Key benchmark indices trimmed losses after the Reserve Bank of India (RBI) after a monetary policy review today, 2 December 2014, indicated that monetary policy easing is likely early next year, including outside the policy review cycle, provided the current inflation momentum and changes in inflationary expectations continue and if fiscal developments are encouraging. The RBI kept its main lending rate viz. the repo rate unchanged at 8% after a monetary policy review and said that risks to the January 2016 target of 6% appear evenly balanced under the current policy stance. The barometer index, the S&P BSE Sensex, was currently off 70.90 points or 0.25% at 28,488.72. BSE Small-Cap and Mid-Cap indices, were, both in green. The market breadth indicating the overall health of the market was negative.
IT stocks declined on weak economic data in US, the biggest outsourcing market for the Indian IT firms. Capital goods stocks also declined. Shares of paint makers declined on profit booking after recent steep rally triggered by sharp fall in crude oil prices.
Foreign portfolio investors (FPIs) sold shares worth a net Rs 12.36 crore yesterday, 1 December 2014, as per provisional data.
In overseas markets, Chinese stocks led gains in Asian stocks as investors bet China's central bank will ease monetary policy. US stocks fell yesterday, 1 December 2014, as disappointing economic data from China and Europe triggered a bout of selling in global equity markets.
In the foreign exchange market, the rupee strengthened past 62 against the dollar.
Brent crude oil futures dropped as investors weighed OPEC's decision to let the market curb a global supply glut.
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At 13:15 IST, the S&P BSE Sensex was down 70.90 points or 0.25% at 28,488.72. The index lost 173.16 points at the day's low of 28,386.46 in mid-morning trade, its lowest level since 27 November 2014. The index rose 16.77 points at the day's high of 28,576.39 in mid-morning trade.
The CNX Nifty was down 21.80 points or 0.25% at 8,534.10. The index hit a low of 8,504.65 in intraday trade, its lowest level since 27 November 2014. The index hit a high of 8,560.20 in intraday trade.
The market breadth indicating the overall health of the market was negative. On BSE, 1,397 shares declined and 1,243 shares gained. A total of 114 shares were unchanged.
The BSE Mid-Cap index was up 45.16 points or 0.44% at 10,308.06. The BSE Small-Cap index was up 10.19 points or 0.09% at 11,199.89. Both these indices outperformed the Sensex.
IT stocks declined on weak economic data in US, the biggest outsourcing market for the Indian IT firms. TCS (down 0.36%), HCL Technologies (down 0.68%) and Wipro (down 0.3%) declined.
Shares of Infosys fell 2.13% to Rs 2,128.95. The stock was volatile. The stock hit high of Rs 2,165 and low of Rs 2,116 so far during the day. The stock is trading after turning 1:1 ex-bonus from today, 2 December 2014.
Shares of Tech Mahindra rose 0.23%.
Firmness in rupee also weighed on IT stocks. A firm rupee adversely affects operating profit margins of IT firms as the sector derives a lion's share of revenue from exports.
Capital goods stocks declined. Alstom India (down 0.75%), Bharat Heavy Electricals (Bhel) (down 0.6%), Punj Lloyd (down 2.39%), Thermax (down 0.5%), Havells India (down 1.79%) and Siemens (down 0.67%) declined. L&T rose 0.94%.
Coal India rose 0.37%. The company said during market hours today, 2 December 2014, that the coal production of Coal India and its subsidiaries was 97% of targeted production at 44.42 million tonnes in November 2014. Actual coal offtake of Coal India and its subsidiaries was 96% of targeted offtake at 41.57 million tonnes in November 2014.
The government has already finalised its 10% stake sale in Coal India.
Shares of paint makers declined on profit booking after recent steep rally triggered by sharp fall in crude oil prices. Berger Paints (down 2.98%), Shalimar Paints (down 5.44%), Asian Paints (down 3.18%) and Kansai Nerolac Paints (down 1.36%), edged lower. Akzo Nobel India rose 2.11%.
Fall in crude oil prices augur well for paints makers. Titanium dioxide is a key raw material for paint companies and is derived from crude oil.
In the foreign exchange market, the rupee strengthened past 62 against the dollar. The partially convertible rupee was hovering at 61.9125, compared with its close of 62.025 during the previous trading session.
Brent crude slipped, giving up some of the gains seen yesterday, 1 December 2014, when prices rallied for the first time in six sessions staging a recovery after touching five-year low. Brent for January settlement was off 54 cents a barrel at $72 a barrel. The contract had gained $2.39 a barrel to settle at $72.54 yesterday, 1 December 2014.
The Reserve Bank of India (RBI) kept its main lending rate viz. the repo rate unchanged at 8% and also kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL) after a monetary policy review today, 2 December 2014. RBI Governor Dr. Raghuram Rajan said in a statement that there is still some uncertainty about the evolution of base effects in inflation, the strength of the on-going disinflationary impulses, the pace of change of the public's inflationary expectations, as well as the success of the government's efforts to hit deficit targets. A change in the monetary policy stance at the current juncture is premature, Rajan said. The RBI Governor, however, indicated that monetary policy easing is likely early next year, including outside the policy review cycle, provided the current inflation momentum and changes in inflationary expectations continue and if fiscal developments are encouraging.
