Markets pare gains, banks weigh

Sustained buying in rate sensitives, a day ahead of the RBI monetary policy, along with strong cues from global markets helped the Indian bourses to trade firm for most parts of the day today. However, weakness in banking stocks saw the Sensex paring some of its gains and finally ending below the 17,000 level at 16,939  - up 154 points. Nifty ended up 48  points at 5,098.

Markets would be looking towards the Reserve Bank of India's monetary policy review tomorrow for direction. RBI, in a continued effort to tame inflation, may hike rates by 25 bps feels bankers and analysts.

“Despite the moderation in growth, inflation is not coming off its highs and is set to remain elevated as underlying inflationary pressures remain firmly in place as excess demand should only gradually dissipate. Against this backdrop, RBI should still, on balance, consider inflation the dominant concern and, therefore, continue to tighten, giving the repo rate a 25bp lift on Tuesday,” said Leif Lybecker Eskesen, Chief Economist for India and ASEAN, HSBC Global Research.

The markets are likely to be volatile tomorrow as traders roll-over positions for the derivatives expiry. Thursday markets are closed and Wednesday will have a special mahurat trading on the Indian bourses.

Asian markets rose on the back of hopes that European leaders are closer to a solution of the Euro-zone debt crisis. The Hang Seng surged 4% to 18,772. Seoul Composite, Straits Times and Taiwan Weighted gained 2-3% each.

BSE IT, auto and oil & gas indices jumped nearly 2% each. Bankex erased all of its gains and ended down 0.3% at 11,052.

Heavyweight Reliance contributed the most to the Sensex's upmove and rose 1.3% at Rs 846.

Tata Motors from the auto pack remained the major gainer and was up 4.4% at Rs 186. The company is looking to raise $750 million through overseas borrowing to meet working capital requirements and reduce debt. Bajaj Auto and Maruti Suzuki gained 1-3% each. Maruti Suzuki's long labour unrest at its Manesar plant finally came to an end on Friday morning. ONGC jumped 4% to Rs 276 on reports that the company will get a windfall of over 1,300 crore from the domestically produced natural gas with the rupee touching a 30-month low against the U-S dollar. Among other prominent gainers were TCS, Hindustan Unilever and Hindalco.

ITC reported a 21.4% jump in net profit to Rs 1,514 crore for the quarter ended September 2011. It was Rs 1,247 crore in the same period a year ago. Total income rose 18.2% to Rs 6,266 crore from Rs 5,300 crore in the year-ago period. The stock ended up 1.5% at Rs 207.

Meanwhile, Larsen & Toubro and Coal India remained in red. L&T shed 3% to Rs 1,294 after cutting down its order flow forecast to 5% from 15% for FY12. Coal India was down 1.2% at Rs 325.  The company has reportedly violated the provisions of the New Coal Distribution Policy (NCDP).

Banking stocks declined with SBI dropping 2% to Rs 1,907 and HDFC Bank slipping half a per cent to Rs 484.

BSE market breadth was marginally negative. Out of 2,926 stocks traded, 1,527 stocks declined while 1,276 stocks advanced.