Indian equities oscillate around the neutral line ahead of the F&O expiry

Indian benchmark equity indices continue to trade on a quiet note with a positive bias in Tuesday afternoon trades as cautiousness prevailed ahead of the October series futures and options contract settlement. The markets which had already factored in a 25 basis point rate hike by Indian reserve bank showed muted reaction to its thirteenth hike in key interest rates since March 2010. However, the RBI in an unexpected move announced to deregulate the savings bank interest rates with immediate effect which weighed on the rate sensitive banking counter and major lenders like HDFC bank, ICICI Bank and SBI got butchered in the range of 1% to 5.50%. The upside for local markets also was limited by selling seen in high beta Real Estate and PSU counters. Meanwhile, the European markets too have opened on a sedate note and are trading with moderate cuts amid discouraging reports of a demand for signoff rights from German politicians on details of the plan, ahead of the Wednesday summit. Also, displeasing remarks from Italy's leader on the country's austerity reform plan and lack of agreement on changes to its pension system overnight together undermined investors’ morale. Asian peers exhibited mixed trends and were unable to give any decisive cues to the local markets. Back home, huge buying interests in information technology shares have prevented the frontline indices from drifting into the red terrain. In addition, hefty short covering was evident in the badly beaten down Capital Goods stocks especially in heavyweight L&T which surged around two percent in the session and capped the downside risks. 

Moreover, the broader markets traded on a negative note with losses of around half a percent and were outclassed by their larger peers. The bourses consolidated on extremely high volumes of over Rs 1.2 lakh core ahead of October series F&O contract settlement. The market breadth on BSE was in favor of declines in the ratio of 1457:961 while 109 scrips remained unchanged.

The BSE Sensex is currently trading at 16,966.52 up by 27.24 points or 0.16% after trading as high as 17,124.68 and as low as 16,900.26. There were 20 stocks advancing against 10 declines on the index.

The broader indices were trading in the red terrain; the BSE Mid cap index shed 0.34% and Small cap added 0.54%.

On the BSE sectoral space, IT up 1.42%, TECk up 1.24%, Capital Goods up 0.94%, Oil & Gas up 0.62% and Healthcare up 0.42% were the major gainers while Consumer Durables down 2.95%, Bankex down 2.57%, Realty down 0.66% and PSU down 0.48 were the only losers in the space.

Sterlite Industries up 2.41%, Infosys up 2.15%, L&T up 1.99%, Sun Pharma up 1.80% and Hindalco up 1.38% were the major gainers on the Sensex, while HDFC Bank down 5.21%, SBI down 3.24%, BHEL down 1.05%, ICICI Bank down 1% and DLF down 0.53% were the major losers on the index.

Meanwhile, a day before Diwali, the Reserve Bank of India (RBI) has increased its short term lending and borrowing rates for the 13th time since March 2010. The RBI raised repo and reverse repo rates by 25 basis points to 8.5% and 7.5% respectively with immediate effect.

However, this hike of 25 basis points by the RBI was expected by the economist and bankers, on the back of the hovering high inflation, which is hovering close to two digit mark for quite some time. For the month of September it stood at 9.72% against 9.78% in August. On the other hand, India’s weekly food inflation also entered the two digit mark for the week ended October 8; it surged to 10.6% compare to 9.32% in the last week.

The apex bank has also decontrolled the saving banks deposit rates. Whilst announcing the second quarter monetary policy, Dr. D. Subbarao RBI governor, said 'Banks are now free to determine their savings bank deposit interest rate, subject to certain conditions.'

RBI expects headline inflation to moderate from first half of the fiscal year 2013. On October 24, the RBI said that the inflationary pressures are strong and persistent due to structural rigidities, continuing strong demand and the adaptive nature of inflation expectations. The path of inflation is sticky and remains broadly in line with earlier projections. With falling global commodity prices partly offset by rupee depreciation, the risks to inflation projections are now balanced.

The central bank has also reduced India’s economic growth forecast for the 2011-12. The RBI expects economy to grow by 7.6% in the current fiscal year from its earlier forecast of 8%. In the first quarter of the 2011-12, Indian economy grew by 7.7% compared to 8.8% in April-June 2010.

The S&P CNX Nifty is currently trading at 5,105.40, higher by 7.05 points or 0.14% after trading as high as 5,154.60 and as low as 5,085.55. There were 35 stocks advancing against 15 declines on the index.

The top gainers on the Nifty were Sterlite up 2.33%, ACC up 2.27%, Infosys up 2.23%, Cairn up 2.08% and L&T up 2.03%.

HDFC Bank down 5.40%, Axis Bank down 4.17%, SBI 3.23%, PNB down 3.02% and Seas Goa down 2.08% were the major losers on the index.

Asian markets traded on a mixed note, Shanghai Composite surged 1.84%, Hang Seng advanced 0.52%, Jakarta Composite gained 0.16% and Taiwan Weighted rose 0.28%.

On the flipside, KLSE Composite edged down 0.02%, Nikkei 225 plunged 0.92%, Straits Times descended 0.12% and Seoul Composite declined by 0.51%.

The European markets traded on a pessimistic note as France’s CAC 40 receded 0.41%, Germany's DAX lost 0.15% and Britain’s FTSE 100 shed 0.10%.