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 S&P BSE Sensex was down 540.92 points or 2.62%, off about 570 points from the day's high and up close to 20 points from the day's low. The market breadth, indicating the overall health of the market, was weak.
Bank stocks tumbled after the RBI's surprise decision to hike the repo rate. Shares of Dena Bank and Vijaya Bank declined after the National Stock Exchange on Thursday, 19 September 2013, said it will remove these two stocks from the futures and options (F&O) segment.
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.
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.
At 11:20 IST, the S&P BSE Sensex was down 540.92 points or 2.62% to 20,105.72. The index slumped 559.20 points at the day's low of 20,087.44 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 148.60 points or 2.43% to 5,996.95. The index hit a low of 5,955.55 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, 1,355 shares fell and 566 shares rose. A total of 102 shares were unchanged.
Among the 30-share Sensex pack, 22 stocks fell and rest of them rose. L&T (down 5.08%), HDFC (down 4.92%) and Tata Steel (down 3.9%), edged lower.
Bank stocks tumbled after the Reserve Bank of India's (RBI) increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 7.5% from 7.25% with immediate effect mid-quarter policy review today, 20 September 2013. 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 RBI kept the cash reserve ratio (CRR) unchanged at 4%.
State Bank of India tumbled 4.9%. The state-run bank on Wednesday, 18 September 2013, said it has raised the base rate by 10 basis points (bps) to 9.8% per annum (pa) from 9.7% and the benchmark prime lending rate by 10 bps to 14.55% from 14.45% with effect from 19 September 2013. The bank has also raised interest rates for retail term deposits.
Among other PSU bank stocks, Canara Bank, Union Bank of India, Bank of India, Bank of Baroda and Punjab National Bank shed by 6.25% to 9.25%.
ICICI Bank fell 4.84%. HDFC Bank declined 4.96%.
Shares of private sector bank Yes Bank dropped 11.58% after jumping by a staggering 22.54% on Thursday. The bank early this week said it has successfully closed equivalent to $255 million by way of dual currency, multi-tenor syndicated loan facility which will be utilized for general corporate purposes and trade finance. The facility has a maturity of 1 and 2 years with majority commitments coming in the 2 year tenure bucket. The loan has been widely distributed with commitments from 11 banks representing 8 countries across US, Europe, Middle East and Australia, Yes Bank said.
The recent RBI guidelines on offering swap facility to banks for the foreign currency borrowings at 100 basis points below the market rate will further make the landed rupee cost of these funds extremely competitive vis-vis rupee funds of equivalent maturity, Yes Bank said early this week.
Shares of Dena Bank fell 1.02%. Vijaya Bank declined 1.82%. The National Stock Exchange said it will exclude Dena Bank and Vijaya Bank from the futures and options (F&O) segment. NSE said F&O contracts for new expiry months in Dena Bank and Vijaya Bank will not be issued on expiry of existing contract months. However, the existing unexpired contracts of expiry months September 2013, October 2013 and November 2013 would continue to be available for trading till their respective expiry and new strikes would also be introduced in the existing contract months. Accordingly, no contracts shall be available for trading in the above mentioned securities with effect from 29 November 2013.
Gulf Oil Corporation fell 4.42% as the stock turned ex-dividend today, 20 September 2013, for dividend of Rs 2.20 per share for the year ended 31 March 2013.
Gayatri Projects declined 4.21% as the stock turned ex-dividend today, 20 September 2013, for dividend of Rs 3 per share for the year ended 31 March 2013.
HSIL dropped 2.7% as the stock turned ex-dividend today, 20 September 2013, for dividend of Rs 3 per share for the year ended 31 March 2013.
National Aluminium Company (Nalco) fell 2.28% as the stock turned ex-dividend today, 20 September 2013, for final dividend of Rs 0.50 per share for the year ended 31 March 2013.
Raj Television Network rose 0.23%. The stock turned ex-dividend today, 20 September 2013, for final dividend of Re 1 per share for the year ended 31 March 2013.
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.
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 8.4308%, 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 62.39, sharply 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.
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 0.09% to 1.63%. 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 that the Dow could fall 16 points at the opening bell 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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