Key benchmark indices weakened once again and hovered near intraday low in mid-afternoon trade as the Reserve Bank of India, in a surprise decision, raise its key policy rate viz. the repo rate by 25 basis points (bps) to 7.5% from 7.25% after a monetary policy review today, 20 September 2013. Volatility on the bourses was high. The CNX Nifty was currently below the psychological 6,000 mark, having alternately moved above and below that level in intraday trade. The S&P BSE Sensex was down 531.22 points or 2.57%, up about 65 points from the day's low and off close to 560 points from the day's high. The market breadth, indicating the overall health of the market, was weak. Eleven out of thirteen sectoral indices on BSE were in the red.
Some Pharma stocks rose on defensive buying. But, Ranbaxy Laboratories dropped after the company said that its US based wholly owned subsidiary has received a Paragraph IV Certification Notice of filing from Watson Laboratories Inc. of an Abbreviated New Drug Application (ANDA) to the US Food and Drug Administration (FDA) for a generic version of Absorica (isotretinoin capsules), a product that is licensed from Cipher Pharmaceuticals Inc. (Cipher) of Mississauga, Ontario.
A bout of initial volatility was witnessed as key benchmark indices weakened once again after recovering from a lower opening. Volatility continued as key benchmark indices trimmed intraday losses in morning trade. Key benchmark tumbled and hit fresh intraday low in mid-morning trade after the Reserve Bank of India (RBI), in a surprise decision, raised its key policy rate viz. the repo rate by 25 basis points (bps) to 7.5% from 7.25% after mid-quarter monetary policy review announced at 11:00 IST. The market trimmed losses in early afternoon trade. Weakness continued on the bourses in afternoon trade. It weakened once again and hovered near intraday low in mid-afternoon trade.
At 14:20 IST, the S&P BSE Sensex was down 531.22 points or 2.57% to 20,115.52. The index slumped 595.21 points at the day's low of 20,051.43 in mid-morning trade, its lowest level since 18 September 2013. The index rose 31.35 points at the day's high of 20,677.99 in early trade.
The CNX Nifty was down 158.15 points or 2.59% to 5,957.40. The index hit a low of 5,932.85 in intraday trade, its lowest level since 18 September 2013. The index hit a high of 6,130.95 in intraday trade
The market breadth, indicating the overall health of the market, was weak. On BSE, 1,474 shares fell and 681 shares rose. A total of 100 shares were unchanged.
Among the 30-share Sensex pack, 26 stocks fell and rest of them rose. ICICI Bank (down 6.75%), State Bank of India (down 5.01%) and L&T (down 5.65%), edged lower.
Some Pharma stocks rose on defensive buying. Dr Reddy's Laboratories gained 0.43%. Sun Pharmaceutical Industries rose 1.56%.
But, Ranbaxy Laboratories dropped 4.28% after the company said after market hours on Thursday, 19 September 2013, that Ranbaxy Laboratories Inc. (RLI), a wholly owned subsidiary of Ranbaxy Laboratories, has received a Paragraph IV Certification Notice of filing from Watson Laboratories Inc. of an Abbreviated New Drug Application (ANDA) to the US Food and Drug Administration (FDA) for a generic version of Absorica (isotretinoin capsules), a product that is licensed from Cipher Pharmaceuticals Inc. (Cipher) of Mississauga, Ontario.
RLI and Cipher intend to vigorously defend Absorica's intellectual property rights and pursue all available legal and regulatory pathways in defense of the product, RLI said in a statement. Absorica is currently protected by two issued patents listed in the FDA's Approved Drug Products List (Orange Book), which expire in September 2021. RLI shall take appropriate actions in response to the Paragraph IV notice letter, and FDA approval of the ANDA shall then be governed by the Hatch-Waxman Act, RLI said. Absorica was approved by the FDA in May 2012, and granted a three-year market exclusivity period, which expires in May 2015.
Jaiprakash Associates tumbled 6.96% on reports the deal between Jaypee Cement and UltraTech Cement for the former's plant in Gujarat has run into legal trouble. According to reports, the Gujarat High Court on Thursday, 19 September 2013, ordered the deal involving transfer of a cement plant in the Kutch from Jaypee Cement to UltraTech Cement would be subject to the outcome of a public interest litigation (PIL) filed by local villagers of Abdasa taluka in the region.
