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Key benchmark indices rose over 1.7% this week on a relief rally after two central banks on either sides of the Pacific didn’t give investors any reason to sweat, as against what analysts had expected.
The week began on a sombre note as investors feared a rate hike by the Reserve Bank of India (RBI) in it's mid-quarter monetary policy review scheduled for Wednesday.
Market remained on the tenterhooks on whether US Federal Reserve will decide to scale back its bond-buying program as a decision on same loomed after Federal Open Market Committee (FOMC) meeting scheduled for Tuesday and Wednesday.
The Reserve Bank of India's (RBI’s) decision not hike rates and US Federal Reserve's (US Fed’s) decision to taper its bond-buying program by only 10-billion-a-month beginning January while keeping interest rates at historic lows, fuelled a relief rally this week.
The 30-share Sensex index of the Bombay Stock Exchange (BSE) added almost 364 points or 1.75% to 21,080 levels and the broader 50-share Nifty index was up almost 106 points or 1.71% to 6,274 levels, its highest closing level since 11 December 2013.
"Benchmarks ended the week higher, buoyed by the RBI decision to hold rates and despite the higher-than-expected amount of taper announced by the US Fed. Positive foreign flows after the taper announcement also supported sentiments," said said Dipen Shah, Head- Private Client Group Research, Kotak Securities.
"With the two major decisions by central banks out of the way, markets will now be guided by further announcements of the taper and implementation of the same, political expectations and corporate performance. Markets will also be influenced by economic readings on inflation / IIP which will have a direct bearing on the future interest rate trajectory. With benchmark valuations at around the long term average, greater visibility on growth will be a pre-requisite for further re-rating," he added.
Inflation concerns
Inflation peaking in the month of November had prompted marketmen to factor in a 25bps repo rate hike and it was being speculated whether the RBI would hike cash reserve ratio (CRR) as well.
The Consumer Price Index (CPI) inflation numbers rose to 11.24% in November compared with 10.17% in the previous month. The Wholesale Price Index (WPI) inflation data for November rose to a 14-month high of 7.52% compared with 7% the previous month.
RBI governor Raghuram Rajan's unrelenting assault on inflation was already made clear by him earlier making the street certain of an impending rate hike.
The repo, Cash Reserve Ratio (CRR) as well as Marginal Standing Facility (MSF) rate were however kept unchanged by the RBI. The repo rate stands at 7.75%, CRR at 4% of banks' net demand and time liabilities while MSF rate at 8.75%
The Reserve Bank of India (RBI) justified the status quo citing slowing growth in the economy and the prospect of easing retail prices. Rajan however warned against being complacent on the inflation front and said would he be ready to act even in between policy reviews if headline or core inflation do not ease as expected but in a calibrated manner.
"Recent readings suggest that headline inflation, both retail and wholesale, have increased, mainly on account of food prices. While CPI and wholesale price index (WPI) inflation excluding food and fuel have been stable, despite a steady and necessary increase in administered prices towards market levels, the high level of CPI inflation excluding food and fuel leaves no room for complacency," said the RBI mid-quarter money policy review statement.
Investor's fears that a cutback in quantitative easing by Fed could trigger a sell-off in Indian stocks was put to rest as foreign funds continued to buy after Fed decided to scale back its 85-billion-a-month bond-buying program by 10-billion a month, beginning January, 2014. World shares rallied against the norm after Fed sugar coated the taper talk with a promise of keeping lending rates at record low levels.
Winners and laggards
Broader markets outperformed the benchmark Sensex with BSE Mid-Cap index rising 3.17% and the BSE Small-Cap index gaining 2.62%, against Sensex's 1.75% upmove. Of the 30 Sensex stocks, 26 rose while four declined.
It was a defensive play this week with both BSE IT and Healthcare emerging as top gainers, up 5.2 and 5.7% respectively, among BSE indices tracking industrial sectors. Realty and TECK were up between 4.8-4.9% followed by Auto, Oil & gas and power. BSE Bankex was the sole laggard.
IT stocks rallied on hopes of an economic recovery. Infosys rose 5.29% to Rs 3,552.30, Tata Consultancy Services (TCS) was 5.82% and Wipro gained 5.78% to Rs 548.95. The stock hit 52-week high of Rs 552 on Friday.
Cipla (up 6.3%), Dr Reddy's Laboratories (up 4.41%), and Sun Pharmaceutical Industries (up 1.35%) were the top pharma gainers.
Maruti Suzuki was the top Sensex gainer this week, up 7% at 1809.95 followed by BHEL which was up 6.91% at Rs 165.55. Cipla(up 6.3%), Wipro and TCS were other top gainers.
Among heavyweights, HDFC Bank, which filed an application with the Foreign Investment Promotion Board (FIPB) seeking approval for increasing foreign shareholding limit in the bank, was the top Sensex loser, down 3.65% this week.
Reliance Industries (RIL) rose 3.51% after the government allowed the company to charge higher prices for gas from its its KG-D6 block beginning April.
