Resilient markets negotiate flat close shrugging off repo rate hike

Stock markets in India went through a turbulent day of trade on Tuesday as the frontline equity indices managed to end with marginal cut, shrugging off repo rate hike. Earlier, markets made a positive opening and traded in fine fettle in morning deals following firm Asian cues but took a turn for the worse in late morning trades. The frontline equity indices showed a sharp kneejerk reaction and the wave of selling pressure hit the shores of domestic markets after Reserve Bank of India (RBI), in its third Quarter Review of Monetary Policy Statement 2013-14, much against the street’s expectation went ahead and hiked key repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 8.0% from 7.75%. Sentiments also went awry on report that foreign institutional investors (FIIs) sold shares worth a net Rs 1334.21 crore on January 27, 2014.

However, markets managed to pare most of their losses, with market participants anticipating that there would be no hike in policy rate in near term after RBI’s policy stance indicated that further policy steps would be data dependent. Sharp appreciation in Indian rupee against dollar too aided the sentiments. Indian rupee strengthened by over 40 paise against dollar at the time of equity markets closing after the Reserve Bank of India (RBI) unexpectedly raised interest rates, with corporate demand providing further support.

Positive opening in European markets provided much needed support to the domestic markets with CAC, DAX and FTSE all trading higher after Germany’s import price index fell unexpectedly in the last quarter, while French consumer confidence rose slightly more than expected. Asian counterparts too ended mostly in the green, as investors opted to take positions in beaten down but fundamentally strong stocks after recent sharp losses.

Back home, sentiments got some support after the government allaying investors worry over declining value of the rupee and falling stock markets said that country’s economic fundamentals are ‘very strong’ and there is no cause for concern. Some support also came from Planning Commission Deputy Chairman Montek Singh Ahluwalia’s statement that India is committed to structural reforms to boost growth and any change in the government after the next elections is unlikely to have a major impact on the country’s economic reform policy framework.

On the flip side, the software and technology remained the top laggards in the sectoral space with a cut of over a percentage point on account of appreciation in rupee. Select shares of steel companies and iron ore miners remained lower after the government imposed a five percent export duty on iron pellets, a critical raw material for the steel industry. Sentiments also remained dampened after stocks of Maruti Suzuki declined by over 8%, after its board approved implementing the expansion of manufacturing facility in Gujarat through Suzuki subsidiary.

The NSE’s 50-share broadly followed index Nifty declined around ten to end below its psychological 6,150 support level, moreover Bombay Stock Exchange’s Sensitive Index -- Sensex shed over twenty points to end below its psychological 20,700 mark. Broader markets too struggled to get some traction and ended the session mixed. The market breadth remained evenly divided, as there were 1,299 shares on the gaining side against 1,243 shares on the losing side, while 147 shares remained unchanged.

Finally, the BSE Sensex plunged by 23.94 points or 0.12%, to settle at 20683.51, while the CNX Nifty lost 9.60 points or 0.16% to settle at 6,126.25.

The BSE Sensex touched a high and a low of 20795.35 and 20554.28, respectively. The BSE Mid cap index was down by 0.01%, while the Small cap index was up by 0.25%.

The top gainers on the Sensex were Tata Steel up 3.49%, SSLT up 2.46%, Tata Motors up 2.43%, Hindalco Inds up 2.16%, and Bajaj Auto up by 1.69%, on the flip side Maruti Suzuki down 8.12%, Axis Bank down 3.28%, Sun Pharma down 2.44%, Infosys down 1.49%, and Cipla down by 1.30% were the top losers on the index.

On the BSE Sectoral front Metal up by 1.72%, Realty up by 1.08%, FMCG up by 0.40%, Capital Goods up by 0.27% and Auto up by 0.16%, were the top gainers, while Teck down by 1.06%, IT down by 1.06%. Healthcare down by 0.79%, Bankex down by 0.30% and PSU down by 0.05% were the top losers on the sectoral front.

Meanwhile, in a move to overcome the shortage of iron ore pellets in the country, the government has imposed a five percent export duty on iron pellets, a critical raw material for the steel industry. Iron ore pellets made from iron ore fines were exempted from the duty as the exports were negligible in 2012-13. However, during April-November 2013, iron ore pellets’ exports increased sharply, causing the shortage of iron ore pellets for domestic requirements. Iron ore fines and lumps already attract an export duty of 30 per cent.

Export duty on pellets had been removed as the steel ministry asked the finance ministry to revoke duty on pellets as it goes against the principle of promoting value addition within the country. But recently Indian steel producers sought an export duty of 30% on overseas shipments of iron-ore pellets, on par with the duties on exports of iron-ore fines and lumps, citing that the current nil rate of export duty on iron-ore pellets had led to a sharp rise in moving the value added raw material overseas. Over the last few years, domestic iron ore production has came under pressure due to the prevailing regulatory concerns such as mining ban in Goa and Karnataka that has impacted the performance of country’s mining sector.

Tin related development, the Government has also increased the excise duty on pan masala and tobacco products packed in pouches with the aid of packaging machines under the compounded levy scheme. These products including gutka, chewing tobacco, unmanufactured tobacco and filter khaini and attract excise duty on the basis of the production capacity , which is determined by the speed of the machines used to pack pouches.

The CNX Nifty touched a high and low of 6,163.60 and 6,085.95 respectively.

The top gainers on the Nifty were Tata Steel up by 3.46%, Ranbaxy Laboratories up by 2.68%, SSLT up by 2.28%, Hindalco Industries up by 2.21%, and Jaiprakash Associates up by 2.12%. On the other hand, Maruti Suzuki down by 9.33%, Axis Bank down by 3.58%, Lupin down by 2.39%, Sun Pharmaceuticals Industries down by 2.34%, and Cipla down by 1.49% were the top losers.

The European markets were trading in green, France's CAC 40 was up by 0.77%, Germany's DAX was up by 0.74% and United Kingdom's FTSE 100 was up by 0.40%.

The Asian markets, barring Hang Seng and Nikkei 225 concluded Tuesday’s trade in green as investors opted to take positions in beaten down but fundamentally strong stocks after recent sharp losses. Taiwan market is closed on account of ‘No Trading’ day. The market will open tomorrow only for Clearing & Settlement and will remain close till February 4 on account of ‘Spring Festival’ holiday. Indonesia’s rupiah bonds, the developing world’s worst performers in the past three months, are extending losses as emerging-market selloff returns just as the government ramps up debt sales before elections. The Indonesian Chamber of Commerce and Industry, the country’s premier business lobby, lowered its forecast on the nation’s economic growth this year to reflect a global slowdown. The economy probably will expand at between 5.2% and 5.8% this year, according to the organization known as Kadin, and that is lower than the government’s growth target of 5.8%.

Hong Kong saw a 3.6% rise in the value of total exports of goods in 2013 from 2012 while that for the imports of goods gained 3.8%. The value of re-exports increased by 3.8% and the value of domestic exports fell by 7.6%. A visible trade gap of HK$501 billion ($64.6 billion), equivalent to 12.3% of the value of imports of goods, was recorded in 2013. Japan’s CSPI rose to a seasonally adjusted annual rate of 1.3%, from 1.2% in the preceding month whose figure was revised up from 1.0%. Taiwanese GDP rose to 2.92%, from 1.58% in the preceding month while Thailand’s Industrial Production rose to a seasonally adjusted -6.2%, from -10.6% in the preceding month.