Markets end flat post RBI move, await Fed

Markets remained muted to the RBI policy announcement, as the rate hike was very much on expected lines. The Sensex surged to a high of 20,418 as RBI's move signalled a pause in its policy tightening measures in its next review this December. However, it erased gains in late-noon trades and slipped 136 points from the high to a low of 20,282. The index ended (provisional) at 20,322 - down 34 points.

The Nifty ended with a loss of five points at 6,113.
 
Global markets today will be watching closely the Fed action. It has been speculated, that the Federal Reserve may resume an ambitious program of large-scale asset purchases to stir the sluggish US economic recovery out of its doldrums. However, slightest of dis-appointment from the Fed, could spell trouble for Emerging markets like India, as money may start to flow out, says analyst with leading brokerage house.

European markets are up. The FTSE has added 0.7% to 5,734. CAC and DAX are trading marginally in green. US futures are also showing positive movement.

Meanwhile, back home, the RBI in its second quareterly policy review today raised key lending rate by 25 basis points, the sixth such hike since March 2010, as it looks to achieve its end-March 2011 projection of headline inflation at 6%. Rate hikes by the RBI have a direct impact on interest rates offered by banks on loans to Indian companies.

"RBI has said that based on current data, the possibility of another rate hike in immediate future remains low, which is very positive for fixed income markets. Also, to ease concerns on severely tight liquidity, post policy, RBI has announced buyback of bonds, which is also supportive for the markets", feels Ramanathan K, CIO, ING Investment Management.

RBI has clearly signaled that it would prefer banks to discontinue with teaser schemes, leading to some moderation in demand. BSE bankex ended flat at 14,522.

Rate sensitive - BSE Realty index shed 2.5% at 3,644 on fears that the loan demands will face a crunch as banks would be reluctant to give out teaser rates.

"Announcement of reduction in Loan to Value ratio from 95% to 80%, Increase in risk weights for loan of more than Rs.75 lakhs from 100% to 125% would only have psychological impact on real estate sectors as most of the loans are within revised limits. However, increase in provisioning requirement for Teaser Rates from 0.5% to 2% for banks would have impact on banks which have offered such loans", Aneesh Srivastava, CIO - IDBI Federal Life Insurance.

Indiabulls Real Estate shed 5% at Rs 190. Unitech and DLF dropped 3% each to Rs 86 and Rs 349, respectively. Other losers in the sector were Phoenix Mills, Orbit Corporation and Sobha Developers.

Auto stock dropped in spite of strong sales in October. Mahindra & Mahindra's volumes jumped 32% (month-on-month) to 58,776 units. Maruti Suzuki reported highest ever sales at 118,908 units. The stocks dropped around 1% each.

Market heavyweight, Reliance, was the main dragger in the Sensex and dropped 1.7% to Rs 1,074.

Communication stocks were in red. Bharti Airtel dropped 1.5% to Rs 329. Reliance Communications slipped 1% to Rs 182. Idea Cellular slipped 2% to Rs 67.

Metal stocks were in red. Jindal Steel and Sterlite were some of the big losers.

However, cement stocks held firm in today's market as companies reported strong October sales figures. After a long lull, cement majors ACC, UltraTech and Ambuja Cements have reported double digit growth in their dispatches in October. Pick up in construction activity post monsoons has provided a boost to cement demand, according to analysts. ACC added 4.2% to Rs 1,057. Ultratech Cement gained 1.6% at Rs 1,120.

BSE market breadth was negative. Out of 3,101 stocks traded, 1,595 declined while 1,382 advanced.