Market this week: Fed proposes, Raghuram disposes

Last Updated: Sat, Sep 21, 2013 11:04 hrs
BSE Sensex seen opening lower, GDP data eyed

It was a week of surprises; Ranghuram's sermon undid what Bernanke started --a stellar rally. US Federal Reserve decided not to taper its asset-purchase program for now. This sent world shares to multi-year highs. MSCI's index of world shares, which tracks stocks in 45 countries, got on track for its first three-week run of plus 2% gains since 2009.

For the week ended September 20, the 30-share Sensex gained 531 points or 2.7% to end at 20,264 and the 50-share Nifty gained 162 points or 2.8% to close at 6,012.

Indian Market began the week on a tepid note as investors remained on the sidelines, wary of FOMC and RBI decisions. But the action started on Wednesday as traders took positions ahead of FOMC announcement.

Market went on a binging spree on FII liquidity on Thursday as Fed's decision to delay its taper boosted the sentiment that cheap global liquidity will now towards the emerging markets such as India.

On Thursday, the 30-share BSE Sensex ended 684 points higher at 20,647 and the 50-share Nifty added 216 points at 6,116 levels. Sensex witnessed the biggest single day gain since May 2009 in absolute terms. The 50-unit CNX Nifty too hit 16-week high on the same day.

The US Federal Reserve late Wednesday decided to continue its $85 bn-a-month bond-buying program for at least another month. Fed said it needs to see more evidence of improvement in the US economy.

But the optimism was short-lived, dawning a hawkish cap, the new RBI governor Raghuram Rajan, who strategically deferred RBI's mid-quarter credit policy to 20th September, after FOMC decision, in his maiden monetary policy decision, shocked the markets - by raising interest rates for the first time in nearly two years, to ward off rising inflation. Sensex, fell 595.21 points during the day before recovering to close with a loss of 382.93 points, or 1.85 per cent, at 20,263.71. The National Stock Exchange's Nifty index closed at 6,012.1.

The central bank however reduced the minimum daily maintenance of the cash reserve ratio (CRR) from 99% of the requirement to 95% effective from the fortnight beginning September 21. Marginal Standing Facility (MSF) rate was cut by 75 basis points to 9.5%, which was on expected lines.

Market participants however dubbed Friday's rally as irrational, they believe that Rajan seems to have given banks some sort of a rate cut. The MSF rate was cut by 75 bps giving Rs.81,000 offtake to banks this coupled with a repo rate hike up 25 bps which is an (40000 offtake) suggests a net rate cut. On a blended level banks would gain a 35 bps rate cut on this. The CRR relaxation also adds to the benefit to banks.

A hike in repo rate was however perceived negatively, in the light of an overall slowdown in the economy. The sentiment was mirrored in Friday's crash.

For the week ended September 21, BSE Sensex zoomed by almost 3% led by banks, consumer durables and Auto shares.

Maruti Suzuki was the top Sensex gainer for the week, it surged 11% to end at Rs 1,466.05.

Tata Motors jumped 1.6% to Rs 338.70. Other top gainers were GAIL (India) (up 8.7%), Jindal Steel & Power (up 8.05%), Bharti Airtel (up 5.69%), Tata Power Company (up 4.98%) and NTPC (up 4.82%).

Shares of Bharti Airtel zoomed after the company's largest foreign invstor Singapore Telecommunications (SingTel) urged the company to lead the 'consolidation drive' in the domestic telecom market and said it will support such moves.

Tata Power which was among the top BSE gainers for the week got a sentiment boost after reports came out that Tata Group head Cyrus Mistry acquired 64,000 shares of 0.003% stake in the company . Tata Booss did not hold any shares of the company prior to the deal that happened through a secondary market transaction.

M&M rose 5.15% on expectations of increase in tractor sales due to good rains this year.

Among sectors, banks, capital goods, auto and metals remained the top gainers for the week. BSE Bankex surged almost 5% with biggest gains clocked by Yes Bank, Bank of India, ICICI Bank and Kotak Mahindra Bank.

With an eye on what's next for markets, Naveen Fernandes, Vice President- Fund Management, Centrum Broking says, "There do not seem to be positive triggers for the markets in the near term, though some MNC stocks could see action as parent firms find that the INR depreciation has made it attractive for them to increase their stake in the Indian subsidiaries."

"The markets could be volatile from mid October with a negative bias around the announcement of Q2 results. The corporate results could be weak reflecting the single digit growth in corporate tax collection numbers for the period July-Sept 2013."

Among other events that shaped the week that gone-by, Fitch Ratings on Thursday, cut its forecast on India's GDP growth this fiscal year to 4.8% from its forecast of 5.7% made in June.

But green shoots of recovery are in sight as some positive data points emerged during the week on the macro-economic front.

Foreign direct investment (FDI) inflows into the country rose 12.9% annually to $1.66 billion in July 2013, the government said in statement released late on Tuesday. The inflows were highest monthly inflow for three months.

India's forex reserves rose by $544 million to reach $275.3 billion according to date released by the Reserve Bank of India.

Foreign currency assets (FCR) which forms the substantial part of the reserves rose by $500 to reach $247.2 billion.

Country's reserve position at International Monetary Fund (IMF) increased by $14 million to $1.9 billion while special drawing rights from IMF increased by $30 million to $4.3 billion.

Indian rupee made a comeback this week after falling to its historically low levels in August. The partially convertible Indian rupee ended at 62.27-a-dollar, down 0.81% from the previous close of 61.77, on Friday, it touched an intra-day low of 62.6025 per dollar, after RBI's decision.

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