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Market Commentary - End Session
Market corrects after RBI's surprise rate pause
(05 Dec 2019, 17:13)

The market ended lower after a volatile session on Thursday. Shares swayed between gains and losses after RBI's surprise move of keeping the rate unchanged today. Banking stocks came under pressure. Volatility was also triggered by weekly expiry of index options.

The barometer index, the BSE Sensex, fell 70.70 points or 0.17% to 40,779.59. The Nifty 50 index fell 24.80 points or 0.21% to 12,018.40.

In the broader market, the S&P BSE Mid-Cap index slipped 0.32% while the S&P BSE Small-Cap index advanced 0.02%.

The market breadth was negative. On the BSE, 1129 shares rose and 1351 shares fell. A total of 193 shares were unchanged.

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:

The Nifty Bank index slipped 0.83% to 31,712.95, reversing Wednesday's 1.16% rise.

Among the private sector banks, IndusInd Bank (down 2.21%), RBL Bank (down 1.95%), Yes Bank (down 1.51%), Axis Bank (down 1.39%), Federal Bank (down 1.25%), HDFC Bank (down 0.5%), Kotak Mahindra Bank (down 0.46%) and ICICI Bank (down 0.27%) declined.

Among the public sector banks, Canara Bank (down 2.88%), Union Bank of India (down 2.68%), Corporation Bank (down 2.32%), UCO Bank (down 2.3%), Punjab National Bank (down 2.27%), Bank of Baroda (down 1.45%) and Bank of India (down 1.11%) declined.

State Bank of India fell 1.65% to Rs 336.25. SBI board on Wednesday approved the lender's proposal to sell 8.25% stake in UTI AMC.

Stocks in Spotlight:

Vedanta fell 1.15%. The board of the company in a meeting held on Wednesday approved raising up to Rs 3,000 crore via non-convertible debentures (including the option to retain oversubscription of up to Rs 1,500 crores) in two series.

Housing and Urban Development Corporation (HUDCO) slumped 5.82% to Rs 38.05. HUDCO said two borrowing agencies of the company have defaulted in repayment of their dues with a defaulted amount of Rs 87.46 crore against the principal outstanding of Rs 869.41 crore as on date and have been classified as NPAs with an impact of 1.14% on gross NPA.

Wipro rose 0.62% to Rs 243.70. The IT major announced the launch of its NextGen Cyber Defence Centre (CDC) in Melbourne, Australia. Wipro also plans to launch similar CDCs in other cities in Australia and offer cyber resilience and provide digital protection to large government organizations.

Interglobe Aviation slumped 6.05% to Rs 1320.20 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.

Reliance Industries slipped 0.14% to Rs 1550.30. RIL said, its subsidiary Reliance Jio Infocomm (Jio) launched the new all-in-one plans. These plans will provide up to 300% more benefits to the Jio consumers, upholding the Jio promise of providing the best-quality service at the lowest price globally.

Bharti Airtel fell 2.96% at Rs 447.20. The company said its board approved raising up to $3 billion through a mix of equity and debt.

Larsen & Toubro Infotech (LTI) fell 1.96% to Rs 1637.80 after the US Department of Homeland Security visited the company's Edison office in New Jersey on 4 December 2019. The company said it was fully cooperating with the authorities and had no further information to provide. The announcement was made during trading hours today, 5 December 2019.

DCM Shriram rose 3.17% to Rs 354.55 after the company said it commissioned 200 kilo litres per day (KLD) distillery at Ajbapur in Uttar Pradesh on 3 December 2019. The total capacity of the company's distillery after the said commissioning now stands at 350 KLD. The announcement was made during market hours today.

Foreign Markets:

Overseas, most shares in Europe and Asia edged higher on Thursday on signs the United States and China were on track for a preliminary trade deal.

The US stock market finished higher on Wednesday, 04 December 2019, snapping three days of losing streak, as investors chased for bargain hunting on renewed optimism about a potential trade deal after reports indicated the U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase one trade deal. However, market gains capped after disappointing economic data, including a report from payroll processor ADP showing much weaker than expected private sector job growth in the month of November.

Beyond China, President Donald Trump has been pushing ahead on trade disputes all around the world recently. On Tuesday, he proposed tariffs on $2.4 billion in French products in retaliation for a tax on global tech giants including Google, Amazon and Facebook. That follows a threat Monday to raise tariffs on steel and aluminum from Argentina and Brazil.

In economics news, US non-manufacturing index dipped to 53.9 in November after climbing to 54.7 in October, a report released by the Institute for Supply Management on Wednesday showed. A reading above 50 indicates service sector growth. Meanwhile, the new orders index rose to 57.1 in November from 55.6 in October and the employment index climbed to 55.5 from 53.7.

US private sector employment increased by 67,000 jobs in November after climbing by a revised 121,000 jobs in October, according to a report released by payroll processor ADP on Wednesday.

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