Repo Rates Held, Markets Drag

The Indian markets have moved southwards after taking a look at the RBI's monetary policy. They are currently trading lower by almost 1%. Nifty, which traded in a 90-point range (5640 to 5730), broke the lower level and this further indicates that we may see a downside in the next couple of days.

Among the sectors, the rate-sensitive indices like Banking and Realty are trading lower by almost 2% each. Others like Consumer Durables, Capital Goods and Auto are also in the negative territory. On the other hand, IT and Teck are higher in the green zone. The RBI's action with regard to rate cuts has caused the rupee to depreciate, which is good for these indices.

The RBI once again maintained status quo with regard to the key repo and reverse repo rates, which were unchanged at 8% and 7% respectively. However, the apex bank slashed the Cash Reserve Ratio (CRR) by 25 bps to 4.25%, which would be effective from the fortnight beginning Nov 3, 2012. The cut in CRR would inject around Rs 17500 crore into the system, helping the banking sector resolve its liquidity crisis.

In the other Asian markets, Hang Seng and Nikkei are trading lower by 0.58% and 0.99% respectively. Shanghai, though, is trading marginally in positives. Reports said that an advance by property developers overshadowed the declines seen by auto-related companies. Further, the Japanese Nikkei traded lower after the Bank of Japan expanded its asset-purchase program for the second time in two months. This was a move that failed to cheer investors as stocks slumped amid mounting evidence that the economy contracted in the last quarter.

Back home, Auto major Tata Motors is the leading index loser, down by 4% at Rs 246.40 per share. Other stocks in the sector like Hero MotoCorp, M&M and Maruti Suzuki are trading lower. Banking majors SBI, ICICI Bank and HDFC Bank are also in the negatives post the RBI meet. Similarly, index heavyweights like L&T, ITC, HDFC and RIL are in the red.

As we mentioned earlier, IT stocks are trading higher with biggies like Infosys and TCS up by 0.89% and 0.55% respectively. Dr Reddy's Labs, HUL and Bharti Airtel are among the other stocks are trading higher in the green zone.

The market breadth, which indicates the overall health of the market, is slightly on the weaker end. On the BSE, 1700 shares have declined, 808 have advanced and 119 are unchanged.

We expect the markets to remain volatile with a negative bias for the latter part of the day.