz. the repo rate by 25 basis points to 8% after Third Quarter Review of Monetary Policy for 2013-14 today, 28 January 2014. Consequently, the reverse repo rate under the LAF stands adjusted at 7% and the marginal standing facility (MSF) rate and the Bank Rate at 9%, the RBI said. The central bank kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liability (NDTL).

While retail inflation measured by the consumer price index (CPI) declined significantly on account of the anticipated disinflation in vegetable and fruit prices, it remains elevated at close to double digits, the RBI said. Moreover, inflation excluding food and fuel has also been high, especially in respect of services, indicative of wage pressures and other second round effects. In terms of the wholesale price index (WPI), headline inflation eased to a four-month low in December on the back of a sharp decline in vegetable and fruit prices. Non-food manufactured products (NFMP) inflation, however, rose in December on an uptick in prices of chemicals, non-metallic minerals and paper products. Hardening prices of services and key intermediates seen in conjunction with rising bank credit, increase in order books, pick-up in capacity utilisation and the decline in inventories of raw materials and finished goods in relation to sales suggests that aggregate demand pressures are still imparting an upside to overall inflation. The RBI said that it is critical to address these risks to the inflation outlook resolutely in order to stabilise and anchor inflation expectations, even while recognizing that the economy is weak and substantial fiscal tightening is likely in Q4 March 2014.

In the Mid-Quarter Review on 18 December 2013, the policy decision was to wait for more data before acting. With the subsequent substantial fall in food prices, especially of vegetables, headline inflation has fallen significantly. Some of these effects will continue into the next round of data readings, the RBI said. CPI inflation excluding food and fuel has, however, remained flat and WPI inflation excluding food and fuel has risen, the central bank said in a statement.

The Dr. Urjit Patel Committee has indicated a "glide path" for disinflation that sets an objective of below 8% CPI inflation by January 2015 and below 6% CPI inflation by January 2016. The Reserve Bank of India's baseline projections set out in the accompanying Review of Macroeconomic and Monetary Developments for Q3 of 2013-14 indicate that over the ensuing 12-month horizon, and with the current policy stance, there are upside risks to the central forecast of 8%, the RBI said. An increase in the policy rate will not only be consistent with the guidance given in the Mid-Quarter Review but also will set the economy securely on the recommended disinflationary path, the RBI said. The extent and direction of further policy steps will be data dependent, though if the disinflationary process evolves according to this baseline projection, further policy tightening in the near term is not anticipated at this juncture, the central bank said in a statement. RBI Governor Dr. Raghuram Rajan said in a statement that if inflation eases at a pace that is faster than the RBI currently anticipates and if that reduction is expected to be sustained, the Reserve Bank of India will have room to become more accommodative.

If policy actions succeed in delivering the desired inflation outcome, real GDP growth can be expected to firm up from a little below 5 per cent in 2013-14 to a range of 5 to 6 per cent in 2014-15, with risks balanced around the central estimate of 5.5 per cent, the RBI said. A pick-up in investment in an environment in which external demand continues to be supportive of export performance could impart an upside to this forecast, the RBI said.

The Reserve Bank is engaged in active management of liquidity to offset frictional and structural pressures so that there is adequate credit flow to the supply side of the economy, the central bank said.

Despite a significantly more comfortable external position than in the summer of 2013, both fiscal and monetary authorities need to continue their efforts at macroeconomic stabilisation, the RBI said.

Since the Mid-Quarter Review of December 2013, the global recovery is gaining traction, led by the strengthening of the US economy, but it is still uneven and subdued in the Euro area and Japan, and a slowdown in China seems to be underway, the RBI said. Notwithstanding the boost from stronger external demand, uncertainty continues to surround the prospects for some emerging economies, with domestic fragilities getting accentuated. Financial market contagion is a clear potential risk, the RBI said.

The RBI said that some loss of momentum of growth in India is expected in Q3 December 2013, despite a strong pick-up in rabi sowing. Industrial activity remains in contractionary mode, mainly on account of manufacturing, which declined for the second month in succession during Q3. Consumption demand continues to weaken and lacklustre capital goods production points to stalled investment demand. Fiscal tightening through Q3 and Q4 is likely to exacerbate the weakness in aggregate demand. Lead indicators of services suggest a subdued outlook, barring some pick-up in transport and communication activity.

Governor Dr. Rajan said that elevated levels of inflation erode household budgets and constrict the purchasing power of consumers. This, in turn, discourages investment and weakens growth. High inflation weakens the rupee, he said. Inflation is also a tax that is grossly inequitable, falling hardest on the very poor, Dr. Rajan said. It is only by bringing down inflation to a low and stable level that monetary policy can contribute to reviving consumption and investment in a sustainable way, Dr. Rajan said. The so-called trade-off between inflation and growth is a false trade-off in the long run, he said. "It is possible to bring inflation under control without a substantial sacrifice of short term growth, provided we do what is necessary, and are patient," Dr. Rajan said in a statement.

Asian stocks rose on Tuesday, 28 January 2014, before the Federal Reserve meets to discuss a further reduction in stimulus. Key benchmark indices in Taiwan, Hong Kong, Indonesia, Singapore, South Korea and China rose by 0.02% to 0.34%. Key benchmark indices in Japan and Taiwan fell 0.17% to 1.58%.

Profit at China's industrial companies increased 6 percent in December from a year earlier, after rising 9.7 percent in the previous month, the National Bureau of Statistics said today, 28 January 2014.

Thailand's manufacturing production decreased 6.2 percent in December from a year earlier, according to a report today, 28 January 2014.

Trading in US index futures indicated that the Dow could advance 74 points at the opening bell on Tuesday, 28 January 2014. US stocks edged lower in a volatile session on Monday, 27 January 2014, as worries over emerging-markets currencies unsettled investors. Stocks began the day on a higher note following upbeat results from Caterpillar, but fell after home sales data showed a larger drop in December than anticipated.

Sales of new single-family homes fell in December, but the whole of 2013 saw the highest sales level in five years, the US government reported Monday, 27 January 2014. Sales of new single-family homes dropped 7% in December due to harsh winter weather. The median price of new homes ticked up in December and for 2013, the median price hit $265,800, up 8.4% from the prior year, the strongest annual growth since 2005.

A two-day monetary policy meeting of the Federal Open Market Committee (FOMC) begins today, 28 January 2014. Federal Reserve officials have been scrutinizing US economic data to determine the timing and pace of reductions to asset purchases. The central bank decided at its December gathering to begin cutting its monthly bond buying by $10 billion to $75 billion.

In Turkey, the country's central bank on Monday, 27 January 2014, said it will "take the necessary policy measures for price stability" at a meeting on Tuesday, 28 January 2014. The announcement came after the currency's decline.

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