A division bench of Chief Justice Bhaskar Bhattacharya and judge J B Pardiwala has issued notices to the two companies and the Gujarat government. The next hearing is on 10 October 2013.
Reports added that the villagers in their suit have asked Jaypee to resolve the problems of encroachment and pollution before selling the unit. The suit was filed by Kharai Juth gram panchayat, where Jaypee's unit is located in the Abdasa taluka of Kutch. The PIL alleges Jaypee has encroached upon grazing land, water bodies and public roads.
The suit has asked the court to intervene to get the land freed and check pollution, caused mainly by mining and dumping of alkali dust. The conflict began when Jaypee laid off local labourers. In the suit, villagers have not only complained about encroachment and pollution but also raised questions on the transfer of the lease land, reports added.
On 11 September 2013, Jaiprakash Associates announced that its wholly-owned subsidiary, Jaypee Cement Corporation (JCCL), reached an agreement to sell its 4.8 million tonnes per annum (MTPA) Gujarat Cement Plant to UltraTech Cement for an enterprise value of Rs 3800 crore, besides the actual net working capital. Gujarat Cement Project consists of an integrated cement plant at Kutch and a 2.4 MTPA cement grinding unit at Wanakbori.
The proposed transaction is subject to the approval of shareholders and creditors, sanction of the Scheme of Arrangement by the High Courts, approval of the Competition Commission of India and all other statutory approvals. Jaiprakash Associates said it anticipates the transaction to close in 7 to 9 months.
Tech Mahindra rose 2.63% after the company announced its entry into the higher education sector with the inauguration of a premier engineering institution named Mahindra Ecole Centrale. The announcement was made during trading hours today, 20 September 2013.
Mahindra Ecole Centrale (MEC) is the maiden venture of Tech Mahindra's 100% subsidiary Mahindra Educational institutions. Tech Mahindra said that its new premier engineering institute will be in collaboration with Ecole Centrale Paris, one of the oldest and most prestigious engineering institutions in France, and Jawaharlal Nehru Technological University (JNTU) Hyderabad, a premier institution with academic and research oriented courses.
Vineet Nayyar, Executive Vice Chairman, Tech Mahindra said, "It is a proud moment for us to have launched Mahindra Ecole Centrale today. Tech Mahindra enjoys a leadership position and operates in various industry segments. We recognize the critical need to transform engineering talent into business leadership, in a globalized world. Mahindra Ecole Centrale will provide apprenticeship with collaboration from the industry, focus on humanities, international exposure and allied education to develop a 'whole-brain-approach' to business."
Foreign funds made heavy purchases of Indian stocks on Thursday, 19 September 2013, when Indian stocks rallied mirroring gains in world stocks after the US Federal Reserve after a monetary policy review on Wednesday, 18 September 2013, decided to maintain stimulus to the US economy through monthly bond purchases of $85 billion. Foreign institutional investors (FIIs) bought shares worth a net Rs 3543.84 crore on Thursday, 19 September 2013, as per provisional data from the stock exchanges.
The RBI said that WPI inflation which had eased in Q1 June 2013, has started rising again as the pass-through of fuel price increases has been compounded by the sharp depreciation of the rupee and rising international commodity prices. The negative output gap will exercise downward pressure on inflation, and the process will be aided as supply side constraints, especially relating to food and infrastructure, ease. However, the current assessment is that in the absence of an appropriate policy response, WPI inflation will be higher than initially projected over the rest of the year, the RBI said. What is equally worrisome is that inflation at the retail level, measured by the CPI, has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence, the RBI said. Although better prospects of a robust kharif harvest will lead to some moderation in CPI inflation, there is no room for complacency, the central bank said in a statement.
As the inflationary consequences of exchange rate depreciation and hitherto suppressed inflation play out, they will offset some of the disinflationary effects of a better harvest and the negative output gap, the RBI said. The need to anchor inflation and inflation expectations has to be set against the fragile state of the industrial sector and urban demand, the RBI said. Keeping all this in view, bringing down inflation to more tolerable levels warrants raising repo rate under the liquidity adjustment facility (LAF) by 25 basis points immediately, the RBI said. The RBI kept the cash reserve ratio (CRR) unchanged at 4%.
