Markets End Lower On Unchanged Rates

The Indian markets ended their trading day on a weak note after the RBI’s monetary policy review meet, wherein the central bank cut the Cash Reserve Ratio (CRR) by 25 basis points but kept the key rates unchanged. This dampened investors' hopes of a rate cut. Having opened flat, the markets dived deep into the red on the RBI announcement. The Sensex ended the day lower by 204.97 points or 1.10% at 18430.85 and Nifty closed lower by 67.70 points or 1.19% at 5597.90.

The new rates announced by the RBI would be effective from Nov 3, 2012, after which the CRR would be 4.25%, while the repo and the reverse repo would be retained at the current level of 8% and 7% respectively. Apart from the announcement on rates, what had already driven sentiment lower was the fact that the RBI cut growth forecast yesterday from the earlier 6.5% to 5.8%.

On the global front, Bank of Japan eased the nation’s monetary policy by increasing the size of its asset buying programme for the second time in two months. With this, the fund will increase by 11 trillion yen (USD 138 billon) to 66 trillion yen. The central bank kept the credit loan programme unchanged at 25 trillion yen. BoJ would also offer unlimited loans to banks to boost the demand for credit in an attempt to revive the economy. Since this was in line with expectations and data showed the biggest decline in industrial output since last year’s earthquake, the Nikkei plunged lower by 0.98%.

In Europe, stocks have been pushed upwards due to better than estimated result announcements by heavyweights like BP and Deutsche Bank, resulting in a upward movement in European stocks in the range of 0.67%-0.85%.

Among the sectoral indices, the only ones that saw an upswing today were IT and Teck, which went up by 0.51% and 0.36% respectively. The upward movement was on account of a depreciation in the rupee, which would benefit exporters. In other top gainers on the broader indices were Maruti Suzuki, Dr Reddy's Labs and Infosys, which gained between 0.99%-2.27%. Maruti Suzuki gained significantly, paring its early losses since its Q2FY13 results were better than the street expectations. Despite the month-long lockout, the company saw a YoY topline growth of 8.5% and a bottomline growth of -5.4%.

11 of the 13 sectoral indices saw selling. The maximum losses were seen in Banking, which ended the day lower by 2.35%. The sector reacted to the RBI’s decision on rates. Moreover, the increased provisioning for restructured loans, which increased from 2% to 2.75% for restructured standard assets would negatively affect PSU banks. Thus, the highest losses were seen in these stocks. Bank of Baroda, Canara Bank, SBI and Union Bank ended lower by 4.64%, 6.05%, 4.43% and 4.08% respectively. Realty too fell by 2.28%, being highly sensitive to interest rate movements.

As for tomorrow, we expect the markets to remain subdued due to a far from positive global economic scenario and a domestic sentiment that is not supportive of growth.