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Market Commentary - Mid Session
Market breadth turns negative after RBI maintains status quo
(05 Dec 2019, 12:28)

A bout of volatility was witnessed as key barometers pared losses after hitting fresh intraday low in early afternoon trade. Traders panicked after the Reserve bank of India (RBI) kept the repo rates unchanged after policy meeting today. The Nifty descended lower towards its crucial 12,000 mark. Banking stocks were most volatile post RBI announcement.

At 12:26 IST, the barometer index, the S&P BSE Sensex, was down 28.6 points or 0.07% at 40,821.69. The Nifty 50 index was down 18.6 points or 0.15% at 12,024.60.

The S&P BSE Mid-Cap index was down 0.22%. The S&P BSE Small-Cap index was up 0.01%.

The market breadth turned negative from positive. On the BSE, 1023 shares rose and 1131 shares fell. A total of 167 shares were unchanged. In Nifty 50 index, 15 stocks advanced while 35 stocks declined.

The yield on 10-year benchmark federal paper rose to 6.562% at 12:43 IST compared with 6.462% in the previous trading session.

RBI Policy Outcome:

Investors were hoping for a 25 basis points rate cut. However, RBI's Monetary Policy Committee (MPC) at its meeting today (5 December 2019) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.15%. Consequently, the reverse repo rate under the LAF remains unchanged at 4.90%, and the marginal standing facility (MSF) rate and the bank rate at 5.40%.

The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/-2%, while supporting growth.

All members of the MPC - Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Shri Bibhu Prasad Kanungo and Shri Shaktikanta Das - voted in favour of the decision.

The MPC recognised that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture.

Accordingly, the MPC decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.

Real GDP growth for 2019-20 is revised downwards from 6.1% in the October policy to 5% to 4.9-5.5% in H2 and 5.9-6.3% for H1:2020-21.

The CPI inflation projection is revised upwards to 5.1-4.7% for H2:2019-20 and 4-3.8% for H1:2020-21, with risks broadly balanced.

While improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections, a delay in revival of domestic demand, a further slowdown in global economic activity and geo-political tensions are downside risks, the MPC statement stated.

Buzzing Index:

Banks stocks declined following RBI's policy decision. The Nifty Bank index was down 0.51% at 31,814.90.

Among private sector banks, Yes Bank (down 1.9%), IDFC First Bank (down 1.64%), RBL Bank (down 1.42%), Federal Bank (down 1.31%), IndusInd Bank (down 1.06%), Axis Bank (down 0.55%), HDFC Bank (down 0.3%) and AU Small Finance Bank (down 0.27%) were top losers in private bank space.

Among PSU banks, Canara Bank (down 2.05%), Union Bank of India (down 1.84%), Punjab National Bank (down 1.57%), SBI (down 1.26%), Bank of India (down 1.18%), Oriental Bank of Commerce (down 1.04%) and Bank of Baroda (down 0.53%) were top laggards in PSU Bank segment.

Stocks in Spotlight:

Interglobe Aviation declined 2.74% to Rs 1,366.70 after the low-cost airliner lowered its capacity growth guidance for fiscal year 2020. IndiGo said it expects its capacity to grow by 22-23% for fiscal year 2020 as against earlier stated guidance of 25% announced during September quarter earnings. It expects capacity growth of 15-20% in Q4 March quarter. The company lowered its capacity growth guidance for the second time in last 45 days. During the second-quarter earnings, IndiGo had lowered its capacity growth guidance to 25% from 30% for 2019-20.

Bharti Airtel was down 1.76% at Rs 452.75 after the company said its board approved raising up to $3 billion through a mix of equity and debt. The company will raise $2 billion through one or more instruments such as a qualified institutional placement, compulsory convertible debentures or other convertible securities, American depositary receipts (ADR) and global depositary receipts (GDR), according to a regulatory filing. Bharti Airtel also plans to raise up to $1 billion by issuing foreign currency convertible bonds (FCCBs), and similar security in a foreign currency, or through redeemable non-convertible debentures, it said.

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