The RBI has also simultaneously decided to start unwinding of the exceptional measures it had taken since mid-July to tighten liquidity with a view to dampening volatility in the foreign exchange market. As a first step, the RBI has decided to reduce the marginal standing facility (MSF) rate by 75 basis points with immediate effect. Furthermore, the minimum daily maintenance of the CRR prescribed by the Reserve Bank of India (RBI) has been brought down from 99% of the requirement to 95% from the fortnight beginning 21 September 2013. The timing and direction of further actions on exceptional measures will be contingent upon exchange market stability, and can be two-way, the RBI said. Further actions need not be announced only on policy dates, the RBI said. However, any further change in the minimum daily maintenance of the CRR is not contemplated, the RBI said.
The Reserve Bank of India said it will closely and continuously monitor the evolving growth-inflation dynamics with a readiness to act pre-emptively, as necessary. The RBI said that policy stance and measures set out in this review begins the process of cautious unwinding of the exceptional measures, which will restore normalcy to financial flows. They are also intended to address inflationary pressures so as to provide a stable nominal anchor for the economy, thereby mitigating exchange market pressures and creating a conducive environment for the revitalisation of sustainable growth, the RBI said.
Dr. Raghuram G. Rajan, Governor, Reserve Bank of India, said in a statement that the calibrated withdrawal of the exceptional measures that the RBI had taken since mid-July to tighten liquidity with a view to dampening volatility in the foreign exchange market will provide a boost to growth, reduce the financing distortions that are emerging in the market and reduce the strain on corporate and bank balance sheets. Dr. Rajan made it a point that the MFS rate is the effective policy rate today and this has been cut steeply. He said that easing the exceptional liquidity measures was warranted given that the external environment has improved and given that the Government and the RBI have used the time since the measures were put in place to narrow the current account deficit and to ease its financing. The RBI has also announced an intention to return to normal monetary operations where the repo rate will return to being the effective policy rate and liquidity conditions need not be as tight as they currently are, Dr. Rajan said adding that the difference between the MSF and repo rate will be brought down to 100 basis points. Once the repo rate becomes the effective policy rate, it should be consistent with inflationary conditions in the economy, Dr. Rajan said. On net, the RBI's latest measures will reduce the cost of bank financing substantially while allowing the RBI to take an appropriately precautionary stance on inflation, he said.
"Over the next few weeks, together with the government, we will take a close look at corporate distress and bank NPAs to see how we can accelerate the process of resolution", Dr. Rajan said.
The RBI Governor said that the RBI has implemented the full liberalization of bank branching, with some safeguards to encourage inclusion.
Bond prices fell sharply after the RBI's surprise decision to raise repo rate. The yield on the benchmark federal paper 7.16% GS 2023 was hovering at 8.4942%, sharply higher than its close of 8.1926% on Thursday, 19 September 2013. Bond yield and bond prices are inversely related.
In the foreign exchange market, the rupee fell against the dollar in choppy trade. The partially convertible rupee was hovering at 62.21, lower than its close of 61.77/78 on Thursday, 19 September 2013. The rupee had surged on Thursday boosted by the US Federal Reserve's surprise decision to keep its $85-billion-a-month in bond purchases intact.
European stock markets dropped on Friday, 20 September 2013, retreating from multiyear highs reached the prior day when investors celebrated the US Federal Reserve's decision to keep its bond purchases intact. Key benchmark indices in UK, France and Germany were off 0.06% to 0.07%. Investors in Europe were also wary of placing any big positions ahead of the German federal election.
Asian stocks edged lower on Friday, 20 September 2013, after their strong gains in the previous session. Key benchmark indices in Japan, Indonesia and Singapore were off 0.16% to 1.9%. Stock markets in Mainland China, Hong Kong, Taiwan and South Korea were closed for a holiday. Asian stocks had surged on Thursday, 19 September 2013, after the Federal Reserve unexpectedly refrained from reducing stimulus measures after a monetary policy review on Wednesday, 18 September 2013, saying it wants more evidence of an economic recovery before paring its $85 billion-a-month in bond purchases.
Trading in US index futures indicated a flat opening of US stocks on Friday, 20 September 2013. US stocks on Thursday mostly fell, with benchmark indexes retreating from record highs that came with the Federal Reserve's unexpected decision not to begin cutting stimulus.
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