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The week began on a sombre note, as investors feared a rate hike by the Reserve Bank of India (RBI) in its mid-quarter monetary policy review scheduled for Wednesday.
Market remained on the tenterhooks on whether the US Federal Reserve (US Fed) will decide to scale back its bond-buying programme, as a decision on same loomed after Federal Open Market Committee (FOMC) meeting scheduled for Tuesday and Wednesday. The RBI’s decision not hike rates and US Fed’s decision to taper its bond-buying programme 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 per cent to 21,080 levels and the broader 50-share Nifty index was up almost 106 points or 1.71 per cent to 6,274 levels, its highest closing level since December 11, 2013. (CENTRAL BANKS TRIGGER REBOUND)
“Benchmarks ended the week higher, buoyed by 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 November had prompted marketmen to factor in a 25 bps 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 per cent in November compared with 10.17 per cent in the previous month. The Wholesale Price Index (WPI) inflation data for November rose to a 14-month high of 7.52 per cent compared with seven per cent 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 and Marginal Standing Facility (MSF) rates were, however, kept unchanged by the RBI. The repo rate stands at 7.75 per cent, CRR at four per cent of banks’ net demand and time liabilities, while MSF rate at 8.75 per cent.
The 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 he would 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 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.
Investors’ fear 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 programme by $10-billion a month, beginning January. 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 per cent and the BSE Small-Cap index gaining 2.62 per cent, against Sensex’s 1.75 per cent 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 per cent respectively, among BSE indices tracking industrial sectors. Realty and TECK were up between 4.8 and 4.9 per cent followed by auto, oil and gas and power. The BSE Bankex was the sole laggard.
IT stocks rallied on hopes of an economic recovery. Infosys rose 5.29 per cent to Rs 3,552.30, Tata Consultancy Services (TCS) was 5.82 per cent and Wipro gained 5.78 per cent to Rs 548.95. The stock hit 52-week high of Rs 552 on Friday.
Cipla (up 6.3 per cent), Dr Reddy’s Laboratories (up 4.41 per cent), and Sun Pharmaceutical Industries (up 1.35 per cent) were the top pharma gainers.
Maruti Suzuki was the top Sensex gainer this week, up seven per cent at Rs 1,809.95 followed by BHEL, which was up 6.91 per cent at Rs 165.55. Cipla (up 6.3 per cent), 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 per cent this week.
Reliance Industries (RIL) rose 3.51 per cent after the government allowed the company to charge higher prices for gas from its its KG-D6 block beginning April.
