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Benchmark share indices fell sharply after the Reserve Bank of India kept key policy rates unchanged but rebounded later led by financials after RBI Governor Raghuram Rajan said rate cut was likely early next year if the inflation momentum -- currently on a downward path -- continues and if fiscal developments are encouraging.
At 11:40AM, the 30-share Sensex was down 74 points at 28,486 after hitting a low of 28,386 and the Nifty slipped 22 points at 8,534 after touching a intra-day low of 8,505.
Analysts said that the market was encouraged by dovish statements made by the RBI about a possible rate cut early next year on the back of improving inflation and macro-economic data. Market participants now believe that the rate-cut is imminent in the first half of 2015.
"Markets are very happy with the outlook given by the RBI. The expectation is that there could be a rate-cut in February next year. The sharp run-up that we saw ahead of the RBI policy now means that the markets could see some correction in the near-term," said Sunil Jain, VP (equity research), Nirmal Bang Securities.
RBI Governor Raghuram Rajan left interest rates unchanged at 8% for the fifth time in a row at the central bank’s bi-monthly policy review today.
The central bank also kept other key rates -- the cash reserve ratio and the statutory liquidity ratio -- unchanged.
The rupee is trading higher at 61.92 compared with Monday's 62.02 close.
Asian markets are trading firm. A rebound in crude oil and other commodity prices favouring the stock markets of resource-exporting countries. Japanese shares were up 0.5% and Shanghai Composite was up 1.9%, Straits Times was up 0.8% and Hang Seng was up 0.7%.
The BSE Auto and IT indices were the top sectoral losers. Capital Goods, Metal, Power and Healthcare indices were the top losers.
Infosys turned ex-bonus today for 1:1 bonus issue. The stock is the top Sensex loser, down by almost 2%. The company has fixed December 3, 2014 as the record date for the purpose of allotment of bonus shares. However, the stock turned ex-bonus today.
HDFC Bank and HDFC were also among the top Sensex losers down 0.7-1% each.
Bajaj Auto dropped 1.2%. The company’s total sales in November 2014 declined to 309,259 units compared to 310,591 units in the same month last year.
M&M slipped 1.3% after reporting a 13% decline in total car sales numbers in November, 2014 compared to same month last year.
ICICI Bank recovered from early lows and was up 0.5%. The stock turns ex-stock split on Thursday, December 4. Shareholders would be entitled to receive 5 equity shares of nominal value of Rs. 2 each in lieu of 1 equity share of nominal value of Rs. 10 each of the Bank.
Oil and gas shares firmed up after the brief correction on Monday. ONGC and Reliance Industries was up 0.2-0.7% each.
Other Sensex gainers include, ITC, ONGC and Sesa Sterlite among others.
In the broader market, the BSE Mid-cap index was up 0.3% and Small-cap index was up 0.1%.
Market breadth was weak with 1,239 losers and 1,168 gainers on the BSE.
