Weekly Wrap : Sensex sheds nearly 3% as RBI hikes repo rate

Last Updated: Sat, Feb 01, 2014 07:52 hrs

A surprise move by the Reserve Bank of India to hike the repo rate by 25 basis points, the U.S. Federal Reserve's decision to reduce its asset purchases by $10 billion a month rendered the mood bearish on the Indian bourses last week.

While the Reserve Bank of India announced a 25-basis points hike in the repo rate on Tuesday (28 January 2014), while unveiling is monetary policy, the U.S. Federal Reserve came out with its decision to reduce the pace of its monthly asset purchases to $65 billion, from $75 billion and said it its likely to keep reducing its asset purchases in the coming months as well.

Recording losses on four of the five sessions, the key indices ended sharply lower last week. While the BSE benchmark Sensex closed lower by around 620 points or nearly 3% at 20,513.85, the Nifty index of the National Stock Exchange ended at 6089.50, recording a loss of 177.25 points or about 2.8%.

Despite some strong buying on Friday, midcap and smallcap stocks too mostly closed lower last week. While the BSE Midcap index declined by 2.28%, the Smallcap barometer ended 2.8% down.

It was a day out in the red for the Indian stock market on Monday, as investors indulged in heavy selling across the board right through the session, tracking weak global cues. Concerns about outlook for the global economy following a slowdown in Chinese manufacturing activity, more stimulus tapering by the U.S. Federal Reserve and reluctance of investors to indulge in any big buying ahead of the Reserve Bank of India's monetary policy, all contributed to the market's sharp decline.

The Sensex, which opened with a negative gap of around 235 points, ended the day with a loss of 426.11 points or 2.02%, while the Nifty closed lower by 130.90 points or 2.09%.

After opening on firm note and trading in positive territory for a couple of hours, the market faltered into the red on Tuesday, after the Reserve Bank of India came out with an unexpected repo rate hike. More than the rate hike, the central bank's view on uncomfortable inflation levels and its concerns about slowing growth weighed on the market.

Rate sensitive banking, automobile and realty stocks, which had surged higher early on, retreated post rate hike announcement, dragging the market down into the red. Though key stocks from these sectors bounced back swiftly, those from the banking space faltered again even as select automobile and realty stocks managed to find good support at higher levels. The Sensex ended the session with a loss of about 24 points and the Nifty ended down 9.60 points that day.

The Reserve Bank of India, which hiked the repo rate by 25 basis points to 8%, left the CRR unchanged at 4% of Net Demand and Time Liabilities. The Reverses Repo rate now stands adjusted at 7% and the marginal standing facility (MSF) is now pegged at 9%.

The central bank feels the consumer price inflation is still at uncomforatble levels and remains a major risk for the currency. The bank is of the view that third quarter growth is likely to lose momentum due to contracting industrial activity and weakening consumer demand. The central bank said it does not foresee further near-term tightening if consumer price inflation eases as projected.

Despite opening on a firm note on positive global cues, the Indian stock market ended on the negative side on Wednesday, retreating gradually from higher levels with the mood turning cautious following some heavy selling by foreign institutional investors in the past couple of sessions.

A surprise sharp rate hike by the Turkish central bank and the resultant rally in Asian markets lifted stock prices on the Indian bourses on Wednesday. A stronger rupee and encouraging results from telecom major Bharti Airtel too aided sentiment to a notable extent. But most of the early gainers switched track and slipped to lower levels as the session progressed. The Sensex closed lower by around 36 points and the Nifty ended down 6 points.

Following the U.S. Federal Reserve's decision to reduce its asset purchases to $65 billion a month, stocks drifted lower on Wall Street on Wednesday, triggering a sell-off in Asian markets on Thursday. The Indian market declined as well, extending losses to a fifth successive day, as investors pressed heavy selling at several counters.

The Sensex, which was down by over 300 points at one stage, recovered some lost ground on late buying but still ended the day lower by almost 150 points. The Nifty lost around 46 points.

The market ended on a positive note on Friday, snapping a five-session losing streak, but amid lackluster trades, movements were quite sluggish and gains were just modest as investors mostly treaded cautiously amid lingering worries about the near term outlook for the economy. The Sensex closed 15.60 points up, while the Nifty ended higher by 15.80 points.

Maruti Suzuki ended lower by 7.7% last week, with the company's decision to route the expansion project in Gujarat through a wholly owned subsidiary of Suzuki Motor Corp., Japan, triggering a sell-off at the counter on Tuesday.

The carmaker reported a 35.9% rise in net profit to Rs 681.10 crore for the quarter ended 31 December 2013, over the corresponding quarter last year. The company's fairly good results helped pull the stock from sharply lower levels later in the week.

Tata Motors lost 5.5%. Bajaj Auto ended lower by 1.6% and Hero Motocorp declined by 3%. Hero Motocorp reported a 7.53% rise in net profit for the quarter ended December 2013.

Among top bank stocks, State Bank of India closed nearly 6% down. The bank announced on Thursday that it raised over Rs 8000 crore by selling shares through the qualified institutional placement route.

ICICI Bank ended lower by around 6.5%. The private sector bank said that its net profit rose 12.53% to Rs 2532.21 crore on 15.4% growth in total income to Rs 14255.96 crore in the October - December 2013 quarter, as compared to the corresponding quarter last year. The bank's net interest income rose 22% to Rs 4255 crore in the third quarter of 2013-14, over the prior corresponding quarter. Net non-performing asset rose to 0.81% as on 31 December 2013 from 0.73% as on 30 September 2013.

HDFC Bank and Axis Bank, the other bank stocks in the Sensex, ended lower by over 6.6% and 7.2%, respectively.

Metal stocks were quite volatile with weak economic data from China weighing on the sector. Sesa Sterlite ended 7% down on weak results. Tata Steel, Hindalco and Coal India also declined.

Capital goods stock BHEL, oil stock GAIL India and telecom stock Bharti Airtel ended on the positive side. Hindustan Unilever saw some bright spells thanks to encouraging quarterly results. The FMCG major posted a net profit of Rs 1062.31 crore for the quarter ended December 31, 2013 as compared to Rs 871.36 crore for the quarter ended December 31, 2012.

Hindustan Petroleum Corporation saw some hectic buying during the week following an announcement from the company that its wholly owned subsidiary Prize Petroleum Company Limited has entered into a Sale Purchase agreement with M/s AE, Australia to acquire 11.25% interest in T/L1 license (includes Yolla producing field and BassGas infrastructure) and 9.75% interest in T/18P permit (includes Trefoil development field) in Australia for a total consideration of Australian Dollar 85 million.

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