Nifty sinks below 6,000 on RBI liquidity scorcher

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 iifl24th July, 2013 : Comments by Amar Ambani, Head of Research, India Infoline 

Nifty sinks below 6,000 on RBI liquidity scorcher

Yet another couple of measures by the Reserve Bank to prop the rupee in less than 10 days left the Indian equity market running for cover on Wednesday. The central bank on Tuesday after market hours announced additional liquidity tightening measures to contain excessive speculation and volatility in the foreign exchange market.

It reduced the liquidity adjustment facility for each bank from 1% of total deposits to 0.5% of its own net demand and time liabilities, thus limiting bank’s access to borrowed funds. The limit will come into force with immediate effect and continue till further notice.

In another measure , the apex bank has asked banks to maintain higher average Cash Reserve Ratio (CRR) of 99% of the requirement on daily basis as against earlier 70%. This would come into effect after a fortnight.

The rupee recovered sharply following RBI’s move and is trading almost near its day’s high of 59.06, after touching a low of 59.76  per dollar.

Banking stocks bore the brunt of RBI’s measures. Index heavyweight Axis Bank tumbled 6.2%, Punjab National Bank slipped 5%, ICICI Bank dipped 4.6%, and SBI and HDFC Bank fell 3.2% each.

Barring IT, all other sectoral indices ended in the red. The banking index was the top loser, down 4.6%, followed by capital goods, down 3%. Metals slipped 2% while power and realty indices declined 1.6% and 1.2%, respectively.

The Sensex closed at 20,090, down 211 points, while the Nifty shut shop at 5,990, down 87 points over Tuesday’s close. The BSE Smallcap and Midcap indices ended down by 1.4% and 1.8%, respectively.

The advance-decline ratio favoured the bears. On the Bombay Stock Exchange, 1,524 stocks declined against 775 advances, while 121 stocks remained unchanged.

It was heartening to see volatility ebbing. The India VIX ended up 1% at 16.91 after hit a day’s high of 18.05 and low of 16.60. In the last week of June it was around 21 levels.

On the earnings front, ITC is among the companies which will declare its Q1 FY14 results on Thursday. Amar Ambani, Head of Research at IIFL, sees ITC posting a net sales of Rs. 80.06bn, a gain of 20.4% year-on-year. On the operating profit margin front, he sees a 19 bps YoY fall at 34.5%. Ambani forecasts a 22.3% YoY drop in net profit at Rs. 19.6bn.

A day ahead of its results, the stock closed flat at Rs. 375.8. The counter saw huge volumes of 71.24 lakh as against its five-day average of 67.82 lakh.

Stocks in News:

IDFC, IndusInd Bank, JP Associates, Axis Bank, Kotak Mahindra Bank, Bank of Baroda, Punjab National Bank and ICICI Bank lost out in trade while Bharti, TCS, Sun Pharmaceutical, Cipla, Bajaj Auto, Asian Paints and Grasim led the gainers pack.