Sensex falters to a 3 week low; RBI’s monetary policy review eyed

Benchmark Indices stuck in range bound trade are whirling around 3-week lows amidst global weakness and domestic jitters well ahead of the Central Bank's mid-quarterly review, which is expected to outline the trend of the Indian equity markets. Though the heat of potential 25 bps hike is pulverizing the rate sensitive which are lugging the local equity markets lower, but a more hawkish stance may prove dampener for the markets. The RBI is expected to raise interest rate by a total of 75 basis points (bps) for the rest of 2011, including a 25 bps increase in RBI's policy meet today.

On the global front, after a sharp selloff on Wall Street on Wednesday, Asian stock markets were trading lower as fears of contagion from a possible Greek default and weak U.S. economic data weighed investor sentiment. Meanwhile, the US future indices were showing a mixed trend on the screen trade. Backhome, descend of Market bellwether Reliance for the 4th straight session have also added to the woes. The company has so far lost nearly 5 per cent in the last three trading sessions after a CAG report said the company inflated production costs in its KG-D6 gas fields. On the BSE sectoral front, besides rate sensitive fall, Information Technology and Consumer Durable and Consumer Goods space too are tottering under pressure. The 30 scrip sensitive index Sensex touching a three week low is dangerously close to breaching the 18000 level, while the 50 share index too is gyrating around the 5400 level. While, the broader indices being no different were staggering ting under pressure as both the midcap and smallcap index have lost over 0.255 each. The overall market breadth on BSE is in the favour declines which have thumped advances in the ratio of 1323:769, while 94 shares remained unchanged.

The BSE Sensex is currently trading at 18,055.28, down by 76.96 points or 0.42%. The index has touched a high and low of 18,083.46 and 18,005.82 respectively. There were just 9 stocks advancing against 21 declines on the index.

The broader indices too were floating in red; the BSE Mid cap and Small cap indices plunged by 0.62% and 0.39% respectively. 

 FMCG up by 0.01% was the only defensive sector on the BSE Sectoral space. While, Realty down by 1.17%, IT and Auto down by 0.93%, CD down by 0.86% and CG down by 0.77% were the top losers on the index.

The gainers on the Sensex were NTPC up by 0.82%, HUL up by 0.58%, Reliance Infra up by 0.51%, SBI up by 0.37% and Bharti Airtel up by 0.29%.

On the flip side, Maruti Suzuki down by 1.98%, Wipro down by 1.73%, Bajaj Auto down by 1.65%, Sterlite Inds down by 1.57% and DLF down by 1.26% were the top losers on the index.

Meanwhile, just before the RBI's monetary policy review, the Federation of Indian Chambers of Commerce and Industry (FICCI) has urged the RBI not to raise interest rates any further as such a move would affect business sentiment adversely, slow down the pace of investments further and hit economic growth. On the other hand, it requested the RBI to amend its monetary policy and cease from raising key policy rates further.

In a communication to the RBI Governor D Subbarao, Chairman of FICCI Finance Committee, Udayan Bose said "Over the last two years, food inflation has remained at elevated levels. Although it is now trending downwards, it is still high and therefore a cause for concern. We have seen the central bank taking swift measures, with key policy rates being hiked nine times since March 2010, to rein in inflationary pressures. "However, food inflation has proved to be stubbornly insensitive to any such moves. As this is largely a problem arising out of demand-supply mismatch, any move to control such inflation through monetary moves has been futile. On the contrary, aggressive monetary tightening is having an adverse bearing on economic and industrial growth of the country."

FCCI pointed out that the number for GDP expansion in the last quarter of 2010-11 confirmed the slowdown in sectors such as manufacturing and mining. Another worrisome trend is the slowdown in growth of gross fixed capital formation. Udayan Bose said "The pace of investments, as you would agree, is a key determining factor for overall growth, and once it loses momentum, it is difficult to bring it back."

The moral of Indian corporate is low, due to recent slowdown in the growth of cement sales, dip in import of steel, fewer queries related to purchase of commercial vehicles, increasing inventories with automobile dealers, and limited inquiries in the real estate sector. The business world is seeking clear direction and indications that highlights growth enhancing measures.

From March 2010, RBI has increased its policy rates for nine times. On May 3, RBI increased its policy rate by 50 basis points. In this mid-term policy review, RBI is expected to increase its policy rates by 25 basis points.

FICCI has requested the Apex bank to reconsider its monetary stance as any further tightening of monetary policy will further destabilize industrial growth, weaken GDP growth and limit employment generation. Udayan Bose said "Such a situation would have social repercussions as well, for we need to generate close to 12 million jobs annually and a large part of it has to come from industry particularly the SME sector". Single-mindedly pursuing a policy of interest rate hike could bring us closer to such a situation, which we must avoid at all costs. This is all the more important at a time when the global economy is still not completely out of the woods and there is a real danger of another slowdown,"

The S&P CNX Nifty is currently trading at 5,417.70, down by 29.80 points or 0.55%. The index has touched a high and low of 5,426.75 and 5,404.40. There were 12 stocks advancing against 38 declines on the index.

The top gainers of the Nifty were NTPC up by 0.96 %, BPCL up by 0.79%, HUL up by 0.66%,  Reliance Infra up by 0.53% and Sun pharmaceuticals was up by 0.44%.

On the other hand, Ambuja Cements down by 2.62%, Maruti Suzuki down by 2.07%, IDFC down by 1.84%, Grasim Industries down by 1.81%, Wipro down by 1.80% were the major losers on the index.

All the Asian counterparts were trading in the red; Shanghai Composite declined 0.97%, Hang Seng plunged by1.45%, Jakarta Composite lost 0.91%, KLSE Composite down by 0.21%, Nikkei 225 slid 1.46%, Straits Times descended 1.74%, Seoul Composite dropped 1.73% and Taiwan Weighted descended 1.80%.

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