The RBI has revised downwards the central forecast for CPI inflation to 6% for March 2015. The central bank said that the risks to the January 2016 target of 6% CPI inflation appear evenly balanced under the current policy stance.
Retail inflation, as measured by the consumer price index (CPI), has decelerated sharply since the RBI's fourth bi-monthly statement of September this year. This reflects, to some extent, transitory factors such as favourable base effects and the usual softening of fruits and vegetable prices that occurs at this time of the year, the RBI said. On the other hand, protein-rich items such as milk and pulses continue to experience upside pressures, reflecting structural mismatches in supply and demand. The absence of adequate administered price revisions in inputs like electricity has contributed to the easing of inflation in the fuel group. In the non-food non-fuel category, inflation eased broadly in September. Further softening of international crude prices in October eased price pressures in transport and communication. However, upside pressures persist in respect of prices of clothing and bedding, housing and other miscellaneous services, resulting in non-food non-fuel inflation for October remaining flat at its level in the previous month, and above headline inflation, the RBI said.
The RBI said survey-based inflationary expectations have been coming down with the fall in prices of commonly-bought items such as vegetables, but are still in the low double digits. Administered price corrections, as and when they are effected, weaker-than-anticipated agricultural production, and a possible rise in energy prices on the back of geo-political risks could alter the currently benign inflation outlook significantly, the central bank said. According to RBI, the inflation reading for November 2014 is expected to show a further softening. Thereafter, however, the favourable base effect that is driving down headline inflation will likely dissipate and inflation for December 2014 may well rise above current levels, the RBI said. The key uncertainty is the durability of this upturn. Rajan said that the full outcome of the north-east monsoon will determine the intensity of price pressures relating to cereals, oilseeds and pulses, but it is reasonable to expect some firming up of these prices in view of the monsoon's performance so far and the shortfall estimated for kharif production. Risks from imported inflation appear to be retreating, given the softening of international commodity prices, especially crude, and reasonable stability in the foreign exchange market. According to RBI, over the next 12-month period, inflation is expected to retain some momentum and hover around 6%, except for seasonal movements, as the disinflation momentum works through.
Weak domestic demand and the rapid pace of recent disinflation are factors supporting monetary accommodation, the RBI said. However, the weak transmission by commercial banks of the recent fall in money market rates into lending rates suggests monetary policy shifts will primarily have signaling effects for a while. Nevertheless, these signaling effects are likely to be large because the Reserve Bank of India has repeatedly indicated that once the monetary policy stance shifts, subsequent policy actions will be consistent with the changed stance, the Rajan said in a statement.
A rise in investment is critical for a sustained pick-up in overall economic activity, the RBI said. A durable revival of investment demand continues to be held back by infrastructural constraints and lack of assured supply of key inputs, in particular coal, power, land and minerals. The success of ongoing government actions in these areas will be key to reviving growth and offsetting downside risks emanating from agriculture - in view of weaker-than-expected rabi sowing - and exports - given the sluggishness in external demand. The RBI has kept unchanged its central estimate of projected GDP growth for 2014-15 at 5.5% and it expects a gradual pick-up in momentum in GDP growth in 2015-16 on the assumption of a normal monsoon and no adverse supply/financial shocks.
The fiscal outlook should brighten because of the fall in crude prices, but weak tax revenue growth and the slow pace of disinvestment suggest some uncertainty about the likely achievement of fiscal targets, and the quality of eventual fiscal adjustment. The government, however, appears determined to stay on course, Rajan said.
The HSBC India Services PMI for November 2014 is due tomorrow, 3 December 2014. Adjusted for seasonal factors, the headline HSBC India Services PMI Business Activity Index -- a single question tracking changes in activity at Indian services companies on a month-by-month basis -- fell to 50 in October, from 51.6 in September.
Chinese stocks led gains in Asian stocks today, 2 December 2014, as investors bet China's central bank will ease monetary policy. Key benchmark indices in China, South Korea, Hong Kong, Japan, Indonesia and Singapore were up 0.03% to 1.35%. In Taiwan, the Taiwan Weighted index was off 0.91%.
Data yesterday, 1 December 2014, showing slower-than-forecast growth in China's manufacturing sector last month increased speculation the Chinese central bank will follow up on last month's cut in interest rates with a reduction in lenders' reserve-requirement ratios. Reserve ratios have remained unchanged at 20% for major banks and 18% for smaller banks since May 2012.
Trading in US index futures indicated that the Dow could advance 49 points at the opening bell today, 2 December 2014. US stocks fell on Monday, 1 December 2014 with the S&P 500 suffering its biggest one-day drop in more than a month, as economic data indicated weakness across the globe.
In economic data, the Institute for Supply Management said its US manufacturing index edged down to 58.7% in November from 59% in October. A number above 50% signals expansion and the latest reading kept the ISM index near a three-year high. A separate report on Monday, 1 December 2014 by the research firm Markit said that purchasing managers index for November showed a reading of 54.8, down from 55.9 in October. That marks the lowest reading in ten months. US retailers reported sluggish Black Friday spending, with sales falling 11% from the same period last year, according to the National Retail Federation (NRF). US consumers spent on average $380.95 per person, down 6.4% from a year ago. Overall, total holiday weekend sales were estimated to be $50.9 billion.
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